SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File Number: 0-9061

ELECTRO RENT CORPORATION

6060 Sepulveda Boulevard
Van Nuys, California 91411-2512
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (818) 786-2525

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock without par value

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2). Yes [X] No [   ].

The aggregate market value of the registrant’s Voting Stock, held by non-affiliates of the registrant, as of July 30, 2004, was $20,886,633.

Number of shares of Common Stock outstanding as of July 30, 2004: 24,901,373 shares.

Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

1.

Inside front cover and pages 5-12 and 14-30 of the Annual Report to Security Holders for the fiscal year ended May 31, 2004 (the “2004 Annual Report”) are incorporated by reference in this Form 10-K Annual Report.

2.

Proxy Statement for the Annual Meeting of Shareholders to be held on October 14, 2004 (the “2004 Proxy Statement”).

CROSS REFERENCE SHEET

Showing Location in 2004 Annual Report
and 2004 Proxy Statement of Information
Required by Items of Form 10-K

PART I

     EXCEPT FOR THE HISTORICAL STATEMENTS AND DISCUSSIONS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, STATEMENTS CONTAINED IN THIS FORM 10-K CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS REFLECT CURRENT VIEWS OF OUR MANAGEMENT WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. ALL PLANS, PROJECTIONS, AND FUTURE ESTIMATES ARE FORWARD-LOOKING STATEMENTS, WHICH IN SOME, BUT NOT ALL, CASES, ARE IDENTIFIED BY WORDS SUCH AS “ANTICIPATE,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FUTURE,” AND OTHER SIMILAR EXPRESSIONS. PLEASE DO NOT PUT UNDUE RELIANCE ON FORWARD LOOKING STATEMENTS. FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, NOT ALL OF WHICH ARE DISCLOSED IN THIS FORM 10-K. ALTHOUGH WE BELIEVE OUR ASSUMPTIONS ARE REASONABLE, IT IS LIKELY THAT AT LEAST SOME OF THESE ASSUMPTIONS WILL NOT COME TRUE. ACCORDINGLY, OUR ACTUAL RESULTS WILL PROBABLY DIFFER FROM THE OUTCOMES CONTAINED IN ANY FORWARD-LOOKING STATEMENT, AND THOSE DIFFERENCES COULD BE MATERIAL. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THE ONES DISCUSSED BELOW, AND IN THE “RISK FACTORS” ATTACHED AS EXHIBIT 99(A) TO THIS 10-K, AS WELL AS IN OUR ANNUAL REPORT TO OUR SHAREHOLDERS (ESPECIALLY IN THE SECTIONS ENTITLED “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” AND IN “QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT INTEREST RATES AND CURRENCY RATES”) AND OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THE RISKS DISCUSSED, OR ANY OTHER RISKS, MATERIALIZE, OR SHOULD ONE OR MORE OF OUR UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED, EXPECTED OR PROJECTED. IN LIGHT OF THE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING INFORMATION WILL IN FACT PROVE TO BE CORRECT. WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.

     Unless otherwise noted (1) the terms “Electro Rent,” “we,” “us,” and “our,” refer to Electro Rent Corporation and its subsidiaries, and (2) the terms “Common Stock” and “shareholder(s)” refer to Electro Rent’s common stock and the holders of that stock, respectively.

Item 1. Business.

     Electro Rent was incorporated in California in 1965 and became a publicly held corporation on March 31, 1980.

     We primarily engage in the rental, lease and sale of state-of-the-art electronic equipment. About 81% of our equipment portfolio at acquisition cost is composed of general purpose test and measurement instruments purchased from leading manufacturers such as Agilent Technologies and Tektronix. The remainder of our equipment portfolio comprises personal computers and servers, from manufacturers including Dell, HP/Compaq, IBM and Toshiba. A large part of our test and measurement equipment portfolio is rented or leased to Fortune 500 companies in the aerospace, defense, electronics and telecommunications industries. We believe that a large part of our test and measurement equipment is used in research and development activities and that a significant amount of this equipment is used in connection with government-generated projects. We also rent equipment to companies of various sizes representing a cross-section of American industry. No customer accounted for more than 10% of our revenues for any of the three fiscal years ended May 31, 2004. No significant portion of our revenues is currently derived from direct United States Government contracts.

     The profitability of our business also depends in significant part on controlling the timing, pricing and mix of purchases and sales of equipment. We seek to acquire new and used equipment at attractive prices which we feel we can make a profit from a combination of renting and/or selling them. At times, we may acquire equipment which we do not intend to rent, because we think it can be more profitably sold. The sale

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of equipment, either after acquisition or after it has been rented, can comprise a significant portion of revenues and operating profit. To maximize overall profit from the rental, leasing, and sales of equipment, we manage our equipment pool on an on-going basis by analyzing our product strategy for each specific equipment class in light of that equipment’s historical and projected lifecycle. In doing so, we must compare our estimate of potential profit from rental with the potential profit from the product’s immediate sale and replacement with new or other equipment. In our analysis, we assume depreciation and impairment of equipment based on historical levels, although historical trends are not necessarily indicative of future trends. Our overall equipment management is complex and our product strategy can change during a product’s lifetime based upon numerous factors, including the U.S. and global economy, interest rates and new product launches. Our strategic equipment pool decisions are based on the following fundamentals:

•		The acquisition cost for Electro Rent;
•		Our estimates of current and future market demand for rentals;
•		Our estimates of current and future supply of product;
•		The book value of the product after depreciation and other impairment;
•		Our estimates of the effect of interest rates on rental and leasing fees as well as capital financing; and
•		Our estimates of the potential current and future sale prices.

     If we are unable to accurately predict market trends, or if demand for the equipment we supply declines, we can be left with large lots of equipment that we are unable to rent or sell for a profit. The Company assesses the carrying value of its equipment pool on a quarterly basis or when factors indicating impairment are present. When the U.S. and global economy began to rebound in fiscal 2004, we saw increased demand for our equipment, and the Company was able to sell equipment that we had previously written down or that was older and more fully depreciated. Due in part to these events, the Company experienced greater than normal gross margins on equipment sales in fiscal 2004. We intend to maintain our equipment management strategy, and, accordingly, we expect that gross margins on sales will return to normal historical levels as older and previously impaired equipment constitute a smaller percentage of sales.

     Although we improved profitability with each successive quarter in fiscal 2004, organic growth was modest, consistent with the economic environment. In March 2004, we acquired certain contracts of a quick-ship services business from a unit of CIT Group Inc. This acquisition is designed to supplement our growth and provide us an entry into the disaster recovery business. Focused, prudent growth continues to be a primary goal for fiscal 2005 and we intend to continue to evaluate growth and acquisition opportunities as they arise.

     We service our customers through sales offices and calibration and service centers in the United States and Canada, which are linked by an on-line computer system. These centers also function as depots for the sale of used equipment.

     Our business is relatively non-seasonal except for the third quarter months of December, January and February, when rental activity declines due to extended holiday closings by a number of customers. In addition, because February is a short month, rental billing is reduced.

     We purchase the majority of our equipment from leading suppliers of electronic equipment. The product development activities of our major suppliers tend to shape the nature of the rental and lease demand of our customers and the demand for equipment. As a result, our business is significantly affected by the introduction of new products from our major suppliers, particularly Agilent Technologies and Tektronix.

     We continually develop new relationships with suppliers as well as maintain current relationships with our suppliers to maintain our ability to fill quickly customer orders for equipment with typically long lead-times. We believe that our relationships with our major suppliers are good. Because of the volume of our purchases and the nature of our relationships, often we are considered part of their distribution strategy.

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     At May 31, 2004, Electro Rent employed approximately 256 individuals. None of these employees is a member of a labor union. We consider our employee relations to be satisfactory and provide standard employee benefits and pay certain of the costs of employee education.

Item 2. Properties.

     Electro Rent’s corporate headquarters and Los Angeles sales office are located at 6060 Sepulveda Boulevard, Van Nuys, California. The building contains approximately 84,500 square feet of office space. Approximately 30,800 square feet are currently leased to other subtenants. These subtenant arrangements provide for all of the subleased property to be available for our future needs. An additional 10,000 square feet in the building are available for leasing.

     We own a facility in Wood Dale, Illinois, containing approximately 30,750 square feet. This facility houses our Illinois warehouse and service center.

     Our building at 15385 Oxnard Street, Van Nuys, California, contains approximately 68,200 square feet. We use all of this space, except for 4,500 square feet which is currently being leased to others. This building houses our California warehouse and equipment calibration center.

     As of May 31, 2004 Electro Rent had sales offices in the metropolitan areas of Atlanta and Los Angeles. We also have service centers in Chicago, Dallas, Detroit, Houston, Los Angeles, New York/Newark, San Francisco, Toronto and Washington/Baltimore.

     Electro Rent’s facilities aggregate approximately 341,000 square feet. Except for the corporate headquarters, the Chicago area facilities, and the Oxnard Street building, all of the facilities are rented pursuant to leases for up to three years for aggregate annual rentals of approximately $1,331,000 in fiscal 2004. We do not consider any rented facility essential to our operations. We consider our facilities to be in good condition, well maintained and adequate for our needs.

Item 3. Legal Proceedings.

     In the normal course of our business, we are involved in various claims and legal proceedings. We believe these matters will not have a material adverse effect on our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote by our security holders.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

     Electro Rent’s Common Stock is listed by the National Association of Securities Dealers and is quoted on the NATIONAL MARKET SYSTEM OF NASDAQ. Our symbol is “ELRC.” The quarterly market price ranges for our Common Stock for the two fiscal years ended May 31, 2004, as quoted on NASDAQ, shareholder information and dividend information are set forth on page 30 of the 2004 Annual Report and are incorporated herein by reference.

     None of our preferred shares are issued or outstanding.

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Item 6. Selected Financial Data.

     The summary of the selected financial data referred to as Financial Highlights, appearing on the inside front cover of the 2004 Annual Report, is hereby incorporated by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Information appearing under the above caption on pages 5 to 12 of the 2004 Annual Report is hereby incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks.

     The information appearing in the Risk Factors, filed with this 10-K as Exhibit 99(A), is hereby incorporated by reference.

Item 8. Financial Statements and Supplementary Data.

     Our consolidated financial statements together with the report thereon of Deloitte & Touche LLP appearing on pages 14 to 29 of the 2004 Annual Report are hereby incorporated by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

     Not Applicable

Item 9A. Controls and Procedures.

     We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     We announced that we overstated current income taxes payable by $1.5 million during the year ended May 31, 2001. As a result, retained earnings and income taxes payable as of June 1, 2001, have been restated to decrease current income taxes payable at that date by $1.5 million, to $3.4 million. Retained earnings and income taxes payable at May 31, 2003 were modified accordingly. For a detailed description of the restatement see our Annual Report incorporated in Form 10-K for the year ended May 31, 2004. Our independent auditors, in connection with their audit of our 2004 financial statements, have noted certain matters involving our internal control and its operation as they related to the improper recording of current income taxes payable in the periods affected by the restatements that they consider to be a reportable condition under standards of the Public Company Accounting Oversight Board and have advised us that, in their judgment, the reportable condition constitutes a material weakness under such standards.

     We have instituted changes to our internal control to provide greater assurance that we have mitigated the control deficiencies that resulted in the restatement of our financial statements. Such changes include changes in our operating and accounting procedures to, among other things, provide more detailed reviews of estimation procedures for income taxes payable. We believe that the changes we have undertaken to address the factors that gave rise to the restatements constitute an appropriate response to the reportable condition discussed above.

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     As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. In making this evaluation, we considered matters relating to the restatement of our consolidated financial statements for fiscal 2002 and 2003, including the material weakness in our internal control over financial reporting. Our management, including our Chief Executive Officer and our Chief Financial Officer, believe that certain of the errors giving rise to restatement adjustments occurred because our control processes and procedures related to the matters underlying such adjustments were not effective during the period in which the error occurred. Our evaluation considered, among other things, the substantial process that was undertaken to ensure that all material adjustments necessary to correct the previously issued financial statements were recorded as part of the restatements, as well as the actions described above to enhance our internal control over financial reporting and our disclosure controls and procedures.

     Based upon the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, except as described above, our disclosure controls and procedures were effective at the reasonable assurance level as of the end of such period.

     Except as described above, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant.

     Information appearing in the 2004 Proxy Statement under the captions Election of Directors (pages 4 and 5), Executive Officers (page 5), Compliance With Section 16 of the Securities Exchange Act of 1934 (page 10), and Transactions With Management (page 10), is hereby incorporated by reference.

Item 11. Executive Compensation.

     Information appearing in the 2004 Proxy Statement under the caption Executive Compensation (pages 10 to 18) is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     Information concerning the ownership of Electro Rent’s securities by its principal holders and its management is set forth in the 2004 Proxy Statement (pages 3 and 4), and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

     Information appearing in the 2004 Proxy Statement under the caption Transactions With Management (page 10) is hereby incorporated by reference.

Item 14. Principal Accountant Fees and Services.

     Information appearing in the 2004 Proxy Statement under the caption Proposal 2 – Approval of Selection of Independent Auditors (page 20) is hereby incorporated by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following financial statements covered by the Consent of the Independent Registered Public Accounting Firm are filed as a part of this report and are included or incorporated herein by reference to the following page or pages of the 2004 Annual Report.

See the Exhibit Index. The Exhibits listed in the Exhibit Index are filed as part of this report and are incorporated herein by reference.

     All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of a schedule, or because the information required is included in the financial statements or related notes.

(b) Reports on Form 8-K.

     During the last quarter of the period covered by this Annual Report on Form 10-K, the Registrant filed Current Reports on Form 8-K on March 10, 2004 and March 26, 2004.

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(c) Exhibits listed by numbers corresponding to Exhibit Table of Item 601 of Regulation S-K.

Exhibit Index
(* Indicates compensation plan, contract or arrangement)

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8

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(d) Schedule of Financial Statements Required by Regulation S-X, which is excluded from the 2004 Annual Report by Rule 14 a 3(b) (1):

None. See Cross Reference Table under Item 15 (Exhibits, Financial Statement Schedules and Reports on Form 8-K) of this Form 10-K.

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SIGNATURES

     Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Page