Attached files
file | filename |
---|---|
EX-32.2 - ELECTRO RENT CORP | v206132_ex32-2.htm |
EX-31.2 - ELECTRO RENT CORP | v206132_ex31-2.htm |
EX-31.1 - ELECTRO RENT CORP | v206132_ex31-1.htm |
EX-32.1 - ELECTRO RENT CORP | v206132_ex32-1.htm |
UNITED
STATES
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 November
30, 2010 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
787-2100
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(do
not check if smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No
x
The
number of shares outstanding of the registrant's common stock as of December 17,
2010 was 23,977,155.
ELECTRO
RENT CORPORATION
FORM
10-Q
November
30, 2010
TABLE
OF CONTENTS
|
Page
|
||
Part
I: FINANCIAL INFORMATION
|
3
|
||
Item 1. | Financial Statements |
3
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months
Ended
|
|||
November
30, 2010 and 2009 (Unaudited)
|
3
|
||
Condensed
Consolidated Balance Sheets at November 30, 2010 and May 31, 2010
(Unaudited)
|
4
|
||
Condensed
Consolidated Statements of Cash Flows for the Six Months
Ended
|
|||
November
30, 2010 and 2009 (Unaudited)
|
5
|
||
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
6
|
||
Item
2.
|
Management's
Discussion and Analysis of Financial
|
||
Condition
and Results of Operations
|
17
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
Item
4.
|
Controls
and Procedures
|
23
|
|
Part
II: OTHER INFORMATION
|
24
|
||
Item
1.
|
Legal
Proceedings
|
24
|
|
Item
1A.
|
Risk
Factors
|
24
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
24
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
24
|
|
Item
4.
|
Reserved
|
24
|
|
Item
5.
|
Other
Information
|
24
|
|
Item
6.
|
Exhibits
|
24
|
|
SIGNATURES
|
25
|
Page
2
Part I. FINANCIAL
INFORMATION
Item
1. Financial Statements
ELECTRO
RENT CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
November 30,
|
November 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues:
|
||||||||||||||||
Rentals
and leases
|
$ | 29,673 | $ | 23,329 | $ | 58,460 | $ | 45,076 | ||||||||
Sales
of equipment and other revenues
|
23,604 | 13,248 | 45,642 | 23,702 | ||||||||||||
Total
revenues
|
53,277 | 36,577 | 104,102 | 68,778 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Depreciation
of rental and lease equipment
|
11,919 | 10,473 | 23,575 | 21,268 | ||||||||||||
Costs
of revenues other than depreciation of rental and lease
equipment
|
18,087 | 9,853 | 35,309 | 17,620 | ||||||||||||
Selling,
general and administrative expenses
|
13,714 | 10,357 | 27,282 | 20,665 | ||||||||||||
Gain
on bargain purchase, net of taxes
|
(49 | ) | - | (202 | ) | - | ||||||||||
Total
operating expenses
|
43,671 | 30,683 | 85,964 | 59,553 | ||||||||||||
Operating
profit
|
9,606 | 5,894 | 18,138 | 9,225 | ||||||||||||
Interest
income, net
|
101 | 1,048 | 219 | 1,356 | ||||||||||||
Income
before income taxes
|
9,707 | 6,942 | 18,357 | 10,581 | ||||||||||||
Income
tax provision
|
2,588 | 2,931 | 6,017 | 4,495 | ||||||||||||
Net
income
|
$ | 7,119 | $ | 4,011 | $ | 12,340 | $ | 6,086 | ||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | 0.30 | $ | 0.17 | $ | 0.51 | $ | 0.25 | ||||||||
Diluted
|
$ | 0.30 | $ | 0.17 | $ | 0.51 | $ | 0.25 | ||||||||
Shares
used in per share calculation:
|
||||||||||||||||
Basic
|
23,976 | 23,918 | 23,970 | 23,925 | ||||||||||||
Diluted
|
24,075 | 23,959 | 24,049 | 23,968 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
Page
3
ELECTRO
RENT CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share numbers)
November 30,
|
May 31,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 31,067 | $ | 32,906 | ||||
Investments,
trading, at fair value (cost of $14,275)
|
- | 13,323 | ||||||
Put
option
|
- | 952 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $473 and
$536
|
28,470 | 25,670 | ||||||
Rental
and lease equipment, net of accumulated depreciation of $186,210 and
$177,380
|
190,467 | 173,647 | ||||||
Other
property, net of accumulated depreciation and amortization of $16,464 and
$16,055
|
13,628 | 13,585 | ||||||
Goodwill
|
3,109 | 3,109 | ||||||
Intangibles,
net of amortization of $2,126 and $2,017
|
1,289 | 1,398 | ||||||
Other
|
14,710 | 11,478 | ||||||
$ | 282,740 | $ | 276,068 | |||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Liabilities:
|
||||||||
Accounts
payable
|
$ | 6,949 | $ | 8,294 | ||||
Accrued
expenses
|
9,461 | 14,240 | ||||||
Deferred
revenue
|
6,082 | 6,022 | ||||||
Deferred
tax liability
|
24,545 | 17,550 | ||||||
Total
liabilities
|
47,037 | 46,106 | ||||||
Commitments
and contingencies (Note 12)
|
||||||||
Shareholders'
equity:
|
||||||||
Preferred
stock, $1 par - shares authorized 1,000,000, none issued or
outstanding
|
||||||||
Common
stock, no par - shares authorized 40,000,000;
|
||||||||
issued
and outstanding November 30, 2010 - 23,977,155;
|
||||||||
May
31, 2010 - 23,960,694
|
34,210 | 33,555 | ||||||
Retained
earnings
|
201,493 | 196,407 | ||||||
Total
shareholders' equity
|
235,703 | 229,962 | ||||||
$ | 282,740 | $ | 276,068 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
Page
4
ELECTRO
RENT CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
|
||||||||
November 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 12,340 | $ | 6,086 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
24,176 | 21,844 | ||||||
Put
option loss
|
952 | 113 | ||||||
Unrealized
holding gain for trading securities
|
- | (113 | ) | |||||
Realized
gain on redemption of trading securities
|
(952 | ) | - | |||||
Realized
gain on redemption of investments, available-for-sale
|
- | (841 | ) | |||||
Remeasurement
(gain) loss on foreign currency
|
(3 | ) | 65 | |||||
Provision
for losses on accounts receivable
|
169 | 272 | ||||||
Gain
on sale of rental and lease equipment
|
(5,064 | ) | (6,068 | ) | ||||
Gain
on bargain purchase, net of taxes
|
(202 | ) | - | |||||
Stock
compensation expense
|
436 | 271 | ||||||
Excess
tax benefit for share based compensation
|
(25 | ) | - | |||||
Deferred
income taxes
|
6,995 | 537 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(2,789 | ) | (3,710 | ) | ||||
Other
assets
|
(3,225 | ) | (4,378 | ) | ||||
Accounts
payable
|
20 | (551 | ) | |||||
Accrued
expenses
|
(4,809 | ) | 1,928 | |||||
Deferred
revenue
|
45 | 255 | ||||||
Net
cash provided by operating activities
|
28,064 | 15,710 | ||||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sale of rental and lease equipment
|
12,993 | 21,530 | ||||||
Proceeds
from acquisition purchase price adjustment
|
202 | - | ||||||
Payments
for purchase of rental and lease equipment
|
(49,701 | ) | (22,485 | ) | ||||
Redemptions
of investments, available-for-sale
|
- | 29,462 | ||||||
Redemptions
of investments, trading
|
14,275 | - | ||||||
Payments
for purchase of other property
|
(535 | ) | (62 | ) | ||||
Net
cash (used in) provided by investing activities
|
(22,766 | ) | 28,445 | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of common stock
|
197 | 106 | ||||||
Excess
tax benefit for stock options exercised
|
25 | - | ||||||
Payments
for repurchase of common stock
|
- | (395 | ) | |||||
Payment
of dividends
|
(7,237 | ) | (7,180 | ) | ||||
Net
cash used in financing activities
|
(7,015 | ) | (7,469 | ) | ||||
Net
(decrease) increase in cash and cash equivalents
|
(1,717 | ) | 36,686 | |||||
Effect
of exchange rate changes on cash
|
(122 | ) | (102 | ) | ||||
Cash
and cash equivalents at beginning of period
|
32,906 | 22,215 | ||||||
Cash
and cash equivalents at end of period
|
$ | 31,067 | $ | 58,799 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
Page
5
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Note
1: Basis of Presentation
The
unaudited condensed consolidated financial statements included herein have been
prepared by Electro Rent Corporation, pursuant to the rules and regulations of
the United States 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.,
Electro Rent, LLC, ER International, Inc., Electro Rent Europe NV, Electro Rent
Asia, Inc., Electro Rent (Beijing) Rental Co., Ltd., and Electro Rent (Tianjin)
Rental Co., Ltd. (collectively "we", "us", or "our") 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 (“GAAP”) have been condensed or omitted pursuant to
such SEC rules and regulations. These condensed consolidated
financial statements reflect all adjustments and disclosures that are, in our
opinion, 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 filed with the SEC on August 12, 2010.
The
preparation of financial statements in conformity with GAAP requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as well as the disclosures of contingent assets and liabilities as
of the date of these 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.
Effective
September 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (the “ASC”) became the single source of authoritative
GAAP in the United States of America. The ASC reorganized the
previous GAAP pronouncements into accounting topics, which are displayed using a
single numerical structure. Certain SEC guidance that is included in
SEC guidelines is also included in the ASC and follows a similar topical
structure in separate SEC sections. Any technical references
contained in the accompanying interim financial statements have been updated to
correspond to the new ASC references.
Foreign
Currency
The
assets and liabilities of our foreign subsidiaries are remeasured from their
functional currency to U.S. dollars at current or historic exchange rates, as
appropriate. The U.S. dollar has been determined to be our functional
currency. Revenues and expenses are remeasured from any foreign
currencies to U.S. dollars using historic rates or an average monthly rate, as
appropriate. Remeasurement gains and losses are included in selling,
general and administrative expenses or income taxes, as
appropriate. The assets, liabilities, revenues and expenses of our
foreign subsidiaries are individually less than 10% of our respective
consolidated amounts. The euro, Canadian dollar and Chinese yuan are
our primary foreign currencies.
On
occasion, we have entered into forward contracts to hedge against unfavorable
fluctuations in our monetary assets and liabilities, primarily in our European
and Canadian operations. These contracts are designed to minimize the
effect of fluctuations in foreign currencies. Such derivative
instruments are not designated as hedging instruments and, therefore, are
recorded at fair value as a current asset or liability, and any changes in fair
value are recorded in our condensed consolidated statements of
operations.
The fair
value of our foreign exchange forward contracts in the consolidated balance
sheets is shown in the table below:
Derivatives Not Designated as Hedging
Instruments
|
Consolidated Balance Sheet
Location
|
November 30,
2010
|
May 31,
2010
|
|||||||
Foreign
exchange forward contracts
|
Other
|
$ | 188 | $ | 176 |
Page
6
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
The table
below provides data about the amount of losses recognized in income for
derivative instruments not designated as hedging instruments:
Derivatives Not Designated as
Hedging Instruments
|
Location of Loss Recognized in
Income on Derivatives
|
Three Months
Ended
November 30,
2010
|
Three Months
Ended
November 30,
2009
|
|||||||
Foreign
exchange forward contracts
|
Selling,
general and administrative expenses
|
$ | 32 | $ | 78 |
Derivatives Not Designated as
Hedging Instruments
|
Location of Loss Recognized in
Income on Derivatives
|
Six Months
Ended
November 30,
2010
|
Six Months
Ended
November 30,
2009
|
|||||||
Foreign
exchange forward contracts
|
Selling,
general and administrative expenses
|
$ | 170 | $ | 165 |
Recent Accounting
Pronouncements
In
October 2009, the FASB amended revenue recognition guidance for
arrangements with multiple deliverables. The guidance eliminates the
residual method of revenue recognition and allows the use of management’s best
estimate of the selling price for individual elements of an arrangement when
vendor specific objective evidence or third-party evidence is
unavailable. This guidance will be effective for fiscal years
beginning on or after June 15, 2010. We will be required to
adopt this guidance beginning with our first quarter of fiscal
2012. We do not anticipate that the adoption of this guidance will
have a material impact on our financial condition, results of operations or cash
flows.
In July
2010, the FASB issued an update regarding disclosures about the credit quality
of financing receivables and the allowance for credit losses. This
update amends previous guidance and the main objective is to provide greater
transparency about an entity’s allowance for credit losses and the credit
quality of its financing receivables. Disclosures required under this
update will discuss the nature of the credit risk inherent in the entity’s
portfolio of financing receivables, how that risk is analyzed and assessed in
arriving at the allowance for credit losses and the changes and reasons for
those changes in the allowance for credit losses. This amendment is
effective for public entities for interim and annual reporting periods ending on
or after December 15, 2010. The disclosures about activity that
occurs during a reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010. We will be required
to adopt this guidance beginning with our fourth quarter of fiscal 2011.
We do not anticipate that the adoption of this guidance will have a material
impact on our financial condition, results of operations or cash
flows.
Note
2: Cash and Cash Equivalents and Investments
We
consider highly liquid investments with maturities of three months or less at
the date of purchase to be cash equivalents. Cash equivalents
consisted primarily of AAA-rated money market funds in all periods
presented. Our trading investments at May 31, 2010 consisted of
auction rate securities (“ARS”) and were carried at fair value.
At May
31, 2010 we held $14.3 million, at cost, of ARS. During the six
months ended November 30, 2010, we sold all of our remaining ARS to UBS AG
(“UBS”) at par plus accrued interest, for $14.3 million in cash when we
exercised our put right on the ARS (the “Put Option”) under a November 2008
settlement agreement with UBS. Our ARS were carried as trading
securities based on our intent to exercise our Put Option. In
accordance with accounting guidance, which permits an entity to elect the fair
value option for financial assets and liabilities, we elected to measure the Put
Option at fair value. As discussed in Note 3, the fair values of the
trading securities and the Put Option were determined by option pricing models,
with the result that the changes in values of the trading securities and the Put
Option substantially offset each other.
Page
7
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Note
3: Fair Value Measurements
We
measure certain financial assets and liabilities at fair value on a recurring
basis, including cash equivalents, trading securities, the Put Option,
supplemental executive retirement plan assets and liabilities, and foreign
currency derivatives. The fair value of these financial assets and
liabilities was determined based on three levels of inputs, of which the first
two are considered observable and the last unobservable, that may be used to
measure fair value, as follows:
Level 1 –
Observable inputs, such as quoted prices in active markets for identical assets
or liabilities;
Level 2 –
Inputs, other than the quoted prices in active markets, that are observable
either directly or through
corroboration
with observable market data; and
Level 3 –
Unobservable inputs, for which there is little or no market data for the assets
or liabilities, such as internally-developed valuation models.
Assets
and liabilities measured at fair value on a recurring basis are as
follows:
At November 30, 2010
|
||||||||||||||||
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Balance
|
|||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$ | 20,516 | $ | - | $ | - | $ | 20,516 | ||||||||
Supplemental
executive retirement plan
|
2,383 | - | - | 2,383 | ||||||||||||
Foreign
exchange forward contracts
|
- | 188 | - | 188 | ||||||||||||
Total
assets measured at fair value
|
$ | 22,899 | $ | 188 | $ | - | $ | 23,087 | ||||||||
Liabilities
|
||||||||||||||||
Supplemental
executive retirement plan
|
$ | 2,383 | $ | - | $ | - | $ | 2,383 | ||||||||
Total
liabilities measured at fair value
|
$ | 2,383 | $ | - | $ | - | $ | 2,383 |
At May 31, 2010
|
||||||||||||||||
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Balance
|
|||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$ | 27,802 | $ | - | $ | - | $ | 27,802 | ||||||||
Auction
rate securities
|
- | - | 13,323 | 13,323 | ||||||||||||
Put
option
|
- | - | 952 | 952 | ||||||||||||
Supplemental
executive retirement plan
|
2,081 | - | - | 2,081 | ||||||||||||
Foreign
exchange forward contracts
|
- | 176 | - | 176 | ||||||||||||
Total
assets measured at fair value
|
$ | 29,883 | $ | 176 | $ | 14,275 | $ | 44,334 | ||||||||
Liabilities
|
||||||||||||||||
Supplemental
executive retirement plan
|
$ | 2,081 | $ | - | $ | - | $ | 2,081 | ||||||||
Total
liabilities measured at fair value
|
$ | 2,081 | $ | - | $ | - | $ | 2,081 |
Page
8
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
The fair
value measurements for our money market funds and supplemental executive
retirement plan asset and liability were derived from quoted market prices in
active markets and are included in Level 1 inputs. Foreign currency
forward contracts were valued based on observable market spot and forward rates
as of our reporting date and are included in Level 2 inputs. We
valued our ARS from quotes received from UBS that were derived from UBS’s
internally developed model. In determining a discount factor for each
ARS, the model weighted various factors, including assessments of credit
quality, duration, insurance wraps, portfolio composition, discount rates,
overall capital market liquidity and comparable securities, if
any. The Put Option was a free standing asset separate from the ARS,
and represented our contractual right to require UBS to purchase our ARS at par
value. In order to value the Put Option, we considered the intrinsic
value, time value of money and our assessment of the credit worthiness of
UBS. Our ARS and Put Option are included in Level 3
inputs.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis, excluding accrued interest components, using
significant unobservable inputs (Level 3):
Three Months Ended November
30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Put Option
|
Auction Rate
Securities
|
Put Option
|
Auction Rate
Securities
|
|||||||||||||
Fair
value at beginning of period
|
$ | - | $ | - | $ | 1,421 | $ | 19,679 | ||||||||
Settlements
(at par)
|
- | - | - | (225 | ) | |||||||||||
Unrealized
gains (losses) included in
interest
income, net
|
- | - | 89 | (89 | ) | |||||||||||
Fair
value at end of period
|
$ | - | $ | - | $ | 1,510 | $ | 19,365 |
Six Months Ended November
30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Put Option
|
Auction Rate
Securities
|
Put Option
|
Auction Rate
Securities
|
|||||||||||||
Fair
value at beginning of period
|
$ | 952 | $ | 13,323 | $ | 1,623 | $ | 19,977 | ||||||||
Settlements
(at par)
|
- | (14,275 | ) | - | (725 | ) | ||||||||||
Unrealized
(losses) gains included in
interest
income, net
|
- | - | (113 | ) | 113 | |||||||||||
Realized
(losses) gains included in
interest
income, net
|
(952 | ) | 952 | - | - | |||||||||||
Fair
value at end of period
|
$ | - | $ | - | $ | 1,510 | $ | 19,365 |
For the
six months ending November 30, 2009, we included in earnings unrealized gains of
$51 attributable to the remaining ARS we held on that date and unrealized losses
of $51 attributable to the Put Option. During the six months ended
November 30, 2010, we sold all of our remaining ARS to UBS pursuant to the Put
Option at par plus accrued interest and included in earnings a realized gain of
$952 attributable to the sale and a realized loss of $952 attributable to the
Put Option.
Note
4: Acquisition
On March
31, 2010, pursuant to an Asset Purchase Agreement (“APA”), we completed the
purchase of certain assets and the assumption of certain liabilities of Telogy,
LLC (“Telogy”), for cash consideration of $24,653. We acquired Telogy
in order to facilitate growth in our test and measurement (“T&M”)
business. Telogy, headquartered in Union City, California, was a
leading provider of electronic T&M equipment. Telogy had
previously filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware, and we were the winning bidder in a Bankruptcy Court auction of
Telogy’s assets. The purchase price, which was subject to post
closing adjustments, was allocated to the assets acquired and liabilities
assumed based upon our estimate of their respective fair
values. Because the estimated fair value of the net assets acquired
exceeded the acquisition cost, we recorded a bargain purchase gain with respect
to this transaction. The bargain purchase reflects the recurring
losses incurred by Telogy and liquidity constraints resulting from the difficult
global economy and the recent bankruptcy filing.
Page
9
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
The
following table provides the estimated fair values of the assets acquired and
liabilities assumed as of the date of acquisition.
Total
cash consideration
|
$ | 24,653 | ||
Preliminary
purchase price allocation:
|
||||
Accounts
receivable
|
2,723 | |||
Rental
and lease equipment
|
22,922 | |||
Customer
relationships acquired
|
940 | |||
Other
|
34 | |||
Accrued
expenses
|
(189 | ) | ||
Deferred
tax liability
|
(481 | ) | ||
Deferred
revenue
|
(617 | ) | ||
Net
assets acquired
|
25,332 | |||
Bargain
purchase gain, net of estimated taxes of $481
|
$ | (679 | ) |
During
the three and six months ended November 30, 2010, the purchase price was reduced
by $0 and $260, respectively, representing the final determination of assets
acquired and other components of the purchase price in accordance with specific
provisions of the APA. In addition, the bargain purchase gain was
increased by $82 ($49 net of tax), for the three and six months ended November
30, 2010, respectively, resulting from a change in the fair value of certain
assets and liabilities acquired from Telogy. Therefore, the total
affect of these factors was an increase in our bargain purchase gain of $49 and
$202, net of estimated taxes of $33 and $140, during the three and six months
ended November 30, 2010, respectively.
The
bargain purchase gain is classified separately within operating
expenses.
The fair
value of assets acquired included gross accounts receivable of $3,153, of which
an estimated $430 is not expected to be collected, resulting in a fair value of
$2,723. Intangible assets consisted of customer relationships and
have a useful life of 8 years.
Acquisition-related
transaction costs of $180 were accounted for as expenses in the periods in which
the costs were incurred and are included in our selling, general and
administrative expenses for the 2010 fiscal year. There were no
acquisition-related transaction costs for the six months ended November 30,
2010.
The
acquisition of Telogy was an asset purchase, and Telogy’s operations were
integrated with ours immediately after the acquisition date.
The
following unaudited pro forma results of operations for the three and six months
ended November 30, 2009 assume the acquisition of Telogy occurred as of the
beginning of fiscal 2010. The pro forma results have been prepared
for comparative purposes only and do not purport to indicate the results of
operations that would actually have occurred had the acquisition occurred on the
dates indicated, nor are these results necessarily indicative of future
consolidated results of operations. We have included the operating
results of Telogy in our consolidated
financial statements since the March 31, 2010 acquisition date.
Three Months Ended
November 30, 2009
|
Six Months Ended
November 30, 2009
|
|||||||
Revenues
|
$ | 41,292 | $ | 78,536 | ||||
Net
income
|
$ | 3,294 | $ | 4,236 | ||||
Earnings
per share:
|
||||||||
Basic
|
$ | 0.14 | $ | 0.18 | ||||
Diluted
|
$ | 0.14 | $ | 0.18 |
Page
10
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Note
5: Equity Incentive Plan
Our 2005
Equity Incentive Plan (the “Equity Incentive Plan”) authorizes our Board of
Directors to grant incentive and non-statutory stock option grants, stock
appreciation rights, restricted stock awards, restricted stock units,
performance unit awards and performance share awards covering a maximum of 1,000
shares of our common stock. The Equity Incentive Plan replaced our
prior stock option plans, under which there are no outstanding
options. Pursuant to the Equity Incentive Plan, we have granted
incentive and non-statutory options to directors, officers and key employees at
prices not less than 100% of the fair market value on the day of
grant. In addition, we have granted restricted stock and restricted
stock units to directors, officers and key employees. The Equity
Incentive Plan provides for a variety of vesting dates with the majority of the
outstanding grants vesting at a rate of one-third per year over a period of
three years from the date of grant. All outstanding options expire in
October 2011.
Stock
Options
The
following table summarizes certain information relative to options for common
stock:
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term (in
years)
|
||||||||||
Outstanding
at May 31, 2010
|
57 | $ | 15.46 | |||||||||
Granted
|
- | - | ||||||||||
Exercised
|
(17 | ) | 11.92 | |||||||||
Forfeited/canceled
|
(4 | ) | 10.20 | |||||||||
Outstanding
at November 30, 2010
|
36 | $ | 17.69 | 0.87 | ||||||||
Vested
and expected to vest at November 30, 2010
|
36 | $ | 17.69 | 0.87 | ||||||||
Vested
and exercisable at November 30, 2010
|
36 | $ | 17.69 | 0.87 |
There
were no stock options granted or shares vested during the three or six months
ended November 30, 2010 and 2009. The aggregate intrinsic value of
options exercised is calculated as the difference between the exercise price of
the underlying awards and the closing price of our common stock on the Nasdaq
Stock Market on the date of measurement. The aggregate intrinsic
value of options exercised during the three and six months ended November 30,
2010 was $7 and $13, respectively, and during the three and six months ended
November 30, 2009 was $0 and $3, respectively. Shares of newly issued
common stock are issued upon any exercise of stock options.
Restricted
Stock Units
Restricted
stock units represent the right to receive one share of our common stock,
provided that the vesting conditions are satisfied. The following
table represents restricted stock unit activity for the six months ended
November 30, 2010:
Restricted
Stock Units
|
Weighted –
Average
Grant
Date
Fair Value
|
|||||||
Nonvested
at May 31, 2010
|
150 | $ | 10.14 | |||||
Granted
|
106 | 12.54 | ||||||
Vested
|
(48 | ) | 9.94 | |||||
Forfeited/canceled
|
(1 | ) | 12.30 | |||||
Nonvested
at November 30, 2010
|
207 | $ | 11.41 |
Page
11
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
We
granted 10 and 106 restricted stock units during the three and six months ended
November 30, 2010, respectively, and 13 and 158 during the three and six months
ended November 30, 2009, respectively. As of November 30, 2010, we
have unrecognized share-based compensation cost of approximately $1,990
associated with restricted stock unit awards. This cost is expected
to be recognized over a weighted-average period of approximately 2.1
years.
Accounting
for Share Based Payments
Accounting
guidance requires all share-based payments to employees, including grants of
employee stock options, restricted stock and restricted stock units, to be
recognized as compensation expense in the consolidated financial statements
based on their fair values. Compensation expense is recognized over
the period that an employee provides service in exchange for the
award.
We use
the Black-Scholes option pricing model to calculate the fair value of any option
grant. Our computation of expected volatility is based on historical
volatility. Our computation of expected term is determined based on
historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future
employee behavior. The expected term represents the period that our
option awards are expected to be outstanding and was determined based on
historical experience of similar awards. The risk-free interest rate
is based on U.S. Treasury zero-coupon issues with a term equal to the expected
term of the option at the date of grant. Forfeitures are estimated at
the date of grant based on historical experience. We use the market
price of our common stock on the date of grant to calculate the fair value of
each grant of restricted stock and restricted stock units.
We
recorded $241 and $436 of stock-based compensation as part of selling, general
and administrative expenses for the three and six months ended November 30,
2010, respectively, compared to $161 and $271 for the three and six months ended
November 30, 2009, respectively.
We
receive a tax deduction for certain stock option exercises during the period the
options are exercised, generally for the excess of the fair value of our common
stock at the date of exercise over the exercise price of the options, and
dividends paid on vested restricted stock units. Excess tax benefits
are realized tax benefits from tax deductions for exercised options in excess of
the deferred tax asset attributable to stock compensation costs for such
options. The total tax benefit realized from stock option exercises
and for dividend payments for vested restricted stock units for the six months
ended November 30, 2010 and 2009 was $25 and $0, respectively. Cash
received from stock option exercises was $197 and $107 for the six months ended
November 30, 2010 and 2009, respectively.
Note
6: Goodwill and Intangibles
Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired in a business
combination. Intangible assets resulting from the acquisitions of
entities accounted for using the purchase method of accounting are recorded at
the estimated fair value of the assets acquired. Identifiable
intangible assets consist of purchased customer relationships, trade names, and
other intangible assets.
Our
goodwill and intangibles at November 30, 2010 are the result of our acquisition
of Telogy on March 31, 2010 and of Rush Computer Rentals, Inc. on January 31,
2006.
The
changes in carrying amount of goodwill and other intangible assets for the six
months ended November 30, 2010 are as follows:
Balance as of
June 1, 2010 (net
of amortization)
|
Amortization
|
Balance as of
November 30, 2010
|
||||||||||
Goodwill
|
$ | 3,109 | $ | - | $ | 3,109 | ||||||
Trade
name
|
411 | - | 411 | |||||||||
Non-compete
agreements
|
66 | (50 | ) | 16 | ||||||||
Customer
relationships
|
921 | (59 | ) | 862 | ||||||||
$ | 4,507 | $ | (109 | ) | $ | 4,398 |
Page
12
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Goodwill
is not deductible for tax purposes.
We
evaluate the recoverability of goodwill and indefinite-lived intangible assets
annually as of May 31, and whenever events or changes in circumstances indicate
to us that carrying amount may not be recoverable.
Intangible
assets with finite useful lives are amortized over their respective estimated
useful lives. The following table provides a summary of our
intangible assets:
November 30, 2010
|
||||||||||||||
Estimated
Useful Life
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|||||||||||
Trade
name
|
indefinite
|
$ | 411 | $ | - | $ | 411 | |||||||
Non-compete
agreements
|
2-5
years
|
1,050 | (1,034 | ) | 16 | |||||||||
Customer
relationships
|
3-4 years
|
1,954 | (1,092 | ) | 862 | |||||||||
$ | 3,415 | $ | (2,126 | ) | $ | 1,289 |
May 31, 2010
|
||||||||||||||
Estimated
Useful Life
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|||||||||||
Trade
name
|
indefinite
|
$ | 411 | $ | - | $ | 411 | |||||||
Non-compete
agreements
|
2-5
years
|
1,050 | (984 | ) | 66 | |||||||||
Customer
relationships
|
3-4 years
|
1,954 | (1,033 | ) | 921 | |||||||||
$ | 3,415 | $ | (2,017 | ) | $ | 1,398 |
Amortization
expense related to intangible assets was $55 and $109 for the three and six
months ended November 30, 2010, respectively, compared to $84 and $168 for the
three and six months ended November 30, 2009, respectively.
Amortization
expense for customer relationships and non-compete agreements is included in
selling, general and administrative expenses. The following table
provides estimated future amortization expense related to intangible assets as
of November 30, 2010:
Year ending May 31,
|
Future
Amortization
|
|||
2011
(remaining)
|
$ | 75 | ||
2012
|
118 | |||
2013
|
118 | |||
2014
|
118 | |||
2015
|
118 | |||
Thereafter
|
331 | |||
$ | 878 |
Note
7: Noncash Investing and Financing Activities
We had
accounts payable and other accruals related to acquired rental and lease
equipment totaling $4,800 and $6,167 as of November 30, 2010 and May 31, 2010,
respectively, and other accruals related to acquired rental and lease equipment
totaling $2,568 and $2,098 as of November 30, 2009 and May 31, 2009,
respectively, all of which amounts were subsequently paid. We had no
accrual for dividends declared and not yet paid in accrued expenses and as a
reduction of retained earnings as of November 30, 2010 and May 31, 2010,
respectively, compared to $0 and $3,593 as of November 30, 2009 and May 31,
2009, respectively, all of which amounts were subsequently
paid.
Page
13
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Note
8: Sales-Type Leases
We have
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:
November 30,
2010
|
May 31,
2010
|
|||||||
Gross
minimum lease payments receivable
|
$ | 6,194 | $ | 6,874 | ||||
Less
– unearned interest
|
(298 | ) | (355 | ) | ||||
Net
investment in sales-type lease receivables
|
$ | 5,896 | $ | 6,519 |
The
following table provides estimated future minimum lease payments receivable
related to sales-type leases:
Year ending May 31,
|
Future
Amortization
|
|||
2011
(remaining)
|
$ | 3,566 | ||
2012
|
2,197 | |||
2013
|
417 | |||
2014
|
14 | |||
$ | 6,194 |
Note
9: Segment Reporting and Related Disclosures
Accounting
guidance establishes reporting standards for an enterprise’s operating segments
and related disclosures about its products, services, geographic areas and major
customers. Operating segments are defined as components of an
enterprise for which separate financial information is available that is
regularly evaluated by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. In order to
determine our operating segments, we considered the following: an operating
segment is a component of an enterprise (i) that engages in business activities
from which it may earn revenues and incur expenses, (ii) whose operating results
are regularly reviewed by the enterprise’s chief operating decision maker to
make decisions about resources to be allocated to the segment and assess its
performance, and (iii) for which discrete financial information is
available. In accordance with this guidance, we have identified two
operating segments: the rental, lease and sale of T&M equipment
and the rental, lease and sale of data products (“DP”) equipment.
Although
we have separate operating segments for T&M and DP equipment, these two
segments are aggregated into a single reportable segment because they have
similar economic characteristics and qualitative factors. The T&M
and DP segments have similar long-term average gross margins, and both rent,
lease and sell electronic equipment to large corporations, purchase directly
from major manufacturers, configure and calibrate the equipment, and ship
directly to customers.
Our
equipment pool, based on acquisition cost, consisted of $335,715 of T&M
equipment and $40,962 of DP equipment at November 30, 2010 and $310,292 of
T&M equipment and $40,735 of DP equipment at May 31, 2010.
Page
14
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Revenues
for these product groups were as follows for the three months ended November 30,
2010 and 2009:
T&M
|
DP
|
Total
|
||||||||||
2010
|
||||||||||||
Rentals
and leases
|
$ | 25,186 | $ | 4,487 | $ | 29,673 | ||||||
Sales
of equipment and other revenues
|
23,093 | 511 | 23,604 | |||||||||
$ | 48,279 | $ | 4,998 | $ | 53,277 | |||||||
2009
|
||||||||||||
Rentals
and leases
|
$ | 19,055 | $ | 4,274 | $ | 23,329 | ||||||
Sales
of equipment and other revenues
|
12,581 | 667 | 13,248 | |||||||||
$ | 31,636 | $ | 4,941 | $ | 36,577 |
Revenues
for these product groups were as follows for the six months ended November 30,
2010 and 2009:
T&M
|
DP
|
Total
|
||||||||||
2010
|
||||||||||||
Rentals
and leases
|
$ | 49,223 | $ | 9,237 | $ | 58,460 | ||||||
Sales
of equipment and other revenues
|
44,463 | 1,179 | 45,642 | |||||||||
$ | 93,686 | $ | 10,416 | $ | 104,102 | |||||||
2009
|
||||||||||||
Rentals
and leases
|
$ | 36,822 | $ | 8,254 | $ | 45,076 | ||||||
Sales
of equipment and other revenues
|
22,476 | 1,226 | 23,702 | |||||||||
$ | 59,298 | $ | 9,480 | $ | 68,778 |
No single
customer accounted for more than 10% of total revenues during the three or six
months ended November 30, 2010 and 2009.
Selected
country information is presented below:
Three
Months Ended
November
30,
|
Six
Months Ended
November
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues: (1)
|
||||||||||||||||
U.S.
|
$ | 46,875 | $ | 31,058 | $ | 91,999 | $ | 58,506 | ||||||||
Other
(2)
|
6,402 | 5,519 | 12,103 | 10,272 | ||||||||||||
Total
|
$ | 53,277 | $ | 36,577 | $ | 104,102 | $ | 68,778 | ||||||||
As
of
|
||||||||||||||||
November
30, 2010
|
May
31, 2010
|
|||||||||||||||
Net Long-Lived Assets: (3)
|
||||||||||||||||
U.S.
|
$ | 181,699 | $ | 166,533 | ||||||||||||
Other
(2)
|
26,794 | 25,206 | ||||||||||||||
Total
|
$ | 208,493 | $ | 191,739 |
(1)
|
Revenues
by country are based on the location of shipping destination, and not
whether the order originates in the United States parent or a foreign
subsidiary.
|
(2)
|
Other
consists of foreign countries that each individually account for less than
10% of the total revenues or
assets.
|
(3)
|
Net
long-lived assets include rental and lease equipment, other property,
goodwill and intangibles, net of accumulated depreciation and
amortization.
|
Page
15
ELECTRO
RENT CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in
thousands, except per share amounts)
Note
10: Computation of Earnings Per Share
The
following is a reconciliation of the denominator used in the computation of
basic and diluted earnings per share for the three and six months ended November
30, 2010 and 2009:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
November 30,
|
November 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Denominator:
|
||||||||||||||||
Denominator
for basic earnings per share - weighted average common shares
outstanding
|
23,976 | 23,918 | 23,970 | 23,925 | ||||||||||||
Effect
of dilutive options and restricted stock (1)
|
99 | 41 | 79 | 43 | ||||||||||||
Diluted
shares used in per share calculation
|
24,075 | 23,959 | 24,049 | 23,968 | ||||||||||||
Net
income
|
$ | 7,119 | $ | 4,011 | $ | 12,340 | $ | 6,086 | ||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | 0.30 | $ | 0.17 | $ | 0.51 | $ | 0.25 | ||||||||
Diluted
|
$ | 0.30 | $ | 0.17 | $ | 0.51 | $ | 0.25 |
(1) Excludes
36 options outstanding during the three and six months ended November 30, 2010,
and 54 options outstanding during the three and six months ended November 30,
2009, for which the exercise price exceeded the average market price of our
common stock during that period.
Note
11: Income Taxes
During
the second quarter of fiscal 2011 we effectively settled our remaining uncertain
tax positions. The derecognition of $4,515 of previously recognized
uncertain tax positions, and the related deferred tax asset, had no impact on
our effective tax rate. However, the derecognition of $1,396 for
interest and penalties previously recognized reduced our tax provision by a
corresponding amount for the three and six months ended November 30, 2010,
respectively. This derecognition decreased our effective tax rate
from 41.0% to 26.7% for the three months ended November 30, 2010, and from 40.4%
to 32.8% for the six months ended November 30, 2010.
We
recognize interest and penalties accrued with respect to uncertain tax positions
as components of our income tax provision.
We are
subject to U.S. federal taxation and taxation in various U.S. states and foreign
jurisdictions. We have substantially settled all income tax matters
for the United States federal jurisdiction for years through fiscal
2009. Major state jurisdictions have been examined through fiscal
years 2004 or 2005, and foreign jurisdictions have not been examined for their
respective maximum statutory periods.
There
were no unrecognized tax benefits for the six months ended November 30,
2010.
Note
12: Commitments and Contingencies
We
purchase substantial amounts of rental equipment from numerous
vendors. As a result, we have occasionally been included as a member
of the plaintiff class in class action lawsuits related to product warranties or
price adjustments. Settlements of such claims can result in
distributions of cash or product coupons that can be redeemed, sold or used to
purchase new equipment. We recognize any benefits from such
settlements when all contingencies have expired, to the extent either cash has
been received and/or realization of value from any coupon is
assured.
We are
subject to legal proceedings and business disputes involving ordinary routine
legal proceedings and claims incidental to our business. The ultimate
legal and financial liability with respect to such matters generally 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 increase or the related
facts and circumstances change in the future, we may be required to record
either more or less litigation expense. We are not involved in any
pending or threatened legal proceedings, other than ordinary routine legal
proceedings and claims incidental to our business, that we believe could
reasonably be expected to have a material adverse effect on our financial
condition, results of operations or cash flows.
Page
16
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion addresses our financial condition as of November 30, 2010
and May 31, 2010, the results of our operations for the three and six months
ended November 30, 2010 and 2009, respectively, and cash flows for the six month
periods ended November 30, 2010 and 2009. This discussion should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 7, and the Risk Factors in Item 1A,
of our Annual Report on Form 10-K for the fiscal year ended May 31, 2010, to
which you are directed for additional information.
Overview
We are
one of the largest global organizations devoted to the rental, lease and sale of
new and used electronic test and measurement (“T&M”)
equipment. We purchase that equipment from leading manufacturers such
as Agilent Technologies, Inc. (“Agilent”) and Tektronix primarily for use by our
customers in the aerospace, defense, telecommunications, electronics, industrial
and semiconductor industries. Although it represented only
approximately 13% of our revenues in fiscal 2010 and 10% of our revenues for the
six months ended November 30, 2010, we believe our data products (“DP”) division
is one of the largest rental companies in the United States for personal
computers and servers from manufacturers including Dell, HP/Compaq, IBM and
Toshiba. We have also recently expanded our efforts in the rental,
lease and sale of industrial equipment such as electrical test equipment and
inspection equipment. Our Authorized Technology Partnership
(“ATP”) agreement with Agilent gives us the exclusive right to sell
Agilent’s more complex T&M equipment to small and medium size customers (who
previously purchased directly from Agilent) in the United States and
Canada. We began selling T&M equipment under the ATP sales
agreement during our third quarter of fiscal 2010. We have added
approximately 58 people to our sales and support staff to serve these customers,
and this agreement is material to our operations.
On March
31, 2010, we completed the acquisition of certain assets (including accounts
receivable and rental equipment but excluding certain designated assets) and
select liabilities of Telogy, LLC (“Telogy”), for $24.7 million in cash, subject
to post-closing adjustments. The purchase price was reduced by $0.3
million in the first six months of fiscal 2011 reflecting the final
determination of assets acquired and other components of the purchase price in
accordance with specific provisions of the Asset Purchase Agreement with
Telogy. Telogy, headquartered in Union City, California, was a
leading provider of electronic T&M equipment in North America. We
accounted for the acquisition under Accounting Standards Codification (“ASC”)
805, Business
Combinations. See Note 4 to our condensed consolidated
financial statements.
Our
financial results for fiscal 2010 were impacted by competitive pressure on
rental rates due in large part to the recession in the U.S. and our major
international markets, although our utilization rates improved due to an
increase in demand and equipment on rent. During the first six months
of fiscal 2011, we have seen modest improvement in our T&M rental rates and
continued improvement in utilization rates, in particular in our North American
and European operations. As a result of these improvements, our
recent acquisition of Telogy, and sales of T&M equipment in connection with
our ATP sales agreement, we have experienced substantial growth in revenues and
operating profit for the six months ended November 30, 2010. Despite
this growth, our customers and competitors continue to be affected by the
ongoing recession in the U.S. and global economy, resulting in more stringent
credit requirements and reduced access to capital. We must continue
to be focused on remaining profitable in the current conditions, as well as
being prepared for the possibility that the recession may deepen and continue in
future periods.
For the
first six months of fiscal 2011, 84% of our rental and lease revenues was
derived from T&M equipment, compared to 82% for the first six months of
fiscal 2010. We have experienced growth in both our T&M and DP
rental revenues, due to increased rental activity and a modest increase in our
T&M rental rates. Our T&M rental revenues for the first six
months of fiscal 2011 include the rental revenues acquired from
Telogy.
For the
first six months of fiscal 2011, rental revenues were 89% of our rental and
lease revenue, compared to 86% for the first six months of fiscal
2010. The increase is the result of an increase in our T&M and DP
rental activity, including the rental revenues acquired from Telogy, while our
lease revenues were essentially unchanged.
Page
17
To
maximize our overall profit from the rental, leasing, and sales of equipment, we
manage our equipment pool on an on-going basis by controlling the timing,
pricing and mix of our purchases and sales of equipment. We acquire
new and used equipment to meet current technological standards and current and
anticipated customer demand, and we sell our used equipment where we believe
that is the most lucrative option. We employ a complex equipment
management strategy and our proprietary PERFECT™ software to adjust our
inventory and pricing on a dynamic basis in order to maximize equipment
availability, utilization and profitability. We manage each specific
equipment class based on a separate assessment of that equipment's historical
and projected life cycle and numerous other factors, including the U.S. and
global economy, interest rates and new product launches. If we do not
accurately predict market trends, or if demand for the equipment we supply
declines, we can be left with 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 more frequently when factors indicating impairment are
present.
Profitability and Key
Business Trends
We
generally 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 (annualized);
and
|
|
·
|
Net
income as a percentage of average tangible equity
(annualized).
|
Comparing
the first six months of fiscal 2011 to the first six months of fiscal 2010, our
revenues increased by 51.4% to $104.1 million, our operating profit increased by
96.6% to $18.1 million, and our net income increased by 102.8% to $12.3
million. Our rental and lease revenues increased in our T&M and
DP segments in our North American and European operations, reflecting increased
rental activity and increased T&M rental rates, due to improved market
conditions and the T&M rental revenues acquired from Telogy. In
addition, our T&M sales activity increased due to new equipment sales in
connection with our ATP sales agreement, offsetting declines in our sales of
used equipment, finance leases, and distribution.
Some of
our key profitability measurements are presented in the table below for the six
months ended November 30, 2010 and 2009:
2010
|
2009
|
|||||||
Net
income per diluted common share (EPS)
|
$ | 0.51 | $ | 0.25 | ||||
Net
income as a percentage of average assets (annualized)
|
8.8 | % | 4.5 | % | ||||
Net
income as a percentage of average tangible equity
(annualized)
|
10.8 | % | 5.4 | % |
The
increase in our operating profit is due primarily to increased rental revenues
and sales of new equipment for the first six months of fiscal
2011. The increase was partially offset by an increase in
depreciation expense of $2.3 million, or 10.8%, as we have invested in
additional rental equipment to support our growth, and an increase in selling,
general and administrative expenses of $6.6 million, or 32.0%. In
addition, hiring of sales and support staff in connection with our ATP sales
agreement offset several cost cutting measures that we introduced at the
beginning of fiscal 2010 to control or reduce our selling, general and
administrative expenses in response to the recession in the U.S. and our major
international markets.
Net income was
positively impacted by a lower effective tax rate arising from the reversal of
certain penalty and interest on taxes. (See Note 11 to the condensed
consolidated financial statements for further
discussion.)
The
amount of our equipment on rent, based on acquisition cost, increased 39.1% to
$218.5 million at November 30, 2010 from $157.1 million at November 30,
2009. Acquisition cost of equipment on lease increased 2.8% to $29.1
million at November 30, 2010 from $28.4 million at November 30,
2009. Average rental rates for our T&M segment increased by 1.1%
from November 30, 2009 to November 30, 2010, while our DP segment average rental
rates declined by 3.0% over the same period. Average lease rates for
our T&M and DP segments declined by 9.6% for the same
period. Utilization for our T&M equipment pool, based on
acquisition cost of equipment on rent and lease compared to the total equipment
pool, was 71.8% at November 30, 2010, compared to 64.8% at November 30, 2009 due
to an increase in rental utilization and demand for leases. Over the
same period, utilization of our DP equipment pool decreased to 41.5% from 46.2%,
due to a decrease in equipment on lease, partially offset by an increase in
rental utilization.
As of
November 30, 2010, we had an order backlog of $16.7 million, the result of sales
in connection with our ATP sales agreement. There was no such backlog
in the second quarter of fiscal 2010. We expect that a majority of
the backlog will be delivered to customers within six months of November 30,
2010.
Page
18
The
following table shows the revenue and operating profit trends over the last five
quarters (in thousands):
Three Months Ended
|
||||||||||||||||||||
Nov 30,
2010
|
Aug 31,
2010
|
May 31,
2010
|
Feb 28,
2010
|
Nov 30,
2009
|
||||||||||||||||
Rentals and leases
|
$ | 29,673 | $ | 28,787 | $ | 26,529 | $ | 22,596 | $ | 23,329 | ||||||||||
Sales
of equipment and other revenues
|
23,604 | 22,038 | 17,526 | 10,438 | 13,248 | |||||||||||||||
Operating
profit
|
9,606 | 8,532 | 5,269 | 3,939 | 5,894 |
Results
of Operations
Comparison
of Three Months Ended November 30, 2010 and November 30, 2009
Revenues
Total
revenues for the three months ended November 30, 2010 and 2009 were $53.3
million and $36.6 million, respectively. The 45.7% increase in total
revenues was due to a 27.2% increase in rental and lease revenues and a 78.2%
increase in sales of equipment and other revenues.
Rental
and lease revenues for the three months ended November 30, 2010 were $29.7
million, compared to $23.3 million for the same period of the prior fiscal
year. This increase reflects an increase in our T&M and DP rental
activity and in our T&M rental rates in our North American and European
operations, due to improved market conditions and the acquisition of Telogy in
the fourth quarter of fiscal 2010, while our lease revenues were essentially
unchanged.
Sales of
equipment and other revenues increased to $23.6 million for the second quarter
of fiscal 2011, compared to $13.2 million in the same period of the prior fiscal
year. This increase is due to sales of new T&M equipment through
our ATP sales agreement, which was not in place during the same period in fiscal
2010, partially offset by declines in sales of used equipment and finance lease
activity. We terminated our distribution agreement with Agilent
(which was replaced with the ATP sales agreement) on January 31,
2010. Therefore, there were no distribution sales for the second
quarter of fiscal 2011.
Operating
Expenses
Depreciation
of rental and lease equipment increased to $11.9 million, or 40.2% of rental and
lease revenues, in the second quarter of fiscal 2011, from $10.5 million, or
44.9% of rental and lease revenues, in the second quarter of fiscal
2010. The increased depreciation expense in fiscal 2011 was due to a
higher average rental and lease equipment pool, while the decreased ratio, as a
percentage of rental and lease revenues, was due to higher utilization and
higher T&M rental rates.
Costs of
revenues other than depreciation increased 83.6% to $18.1 million in the second
quarter of fiscal 2011 from $9.9 million in the same period of fiscal
2010. Costs of revenues other than depreciation primarily includes
the cost of equipment sales, which increased as a percentage of equipment sales
to 76.2% in the second quarter of fiscal 2011 from 72.0% in the second quarter
of fiscal 2010. This increase is due to a decline in our used
equipment sales, reflecting strong rental demand, limited inventory available
for sale, and reduced customer requirements and funding, as well as an increase
in sales of new T&M equipment through our ATP sales agreement, which
generally carry a lower margin. Our sales margin is expected to
continue to decline as a result of anticipated growth in connection with our ATP
sales agreement.
Selling,
general and administrative expenses increased 32.4% to $13.7 million in the
second quarter of fiscal 2011, compared to $10.4 million in the second quarter
of fiscal 2010. Our selling, general and administrative expenses
increased primarily due to additional sales and support staff in connection with
our ATP sales agreement, offsetting several cost cutting measures that we
introduced in the first quarter of fiscal 2010 to control or reduce our selling,
general and administrative expenses in response to the recession in the U.S. and
our major international markets. As a percentage of total revenues,
selling, general and administrative expenses decreased to 25.7% in the second
quarter of fiscal 2011 from 28.3% in the second quarter of fiscal 2010, due to
the increase in total revenues.
Page
19
Interest
Income, Net
Interest
income, net, was $0.1 million for the second quarter of fiscal 2011 compared to
$1.0 million in the second quarter of fiscal 2010 due to a lower cash balance,
the redemption of our auction rate securities (“ARS”) (which carried a higher
interest rate) in the first quarter of fiscal 2011, and a realized gain of $0.8
million on the sale of our investments available-for-sale in the second quarter
of fiscal 2010. During the second quarter of fiscal 2010, interest
income, net, included offsetting gains and losses on our ARS and the related put
option, with no net impact on our net income.
Income
Tax Provision
Our
effective tax rate was 26.7% in the second quarter of fiscal 2011, compared to
42.2% for the same period in fiscal 2010. The decrease is due
primarily to the derecognition of $1.4 million of interest and penalties
resulting from the effective settlement of our uncertain tax positions during
the three months ended November 30, 2010. See Note 11 to our
condensed consolidated financial statements for further discussion.
Comparison
of Six Months Ended November 30, 2010 and November 30, 2009
Revenues
Total
revenues for the six months ended November 30, 2010 and 2009 were $104.1 million
and $68.8 million, respectively. The 51.4% increase in total revenues
was due to a 29.7% increase in rental and lease revenues and a 92.6% increase in
sales of equipment and other revenues.
Rental
and lease revenues for the first six months of fiscal 2011 were $58.5 million,
compared to $45.1 million for the same period of the prior fiscal
year. This increase reflects an increase in our T&M and DP rental
activity and in our T&M rental rates in our North American and European
operations, due to improved market conditions and the acquisition of Telogy in
the fourth quarter of fiscal 2010, while our lease revenues were essentially
unchanged.
Sales of
equipment and other revenues increased to $45.6 million for the first six months
of fiscal 2011, compared to $23.7 million in the same period of the prior fiscal
year. This increase is due to sales of new T&M equipment through
our ATP sales agreement, which was not in place during the same period in fiscal
2010, partially offset by declines in sales of used equipment and finance lease
activity. There were no distribution sales for the first six months
of fiscal 2011.
Operating
Expenses
Depreciation
of rental and lease equipment increased to $23.6 million, or 40.3% of rental and
lease revenues, in the first six months of fiscal 2011, from $21.3 million, or
47.2% of rental and lease revenues, in the first six months of fiscal
2010. The increased depreciation expense in fiscal 2011 was due to a
higher average rental and lease equipment pool, while the decreased depreciation
expense as a percentage of rental and lease revenues was due to higher
utilization and higher rental rates.
Costs of
revenues other than depreciation increased 100.4% to $35.3 million in the first
six months of fiscal 2011 from $17.6 million in the same period of fiscal
2010. Costs of revenues other than depreciation primarily includes
the cost of equipment sales, which increased as a percentage of equipment sales
to 76.5% in the first six months of fiscal 2011 from 71.8% in the first six
months of fiscal 2010. This increase is due to a decline in our used
equipment sales, reflecting strong rental demand, limited inventory available
for sale, and reduced customer requirements and funding, as well as an increase
in sales of new T&M equipment through our ATP sales agreement, which
generally carry a lower margin.
Selling,
general and administrative expenses increased 32.0% to $27.3 million in the
first six months of fiscal 2011, compared to $20.7 million in the first six
months of fiscal 2010. Our selling, general and administrative
expenses increased primarily due to additional sales and support staff in
connection with our ATP sales agreement, offsetting several cost cutting
measures that we introduced in the first six months of fiscal 2010 to control or
reduce our selling, general and administrative expenses in response to the
recession in the U.S. and our major international markets. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 26.2% in the first six months of fiscal 2011 from 30.0% in the
first six months of fiscal 2010 due to the increase in total
revenues.
Page
20
Interest
Income, Net
Interest
income, net, was $0.2 million for the first six months of fiscal 2011 compared
to $1.4 million in the first six months of fiscal 2010 due to a lower cash
balance and the redemption of our ARS (which carried a higher interest rate) in
the first six months of fiscal 2011, and a realized gain of $0.8 million on the
sale of our investments available-for-sale in the first six months of fiscal
2010. During the first six months of fiscal 2011 and 2010, interest
income, net, included offsetting gains and losses on our ARS and the related put
option, with no net impact on our net income.
Income
Tax Provision
Our
effective tax rate was 32.8% in the first six months of fiscal 2011, compared to
42.5% for the same period in fiscal 2010. The decrease is due
primarily to the derecognition of $1.4 million of interest and penalties
resulting from the effective settlement of our uncertain tax positions during
the six months ended November 30, 2010. See Note 11 to our condensed
consolidated financial statements for further discussion.
Liquidity
and Capital Resources
Capital
Expenditures
Our
primary capital requirements have been purchases of rental and lease
equipment. We generally purchase equipment throughout the year to
replace equipment that has been sold and to maintain adequate levels of rental
equipment to meet existing and expected customer demands. To meet
T&M rental demand, support areas of potential growth for both T&M and DP
equipment and to keep our equipment pool technologically up-to-date, we made
payments for purchases of $49.7 million of rental and lease equipment during the
first six months of fiscal 2011 compared to $22.5 million during the first six
months of fiscal 2010. In response to increasing customer demand
beginning in the second half of fiscal 2010, purchases of equipment for the
first six months of fiscal 2011 were 121.0% higher than the first six months of
fiscal 2010.
Share
Repurchases and Dividends
We
periodically repurchase shares of our common stock, which are then retired and
returned to the status of authorized but unissued stock. During the
six months ended November 30, 2009, we repurchased 44,114 shares of our common
stock, for $0.4 million, at an average price per share of
$8.94. There were no repurchases during the six months ended November
30, 2010. We may make repurchases of common stock in the future
through open market transactions or otherwise, but we have no commitments to do
so.
During
the six months ended November 30, 2010 and 2009, we paid dividends of $0.30 per
common share, or $0.60 per annum, amounting to an aggregate of $7.2 million for
each period. We expect to continue paying a quarterly dividend in
future quarters, although the amount and timing of dividends, if any, will be
made at the discretion of our board of directors in each quarter, subject to
compliance with applicable law.
Cash
and Cash Equivalents and Investments
Despite
the $64.4 million in cash we have returned to our shareholders over the past
three fiscal years, and the $24.4 million we paid in connection with the Telogy
acquisition in fiscal 2010, we continue to maintain substantial cash and cash
equivalents and investments. We expect that the level of our cash and
cash equivalents and investments may decrease as we pay dividends in future
quarters, or if we decide to buy back additional shares of our common stock,
increase equipment purchases in response to demand, finance another acquisition,
or pursue other opportunities. We invest our cash balance in
government money market funds.
At May
31, 2010, we held $14.3 million, at cost, in ARS, which we classified as
investments, trading. During June and July 2010, we sold our
remaining ARS of $14.3 million at par value plus accrued interest under a
contractual put right.
Page
21
Cash
Flows and Credit Facilities
During
the first six months of fiscal 2011 and fiscal 2010, net cash provided by
operating activities was $28.1 million and $15.7 million,
respectively. The increase in operating cash flow for the first six
months of fiscal 2011 compared to the same period of the prior fiscal year was
due primarily to an increase in net income to $12.3 million for the first six
months of fiscal 2011 from $6.1 million for the first six months of fiscal 2010,
and an increase in other assets of $3.2 million in the first six months of
fiscal 2011 compared to $4.4 million for the first six months of fiscal 2010,
primarily due to a decline in finance lease activity. During the six
months ended November 30, 2010, our deferred tax liability increased $7.0
million, compared to an increase of $0.5 million in the first six months of
fiscal 2010, while accrued expenses decreased $4.8 million for the six months of
fiscal 2011, compared to an increase of $1.9 million for the first six months of
fiscal 2010. The changes in our deferred tax liability and accrued
expenses in fiscal 2011 resulted primarily from our effective settlement of the
$4.5 million in unrecognized tax positions during the six months ended November
30, 2010. In addition, our increased deferred tax liability reflects
an increase in tax depreciation expense, the result of a higher average rental
and lease equipment pool, and the enactment of bonus depreciation during the six months ended November 30,
2010.
During
the first six months of fiscal 2011 net cash used in investing activities was
$22.8 million compared to $28.4 million of net cash provided by investing
activities for the same period of fiscal 2010. Payments for the
purchase of rental and lease equipment were $49.7 million for the first six
months of fiscal 2011 compared to $22.5 million for the first six months of
fiscal 2010. Redemptions of investments, trading were $14.3 million
during the first six months of fiscal 2011. There were no redemptions in the
first six months of fiscal 2010. Proceeds from the sale of rental and
lease equipment decreased to $13.0 million for the first six months of fiscal
2011 compared to $21.5 million for the first six months of fiscal
2010.
Net cash
used in financing activities was $7.0 million for the first six months of 2011
compared to $7.5 million for the first six months of fiscal 2010, due primarily
to a decrease in payments for the repurchase of common stock to $0 for the
first six months of fiscal 2011, compared to $0.4 million for the first six
months of fiscal 2010.
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 had no bank borrowings
outstanding, or off balance sheet financing arrangements, at November 30,
2010.
We
believe that cash and cash equivalents, cash flows from operating activities,
proceeds from the sale of equipment and our borrowing capacity will be
sufficient to fund our operations for at least the next twelve
months.
Contractual
Obligations
Our
contractual obligations have not changed materially from those included in our
Annual Report on Form 10-K for the fiscal year ended May 31, 2010.
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
("generally accepted accounting principles") requires us 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, we review these estimates,
including those related to asset lives and depreciation methods, impairment of
long-lived assets including rental and lease equipment, goodwill and definite
lived intangible assets, allowance for doubtful accounts and income taxes, and
adjust them as appropriate. These estimates are based on our
historical experience and on various other assumptions we believe to be
reasonable under the circumstances.
These
determinations, even though inherently subjective and subject to change, affect
the reported amounts of our assets, liabilities and expenses. While
we believe that our estimates are based on reasonable assumptions and judgments
at the time they are made, some of our assumptions, estimates and judgments will
inevitably prove to be incorrect. As a result, actual outcomes will
likely differ from our accruals, and those differences—positive or
negative—could be material.
We
identified certain critical accounting policies that affect certain of our more
significant estimates and assumptions used in preparing our consolidated
financial statements in our Annual Report on Form 10-K for the fiscal year ended
May 31, 2010. We have not made any material changes to these
policies as previously disclosed.
Page
22
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). You can find many (but not all) of these statements by looking
for words such as “approximates,” “believes,” “expects,” “anticipates,”
“estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in
this report. We claim the protection of the safe harbor contained in
the Private Securities Litigation Reform Act of 1995. We caution
investors that any forward-looking statements presented in this report, or that
we may make orally or in writing from time to time, are based on the beliefs of,
assumptions made by, and information currently available to, us. Such
statements are based on assumptions, and the actual outcome will be affected by
known and unknown risks, trends, uncertainties and factors that are beyond our
control. Although we believe that our assumptions are reasonable,
they are not guarantees of future performance, and some will inevitably prove to
be incorrect. As a result, our actual future results may differ from
our expectations, and those differences may be material. We are not
undertaking any obligation to update any forward-looking
statements. Accordingly, investors should use caution in relying on
past forward-looking statements, which are based on known results and trends at
the time they are made, to anticipate future results or trends.
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 “Part II. Item 1A. Risk
Factors” and Item 3. "Quantitative and Qualitative Disclosures About Market
Risk," as well as in our Annual Report on Form 10-K for the fiscal year ended
May 31, 2010 (including the "Risk Factors" discussed in Item 1A to that
document), and our other filings with the Securities and Exchange
Commission. The risks included in those documents are not exhaustive,
and additional factors could adversely affect our business and financial
performance. We operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time, and it is not
possible for us to predict all such risk factors, nor can we assess the impact
of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
During
the first six months of fiscal 2011, there were no material changes in the
information regarding market risk contained in our Annual Report on Form 10-K
for the fiscal year ended May 31, 2010.
Item
4. Controls and Procedures
As of
November 30, 2010, the end of the period covered by this report, our management,
with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)). Based on that evaluation, our 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 were
effective.
There was
no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. 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. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected.
Page
23
Part
II. OTHER INFORMATION
Item
1. Legal Proceedings
Other
than ordinary routine litigation incidental to our business, we are not involved
in any legal proceedings that we believe could reasonably be expected to have a
material adverse effect on our business, financial condition, or results of
operations.
Item
1A. Risk Factors
In
addition to the other information set forth in this report, you should carefully
consider the discussion of various risks and uncertainties contained in Part I,
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended May 31, 2010. We believe those 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. However, those are
not the only risk factors facing us. Additional risks that we do not
consider material, or of which we are not currently aware, may also have an
adverse impact on us. Our business, financial condition, and results
of operations could be seriously harmed if any of these risks or uncertainties
actually occurs or materializes. In that event, the market price for
our common stock could decline, and our shareholders may lose all or part of
their investment. During the first six months of fiscal 2011, we do
not believe there were any material changes in the information regarding risk
factors contained in our Annual Report on Form 10-K for the fiscal year ended
May 31, 2010.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Reserved
Item
5. Other Information
None.
Item
6. Exhibits
Exhibit
|
Description
|
|
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
24
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: December
21, 2010
/s/ Craig R. Jones
|
|
Craig
R. Jones
|
|
Vice
President and Chief Financial Officer
|
|
(Principal
Financial and Accounting Officer and duly authorized
|
|
to
sign this report on behalf of the
company)
|
Page
25