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EX-32.1 - EXHIBIT 32.1 - ELECTRO RENT CORPelrcex321_22916.htm
EX-31.2 - EXHIBIT 31.2 - ELECTRO RENT CORPelrcex312_22916.htm
EX-32.2 - EXHIBIT 32.2 - ELECTRO RENT CORPelrcex322_22916.htm
EX-31.1 - EXHIBIT 31.1 - ELECTRO RENT CORPelrcex311_22916.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2016
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: 000-09061
 
 
ELECTRO RENT CORPORATION
(Exact name of registrant as specified in its charter)
 
 
California
 
95-2412961
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
6060 Sepulveda Boulevard, Van Nuys, California
 
91411-2501
(Address of principal executive offices)
 
(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  ý    No  o
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  ý    No  o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
ý
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  ý
The number of shares outstanding of the issuer’s common stock as of April 7, 2016 was 24,195,408.




Electro Rent Corporation
Quarterly Report on Form 10-Q
For the Quarterly Period Ended February 29, 2016
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 2



EXPLANATORY NOTE
In this report, unless the context indicates otherwise, the terms “Electro Rent,” “Company,” “we”, “us” and “our” refer to Electro Rent Corporation, a California corporation, and its consolidated subsidiaries.
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. Any statements that refer to projections of our future financial or operating performance, anticipated trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results, are forward-looking statements.
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 expressions of our beliefs and expectations based on currently available information at the time such statements are made. 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.
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 “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk,” and “Part II, Item 1A. Risk Factors” as well as in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (including the “Risk Factors” discussed in Item 1A in 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.
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.

Page 3



Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ELECTRO RENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
Revenues:
 
 
 
 
 
 
 
Rentals and leases
$
29,173

 
$
30,252

 
$
93,649

 
$
97,610

Sales of equipment and other revenues
10,325

 
26,090

 
42,502

 
80,306

Total revenues
39,498

 
56,342

 
136,151

 
177,916

Operating expenses:
 
 
 
 
 
 
 
Depreciation of rental and lease equipment
13,744

 
13,844

 
42,685

 
42,429

Costs of rentals and leases, excluding depreciation
4,108

 
4,544

 
13,295

 
13,665

Costs of sales of equipment and other revenues
6,474

 
19,598

 
28,154

 
60,161

Selling, general and administrative expenses
13,460

 
14,692

 
42,662

 
44,311

Total operating expenses
37,786

 
52,678

 
126,796

 
160,566

Operating profit
1,712

 
3,664

 
9,355

 
17,350

Interest income/(expense), net
(221
)
 
82

 
(385
)
 
264

Other income
1

 

 
14

 
1,390

Income before income taxes
1,492

 
3,746

 
8,984

 
19,004

Income tax provision
483

 
1,321

 
3,315

 
7,013

Net income
$
1,009

 
$
2,425

 
$
5,669

 
$
11,991

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.10

 
$
0.23

 
$
0.49

Diluted
$
0.04

 
$
0.10

 
$
0.23

 
$
0.49

Shares used in per share calculation:
 
 
 
 
 
 
 
Basic
24,426

 
24,377

 
24,413

 
24,355

Diluted
24,440

 
24,377

 
24,422

 
24,355

Cash dividend declared per share
$
0.13

 
$
0.20

 
$
0.38

 
$
0.60

See accompanying notes to consolidated financial statements (unaudited).

Page 4



ELECTRO RENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands, except share numbers)
 
February 29, 2016
 
May 31, 2015
Assets
 
 
 
Cash
$
18,234

 
$
4,064

Accounts receivable, net of allowance for doubtful accounts of $439 and $604
22,471

 
33,863

Rental and lease equipment, net of accumulated depreciation of $234,297 and $241,116
207,669

 
231,671

Other property, net of accumulated depreciation and amortization of $17,475 and $16,749
12,483

 
13,120

Goodwill
3,109

 
3,109

Intangibles, net of accumulated amortization of $1,849 and $1,761
656

 
744

Other assets
22,547

 
13,743

 
$
287,169

 
$
300,314

Liabilities and Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Bank borrowings
$

 
$
2,387

Accounts payable
4,821

 
8,234

Accrued expenses
13,204

 
18,487

Deferred revenue
5,395

 
5,576

Deferred tax liability
38,650

 
37,652

Total liabilities
62,070

 
72,336

Commitments and contingencies (Note 11)

 

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 February 29, 2016 - 24,195,408; May 31, 2015 - 24,108,176
41,118

 
40,440

Retained earnings
183,981

 
187,538

Total shareholders’ equity
225,099

 
227,978

 
$
287,169

 
$
300,314

See accompanying notes to consolidated financial statements (unaudited).

Page 5



ELECTRO RENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
Cash flows from operating activities:
 
 
 
Net income
$
5,669

 
$
11,991

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
43,616

 
43,233

Rental and lease equipment impairment
443

 

Remeasurement (gain)/loss on foreign currency
312

 
(65
)
Provision for losses on accounts receivable
402

 
394

Gain on sale of rental and lease equipment
(9,459
)
 
(10,108
)
Stock compensation expense
1,016

 
968

Excess tax benefit for share-based compensation
(87
)
 
(348
)
Deferred income taxes
998

 
2,447

Change in operating assets and liabilities:
 
 
 
Accounts receivable
9,847

 
908

Other assets
(9,992
)
 
(9,770
)
Accounts payable
(1,161
)
 
406

Accrued expenses
(5,257
)
 
735

Deferred revenue
(150
)
 
(1,295
)
Net cash provided by operating activities
36,197

 
39,496

Cash flows from investing activities:
 
 
 
Proceeds from sale of rental and lease equipment
26,106

 
26,610

Payments for purchase of rental and lease equipment
(36,028
)
 
(48,674
)
Payments for purchase of other property
(206
)
 
(899
)
Net cash used in investing activities
(10,128
)
 
(22,963
)
Cash flows from financing activities:
 
 
 
Borrowings under bank line of credit
10,407

 
35,823

Payments under bank line of credit
(12,794
)
 
(35,823
)
Minimum tax withholdings on share-based compensation
(298
)
 
(445
)
Excess tax benefit for share-based compensation
87

 
348

Payment of dividends
(9,269
)
 
(14,782
)
Net cash used in financing activities
(11,867
)
 
(14,879
)
Effect of exchange rate changes on cash
(32
)
 
533

Net increase in cash
14,170

 
2,187

Cash at beginning of period
4,064

 
5,946

Cash at end of period
$
18,234

 
$
8,133

 
 
 
 
Interest paid, during the period
$
60

 
$
20

Income taxes paid, during the period
$
10,883

 
$
7,999

Dividends accrued during the period, not yet paid
$
112

 
$
128

Rental equipment acquisitions, not yet paid
$
2,187

 
$
4,564

Used equipment sales in accounts receivable and other assets, not yet collected
$
5,445

 
$
6,936

Transfers from other assets to rental and lease equipment
$
112

 
$
3,011

See accompanying notes to consolidated financial statements (unaudited).

Page 6


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)


Note 1: Basis of Presentation
The unaudited 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 consolidated financial statements include the accounts of Electro Rent Corporation and its wholly owned subsidiaries, Electro Rent, LLC, ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc. and Electro Rent (Beijing) Test and Measurement Equipment Rental Co., Ltd. (collectively “we”, “us”, or “our”). All intercompany balances and transactions have been eliminated in consolidation.
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 omitted pursuant to such SEC rules and regulations. These unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring 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 unaudited 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 13, 2015.
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 to be expected for the full year.
Revenue Recognition
We generate revenues primarily through the rental and leasing of test and measurement equipment (“T&M”) and personal computer-related data products equipment (“DP”) and through the sale of new and used equipment. Rental revenues comprise short term agreements that can be daily, weekly or monthly. Rental revenues are recognized in the month they are due on the accrual basis of accounting. We lease equipment under both operating and finance lease agreements.
Our operating lease agreements have varying terms, typically one to three years. Upon lease termination, customers have an option to renew the lease term, purchase the equipment at fair market value, or continue to rent on a month-to-month basis. Our operating leases do not provide for contingent rentals. Revenues related to operating leases are recognized on a straight-line basis over the term of the lease. Negotiated lease early-termination charges are recognized upon receipt. Rentals and leases are primarily billed to customers in advance, and unearned billings are recorded as deferred revenue.
We enter into finance leases as lessor for some of our equipment. Our finance lease agreements contain bargain purchase options and are accounted for as sale-type leases. Revenues from finance leases, which are recorded at the present value of the aggregate future lease payments, net of unearned interest, are included in sales of equipment and other revenues in our consolidated statements of operations. Unearned interest is recognized over the life of the finance lease term using the effective interest method. Our finance lease terms vary and are typically one to three years. The net investment in finance leases, which represents the receivables due from lessees, net of unearned interest, is included in other assets in our consolidated balance sheets. Historically, we have not required security deposits based on our assessed credit risk within our customer base.
Initial direct costs for operating and finance leases are insignificant.
Sales of new equipment are recognized in the period in which the equipment is delivered and risk of loss passes to the customer, while sales of used equipment from our rental and lease equipment pool are recognized in the period in which the equipment is shipped and risk of loss passes to the customer. In the case of equipment sold to customers that is already on rent or on lease to the same party, revenue is recognized at the agreed-upon date when the rent or lease term ends and the risk of loss passes to the customer.

Page 7


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

The amount of revenue recognized for sales of new equipment depends on whether we sell as principal or as agent for the original equipment manufacturer.  Prior to May 31, 2015, our sales of new equipment were derived primarily from the reseller agreement with Keysight Technologies, Inc. In fiscal 2016, we entered into reseller agreements with other T&M equipment manufacturers, including Anritsu, Inc. ("Anritsu") and Rohde & Schwarz Gmbh & Co. KG ("Rohde & Schwarz"). Under the terms of these agreements we act as the principal with respect to sales of new equipment, based on several factors, including:
(1) We act as the primary obligor by working directly with our customers to define their needs, providing them with options to satisfy such needs, contracting directly with the customer, and, to the extent required, providing customers with instruction on the use of the product and additional technical support once the product is received by the customer. The original equipment manufacturer is not a party to our customer sales agreements, nor is it referenced in the agreements, and therefore has no obligation to our customers with the exception of the manufacturer’s standard warranty on the product;
(2) We bear back-end risk of inventory loss with respect to any product return from the customer as the original equipment manufacturer is not required to accept returns of equipment from us. Under the reseller agreement with Keysight, we also bore front-end risk of inventory loss in those cases where we acquired products for resale into our equipment pool prior to shipment to customers;
(3) We have full discretion in setting pricing terms with our customers and negotiate all such terms ourselves; and
(4) We assume all credit risk.
In situations where we act as principal, the gross sales of new equipment are recorded in sales of equipment and other revenues, while the related equipment costs, including the purchase price from the original equipment manufacturer, are recorded in costs of sales of equipment and other revenues in our consolidated statements of operations. 
We are currently establishing new resale relationships, where we may act as an agent for the original equipment manufacturer.  Under those arrangements, we recognize revenue only on the commissions that we receive, which are recorded in other revenue within the sales of equipment and other revenues in our consolidated statement of operations.
Other revenues, which primarily include billings to customers for delivery and repairs, are recognized in the period in which the respective services are performed.
Operating Expenses
Costs of rentals and leases, excluding depreciation, primarily include labor related costs of our operations personnel, supplies, repairs, insurance and warehousing costs associated with our rental and lease equipment, relating to our rental and lease revenues. Costs of rentals and leases included impairment charges of $0 and $443 related to our T&M rental and lease equipment during the three and nine months ended February 29, 2016. No impairments occurred for the three and nine months ended February 28, 2015.
Costs of sales of equipment and other revenues primarily include the cost of new equipment and the carrying value of used equipment sold.
Selling, general and administrative (“SG&A”) expenses include sales and advertising costs, payroll and related benefit costs, insurance expenses, property taxes on our property and rental and lease equipment, legal and professional fees, and administrative overhead. Advertising costs are expensed as incurred. Total advertising expenses were $267 and $857 for the three and nine months ended February 29, 2016 and $301 and $720 for the three and nine months ended February 28, 2015. SG&A expenses also included shipping and handling costs of $815 and $2,688 for the three and nine months ended February 29, 2016 and $847 and $2,968 for the three and nine months ended February 28, 2015.
Foreign Currency
The U.S. dollar has been determined to be the functional currency of all foreign subsidiaries. The euro, British pound sterling, Canadian dollar and Chinese yuan are our primary foreign currencies. The assets and liabilities of our foreign subsidiaries are remeasured from their local currency to U.S. dollars at current or historic exchange rates, as appropriate. Revenues and expenses are remeasured from any foreign currencies to U.S. dollars using historic or average monthly exchange rates, as appropriate, for the month in which the transaction occurred. Remeasurement gains and losses are included in SG&A expenses or income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign operations that are susceptible to

Page 8


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

foreign currency fluctuations are individually less than 10% of our respective consolidated amounts. Net remeasurement gains and losses have not been significant.
We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. These contracts are designed to minimize the effect of fluctuations in foreign currencies. To qualify for hedge accounting, contracts must reduce the foreign currency exchange rate and interest rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies. Our derivative instruments are not designated as hedging instruments and, therefore, are recorded at fair value as an asset or liability, and any changes in fair value are recorded in our consolidated statements of operations. We do not use derivative financial instruments for speculative trading purposes.
The fair values of our foreign exchange forward contracts in the consolidated balance sheets are shown in the table below:
Derivatives Not Designated as Hedging Instruments
 
Consolidated Balance Sheet Location
 
February 29, 2016
 
May 31, 2015
Foreign exchange forward contracts
 
Accrued Expenses
 
$
(18
)
 
$
(16
)

The table below provides data about the amount of gains and losses recognized in income for derivative instruments not designated as hedging instruments:
Derivatives Not Designated as Hedging Instruments
 
Location of Gain/(Loss) Recognized in Income on Derivatives
 
Three Months Ended February 29, 2016
 
Three Months Ended February 28, 2015
Foreign exchange forward contracts
 
SG&A expenses
 
$
(4
)
 
$
149


Derivatives Not Designated as Hedging Instruments
 
Location of Gain/(Loss) Recognized in Income on Derivatives
 
Nine Months Ended February 29, 2016
 
Nine Months Ended February 28, 2015
Foreign exchange forward contracts
 
SG&A expenses
 
$
201

 
$
659

Other Assets
We include demonstration equipment used in connection with our resale activity in other assets for a period of up to two years. Demonstration equipment is recorded at the lower of cost or estimated market value until the units are sold or transferred to our rental and lease equipment pool. Demonstration equipment transferred to our rental and lease equipment pool is depreciated over its remaining estimated useful life.
We also have a Supplemental Executive Retirement Plan (“SERP”) that provides for automatic deferral of contributions in excess of the maximum amount permitted under the 401(k) for our executives who choose to participate. The SERP is a non-qualified deferred compensation program. We have the option to match contributions of participants at a rate we determine each year.
Other assets consisted of the following:
 
February 29, 2016
 
May 31, 2015
Income taxes receivable
$
7,213

 
$

Demonstration equipment
5,207

 
81

Net investment in sales-type leases
3,700

 
5,876

Prepaid expenses and other
3,370

 
4,265

SERP
3,057

 
3,521

 
$
22,547

 
$
13,743

Recent Accounting Pronouncements
In February 2016, the FASB issued guidance that will require lessees to put most leases on their balance sheets but recognize expenses in the income statement. For lessors, the standard will be similar to the current model but will be updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases.

Page 9


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The impact this guidance will have on the consolidated financial statements cannot be determined at this time.
In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued guidance to establish a new, more robust framework for the recognition of revenue related to the transfer of goods and services to customers. This guidance is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The impact this guidance will have on the consolidated financial statements cannot be determined at this time.
Other Comprehensive Income
Comprehensive income is equivalent to net income for all periods presented.
Out-of-period Adjustment
During the second quarter of fiscal 2015, we identified $1.3 million of previously recognized revenue which the Company was not entitled to recognize. We determined this adjustment to be immaterial to our current and previously filed financial statements. We have recorded this out-of-period adjustment as a reduction to sales of equipment and other revenues and an increase to accrued expenses for the quarter ended November 30, 2014.
Note 2: Cash and Cash Equivalents
We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. We held no cash equivalents at February 29, 2016 and May 31, 2015 except for the money market funds that are part of our SERP assets.
Note 3: Fair Value Measurements
We measure certain financial assets and liabilities at fair value on a recurring basis, including SERP assets and liabilities, and foreign currency derivatives. The fair value of financial assets and liabilities can be 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 those that may be used with internally-developed valuation models.
Our assets and liabilities measured at fair value on a recurring basis were determined as follows:
 
  
February 29, 2016
 
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Balance
Assets
 
 
 
 
 
 
 
SERP
 
 
 
 
 
 
 
Money market fund
$
187

 
$

 
$

 
$
187

Mutual funds
2,870

 

 

 
2,870

Total assets measured at fair value
$
3,057

 
$

 
$

 
$
3,057

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
SERP
$
3,057

 
$

 
$

 
$
3,057

Foreign exchange forward contracts

 
18

 

 
18

Total liabilities measured at fair value
$
3,057

 
$
18

 
$

 
$
3,075


Page 10


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)


  
May 31, 2015
 
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Balance
Assets
 
 
 
 
 
 
 
SERP
 
 
 
 
 
 
 
Money market fund
$
166

 
$

 
$

 
$
166

Mutual funds
3,355

 

 

 
3,355

Total assets measured at fair value
$
3,521

 
$

 
$

 
$
3,521

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
SERP
$
3,521

 
$

 
$

 
$
3,521

Foreign exchange forward contracts

 
16

 

 
16

Total liabilities measured at fair value
$
3,521

 
$
16

 
$

 
$
3,537

The fair value measures for our SERP assets and liabilities were derived from quoted market prices in active markets and are included in Level 1 inputs. Our SERP assets include money market and mutual funds, which we classify as trading securities. 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.
Note 4: Equity Incentive Plan
Our 2005 Equity Incentive Plan (the “Equity Incentive Plan”), as amended and restated, 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. Pursuant to the Equity Incentive Plan, we have granted restricted stock units to directors, officers and key employees.
Restricted Stock Units
Each vested restricted stock unit entitles the holder to be issued one share of common stock. The vested restricted stock units settle into common stock on the earliest of (i) the first January 1st after the fifth anniversary of the grant, (ii) a change of control, or (iii) termination of the holder’s employment or membership on our Board of Directors. Restricted stock units vest according to a vesting schedule determined by the Compensation Committee of our Board of Directors, generally over a one to three year period.
The following table represents restricted stock unit activity for the nine months ended February 29, 2016:
 
Restricted
Stock
Units
 
Weighted –
Average
Grant
Date
Fair Value
Nonvested at June 1, 2015
129

 
$
16.75

Granted
182

 
11.24

Vested
(76
)
 
16.08

Forfeited/canceled
(7
)
 
16.72

Nonvested at February 29, 2016
228

 
$
12.59

We granted 182 and 87 restricted stock units during the nine months ended February 29, 2016 and February 28, 2015, respectively. We did not grant any restricted stock units during the three months ended February 29, 2016 and February 28, 2015, respectively.

Page 11


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

Under the terms of our restricted stock unit agreements, nonvested restricted stock unit awards contain forfeitable rights to dividends. Because the dividends are forfeitable, the restricted stock units are defined as non-participating securities. As of February 29, 2016, we have unrecognized share-based compensation cost of approximately $2,119 associated with restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of approximately 2.0 years.
We had 232 and 401 vested restricted stock units outstanding as of February 29, 2016 and February 28, 2015, respectively, which receive dividends following vesting and are convertible to common shares five years after the grant date.
Accounting for Share-Based Payments
Accounting guidance requires all share-based payments to employees, including grants of 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, which is approximately three years.
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 units.
We recorded $368 and $1,016 of share-based compensation as part of SG&A expenses for the three and nine months ended February 29, 2016 and $319 and $968 for the three and nine months ended February 28, 2015.
We receive a tax deduction for certain restricted stock units on the date the related shares are issued, generally for (1) the fair value of our common stock at the date of issuance and (2) for dividends paid on vested restricted stock units where the underlying shares have not been issued. Excess tax benefits are realized when restricted stock units are issued and the tax deductions (fair value at issuance) are greater than the compensation expense for financial reporting purposes (fair value at the date of grant). Shortfalls are realized when the fair value at issuance is less than the fair value at grant. For the nine months ended February 29, 2016 and February 28, 2015, we realized a total excess tax shortfall of $40 and an excess tax benefit of $348, respectively.
Note 5: Goodwill and Other Intangible Assets
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 acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets consist of purchased customer relationships and trade names.
Our goodwill and intangibles at February 29, 2016 are the result of our acquisition of Equipment Management Technology, Inc. on August 24, 2011, Telogy LLC on March 31, 2010, and Rush Computer Rentals, Inc. on January 31, 2006.
The changes in carrying amount of goodwill and other intangible assets for the nine months ended February 29, 2016 were as follows:
 
Balance as of
June 1, 2015
(net of amortization)
 
Additions
 
Amortization
 
Balance as of February 29, 2016
Goodwill
$
3,109

 
$

 
$

 
$
3,109

Trade name
411

 

 

 
411

Customer relationships
333

 

 
(88
)
 
245

 
$
3,853

 
$

 
$
(88
)
 
$
3,765

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 the carrying amount may not be recoverable. There were no conditions that indicated any impairment of goodwill or identifiable intangible assets as of February 29, 2016 and May 31, 2015.

Page 12


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

Intangible assets with finite useful lives are amortized over their respective estimated useful lives. The following tables provide a summary of our intangible assets:
 
February 29, 2016
 
Estimated
Useful Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trade name

 
$
411

 
$

 
$
411

Customer relationships
3-8 years

 
2,094

 
(1,849
)
 
245

 
 
 
$
2,505

 
$
(1,849
)
 
$
656

 
 
 
 
 
 
 
 
 
May 31, 2015
 
Estimated
Useful Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trade name

 
$
411

 
$

 
$
411

Customer relationships
3-8 years

 
2,094

 
(1,761
)
 
333

 
 
 
$
2,505

 
$
(1,761
)
 
$
744

Amortization expense related to intangible assets was $29 and $88 for the three and nine months ended February 29, 2016 and $30 and $100 for the three and nine months ended February 28, 2015, respectively.
Amortization expense for customer relationships is included in SG&A expenses. The following table provides estimated future amortization expense related to intangible assets as of February 29, 2016:
Year ending May 31,
 
Future
Amortization
2016 (remaining)
 
$
30

2017
 
118

2018
 
97

2019
 

2020
 

 
 
$
245

Note 6: Borrowings
On November 19, 2013, we entered into a credit agreement (the “Credit Agreement”) with J.P. Morgan Chase Bank, National Association (“JPM”), as administrative agent, J.P. Morgan Securities LLC, as sole bookrunner and sole lead arranger, and a syndicate of lenders. The Credit Agreement provides for a $25,000 revolving credit facility, including swingline loans and letters of credit. The Credit Agreement expires on November 30, 2017.
We have an option to increase the commitments under the Credit Agreement by up to an additional $25,000, upon our request and subject to the lenders electing to increase their commitments or by means of the addition of new lenders. Borrowings under the Credit Agreement bear interest at a rate equal to, at our election, the applicable rate for a “Eurodollar Loan” or a “CB Floating Rate Loan.” Eurodollar Loan advances accrue interest at a per annum interest rate equal to (i) the quotient (rounded upwards to the next 1/16th of 1%) of (a) the applicable LIBO Rate, divided by (b) one minus the maximum aggregate reserve requirement (expressed as a decimal) imposed under Federal Reserve Board Regulation D (the “Adjusted LIBO Rate”), plus (ii) 0.75%. CB Floating Rate Loan advances accrue interest at a per annum interest rate equal to (i) the higher of (a) JPM’s Prime Rate or (b) the Adjusted LIBO Rate for a one month interest period plus 2.5%, minus (ii) 2.0%. In addition, we pay a commitment fee of 0.10% of the unused amount if the average borrowing under the Credit Agreement is less than or equal to $8,000 on a quarterly basis.
The Credit Agreement contains customary affirmative and negative covenants (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on the ability to incur additional indebtedness, create liens, make certain investments, make restricted payments, enter into or undertake certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries. In addition, the Credit Agreement requires us to maintain minimum earnings and tangible net worth. We were in compliance with all financial covenants at February 29, 2016.

Page 13


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

We had no borrowings outstanding under the Credit Agreement at February 29, 2016 and $2,387 of borrowings outstanding at May 31, 2015. The weighted average interest rate under the line of credit was approximately 1.25% at May 31, 2015.
Note 7: 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 initial acceptance of customer finance arrangements is based on a review of each customer’s credit profile, which may include the review of third party credit reports, customer financial statements and/or bank verifications. We monitor the credit quality of our sales-type lease portfolio based on payment activity and the related finance lease receivable aging. This credit quality is assessed on a monthly basis. Our historical losses on finance lease receivables are insignificant, and therefore we do not have a specific allowance for credit losses.
The minimum lease payments receivable and the net investment included in other assets for such leases were as follows:
 
February 29, 2016
 
May 31, 2015
Gross minimum lease payments receivable
$
3,824

 
$
6,109

Less – unearned interest
(124
)
 
(233
)
Net investment in sales-type lease receivables
$
3,700

 
$
5,876

The following table provides estimated future minimum lease payments by year related to sales-type leases:
Year ending May 31,
 
Future
Payments
2016 (remaining)
 
$
1,084

2017
 
2,360

2018
 
363

2019
 
17

2020
 

 
 
$
3,824

Note 8: 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 and 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 in our business: our T&M and DP businesses.
In the past, we concluded that although we had separate operating segments for T&M and DP equipment, these two segments could be aggregated into a single reportable segment because they had similar economic characteristics and qualitative factors. However, as a result of a change in economic characteristics in fiscal 2015 in our T&M segment, primarily attributable to the expiration of the Keysight reseller agreement and greater competition in the marketplace, we concluded that we no longer expected similar economic characteristics and qualitative factors to continue in the future. As such, management determined that the operating segments should no longer be aggregated. Following the change in the composition of our reportable operating segments, we restated the segment information for fiscal 2015.
Our equipment pool, based on acquisition cost, consisted of $409,310 of T&M equipment and $32,656 of DP equipment at February 29, 2016 and $434,963 of T&M equipment and $37,824 of DP equipment at May 31, 2015. Additional segment asset information is not available.

Page 14


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

Revenues for these operating segments were as follows for the three months ended February 29, 2016 and February 28, 2015:
 
T&M
 
DP
 
Total
2016
 
 
 
 
 
Rentals and leases
$
25,340

 
$
3,833

 
$
29,173

Sales of equipment and other revenues
9,857

 
468

 
10,325

Segment and consolidated total
$
35,197

 
$
4,301

 
$
39,498

 
 
 
 
 
 
2015
 
 
 
 
 
Rentals and leases
$
26,372

 
$
3,880

 
$
30,252

Sales of equipment and other revenues
25,799

 
291

 
26,090

Segment and consolidated total
$
52,171

 
$
4,171

 
$
56,342

Revenues for these operating segments were as follows for the nine months ended February 29, 2016 and February 28, 2015:
 
T&M
 
DP
 
Total
2016
 
 
 
 
 
Rentals and leases
$
79,937

 
$
13,712

 
$
93,649

Sales of equipment and other revenues
40,888

 
1,614

 
42,502

Segment and consolidated total
$
120,825

 
$
15,326

 
$
136,151

 
 
 
 
 
 
2015
 
 
 
 
 
Rentals and leases
$
84,410

 
$
13,200

 
$
97,610

Sales of equipment and other revenues
79,033

 
1,273

 
80,306

Segment and consolidated total
$
163,443

 
$
14,473

 
$
177,916

Depreciation of rental and lease equipment for these operating segments was as follows for the three and nine months ended February 29, 2016 and February 28, 2015:
 
Three Months Ended
 
February 29, 2016
 
February 28, 2015
T&M
$
12,699

 
$
12,856

DP
1,045

 
988

Segment and consolidated total
$
13,744

 
$
13,844

 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
T&M
$
39,388

 
$
39,387

DP
3,297

 
3,042

Segment and consolidated total
$
42,685

 
$
42,429

Amortization expense is not material and is included in SG&A expenses.

Page 15


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

We consider the marginal contribution as our measure of segment profit or loss. The marginal contribution is calculated as operating revenue less operating costs and direct and allocated SG&A expenses. Marginal contribution for these operating segments was as follows for the three and nine months ended February 29, 2016 and February 28, 2015:
 
Three Months Ended
 
February 29, 2016
 
February 28, 2015
T&M
$
8,755

 
$
10,964

DP
967

 
1,094

Total marginal contribution of operating segments
9,722

 
12,058

Deduct:
 
 
 
Unallocated SG&A expenses
8,010

 
8,394

Add:
 
 
 
Interest income (expense), net
(221
)
 
82

Other income
1

 

Income before income taxes
$
1,492

 
$
3,746

 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
T&M
$
29,272

 
$
37,410

DP
5,206

 
4,472

Total marginal contribution of operating segments
34,478

 
41,882

Deduct:
 
 
 
Unallocated SG&A expenses
25,123

 
24,532

Add:
 
 
 
Interest income (expense), net
(385
)
 
264

Other income
14

 
1,390

Income before income taxes
$
8,984

 
$
19,004

No single customer accounted for more than 10% of total revenues during the nine months ended February 29, 2016 and February 28, 2015.

We conduct rental, leasing and sales activities in foreign countries. Selected country information is presented below:
 
Three Months Ended
 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
Revenues: 1
 
 
 
 
 
 
 
U.S.
$
30,528

 
$
47,922

 
$
110,451

 
$
149,320

Other 2
8,970

 
8,420

 
25,700

 
28,596

Total
$
39,498

 
$
56,342

 
$
136,151

 
$
177,916


Page 16


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

 
As of
 
February 29, 2016
 
May 31, 2015
Net Long-Lived Assets: 3
 
 
 
U.S.
$
174,482

 
$
197,514

Other 2
45,670

 
47,277

Total
$
220,152

 
$
244,791


1 
Revenues by country are based on the shipping destination.
2 
Other consists of countries other than the U.S. Each foreign country individually accounts for less than 10% of the total consolidated revenues and net long-lived assets.
3 
Net long-lived assets include rental and lease equipment and other property, net of accumulated depreciation and amortization.
Note 9: 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 nine months ended February 29, 2016 and February 28, 2015:
 
Three Months Ended
 
Nine Months Ended
 
February 29, 2016
 
February 28, 2015
 
February 29, 2016
 
February 28, 2015
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share - weighted average common shares outstanding (including shares issuable for vested restricted stock units)
24,426

 
24,377

 
24,413

 
24,355

Effect of unvested restricted stock units
14

 

 
9

 

Diluted shares used in per share calculation
24,440


24,377


24,422


24,355

Net income
$
1,009

 
$
2,425

 
$
5,669

 
$
11,991

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.10


$
0.23


$
0.49

Diluted
$
0.04

 
$
0.10


$
0.23


$
0.49

We did not include 97 and 108 shares in the calculation of diluted earnings per share for the three and nine months ended February 29, 2016, respectively, and 78 for the three and nine months ended February 28, 2015 as to do so would have been antidilutive.

Note 10: Income Taxes
We recognize a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are periodically reviewed for recoverability.
Accounting guidance for uncertain tax positions prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.
We recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We recognize interest, penalties and foreign currency gains and losses with respect to uncertain tax positions as components of our income tax provision. Accrued interest and penalties are included within accrued expenses in the consolidated balance sheet. Significant judgment is required in the identification of uncertain tax positions and in the estimation of related penalties and interest. There were no uncertain tax positions in fiscal 2016 and 2015.

Page 17


ELECTRO RENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar and share amounts in thousands, except per share amounts)

We are subject to taxation in the U.S., as well as various state and foreign jurisdictions. We have substantially settled all income tax matters for the United States federal jurisdiction for years through fiscal 2011. Major state jurisdictions have been examined through fiscal years 2004 and 2005, and foreign jurisdictions have not been examined for their respective initial statutory periods of approximately 3 years.
Note 11: Commitments and Contingencies
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 or awards against us. 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 that we believe would reasonably be expected to have a material adverse effect on our financial condition, results of operations or cash flows.
Note 12: Other Income
In the second quarter of fiscal 2015, we recognized other income from a $1.4 million settlement received as one of the plaintiffs in a class action lawsuit involving the purchase of certain computer products.
Note 13: Subsequent Events
On March 17, 2016, our Board of Directors declared a quarterly cash dividend of $0.125 per common share. The dividend will be paid on April 8, 2016 to shareholders of record as of March 31, 2016.


Page 18



Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion addresses (a) our financial condition as of February 29, 2016 and May 31, 2015, (b) the results of our operations for the three and nine months ended February 29, 2016 and February 28, 2015, and (c) our cash flows for the nine months ended February 29, 2016 and February 28, 2015. 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, 2015, to which you are directed for additional information.
Overview
We are a global organization devoted to the rental, lease and sale of new and used electronic test and measurement (“T&M”) equipment. We purchase T&M equipment from leading manufacturers such as Keysight Technologies, Inc. (formerly Agilent Technologies, Inc., “Keysight”), Anritsu, Inc. ("Anritsu"), Rohde & Schwarz Gmbh & Co. KG ("Rohde & Schwarz") and Tektronix Inc. Our customers rent, lease and buy our T&M equipment, and use that equipment primarily in the aerospace and defense, telecommunications, electronics, industrial and semiconductor industries.
In addition, although it represented only approximately 11.3% of our revenues for the first nine months of fiscal 2016, our Data Products ("DP") division is a large United States rental provider offering personal computers from leading manufacturers.
Our Businesses
Our businesses are as follows:
Rental and Lease Business. We rent and lease state-of-the-art electronic equipment. We maintain an equipment portfolio comprising T&M and DP equipment purchased from leading manufacturers, which we warehouse in various locations around the world to enable us to serve rental and lease customers.
Used Equipment Sales. We sell used T&M and DP equipment that we previously held for rent and lease. Used equipment is sold at substantial discounts compared to new equipment, and provides an economic advantage for customers seeking ownership of used equipment. All of our used equipment has been maintained and serviced by our professional maintenance team, and our customers have confidence in the quality of the used equipment purchased from us.
New Equipment Sales. We sell new T&M equipment. We were, through May 31, 2015, an authorized reseller of certain new Keysight T&M products and services to small and medium size customers in the United States and Canada. Substantially all of our new equipment sales prior to May 31, 2015 were through our Keysight reseller agreement. In fiscal 2016, we entered into reseller agreements with other T&M equipment manufacturers, including Anritsu and Rohde & Schwarz.
Our Sales Strategy
We have a focused sales strategy, using a direct sales force to meet our customers’ needs in our T&M equipment rental, lease and sales business. We have an experienced, highly technical sales force that specializes in all the products and services offered by our Company. Our sales force identifies potential customers through coordinated efforts with our marketing organization, which is staffed by professionals with many years of industry-related experience. As our customers have a wide range of requirements for equipment, our sales force is able to leverage our broad product offering and extensive knowledge of the T&M and DP equipment environment to determine the right product to rent, lease or sell to the customer.
Our Equipment Management Strategy
To maximize our overall profitability from the rental, leasing, and sales of equipment, we manage our equipment pool on an ongoing basis by controlling the timing, pricing and mix of our purchases and sales of equipment. We acquire new and used equipment for our rental pool 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 utilizing our proprietary PERFECT software to adjust our equipment pool 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 equipment that we are unable to rent or sell for a profit. We assess the carrying value of our

Page 19



equipment pool on an annual basis or more frequently when factors indicating potential impairment are present. We recognized $0.4 million of equipment impairment charges related to our equipment pool during the nine months ended February 29, 2016.
Foreign Operations and Hedging
Due to our foreign operations in Europe, Canada and China, we have revenue, expenses, assets and liabilities in foreign currencies, primarily the euro, British pound sterling, Canadian dollar and Chinese yuan. We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. As a result of these forward contracts, we were able to reduce the impact of foreign currency fluctuations flowing through our operating results during the nine months ended February 29, 2016.
Profitability and Key Business Trends
The following is a summary of certain financial metrics, comparing the first nine months of fiscal 2016 to the first nine months of fiscal 2015, that our management deem important indicators of the performance of the Company:
our rental and lease revenues decreased by 4.1% to $93.6 million from $97.6 million primarily due to a decrease in rental/lease rates as a result of a negative effect of a decline in foreign exchange rates and competition and, to a lesser degree, lower demand in certain industries we serve;
our sales of equipment and other revenues decreased by 47.1% to $42.5 million from $80.3 million primarily due to a decrease in new equipment sales of $38.1 million as a result of the expiration of the Keysight reseller agreement on May 31, 2015;
our operating profit decreased 46.1% to $9.4 million from $17.4 million primarily due to the decrease in sales of new equipment revenues without a commensurate decrease in SG&A expenses;
our net income decreased 52.7% to $5.7 million from $12.0 million;
our net income per diluted common share (EPS) decreased 53.1% to $0.23 from $0.49;
our net income (annualized) as a percentage of average assets declined to 2.6% from 5.3%; and
our net income (annualized) as a percentage of average equity declined to 3.3% from 7.0%.
Comparison of Three Months Ended February 29, 2016 and February 28, 2015
Revenues
Total revenues for the three months ended February 29, 2016 and February 28, 2015 were $39.5 million and $56.3 million, respectively. The 29.9% decrease in total revenues was due to a 3.6% decrease in rental and lease revenues and a 60.4% decrease in sales of equipment and other revenues.
Rental and Lease Revenues
Rental and lease revenues for the three months ended February 29, 2016 were $29.2 million, compared to $30.3 million for the three months ended February 28, 2015 as follows:
 
2016
 
2015
T&M rental and lease revenue
$
25,340

 
$
26,372

DP rental and lease revenue
3,833

 
3,880

 
$
29,173

 
$
30,252

Our T&M rental and lease revenues decreased by $1.0 million due to a decrease in rental and lease rates of $0.8 million and a decrease in demand of $0.2 million. The decrease in rates was primarily driven by a $0.5 million decrease resulting from a change in foreign exchange rates affecting our European and Canadian operations,as well as a change in product mix and competition. We also saw softening demand in telecommunications and semiconductor manufacturing sectors that was partially offset by an uptick in aerospace and defense sector.
The DP rental and lease revenues remained consistent to fiscal 2015.

Page 20



Sales Equipment and Other Revenues
Sales of equipment and other revenues decreased to $10.3 million for the third quarter of fiscal 2016 from $26.1 million for the third quarter of fiscal 2015 as follows:
 
2016
 
2015
Sales of new equipment
$
1,704

 
$
17,273

Sales of used equipment and other revenues
8,621

 
8,817

 
$
10,325

 
$
26,090

The decrease in sales of new equipment in the third quarter of fiscal 2016 as compared to the third quarter of fiscal 2015 is primarily a result of the expiration of the Keysight reseller agreement on May 31, 2015. The decrease in sales of used equipment and other revenues is primarily due to a decrease in used equipment sales while other revenue remained relatively consistent to fiscal 2015.
Substantially all of our new equipment sales prior to May 31, 2015 were through the Keysight reseller agreement. Keysight elected not to renew our reseller agreement on its expiration on May 31, 2015, as part of a strategic decision to pursue a direct sales approach. In fiscal 2016, we entered into reseller agreements with other T&M equipment manufacturers, including Anritsu and Rohde & Schwarz. The expiration of the Keysight reseller agreement has continued to affect our new equipment sales, and consequently our revenues and net income, as we look to rebuild our new equipment sales under reseller agreements with these new resellers. Of the $1.7 million of new equipment sold during the third quarter of fiscal 2016, $0.5 million related to the fulfillment of the Keysight backlog.
Operating Expenses
Depreciation expense in the third quarter of fiscal 2016 declined to $13.7 million as compared to $13.8 million in the third quarter of fiscal 2015. However, the depreciation ratio, as a percentage of rental and lease revenues, increased to 47.1% in the third quarter of fiscal 2016 from 45.8% in the third quarter of fiscal 2015 as T&M rental and lease revenues decreased.
Costs of rentals and leases, excluding depreciation, which primarily include labor related costs of our operations personnel, supplies, repairs, equipment subrentals, insurance and warehousing costs associated with our rental and lease equipment, declined to $4.1 million for the three months ended February 29, 2016 from $4.5 million for the three months ended February 28, 2015. Generally, this expense remains consistent from quarter to quarter as our existing infrastructure is capable of handling moderate changes in rental and lease activity.
Costs of sales of equipment and other revenues, which primarily include the cost of equipment sales, decreased to $6.5 million in the third quarter of fiscal 2016 from $19.6 million in the same period of fiscal 2015, as a result of the decrease in sales of equipment. As a percentage of sales of equipment and other revenues, costs of sales of equipment and other revenues decreased to 62.7% in the third quarter of fiscal 2016 from 75.1% in the third quarter of fiscal 2015. This decrease was primarily due to a change in product mix with a decline in new equipment sales, while used equipment sales, which generally result in higher margins, remained relatively consistent. Our sales margin percentage is expected to fluctuate from quarter to quarter depending on the mix of used and new equipment sales and is impacted by competition.
SG&A expenses decreased to $13.5 million in the third quarter of fiscal 2016 from $14.7 million in the third quarter of 2015. The decrease was primarily driven by a reduction in certain selling costs in our SG&A expenses for the three months of fiscal 2016, compared to the same period in fiscal 2015, partially offset by certain short-term administrative costs. As a percentage of total revenues, SG&A expenses increased to 34.1% in the third quarter of fiscal 2016 from 26.1% in the third quarter of fiscal 2015, primarily due to the decrease in our new equipment sales without a commensurate decrease in SG&A expenses. While sales of new equipment declined in fiscal 2016, we did not implement any significant reductions in our sales team. The knowledge and experience of our sales team were a key competitive differentiator for our business, and we believed that they will be instrumental in developing revenues under the new reseller agreements.
Operating Profit
Our operating profit decreased 53.3%, or $2.0 million, to $1.7 million for the three months ended February 29, 2016 from $3.7 million for the three months ended February 28, 2015. As compared to the same period in the prior fiscal year, our rental and lease business contributed $0.6 million less to operating profit, resulting from a $1.1 million decrease in rental and lease revenues offset by a $0.1 million decrease in our depreciation expense and a $0.4 million decrease in our costs of rentals and leases, excluding depreciation. Operating profit from sales of equipment and other revenues decreased by $2.7 million as compared to the third quarter of fiscal 2015 as our sales of equipment and other revenues decreased by $15.8 million while our

Page 21



related costs decreased by $13.1 million. Our SG&A expenses for the quarter decreased by $1.2 million as compared to fiscal 2015.
Average Acquisition Cost of Equipment
The following table sets forth the average acquisition cost of our equipment on rent and lease:
Average acquisition cost of equipment on rent and lease (in millions)
Three Months Ended
 
 
February 29, 2016
 
February 28, 2015
 
Change
T&M
$
255.0

 
$
256.9

 
(0.7
)%
DP
$
11.0

 
$
11.9

 
(7.6
)%
Average T&M acquisition cost of equipment on rent and lease for the three months ended February 29, 2016 decreased as compared to the same period in fiscal 2015 due to a decrease in demand. Average DP acquisition cost of equipment decreased due to decreased demand for DP products in the third quarter of fiscal 2016 as compared to the third quarter in fiscal 2015.
Average Rental and Lease Rates
Average T&M rental and lease rates decreased by 3.1% while the average DP rental and lease rates increased by 6.7% for the three months ending February 29, 2016 as compared to the third quarter in fiscal 2015. The decrease in T&M rates was due to the negative effect of exchange rates on our European and Canadian operations, a shift to markets where we generally experience lower rates and, to a lesser degree, competition in the marketplace. The increase in DP rates is the result of changes in DP product mix.
Average Utilization
Average utilization for our T&M equipment pool, calculated based on average acquisition cost of equipment on rent and lease compared to the average total equipment pool, decreased to 63.6% for the three months ended February 29, 2016 from 64.9% for the three months ended February 28, 2015. The decrease is primarily due to a large transfer of Keysight demonstration equipment into our rental pool upon the expiration of the Keysight resale agreement on May 31, 2015 and a decrease in demand. The average utilization of our DP equipment pool, based on the same method of calculation, decreased to 35.7% from 35.8% for the three months ended February 29, 2016 and February 28, 2015. Our utilization rate is impacted by new equipment purchases in support of existing and potential business, sales of used equipment and transfers of demonstration equipment into our rental pool.
Income Tax Provision
Our effective tax rate decreased to 32.4% in the third quarter of fiscal 2016 from 35.3% in the third quarter of fiscal 2015. The decrease is due to a continuing decline in pretax income relative to the levels of permanent tax differences during fiscal 2016.
Comparison of Nine Months Ended February 29, 2016 and February 28, 2015
Revenues
Total revenues for the nine months ended February 29, 2016 and February 28, 2015 were $136.2 million and $177.9 million, respectively. The 23.5% decrease in total revenues was due to a 4.1% decrease in rental and lease revenues and a 47.1% decrease in sales of equipment and other revenues.
Rental and Lease Revenues
Rental and lease revenues for the nine months ended February 29, 2016 were $93.6 million, compared to $97.6 million for the for the nine months ended February 28, 2015 as follows:
 
Nine Months Ended
February 29, 2016
 
February 28, 2015
T&M rental and lease revenue
$
79,937


$
84,410

DP rental and lease revenue
13,712

 
13,200

 
$
93,649

 
$
97,610


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Our T&M rental and lease revenues decreased by $4.5 million due to a decrease in rental and lease rates. The decrease in rates was primarily driven by competition and a change in product mix and included the effect of a decrease in foreign exchange rates of $2.0 million affecting our European and Canadian operations.
DP rental and lease revenues increased by $0.5 million, primarily due to an increase in demand.
Sales of Equipment and Other Revenues
Sales of equipment and other revenues decreased to $42.5 million for the first nine months of fiscal 2016 from $80.3 million in the prior fiscal year as follows:
 
Nine Months Ended
February 29, 2016
 
February 28, 2015
Sales of new equipment
$
15,525

 
$
53,613

Sales of used equipment and other revenues
26,977

 
26,693

 
$
42,502

 
$
80,306

The decrease in sales of equipment and other revenues for the nine months ended February 29, 2016 as compared to fiscal 2015 was primarily the result of a decrease in sales of new equipment, partially offset by an increase in sales of used equipment and other revenues. Sales of new equipment decreased by $38.1 million, or 71.0%, as a result of the expiration of the Keysight reseller agreement. Sales of used equipment and other revenue increased by $0.3 million, as compared to prior period, which was impacted by a negative effect a $1.3 million non-recurring, out-of-the-period adjustment to other revenue in fiscal 2015.
Substantially all of our new equipment sales prior to May 31, 2015 were through our Keysight reseller agreement. Keysight elected not to renew our reseller agreement on its expiration on May 31, 2015, as part of a strategic decision to pursue a direct sales approach. In fiscal 2016, we entered into reseller agreements with other T&M equipment manufacturers, including Anritsu and Rohde & Schwarz. The expiration of the Keysight reseller agreement has continued to affect our new equipment sales, and consequently our revenues and net income, as we have fulfilled our existing Keysight backlog of sales and looked to rebuild our new equipment sales under reseller agreements with these new resellers. Of the $15.5 million of new equipment sold during fiscal 2016, $11.8 million related to the fulfillment of the Keysight backlog.
Operating Expenses
Depreciation of rental and lease equipment for the first nine months of fiscal 2016 and 2015 remained consistent at $42.7 million and $42.4 million, respectively. Depreciation as a percentage of rental and lease revenues increased to 45.6% from 43.5% for the nine months ended February 29, 2016 and February 28, 2015, respectively, due to a decrease in rental and lease revenues.
Costs of rentals and leases, excluding depreciation, which primarily include labor related costs of our operations personnel, supplies, repairs, equipment subrentals, insurance and warehousing costs associated with our rental and lease equipment, decreased to $13.3 million for the nine months ended February 29, 2016 compared to $13.7 million for the nine months ended February 28, 2015.
Costs of sales of equipment and other revenues, which primarily include the cost of equipment sales, decreased to $28.2 million in the first nine months of fiscal 2016 from $60.2 million in the same period of fiscal 2015, as a result of the decrease in sales of equipment revenues. Costs of sales of equipment and other revenues, as a percentage of sales of equipment and other revenues, decreased to 66.2% in the first nine months of fiscal 2016 from 74.9% in fiscal 2015. This decrease was primarily due to a change in product mix with a decline in new equipment sales, while used equipment sales, which generally result in higher margins, remained relatively consistent. Our sales margin percentage is expected to fluctuate from quarter to quarter depending on the mix of used and new equipment sales and is also impacted by competition.
Selling, general and administrative expenses decreased to $42.7 million in the first nine months of fiscal 2016 compared to $44.3 million for the first nine months of fiscal 2015. The decrease is primarily driven by a reduction in certain selling costs in our SG&A expenses for the nine months of fiscal 2016, compared to the same period in fiscal 2015, partially offset by certain short-term administrative costs. As a percentage of total revenues, SG&A expenses increased to 31.3% for the first nine months of fiscal 2016 compared to 24.9% for the first nine months of fiscal 2015 primarily due to a decrease in sales of new equipment revenue without a commensurate decrease in SG&A expenses. While sales of new equipment declined in fiscal 2016, we did not implement any significant reductions in our sales team. The knowledge and experience of our sales team were a key

Page 23



competitive differentiator for our business, and we believed that they will be instrumental in developing revenues under the new reseller agreements.
Operating Profit
Our operating profit decreased 46.1%, or $8.0 million, to $9.4 million for the first nine months of fiscal 2016 from $17.4 million for the first nine months of fiscal 2015. As compared to the same period in the prior fiscal year, our rental and lease business contributed $3.9 million less to operating profit, resulting from a $4.0 million decrease in rental and lease revenues, a $0.3 million increase in depreciation expense, and a $0.4 million decrease in our costs of rentals and leases, excluding depreciation. Operating profit from sales of equipment and other revenues decreased by $5.8 million as compared to fiscal 2015 as our sales of equipment and other revenues decreased by $37.8 million while the related costs decreased by $32.0 million. Our SG&A expenses decreased by $1.6 million as compared to fiscal 2015.
Average Acquisition Cost of Equipment
The following table sets forth the average acquisition cost of our equipment on rent and lease:
Average acquisition cost of equipment on rent and lease (in millions)
Nine Months Ended
 
 
February 29, 2016
 
February 28, 2015
 
Change
T&M
$
258.4

 
$
258.2

 
0.1
%
DP
$
13.1

 
$
12.7

 
3.1
%
Average T&M acquisition cost of equipment on rent and lease for the nine months ended February 29, 2016 remained consistent with fiscal 2015 levels. Our average acquisition cost of DP equipment on rent and lease for the nine months ended February 29, 2016 increased as compared to fiscal 2015 due to an increase in demand for DP products.
Average Rental and Lease Rates
Average T&M rates decreased by 5.3% while average DP rates increased by 1.1% for the nine months of fiscal 2016 as compared to the same period in fiscal 2015. The decrease in T&M rates was due to the negative effect of exchange rates on our European and Canadian operations, a shift to markets where we generally experience lower rates and, to a lesser degree, competition in the marketplace. The increase in DP rates is the result of a change in product mix in fiscal 2016 as compared to fiscal 2015.
Average Utilization
Average utilization for our T&M equipment pool, calculated based on average acquisition cost of equipment on rent and lease compared to the average total equipment pool, decreased to 63.4% from 64.7% for the nine months ended February 29, 2016 and February 28, 2015, respectively. The decrease is primarily due to a large transfer of Keysight demonstration equipment into our rental pool upon the expiration of the Keysight resale agreement on May 31, 2015. The average utilization of our DP equipment pool, based on the same method of calculation, increased to 40.1% from 37.5% for the nine months ended February 29, 2016 and February 28, 2015, respectively. Our utilization rate is impacted by new equipment purchases in support of existing and potential business, transfers of demonstration equipment into the rental and lease equipment pool, and sales of used equipment.
Backlog
As of February 29, 2016, our sales order backlog for T&M equipment relating to our resale channel was $1.0 million, a decrease of 85.9% from $7.1 million at February 28, 2015. The decrease is primarily due to the expiration of the Keysight reseller agreement on May 31, 2015. Backlog represents the cumulative balance, at a given point in time, of recorded customer sales orders that have not yet been shipped or recognized as sales. Although backlog consists of firm orders for which goods and services are yet to be provided, customers can, and sometimes do, terminate or modify these orders. Backlog, on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.
Income Tax Provision
Our effective tax rate remained stable at 36.9% for the first nine months of fiscal 2016 and 2015.

Page 24



Liquidity and Capital Resources
We have three principal sources of liquidity: cash flows provided by our operating activities, proceeds from the sale of equipment, and external funds that historically have been provided by bank borrowings. We believe that cash, 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.
Cash
The balance of our cash was $18.2 million at February 29, 2016, an increase of $14.2 million from May 31, 2015, primarily due to decreases in cash used in financing and investing activities being partially offset by a decrease in cash provided by operating activities. Outside our normal operations and equipment purchases, we use our cash to pay dividends to shareholders.
Cash Flows
During the first nine months of fiscal 2016 and 2015, net cash provided by operating activities was $36.2 million and $39.5 million, respectively. The decrease of $3.3 million in net cash provided by operating activities for the first nine months of fiscal 2016 was primarily due to a $6.3 million decrease in net income partially offset by a $2.9 million increase in income taxes paid. This decrease was partially offset by changes in working capital, primarily a reduction in accounts receivable, as a result of a decrease in revenue.
During the first nine months of fiscal 2016 and 2015, net cash used in investing activities was $10.1 million and $23.0 million, respectively. The decrease in cash used in investing activities for the first nine months of fiscal 2016 was primarily due to a decrease in payments for purchases of rental and lease equipment of $12.7 million as we deemed our equipment levels sufficient to satisfy the current demand.
Net cash used in financing activities decreased to $11.9 million from $14.9 million for the first nine months of fiscal 2016 and 2015 primarily due to decrease in payments of dividends to $9.3 million during fiscal 2016 from $14.8 million during fiscal 2015.
Credit Facility
At February 29, 2016 and February 28, 2015, we had no borrowings and $25 million available credit under our Credit Facility.
Capital Expenditures
Our primary capital expenditures have been for 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. Our equipment purchases will fluctuate based on changes in our utilization, used equipment sales activity and technology trends.
To meet current rental demand and support areas of potential growth for both T&M and DP equipment, we paid for $36.0 million of rental and lease equipment purchases during the first nine months of fiscal 2016, compared to $48.7 million during the first nine months of fiscal 2015, a decline of 26.0%.
Dividends Paid
We paid dividends of $0.38 and $0.60 per common share during the first nine months ended February 29, 2016 and February 28, 2015, respectively, amounting to an aggregate of $9.3 million and $14.8 million during the first nine months of fiscal 2016 and 2015, respectively. Payment of future dividends is at the discretion of our Board of Directors and depends on sales, profitability and other performance metrics of the Company, subject to compliance with applicable law.
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, 2015.

Page 25



Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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, 2015. Those include our policies related to Asset Lives and Depreciation Methods, Impairment of Long-Lived Assets, Goodwill Impairment, and Revenue Recognition. We have not made any material changes to these policies as previously disclosed in our Annual Report.

Page 26



Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
During the first nine months of fiscal 2016, 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, 2015.
Item 4.
Controls and Procedures.
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in this report is: (1) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
As of February 29, 2016, 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 Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective for their intended purpose described above.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), known to our Chief Executive Officer or our Chief Financial Officer, that occurred during the fiscal quarter covered by this report 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 over financial reporting 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 27



PART II - OTHER INFORMATION

Item 1.
Legal Proceedings.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this report, we are not a party to any material litigation, other than ordinary routine legal proceedings and claims incidental to our business.
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, 2015. 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 that we face. 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.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3.
Defaults Upon Senior Securities.
None.
Item 4.
Mine Safety Disclosures.
Not applicable.
Item 5.
Other Information.
None.

Page 28



Item 6.
Exhibits.
Exhibit No.
 
Document Description
 
Incorporation by Reference
 
 
 
 
 
10.1
 
Amendment Number One dated as of November 27, 2015 to Credit Agreement by and among Electro Rent Corporation, JPMorgan Chase Bank, National Association, as administrative agent, J.P. Morgan Securities LLC, as sole bookrunner and sole lead arranger, and the lenders party thereto, dated as of November 19, 2013.

 
Incorporated by reference from the Registrant's Current Report on Form 8-K filed December 12, 2015.
 
 
 
 
 
31.1
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
Filed herewith.
 
 
 
31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
Filed herewith.
 
 
 
32.1*
 
Section 1350 Certification by Chief Executive Officer
 
Furnished herewith.
 
 
 
32.2*
 
Section 1350 Certification by Chief Financial Officer
 
Furnished herewith.
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
*
This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Page 29



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
 
 
 
 
Date:
April 8, 2016
 
 
 
/s/    Allen Sciarillo    
 
 
 
 
 
Allen Sciarillo
Vice President of Finance and Acting Chief Financial Officer
(Principal Financial and Accounting Officer and duly authorized to sign this report on behalf of the company)


Page 30