Attached files
file | filename |
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EX-32.1 - EX-32.1 - ELECTRO RENT CORP | v59162qexv32w1.htm |
EX-32.2 - EX-32.2 - ELECTRO RENT CORP | v59162qexv32w2.htm |
EX-31.1 - EX-31.1 - ELECTRO RENT CORP | v59162qexv31w1.htm |
EX-31.2 - EX-31.2 - ELECTRO RENT CORP | v59162qexv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-9061
ELECTRO RENT CORPORATION
(Exact name of registrant as specified in its charter)
California | 95-2412961 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
6060 Sepulveda Boulevard, Van Nuys, California | 91411-2501 | |
(Address of principal executive offices) | (Zip Code) |
(818) 787-2100
(Issuers telephone number, including area code)
(Issuers 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 þ 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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock as of March 24, 2011 was
23,980,581.
Electro Rent Corporation
Quarterly Report on Form 10-Q
For the Quarterly Period Ended February 28, 2011
TABLE OF CONTENTS
Page 2
Table of Contents
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
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. We claim the protection of the
safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors
that any forward-looking statements presented in this report, or that we may make orally or in
writing from time to time, are based on the beliefs of, assumptions made by, and information
currently available to, us. Such statements are based on assumptions, and the actual outcome will
be affected by known and unknown risks, trends, uncertainties and factors that are beyond our
control. Although we believe that our assumptions are reasonable, they are not guarantees of future
performance, and some will inevitably prove to be incorrect. As a result, our actual future results
may differ from our expectations, and those differences may be material. We are not undertaking any
obligation to update any forward-looking statements. Accordingly, investors should use caution in
relying on past forward-looking statements, which are based on known results and trends at the time
they are made, to anticipate future results or trends.
Factors that could cause or contribute to these differences include, among others, those risks
and uncertainties discussed under the sections contained in this Form 10-Q entitled Managements
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, 2010 (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.
Page 3
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Rentals and leases |
$ | 28,679 | $ | 22,596 | $ | 87,139 | $ | 67,672 | ||||||||
Sales of equipment and other revenues |
30,771 | 10,438 | 76,413 | 34,140 | ||||||||||||
Total revenues |
59,450 | 33,034 | 163,552 | 101,812 | ||||||||||||
Operating expenses: |
||||||||||||||||
Depreciation of rental and lease equipment |
12,186 | 10,218 | 35,761 | 31,486 | ||||||||||||
Costs of revenues other than depreciation of rental
and lease equipment |
24,707 | 7,360 | 60,016 | 24,980 | ||||||||||||
Selling, general and administrative expenses |
14,259 | 11,517 | 41,541 | 32,182 | ||||||||||||
Gain on bargain purchase, net of taxes |
| | (202 | ) | | |||||||||||
Total operating expenses |
51,152 | 29,095 | 137,116 | 88,648 | ||||||||||||
Operating profit |
8,298 | 3,939 | 26,436 | 13,164 | ||||||||||||
Interest income, net |
38 | 125 | 257 | 1,481 | ||||||||||||
Income before income taxes |
8,336 | 4,064 | 26,693 | 14,645 | ||||||||||||
Income tax provision |
3,259 | 1,913 | 9,276 | 6,408 | ||||||||||||
Net income |
$ | 5,077 | $ | 2,151 | $ | 17,417 | $ | 8,237 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.21 | $ | 0.09 | $ | 0.73 | $ | 0.34 | ||||||||
Diluted |
$ | 0.21 | $ | 0.09 | $ | 0.72 | $ | 0.34 | ||||||||
Shares used in per share calculation: |
||||||||||||||||
Basic |
23,978 | 23,930 | 23,972 | 23,926 | ||||||||||||
Diluted |
24,098 | 23,988 | 24,058 | 23,981 | ||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
Page 4
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ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands, except share numbers)
February 28, | May 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 29,331 | $ | 32,906 | ||||
Investments, trading, at fair value (cost of $14,275) |
| 13,323 | ||||||
Put option |
| 952 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $646 and $536 |
33,081 | 25,670 | ||||||
Rental and lease equipment, net of accumulated depreciation of $189,919
and $177,380 |
195,914 | 173,647 | ||||||
Other property, net of accumulated depreciation and amortization of $16,665
and $16,055 |
13,561 | 13,585 | ||||||
Goodwill |
3,109 | 3,109 | ||||||
Intangibles, net of amortization of $2,172 and $2,017 |
1,243 | 1,398 | ||||||
Other |
25,191 | 11,478 | ||||||
$ | 301,430 | $ | 276,068 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable |
$ | 8,131 | $ | 8,294 | ||||
Accrued expenses |
12,043 | 14,240 | ||||||
Deferred revenue |
6,077 | 6,022 | ||||||
Deferred tax liability |
37,774 | 17,550 | ||||||
Total liabilities |
64,025 | 46,106 | ||||||
Commitments and contingencies (Note 12) |
||||||||
Shareholders equity: |
||||||||
Preferred stock, $1 par shares authorized 1,000,000, none issued or outstanding |
||||||||
Common stock, no par shares authorized 40,000,000;
issued and outstanding February 28, 2011 - 23,980,581;
May 31, 2010 - 23,960,694 |
34,473 | 33,555 | ||||||
Retained earnings |
202,932 | 196,407 | ||||||
Total shareholders equity |
237,405 | 229,962 | ||||||
$ | 301,430 | $ | 276,068 | |||||
See accompanying notes to condensed consolidated financial statements (unaudited).
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ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Nine Months Ended | ||||||||
February 28, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 17,417 | $ | 8,237 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
36,663 | 32,357 | ||||||
Put option loss |
952 | 170 | ||||||
Unrealized holding gain for trading securities |
| (170 | ) | |||||
Realized gain on redemption of trading securities |
(952 | ) | | |||||
Realized gain on redemption of investments, available-for-sale |
| (841 | ) | |||||
Remeasurement (gain) loss on foreign currency |
(21 | ) | 100 | |||||
Provision for losses on accounts receivable |
446 | 291 | ||||||
Gain on sale of rental and lease equipment |
(8,016 | ) | (8,815 | ) | ||||
Gain on bargain purchase, net of taxes |
(202 | ) | | |||||
Stock compensation expense |
692 | 436 | ||||||
Excess tax benefit for share based compensation |
(33 | ) | (26 | ) | ||||
Deferred income taxes |
20,224 | (3,493 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(7,408 | ) | (3,508 | ) | ||||
Other assets |
(13,698 | ) | (3,535 | ) | ||||
Accounts payable |
(1,298 | ) | (367 | ) | ||||
Accrued expenses |
(2,349 | ) | 3,113 | |||||
Deferred revenue |
13 | 302 | ||||||
Net cash provided by operating activities |
42,430 | 24,251 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from sale of rental and lease equipment |
20,847 | 29,546 | ||||||
Proceeds from acquisition purchase price adjustment |
202 | | ||||||
Payments for purchase of rental and lease equipment |
(69,760 | ) | (35,918 | ) | ||||
Redemptions of investments, available-for-sale |
| 28,737 | ||||||
Redemptions of investments, trading |
14,275 | 1,825 | ||||||
Payments for purchase of other property |
(723 | ) | (600 | ) | ||||
Net cash (used in) provided by investing activities |
(35,159 | ) | 23,590 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
196 | 292 | ||||||
Excess tax benefit for stock options exercised |
33 | 26 | ||||||
Payments for repurchase of common stock |
| (395 | ) | |||||
Payment of dividends |
(10,843 | ) | (10,768 | ) | ||||
Net cash used in financing activities |
(10,614 | ) | (10,845 | ) | ||||
Net (decrease) increase in cash and cash equivalents |
(3,343 | ) | 36,996 | |||||
Effect of exchange rate changes on cash |
(232 | ) | 52 | |||||
Cash and cash equivalents at beginning of period |
32,906 | 22,215 | ||||||
Cash and cash equivalents at end of period |
$ | 29,331 | $ | 59,263 | ||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for income taxes |
$ | 4,199 | $ | 7,578 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
Page 6
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Note 1: Basis of Presentation
The unaudited condensed consolidated financial statements included herein have been prepared by
Electro Rent Corporation, pursuant to the rules and regulations of the United States Securities and
Exchange Commission (the SEC). The condensed consolidated financial statements include the
accounts of Electro Rent Corporation and its wholly owned subsidiaries, Genstar Rental Electronics,
Inc., Electro Rent, LLC, ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc.,
Electro Rent (Beijing) Test and Measurement Equipment Rental Co., Ltd., and Electro Rent (Tianjin)
Rental Co., Ltd. (collectively we, us, or our) as consolidated with the elimination of all
intercompany transactions.
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
have been condensed or omitted pursuant to such SEC rules and regulations. These condensed
consolidated financial statements reflect all adjustments and disclosures that are, in our opinion,
necessary for a fair presentation of our financial position and results of operations for the
interim periods presented. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in our latest Annual
Report on Form 10-K filed with the SEC on August 12, 2010.
The preparation of financial statements in conformity with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities as well as the disclosures
of contingent assets and liabilities as of the date of these financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates, and results of operations for interim periods are not necessarily indicative of
results for the full year.
Foreign Currency
The assets and liabilities of our foreign subsidiaries are remeasured from their functional
currency to U.S. dollars at current or historic exchange rates, as appropriate. The U.S. dollar has
been determined to be our functional currency. Revenues and expenses are remeasured from any
foreign currencies to U.S. dollars using historic rates or an average monthly rate, as appropriate.
Remeasurement gains and losses are included in selling, general and administrative expenses or
income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign
subsidiaries are individually less than 10% of our respective consolidated amounts. The euro,
Canadian dollar and Chinese yuan are our primary foreign currencies.
On occasion, we have entered into forward contracts to hedge against unfavorable fluctuations in
our monetary assets and liabilities, primarily in our European and Canadian operations. These
contracts are designed to minimize the effect of fluctuations in foreign currencies. Such
derivative instruments are not designated as hedging instruments and, therefore, are recorded at
fair value as a current asset or liability, and any changes in fair value are recorded in our
condensed consolidated statements of operations.
The fair value of our foreign exchange forward contracts in the consolidated balance sheets is
shown in the table below:
Consolidated | ||||||||||
Derivatives Not Designated as | Balance Sheet | February 28, | May 31, | |||||||
Hedging Instruments | Location | 2011 | 2010 | |||||||
Foreign exchange forward contracts |
Other | $ | 176 | |||||||
Foreign exchange forward contracts |
Accrued expenses | $ | 78 | |||||||
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
The table below provides data about the amount of gains and losses recognized in income for
derivative instruments not designated as hedging instruments:
Three Months | Three Months | |||||||||
Location of (Loss) Gain | Ended | Ended | ||||||||
Derivatives Not Designated as | Recognized in Income on | February 28, | February 28, | |||||||
Hedging Instruments | Derivatives | 2011 | 2010 | |||||||
Foreign exchange forward contracts |
Selling, general and administrative expenses | $ | (250 | ) | $ | 256 | ||||
Nine Months | Nine Months | |||||||||
Location of (Loss) Gain | Ended | Ended | ||||||||
Derivatives Not Designated as | Recognized in Income on | February 28, | February 28, | |||||||
Hedging Instruments | Derivatives | 2011 | 2010 | |||||||
Foreign exchange forward contracts |
Selling, general and administrative expenses | $ | (420 | ) | $91 |
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) amended revenue recognition
guidance for arrangements with multiple deliverables. The guidance eliminates the residual method
of revenue recognition and allows the use of managements best estimate of the selling price for
individual elements of an arrangement when vendor specific objective evidence or third-party
evidence is unavailable. This guidance will be effective for fiscal years beginning on or after
June 15, 2010. We will be required to adopt this guidance beginning with our first quarter of
fiscal 2012. We do not anticipate that the adoption of this guidance will have a material impact on
our financial condition, results of operations or cash flows.
In July 2010, the FASB issued an update regarding disclosures about the credit quality of financing
receivables and the allowance for credit losses. This update amends previous guidance and the main
objective is to provide greater transparency about an entitys allowance for credit losses and the
credit quality of its financing receivables. Disclosures required under this update will discuss
the nature of the credit risk inherent in the entitys portfolio of financing receivables, how that
risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and
reasons for those changes in the allowance for credit losses. The amendments that require
disclosures as of the end of a reporting period are effective for public entities for interim and
annual reporting periods ending on or after December 15, 2010. The amendments that require
disclosures about activity that occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15, 2010. We will be required to adopt this
guidance beginning with our fourth quarter of fiscal 2011, and therefore our disclosure will be
expanded accordingly.
In December 2010, the FASB issued an update to its existing guidance for goodwill and other
intangible assets. This guidance modifies Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those reporting units, an entity is required to
perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it
is more likely than not that a goodwill impairment exists. The qualitative factors are consistent
with the existing guidance which requires goodwill of a reporting unit to be tested for impairment
between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. This guidance is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2011. We will be
required to adopt this guidance beginning with our fourth quarter of fiscal 2012. We do not
anticipate that the adoption of this guidance will have a material impact on our financial
condition, results of operations or cash flows.
In December 2010, the FASB issued an update to its existing guidance on business combinations. This
guidance requires a public entity that presents comparative financial statements to present in its
pro forma disclosure the revenue and earnings of the combined entity as though the business
combinations that occurred during the current year had occurred as of the beginning of the prior
annual reporting period. In addition, this guidance expands the supplemental pro forma disclosures
to include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
This guidance is effective for the first annual reporting period beginning on or after
December 15, 2010. We will be required to adopt this guidance beginning with our first quarter of
fiscal 2012. We do not anticipate that the adoption of this guidance will have a material impact on
our financial condition, results of operations or cash flows.
Note 2: Cash and Cash Equivalents and Investments
We consider highly liquid investments with maturities of three months or less at the date of
purchase to be cash equivalents. Cash equivalents consisted primarily of AAA-rated money market
funds in all periods presented. Our trading investments at May 31, 2010 consisted of auction rate
securities (ARS) and were carried at fair value. At May 31, 2010 we held $13,300, at fair value,
and $14,300, at cost, of ARS. During the nine months ended February 28, 2011, we sold all of our
remaining ARS to UBS AG (UBS) at par plus accrued interest, for $14,300 in cash when we exercised
our put right on the ARS (the Put Option) under a November 2008 settlement agreement with
UBS. Our ARS were carried as trading securities based on our intent to exercise our Put Option. In
accordance with accounting guidance, which permits an entity to elect the fair value option for
financial assets and liabilities, we elected to measure the Put Option at fair value. As discussed
in Note 3, the fair values of the trading securities and the Put Option were determined by option
pricing models, with the result that the changes in values of the trading securities and the Put
Option substantially offset each other.
Note 3: Fair Value Measurements
We measure certain financial assets and liabilities at fair value on a recurring basis, including
cash equivalents, trading securities, the Put Option, supplemental executive retirement plan assets
and liabilities, and foreign currency derivatives. The fair value of these financial assets and
liabilities was determined based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value, as follows:
Level 1 Observable inputs, such as quoted prices in active markets for identical assets or liabilities; |
Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or through corroboration with observable market data; and |
Level 3 Unobservable inputs, for which there is little or no market data for the assets or liabilities, such as internally-developed valuation models. |
Assets and liabilities measured at fair value on a recurring basis are as follows:
At February 28, 2011 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Instruments | Inputs | Inputs | Total | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Balance | |||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 20,017 | $ | | $ | | $ | 20,017 | ||||||||
Supplemental executive retirement
plan |
2,650 | | | 2,650 | ||||||||||||
Total assets measured at fair value |
$ | 22,667 | $ | | $ | | $ | 22,667 | ||||||||
Liabilities: |
||||||||||||||||
Supplemental executive retirement
plan |
$ | 2,650 | $ | | $ | | $ | 2,650 | ||||||||
Foreign exchange forward contracts |
| 78 | | 78 | ||||||||||||
Total liabilities measured at fair
value |
$ | 2,650 | $ | 78 | $ | | $ | 2,728 | ||||||||
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
At May 31, 2010 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Instruments | Inputs | Inputs | Total | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Balance | |||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 27,802 | $ | | $ | | $ | 27,802 | ||||||||
Auction rate securities |
| | 13,323 | 13,323 | ||||||||||||
Put option |
| | 952 | 952 | ||||||||||||
Supplemental executive retirement
plan |
2,081 | | | 2,081 | ||||||||||||
Foreign exchange forward contracts |
| 176 | | 176 | ||||||||||||
Total assets measured at fair value |
$ | 29,883 | $ | 176 | $ | 14,275 | $ | 44,334 | ||||||||
Liabilities: |
||||||||||||||||
Supplemental executive retirement
plan |
$ | 2,081 | $ | | $ | | $ | 2,081 | ||||||||
Total liabilities measured at fair
value |
$ | 2,081 | $ | | $ | | $ | 2,081 | ||||||||
The fair value measurements for our money market funds and supplemental executive retirement plan
asset and liability were derived from quoted market prices in active markets and are included in
Level 1 inputs. Foreign currency forward contracts were valued based on observable market spot and
forward rates as of our reporting date and are included in Level 2 inputs. We valued our ARS from
quotes received from UBS that were derived from UBSs internally developed model. In determining a
discount factor for each ARS, the model weighted various factors, including assessments of credit
quality, duration, insurance wraps, portfolio composition, discount rates, overall capital market
liquidity and comparable securities, if any. The Put Option was a free standing asset separate from
the ARS, and represented our contractual right to require UBS to purchase our ARS at par value. In
order to value the Put Option, we considered the intrinsic value, time value of money and our
assessment of the credit worthiness of UBS. Our ARS and Put Option are included in Level 3 inputs.
The following table presents a reconciliation of all assets and liabilities measured at fair value
on a recurring basis, excluding accrued interest components, using significant unobservable inputs
(Level 3):
Three Months Ended February 28, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Auction Rate | Auction Rate | |||||||||||||||
Put Option | Securities | Put Option | Securities | |||||||||||||
Fair value at beginning of period |
$ | | $ | | $ | 1,510 | $ | 19,365 | ||||||||
Settlements (at par) |
| | | (1,100 | ) | |||||||||||
Unrealized gains (losses) included in
interest income, net |
| | (57 | ) | 57 | |||||||||||
Fair value at end of period |
$ | | $ | | $ | 1,453 | $ | 18,322 | ||||||||
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Nine Months Ended February 28, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Auction Rate | Auction Rate | |||||||||||||||
Put Option | Securities | Put Option | Securities | |||||||||||||
Fair value at beginning of period |
$ | 952 | $ | 13,323 | $ | 1,623 | $ | 19,977 | ||||||||
Settlements (at par) |
| (14,275 | ) | | (1,825 | ) | ||||||||||
Unrealized (losses) gains included in
interest income, net |
| | (170 | ) | 170 | |||||||||||
Realized (losses) gains included in
interest income, net |
(952 | ) | 952 | | | |||||||||||
Fair value at end of period |
$ | | $ | | $ | 1,453 | $ | 18,322 | ||||||||
For the nine months ending February 28, 2010, we included in earnings unrealized losses of $28
attributable to the remaining ARS we held on that date and unrealized gains of $28 attributable to
the Put Option. During the nine months ended February 28, 2011, we sold all of our remaining ARS to
UBS pursuant to the Put Option at par plus accrued interest and included in earnings a realized
gain of $952 attributable to the sale and a realized loss of $952 attributable to the Put Option.
Note 4: Acquisition
On March 31, 2010, pursuant to an Asset Purchase Agreement (APA), we completed the purchase of
certain assets and the assumption of certain liabilities of Telogy, LLC (Telogy), for cash
consideration of $24,653. We acquired Telogy in order to facilitate growth in our test and
measurement (T&M) business. Telogy, headquartered in Union City, California, was a leading
provider of electronic T&M equipment. Telogy had previously filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware, and we were the winning bidder in a Bankruptcy Court auction of Telogys assets. The
purchase price, which was subject to post closing adjustments, was allocated to the assets acquired
and liabilities assumed based upon our estimate of their respective fair values. Because the
estimated fair value of the net assets acquired exceeded the acquisition cost, we recorded a
bargain purchase gain with respect to this transaction. The bargain purchase reflects the recurring
losses incurred by Telogy and liquidity constraints resulting from the difficult global economy and
the recent bankruptcy filing.
The following table provides the estimated fair values of the assets acquired and liabilities
assumed as of the date of acquisition.
Total cash consideration |
$ | 24,653 | ||
Preliminary purchase price allocation: |
||||
Accounts receivable |
2,723 | |||
Rental and lease equipment |
22,922 | |||
Customer relationships acquired |
940 | |||
Other |
34 | |||
Accrued expenses |
(189 | ) | ||
Deferred tax liability |
(481 | ) | ||
Deferred revenue |
(617 | ) | ||
Net assets acquired |
25,332 | |||
Bargain purchase gain, net of estimated taxes of $481 |
$ | (679 | ) | |
During the three and nine months ended February 28, 2011, the purchase price was reduced by $0 and
$260, respectively, representing the final determination of assets acquired and other components of
the purchase price in accordance with specific provisions of the APA. In addition, the bargain
purchase gain was increased by $0 and $82 ($49 net of tax), for the three and nine months ended
February 28, 2011, respectively, resulting from a change in the
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
fair value of certain assets and
liabilities acquired from Telogy. Therefore, the total effect of these factors was an increase in
our bargain purchase gain of $49 and $202, net of estimated taxes of $33 and $140, during the three
and nine months ended February 28, 2011, respectively.
The bargain purchase gain is classified separately within operating expenses.
The fair value of assets acquired included gross accounts receivable of $3,153, of which an
estimated $430 is not expected to be collected, resulting in a fair value of $2,723. Intangible
assets consisted of customer relationships and have a useful life of 8 years.
Acquisition-related transaction costs of $180 were accounted for as expenses in the periods in
which the costs were incurred and are included in our selling, general and administrative expenses
for the 2010 fiscal year. There were no acquisition-related transaction costs for the nine months
ended February 28, 2011.
The acquisition of Telogy was an asset purchase, and Telogys operations were integrated with ours
immediately after the acquisition date.
The following unaudited pro forma results of operations for the three and nine months ended
February 28, 2010 assume the acquisition of Telogy occurred as of the beginning of fiscal 2010. The
pro forma results have been prepared for comparative purposes only and do not purport to indicate
the results of operations that would actually have occurred had the acquisition occurred on the
dates indicated, nor are these results necessarily indicative of future consolidated results of
operations. We have included the operating results of Telogy in our consolidated financial
statements since the March 31, 2010 acquisition date.
Three Months Ended | Nine Months Ended | |||||||
February 28, 2010 | February 28, 2010 | |||||||
Revenues |
$ | 37,644 | $ | 116,180 | ||||
Net income |
1,842 | 6,100 | ||||||
Earnings per share: |
||||||||
Basic |
$ | 0.08 | $ | 0.25 | ||||
Diluted |
$ | 0.08 | $ | 0.25 |
Note 5: Equity Incentive Plan
Our 2005 Equity Incentive Plan (the Equity Incentive Plan) authorizes our Board of Directors to
grant incentive and non-statutory stock option grants, stock appreciation rights, restricted stock
awards, restricted stock units, performance unit awards and performance share awards covering a
maximum of 1,000 shares of our common stock. The Equity Incentive Plan replaced our prior stock
option plans, under which there are no outstanding options. Pursuant to the Equity Incentive Plan,
we have granted incentive and non-statutory options to directors, officers and key employees at
prices not less than 100% of the fair market value on the day of grant. In addition, we have
granted restricted stock and restricted stock units to directors, officers and key employees. The
Equity Incentive Plan provides for a variety of vesting dates with the majority of the outstanding
grants vesting at a rate of one-third per year over a period of three years from the date of grant.
All outstanding options expire in October 2011.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Stock Options
The following table summarizes certain information relative to options for common stock:
Weighted | ||||||||||||
Average | ||||||||||||
Weighted | Remaining | |||||||||||
Average | Contractual | |||||||||||
Exercise | Term (in | |||||||||||
Options | Price | years) | ||||||||||
Outstanding at May 31, 2010 |
57 | $ | 15.46 | |||||||||
Granted |
| | ||||||||||
Exercised |
(17 | ) | 11.92 | |||||||||
Forfeited/canceled |
(4 | ) | 10.20 | |||||||||
Outstanding at February 28, 2011 |
36 | $ | 17.69 | 0.62 | ||||||||
Vested and expected to vest at
February 28, 2011 |
36 | $ | 17.69 | 0.62 | ||||||||
Vested and exercisable at February 28, 2011 |
36 | $ | 17.69 | 0.62 | ||||||||
There were no stock options granted or vested during the three or nine months ended February 28,
2011 and 2010. The aggregate intrinsic value of options exercised is calculated as the difference
between the exercise price of the underlying awards and the closing price of our common stock on
the Nasdaq Stock Market on the date of measurement. The aggregate intrinsic value of options
exercised during the three and nine months ended February 28, 2011 was $0 and $13, respectively,
and during the three and nine months ended February 28, 2010 was $71 and $73, respectively. Shares
of newly issued common stock are issued upon any exercise of stock options.
Restricted Stock Units
Restricted stock units represent the right to receive one share of our common stock, provided that
the vesting conditions are satisfied. The following table represents restricted stock unit activity
for the nine months ended February 28, 2011:
Weighted | ||||||||
Average | ||||||||
Restricted | Grant | |||||||
Stock | Date | |||||||
Units | Fair Value | |||||||
Nonvested at May 31, 2010 |
150 | $ | 10.14 | |||||
Granted |
107 | 12.58 | ||||||
Vested |
(49 | ) | 9.98 | |||||
Forfeited/canceled |
(2 | ) | 13.73 | |||||
Nonvested at February 28, 2011 |
206 | $ | 11.40 | |||||
We granted 1 and 107 restricted stock units during the three and nine months ended February 28,
2011, respectively, and 0 and 158 during the three and nine months ended February 28, 2010,
respectively. As of February 28, 2011, we have unrecognized share-based compensation cost of
approximately $1,732 associated with restricted stock unit awards. This cost is expected to be
recognized over a weighted-average period of approximately 1.9 years.
Accounting for Share Based Payments
Accounting guidance requires all share-based payments to employees, including grants of employee
stock options, restricted stock and restricted stock units, to be recognized as compensation
expense in the consolidated financial statements based on their fair values. Compensation expense
is recognized over the period that an employee provides service in exchange for the award.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
We use the Black-Scholes option pricing model to calculate the fair value of any option grant. Our
computation of expected volatility is based on historical volatility. Our computation of expected
term is determined based on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards, vesting schedules and expectations of future employee
behavior. The expected term represents the period that our option awards are expected to be
outstanding and was determined based on historical experience of similar awards. The risk-free
interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term
of the option at the date of grant. Forfeitures are estimated at the date of grant based on
historical experience. We use the market price of our common stock on the date of grant to
calculate the fair value of each grant of restricted stock and restricted stock units.
We recorded $255 and $692 of stock-based compensation as part of selling, general and
administrative expenses for the three and nine months ended February 28, 2011, respectively,
compared to $166 and $436 for the three and nine months ended February 28, 2010, respectively.
We receive a tax deduction for certain stock option exercises during the period the options are
exercised, generally for the excess of the fair value of our common stock at the date of exercise
over the exercise price of the options, and dividends paid on vested restricted stock units. Excess
tax benefits are realized tax benefits from tax deductions for exercised options in excess of the
deferred tax asset attributable to stock compensation costs for such options. The total tax benefit
realized from stock option exercises, shares issued and dividend payments for vested restricted
stock units for the nine months ended February 28, 2011 and 2010 was $33 and $26, respectively.
Cash received from stock option exercises was $196 and $292 for the nine months ended February 28,
2011 and 2010, respectively.
Note 6: Goodwill and Intangibles
Goodwill represents the excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired in a business combination. Intangible assets resulting from
the acquisitions of entities accounted for using the purchase method of accounting are recorded at
the estimated fair value of the assets acquired. Identifiable intangible assets consist of
purchased customer relationships, trade names, and non-compete agreements.
Our goodwill and intangibles at February 28, 2011 are the result of our acquisition of Telogy on
March 31, 2010 and of Rush Computer Rentals, Inc. on January 31, 2006.
The changes in carrying amount of goodwill and other intangible assets for the nine months ended
February 28, 2011 are as follows:
Balance as of | ||||||||||||
June 1, 2010 (net | Balance as of | |||||||||||
of amortization) | Amortization | February 28, 2011 | ||||||||||
Goodwill |
$ | 3,109 | $ | | $ | 3,109 | ||||||
Trade name |
411 | | 411 | |||||||||
Non-compete agreements |
66 | (66 | ) | | ||||||||
Customer relationships |
921 | (89 | ) | 832 | ||||||||
$ | 4,507 | $ | (155 | ) | $ | 4,352 | ||||||
Goodwill
is not deductible for tax purposes.
We evaluate the recoverability of goodwill and indefinite-lived intangible assets annually as of
May 31, and whenever events or changes in circumstances indicate to us that carrying amount may not
be recoverable.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Intangible assets with finite useful lives are amortized over their respective estimated useful
lives. The following table provides a summary of our intangible assets:
February 28, 2011 | ||||||||||||||||
Estimated | Gross Carrying | Accumulated | Net Carrying | |||||||||||||
Useful Life | Amount | Amortization | Amount | |||||||||||||
Trade name |
indefinite | $ | 411 | $ | | $ | 411 | |||||||||
Non-compete agreements |
2-5 years | 1,050 | (1,050 | ) | | |||||||||||
Customer relationships |
3-4 years | 1,954 | (1,122 | ) | 832 | |||||||||||
$ | 3,415 | $ | (2,172 | ) | $ | 1,243 | ||||||||||
May 31, 2010 | ||||||||||||||||
Estimated | Gross Carrying | Accumulated | Net Carrying | |||||||||||||
Useful Life | Amount | Amortization | Amount | |||||||||||||
Trade name |
indefinite | $ | 411 | $ | | $ | 411 | |||||||||
Non-compete agreements |
2-5 years | 1,050 | (984 | ) | 66 | |||||||||||
Customer relationships |
3-4 years | 1,954 | (1,033 | ) | 921 | |||||||||||
$ | 3,415 | $ | (2,017 | ) | $ | 1,398 | ||||||||||
Amortization expense related to intangible assets was $46 and $155 for the three and nine months
ended February 28, 2011, respectively, compared to $64 and $231 for the three and nine months ended
February 28, 2010, respectively.
Amortization expense for customer relationships and non-compete agreements is included in selling,
general and administrative expenses. The following table provides estimated future amortization
expense related to intangible assets as of February 28, 2011:
Future | ||||
Year ending May 31, | Amortization | |||
2011 (remaining) |
$ | 29 | ||
2012 |
118 | |||
2013 |
118 | |||
2014 |
118 | |||
2015 |
118 | |||
Thereafter |
331 | |||
$ | 832 | |||
Note 7: Noncash Investing and Financing Activities
We had accounts payable and other accruals related to acquired rental and lease equipment totaling
$7,276 and $6,167 as of February 28, 2011 and May 31, 2010, respectively, and other accruals
related to acquired rental and lease equipment totaling $3,666 and $2,098 as of February 28, 2010
and May 31, 2009, respectively, all of which amounts were subsequently paid. We had no accrual for
dividends declared and not yet paid in accrued expenses and as a reduction of retained earnings as
of February 28, 2011 and May 31, 2010, respectively, compared to accruals of $0 and $3,593 as of
February 28, 2010 and May 31, 2009, respectively, all of which amounts were subsequently paid.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Note 8: Sales-Type Leases
We have certain customer leases providing bargain purchase options, which are accounted for as
sales-type leases. Interest income is recognized over the life of the lease using the effective
interest method. The minimum lease payments receivable and the net investment included in other
assets for such leases are as follows:
February 28, | May 31, | |||||||
2011 | 2010 | |||||||
Gross minimum lease payments receivable |
$ | 6,091 | $ | 6,874 | ||||
Less unearned interest |
(267 | ) | (355 | ) | ||||
Net investment in sales-type lease receivables |
$ | 5,824 | $ | 6,519 | ||||
The following table provides estimated future minimum lease payments receivable related to
sales-type leases:
Year ending May 31, | ||||
2011 (remaining) |
$ | 3,751 | ||
2012 |
2,043 | |||
2013 |
288 | |||
2014 |
9 | |||
$ | 6,091 | |||
Note 9: Segment Reporting and Related Disclosures
Accounting guidance establishes reporting standards for an enterprises operating segments and
related disclosures about its products, services, geographic areas and major customers. Operating
segments are defined as components of an enterprise for which separate financial information is
available that is regularly evaluated by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. In order to determine our operating segments, we
considered the following: an operating segment is a component of an enterprise (i) that engages in
business activities from which it may earn revenues and incur expenses, (ii) whose operating
results are regularly reviewed by the enterprises chief operating decision maker to make decisions
about resources to be allocated to the segment and assess its performance, and (iii) for which
discrete financial information is available. In accordance with this guidance, we have identified
two operating segments: the rental, lease and sale of T&M equipment and the rental, lease and sale
of data products (DP) equipment.
Although we have separate operating segments for T&M and DP equipment, these two segments are
aggregated into a single reportable segment because they have similar economic characteristics and
qualitative factors. The T&M and DP segments have similar long-term average gross margins, and both
rent, lease and sell electronic equipment to large corporations, purchase directly from major
manufacturers, configure and calibrate the equipment, and ship directly to customers.
Our equipment pool, based on acquisition cost, consisted of $345,698 of T&M equipment and $40,135
of DP equipment at February 28, 2011 and $310,292 of T&M equipment and $40,735 of DP equipment at
May 31, 2010.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Revenues for these product groups were as follows for the three months ended February 28, 2011 and
2010:
T&M | DP | Total | ||||||||||
2011 |
||||||||||||
Rentals and leases |
$ | 25,179 | $ | 3,500 | $ | 28,679 | ||||||
Sales of equipment and other revenues |
30,335 | 436 | 30,771 | |||||||||
$ | 55,514 | $ | 3,936 | $ | 59,450 | |||||||
2010 |
||||||||||||
Rentals and leases |
$ | 18,808 | $ | 3,788 | $ | 22,596 | ||||||
Sales of equipment and other revenues |
9,857 | 581 | 10,438 | |||||||||
$ | 28,665 | $ | 4,369 | $ | 33,034 | |||||||
Revenues for these product groups were as follows for the nine months ended February 28, 2011 and
2010:
T&M | DP | Total | ||||||||||
2011 |
||||||||||||
Rentals and leases |
$ | 74,402 | $ | 12,737 | $ | 87,139 | ||||||
Sales of equipment and other revenues |
74,799 | 1,614 | 76,413 | |||||||||
$ | 149,201 | $ | 14,351 | $ | 163,552 | |||||||
2010 |
||||||||||||
Rentals and leases |
$ | 55,630 | $ | 12,042 | $ | 67,672 | ||||||
Sales of equipment and other revenues |
32,333 | 1,807 | 34,140 | |||||||||
$ | 87,963 | $ | 13,849 | $ | 101,812 | |||||||
No single customer accounted for more than 10% of total revenues during the three or nine months
ended February 28, 2011 and 2010.
Selected country information is presented below:
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: (1) |
||||||||||||||||
U.S. |
$ | 51,952 | $ | 27,812 | $ | 143,951 | $ | 86,318 | ||||||||
Other (2) |
7,498 | 5,222 | 19,601 | 15,494 | ||||||||||||
Total |
$ | 59,450 | $ | 33,034 | $ | 163,552 | $ | 101,812 | ||||||||
As of | ||||||||
February 28, | May 31, | |||||||
2011 | 2010 | |||||||
Net Long-Lived Assets: (3) |
||||||||
U.S. |
$ | 184,356 | $ | 166,533 | ||||
Other (2) |
29,471 | 25,206 | ||||||
Total |
$ | 213,827 | $ | 191,739 | ||||
(1) | Revenues by country are based on the location of shipping destination, and not whether the order originates in the United States parent or a foreign subsidiary. | |
(2) | Other consists of foreign countries that each individually account for less than 10% of the total revenues or assets. |
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
(3) | Net long-lived assets include rental and lease equipment, other property, goodwill and intangibles, net of accumulated depreciation and amortization. |
Note 10: Computation of Earnings Per Share
The following is a reconciliation of the denominator used in the computation of basic and diluted
earnings per share for the three and nine months ended February 28, 2011 and 2010:
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per share
weighted average common shares outstanding |
23,978 | 23,930 | 23,972 | 23,926 | ||||||||||||
Effect of dilutive options and restricted
stock (1) |
120 | 58 | 86 | 55 | ||||||||||||
Diluted shares used in per share calculation |
24,098 | 23,988 | 24,058 | 23,981 | ||||||||||||
Net income |
$ | 5,077 | $ | 2,151 | $ | 17,417 | $ | 8,237 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.21 | $ | 0.09 | $ | 0.73 | $ | 0.34 | ||||||||
Diluted |
$ | 0.21 | $ | 0.09 | $ | 0.72 | $ | 0.34 |
(1) | Excludes 36 options outstanding during both the three and nine months ended February 28, 2011, and 54 options outstanding during both the three and nine months ended February 28, 2010, for which the exercise price exceeded the average market price of our common stock during that period. |
Note 11: Income Taxes
During the second quarter of fiscal 2011 we effectively settled our remaining uncertain tax
positions. The derecognition of $4,515 of previously recognized uncertain tax positions, and the
related deferred tax asset, had no impact on our effective tax rate. However, the derecognition of
$0 and $1,396 for interest and penalties previously recognized reduced our tax provision by a
corresponding amount for the three and nine months ended February 28, 2011, respectively. This
derecognition had no effect on our effective tax rate for the three months ended February 28, 2011,
and decreased our effective tax rate from 40.0% to 34.8% for the nine months ended February 28,
2011.
We recognize interest and penalties accrued with respect to uncertain tax positions as components
of our income tax provision.
We are subject to U.S. federal taxation and taxation in various U.S. states and foreign
jurisdictions. We have substantially settled all income tax matters for the United States federal
jurisdiction for years through fiscal 2009. Major state jurisdictions have been examined through
fiscal years 2004 or 2005, and foreign jurisdictions have not been examined for their respective
maximum statutory periods.
There were no unrecognized tax benefits for the nine months ended February 28, 2011.
Note 12: Commitments and Contingencies
We purchase substantial amounts of rental equipment from numerous vendors. As a result, we have
occasionally been included as a member of the plaintiff class in class action lawsuits related to
product warranties or price adjustments. Settlements of such claims can result in distributions of
cash or product coupons that can be redeemed, sold or used to purchase new equipment. We recognize
any benefits from such settlements when all contingencies have expired, to the extent either cash
has been received and/or realization of value from any coupon is assured.
We are subject to legal proceedings and business disputes involving ordinary routine legal
proceedings and claims incidental to our business. The ultimate legal and financial liability with
respect to such matters generally cannot be estimated with certainty and requires the use of
estimates in recording liabilities for potential litigation settlements.
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ELECTRO RENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
Estimates for losses from litigation are made after consultation with outside counsel. If estimates
of potential losses increase or the related facts and circumstances change in the future, we may be
required to record either more or less litigation expense. We are not involved in any pending or
threatened legal proceedings, other than ordinary routine legal proceedings and claims incidental
to our business, that we believe could reasonably be expected to have a material adverse effect on
our financial condition, results of operations or cash flows.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion addresses our financial condition as of February 28, 2011 and May 31,
2010, the results of our operations for the three and nine months ended February 28, 2011 and 2010,
respectively, and cash flows for the nine month periods ended February 28, 2011 and 2010. This
discussion should be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 and the Risk Factors in Item 1A of our Annual Report
on Form 10-K for the fiscal year ended May 31, 2010, to which you are directed for additional
information.
Overview
We are one of the largest global organizations devoted to the rental, lease and sale of new
and used electronic test and measurement (T&M) equipment. We purchase that equipment from leading
manufacturers such as Agilent Technologies, Inc. (Agilent) and Tektronix primarily for use by our
customers in the aerospace, defense, telecommunications, electronics, industrial and semiconductor
industries. Although it represented only approximately 13% of our revenues in fiscal 2010 and 9% of
our revenues for the nine months ended February 28, 2011, we believe our data products (DP)
division is one of the largest rental companies in the United States for personal computers and
servers from manufacturers including Dell, HP/Compaq, IBM and Toshiba. We have also recently
expanded our efforts in the rental, lease and sale of industrial equipment such as electrical test
equipment and inspection equipment. Our Authorized Technology Partnership (ATP) agreement with
Agilent gives us the exclusive right to sell Agilents more complex T&M equipment to small and
medium size customers (who previously purchased directly from Agilent) in the United States and
Canada. We began selling T&M equipment under the ATP sales agreement during our third quarter of
fiscal 2010. We have added approximately 59 people to our sales and support staff to serve these
customers, and this agreement is material to our operations.
On March 31, 2010, we completed the acquisition of certain assets (including accounts
receivable and rental equipment but excluding certain designated assets) and select liabilities of
Telogy, LLC (Telogy), for $24.7 million in cash, subject to post-closing adjustments. The
purchase price was reduced by $0.3 million in the first six months of fiscal 2011 reflecting the
final determination of assets acquired and other components of the purchase price in accordance
with specific provisions of the Asset Purchase Agreement with Telogy. Telogy, headquartered in
Union City, California, was a leading provider of electronic T&M equipment in North America. We
accounted for the acquisition under Accounting Standards Codification (ASC) 805, Business
Combinations. See Note 4 to our condensed consolidated financial statements.
Our financial results for fiscal 2010 were impacted by competitive pressure on rental rates
due in large part to the recession in the U.S. and our major international markets, although our
utilization rates improved due to an increase in demand and equipment on rent. During the first
nine months of fiscal 2011, we have seen modest improvement in our T&M rental rates and continued
improvement in utilization rates, in particular in our North American and European operations. As a
result of these improvements, our recent acquisition of Telogy, and sales of T&M equipment in
connection with our ATP sales agreement, we have experienced substantial growth in revenues and
operating profit for the nine months ended February 28, 2011. Despite this growth, our customers
and competitors continue to be affected by the recent recession in the U.S. and global economy,
resulting in more stringent credit requirements and reduced access to capital. We must continue to
be focused on remaining profitable in the current conditions, as well as being prepared for the
possibility that the recession may deepen and continue in future periods.
For the first nine months of fiscal 2011, 85% of our rental and lease revenues was derived
from T&M equipment, compared to 82% for the first nine months of fiscal 2010. We have experienced
growth in both our T&M and DP rental revenues, due to increased rental activity and a modest
increase in our T&M and DP rental rates. Our T&M rental revenues for the first nine months of
fiscal 2011 include the rental revenues acquired from Telogy.
For the first nine months of fiscal 2011, rental revenues were 89% of our rental and lease
revenue, compared to 86% for the first nine months of fiscal 2010. The increase is the result of an
increase in our T&M and DP rental activity, including the rental revenues acquired from Telogy,
while our lease revenues slightly declined.
To maximize our overall profit from the rental, leasing, and sales of equipment, we manage our
equipment pool on an on-going basis by controlling the timing, pricing and mix of our purchases and
sales of equipment. We acquire new and used equipment to meet current technological standards and
current and anticipated customer demand, and we sell our used equipment where we believe that is
the most lucrative option. We employ a complex equipment management strategy and our proprietary
PERFECT software to adjust our inventory and pricing on a
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dynamic basis in order to maximize equipment availability, utilization and profitability. We
manage each specific equipment class based on a separate assessment of that equipments historical
and projected life cycle and numerous other factors, including the U.S. and global economy,
interest rates and new product launches. If we do not accurately predict market trends, or if
demand for the equipment we supply declines, we can be left with inventory that we are unable to
rent or sell for a profit. We assess the carrying value of the equipment pool on a quarterly basis
or more frequently when factors indicating impairment are present.
Profitability and Key Business Trends
We generally measure our overall level of profitability with the following metrics:
| Net income per diluted common share (EPS); | ||
| Net income as a percentage of average assets (annualized); and | ||
| Net income as a percentage of average equity (annualized). |
Comparing the first nine months of fiscal 2011 to the first nine months of fiscal 2010, our
revenues increased by 60.6% to $163.6 million, our operating profit increased by 100.8% to $26.4
million, and our net income increased by 111.4% to $17.4 million. Our rental and lease revenues
increased in our T&M and DP segments in our North American and European operations, reflecting
increased rental activity and increased T&M and DP rental rates, due to improved market conditions
and the T&M rental revenues acquired from Telogy. In addition, our T&M sales activity increased due
to new equipment sales in connection with our ATP sales agreement more than offsetting declines in
our used equipment sales, finance leases, and distribution sales.
Some of our key profitability measurements are presented in the table below for the nine
months ended February 28, 2011 and 2010:
2011 | 2010 | |||||||
Net income per diluted common share (EPS) |
$ | 0.72 | $ | 0.34 | ||||
Net income as a percentage of average assets (annualized) |
8.0 | % | 4.1 | % | ||||
Net income as a percentage of average equity (annualized) |
10.1 | % | 4.9 | % |
The increase in our operating profit is due primarily to increased rental revenues and sales
of new equipment for the first nine months of fiscal 2011. The increase was partially offset by an
increase in depreciation expense of $4.3 million, or 13.6% as we have invested in additional rental
equipment to support our growth, and an increase in selling, general and administrative expenses of
$9.3 million, or 29.1%, primarily related to our hiring of sales and support staff in connection
with our ATP sales agreement.
The amount of our equipment on rent, based on acquisition cost, increased 36.8% to $218.3
million at February 28, 2011 from $159.6 million at February 28, 2010. Acquisition cost of
equipment on lease increased 1.8% to $28.3 million at February 28, 2011 from $27.8 million at
February 28, 2010. Average rental rates for our T&M and DP segments increased by 3.8% from February
28, 2010 to February 28, 2011. Average lease rates for our T&M and DP segments declined by 11.2%
for the same period. Utilization for our T&M equipment pool, based on acquisition cost of equipment
on rent and lease compared to the total equipment pool, was 70.1% at February 28, 2011, compared to
67.1% at February 28, 2010 due to an increase in rental and lease demand, delays in receiving
equipment ordered from vendors, and improved equipment pool management. Over the same period,
utilization of our DP equipment pool decreased to 37.9% from 44.3%, due to a decrease in rental
demand and equipment on lease.
As of February 28, 2011 and 2010, we had order backlogs of $15.8 million and $4.2 million,
respectively, the result of sales in connection with our ATP sales agreement. We expect that a
majority of current year backlog will be delivered to customers within six months of February 28,
2011.
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The following table shows the revenue and operating profit trends over the last five quarters
(in thousands):
Three Months Ended | ||||||||||||||||||||
Feb 28, | Nov 30, | Aug 31, | May 31, | Feb 28, | ||||||||||||||||
2011 | 2010 | 2010 | 2010 | 2010 | ||||||||||||||||
Rentals and leases |
$ | 28,679 | $ | 29,673 | $ | 28,787 | $ | 26,529 | $ | 22,596 | ||||||||||
Sales of equipment and other revenues |
30,771 | 23,604 | 22,038 | 17,526 | 10,438 | |||||||||||||||
Operating profit |
8,298 | 9,606 | 8,532 | 5,269 | 3,939 |
Results of Operations
Comparison of Three Months Ended February 28, 2011 and February 28, 2010
Revenues
Total revenues for the three months ended February 28, 2011 and 2010 were $59.5 million and
$33.0 million, respectively. The 80.0% increase in total revenues was due to a 26.9% increase in
rental and lease revenues and a 194.8% increase in sales of equipment and other revenues.
Rental and lease revenues for the three months ended February 28, 2011 were $28.7 million,
compared to $22.6 million for the same period of the prior fiscal year. This increase reflects an
increase in our T&M and DP rental activity and rental rates in our North American and European
operations, due to improved market conditions and the acquisition of Telogy in the fourth quarter
of fiscal 2010, and an increase in T&M leasing activity that was partially offset by a continued
decline in DP leasing demand.
Sales of equipment and other revenues increased to $30.8 million for the third quarter of
fiscal 2011, compared to $10.4 million in the same period of the prior fiscal year. This increase
is due to sales of new T&M equipment through our ATP sales agreement and an increase in our sales
of used equipment in our T&M business, partially offset by a decline in finance lease activity and
distribution sales. We terminated our distribution agreement with Agilent (which was replaced with
the ATP sales agreement) on January 31, 2010.
Operating Expenses
Depreciation of rental and lease equipment increased to $12.2 million, or 42.5% of rental and
lease revenues, in the third quarter of fiscal 2011, from $10.2 million, or 45.2% of rental and
lease revenues, in the third quarter of fiscal 2010. The increased depreciation expense in fiscal
2011 was due to a higher average rental and lease equipment pool, while the decreased ratio, as a
percentage of rental and lease revenues, was due to higher utilization and higher T&M rental rates.
Costs of revenues other than depreciation increased 235.7% to $24.7 million in the third
quarter of fiscal 2011 from $7.4 million in the same period of fiscal 2010. Costs of revenues other
than depreciation primarily includes the cost of equipment sales, which increased as a percentage
of equipment sales to 77.6% in the third quarter of fiscal 2011 from 68.0% in the third quarter of
fiscal 2010. This increase is due to an increase in sales of new T&M equipment through our ATP
sales agreement, which generally carry a lower margin than used equipment sales. Our sales margin
is expected to continue to decline as a result of anticipated growth in connection with our ATP
sales agreement.
Selling, general and administrative expenses increased 23.8% to $14.3 million in the third
quarter of fiscal 2011, compared to $11.5 million in the third quarter of fiscal 2010. Our selling,
general and administrative expenses increased primarily due to additional sales and support staff
in connection with our ATP sales agreement. As a percentage of total revenues, selling, general and
administrative expenses decreased to 24.0% in the third quarter of fiscal 2011 from 34.9% in the
third quarter of fiscal 2010, due to the increase in total revenues.
Interest Income, Net
Interest income, net, was insignificant for the third quarter of fiscal 2011 compared to $0.1
million in the third quarter of fiscal 2010 due to a lower cash balance, and the redemption of our
auction rate securities (ARS) (which carried a higher interest rate) in the first quarter of
fiscal 2011.
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Income Tax Provision
Our effective tax rate was 39.1% in the third quarter of fiscal 2011, compared to 47.1% for
the same period in fiscal 2010. The decrease is due primarily to imputed interest on intercompany
receivables and interest and penalties on our liability for uncertain tax positions during the
three months ended February 28, 2010. We effectively settled our uncertain tax positions during
the second quarter of fiscal 2011.
Comparison of Nine Months Ended February 28, 2011 and February 28, 2010
Revenues
Total revenues for the nine months ended February 28, 2011 and 2010 were $163.6 million and
$101.8 million, respectively. The 60.6% increase in total revenues was due to a 28.8% increase in
rental and lease revenues and a 123.8% increase in sales of equipment and other revenues.
Rental and lease revenues for the first nine months of fiscal 2011 were $87.1 million,
compared to $67.7 million for the same period of the prior fiscal year. This increase reflects an
increase in our T&M and DP rental activity and rental rates in our North American and European
operations, due to improved market conditions and the acquisition of Telogy in the fourth quarter
of fiscal 2010, and an increase in T&M leasing activity that was partially offset by a continued
decline in DP leasing demand.
Sales of equipment and other revenues increased to $76.4 million for the first nine months of
fiscal 2011, compared to $34.1 million in the same period of the prior fiscal year. This increase
is due to sales of new T&M equipment through our ATP sales agreement, partially offset by a decline
in used equipment sales, finance lease activity, and distribution sales. We terminated our
distribution agreement with Agilent (which was replaced with the ATP sales agreement) on January
31, 2010.
Operating Expenses
Depreciation of rental and lease equipment increased to $35.8 million, or 41.0% of rental and
lease revenues, in the first nine months of fiscal 2011, from $31.5 million, or 46.5% of rental and
lease revenues, in the first nine months of fiscal 2010. The increased depreciation expense in
fiscal 2011 was due to a higher average rental and lease equipment pool, while the decreased
depreciation expense as a percentage of rental and lease revenues was due to higher utilization and
higher rental rates.
Costs of revenues other than depreciation increased 140.3% to $60.0 million in the first nine
months of fiscal 2011 from $25.0 million in the same period of fiscal 2010. Costs of revenues other
than depreciation primarily includes the cost of equipment sales, which increased as a percentage
of equipment sales to 76.9% in the first nine months of fiscal 2011 from 70.7% in the first nine
months of fiscal 2010. This increase is due to an increase in sales of new T&M equipment through
our ATP sales agreement, which generally carry a lower margin than used equipment sales. Our
overall sales margin is expected to continue to decline as a result of anticipated growth in
connection with our ATP sales agreement.
Selling, general and administrative expenses increased 29.1% to $41.5 million in the first
nine months of fiscal 2011, compared to $32.2 million in the first nine months of fiscal 2010. Our
selling, general and administrative expenses increased primarily due to additional sales and
support staff in connection with our ATP sales agreement. As a percentage of total revenues,
selling, general and administrative expenses decreased to 25.4% in the first nine months of fiscal
2011 from 31.6% in the first nine months of fiscal 2010, due to the increase in total revenues.
Interest Income, Net
Interest income, net, was $0.3 million for the first nine months of fiscal 2011 compared to
$1.5 million in the first nine months of fiscal 2010 due to a lower cash balance and the redemption
of our ARS (which carried a higher interest rate) in the first nine months of fiscal 2011, and a
realized gain of $0.8 million on the sale of our investments available-for-sale in the first nine
months of fiscal 2010. During the first nine months of fiscal 2011 and 2010, interest income, net,
included offsetting gains and losses on our ARS and the related put option, with no net impact on
our net income.
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Income Tax Provision
Our effective tax rate was 34.8% in the first nine months of fiscal 2011, compared to 43.8%
for the same period in fiscal 2010. The decrease is due primarily to the derecognition of $1.4
million of interest and penalties resulting from the effective settlement of our uncertain tax
positions during the nine months ended February 28, 2011. See Note 11 to our condensed consolidated
financial statements for further discussion.
Liquidity and Capital Resources
Capital Expenditures
Our primary capital requirements have been purchases of rental and lease equipment. We
generally purchase equipment throughout the year to replace equipment that has been sold and to
maintain adequate levels of rental equipment to meet existing and expected customer demands. To
meet T&M rental demand, support areas of potential growth for both T&M and DP equipment and to keep
our equipment pool technologically up-to-date, we made payments for purchases of $69.8 million of
rental and lease equipment during the first nine months of fiscal 2011 compared to $35.9 million
during the first nine months of fiscal 2010. In response to increasing customer demand beginning in
the second half of fiscal 2010, purchases of equipment for the first nine months of fiscal 2011
were 94.2% higher than the first nine months of fiscal 2010.
Share Repurchases and Dividends
We periodically repurchase shares of our common stock, which are then retired and returned to
the status of authorized but unissued stock. During the nine months ended February 28, 2010, we
repurchased 44,114 shares of our common stock, for $0.4 million, at an average price per share of
$8.94. There were no repurchases during the nine months ended February 28, 2011. We may make
repurchases of common stock in the future through open market transactions or otherwise, but we
have no commitments to do so.
During the nine months ended February 28, 2011 and 2010, we paid dividends of $0.45 per common
share, or $0.60 per annum, amounting to an aggregate of $10.8 million for each period. We expect to
continue paying a quarterly dividend in future quarters, although the amount and timing of
dividends, if any, will be made at the discretion of our board of directors in each quarter,
subject to compliance with applicable law.
Cash and Cash Equivalents and Investments
Despite the $64.4 million in cash we have returned to our shareholders over the past three
fiscal years, and the $24.4 million we paid in connection with the Telogy acquisition in fiscal
2010, we continue to maintain substantial cash and cash equivalents and investments. We expect that
the level of our cash and cash equivalents and investments may decrease as we pay dividends in
future quarters, or if we decide to buy back additional shares of our common stock, increase
equipment purchases in response to demand, finance another acquisition, or pursue other
opportunities. We invest our cash balance in government money market funds.
At May 31, 2010, we held $14.3 million, at cost, in ARS, which we classified as investments,
trading. During June and July 2010, we sold our remaining ARS of $14.3 million at par value plus
accrued interest under a contractual put right.
Cash Flows and Credit Facilities
During the first nine months of fiscal 2011 and fiscal 2010, net cash provided by operating
activities was $42.4 million and $24.3 million, respectively. The increase in operating cash flow
for the first nine months of fiscal 2011 compared to the same period of the prior fiscal year was
due primarily to an increase in net income to $17.4 million for the first nine months of fiscal
2011 from $8.2 million for the first nine months of fiscal 2010, and an increase in our deferred
tax liability of $20.2 million, compared to a decrease of $3.5 million in the first nine months of
fiscal 2010. This increase was partially offset by an increase in other assets of $13.7 million in
the first nine months of fiscal 2011 compared to $3.5 million for the first nine months of fiscal
2010, due to an increase in our demonstration pool inventory of $2.4 million; recording of an
income tax receivable of $10.2 million; an increase in accounts receivable of $7.4 million for the
nine months ended February 28, 2011 compared to $3.5 million in the prior year period due to
increased revenues; and a decrease in accrued expenses of $2.3 million for the first nine months of
fiscal 2011 compared to an increase of $3.1 million for the first nine months of fiscal 2010. The
changes in our
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deferred tax liability and accrued expenses, and the recording of an income tax receivable in
fiscal 2011 resulted primarily from our effective settlement of the $4.5 million in unrecognized
tax positions during the nine months ended February 28, 2011 and the enactment of bonus
depreciation, which significantly increased our tax depreciation expense during the nine months
ended February 28, 2011 and retroactively for our fiscal year ended May 31, 2010.
During the first nine months of fiscal 2011 net cash used in investing activities was $35.2
million compared to $23.6 million of net cash provided by investing activities for the same period
of fiscal 2010. Payments for the purchase of rental and lease equipment were $69.8 million for the
first nine months of fiscal 2011 compared to $35.9 million for the first nine months of fiscal
2010. Redemptions of investments, trading were $14.3 million during the first nine months of fiscal
2011 compared to $1.8 million for the first nine months of fiscal 2010, while 2010 included $28.7
million in redemptions of investments, available-for-sale, compared to $0 in the current year.
Net cash used in financing activities was $10.6 million for the first nine months of 2011
compared to $10.9 million for the first nine months of fiscal 2010, due primarily to a decrease in
payments for the repurchase of common stock to $0 for the first nine months of fiscal 2011,
compared to $0.4 million for the first nine months of fiscal 2010.
We have a $10.0 million revolving line of credit with an institutional lender, subject to
certain restrictions, to meet equipment acquisition needs as well as working capital and general
corporate requirements. We had no bank borrowings outstanding, or off balance sheet financing
arrangements, at February 28, 2011.
We believe that cash and cash equivalents, cash flows from operating activities, proceeds from
the sale of equipment and our borrowing capacity will be sufficient to fund our operations for at
least the next twelve months.
Contractual Obligations
Our contractual obligations have not changed materially from those included in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2010.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (generally accepted accounting
principles) requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
On a regular basis, we review these estimates, including those related to asset lives and
depreciation methods, impairment of long-lived assets including rental and lease equipment,
goodwill and definite lived intangible assets, allowance for doubtful accounts and income taxes,
and adjust them as appropriate. These estimates are based on our historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
These determinations, even though inherently subjective and subject to change, affect the
reported amounts of our assets, liabilities and expenses. While we believe that our estimates are
based on reasonable assumptions and judgments at the time they are made, some of our assumptions,
estimates and judgments will inevitably prove to be incorrect. As a result, actual outcomes will
likely differ from our accruals, and those differencespositive or negativecould be material.
We identified certain critical accounting policies that affect certain of our more significant
estimates and assumptions used in preparing our consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2010. We have not made any material changes
to these policies as previously disclosed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the first nine months of fiscal 2011, there were no material changes in the information
regarding market risk contained in our Annual Report on Form 10-K for the fiscal year ended May 31,
2010.
Item 4. Controls and Procedures.
As of February 28, 2011, 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
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procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended
(the Exchange Act)). Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as of the end of the period covered
by this report were effective.
There was no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal controls 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.
PART IIOTHER 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, including claims of alleged infringement, misuse or
misappropriation of intellectual property rights of third parties. As of the date of this report,
we are not a party to any litigation which we believe would have a material adverse effect on our
business operations or financial condition.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider
the discussion of various risks and uncertainties contained in Part I, Item 1A. Risk Factors in
our Annual Report on Form 10-K for the fiscal year ended May 31, 2010. We believe those risk
factors are the most relevant to our business and could cause our results to differ materially from
the forward-looking statements made by us. However, those are not the only risk factors 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. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit No. | Document Description | Incorporation by Reference | ||
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 | Filed herewith. | ||
32.2
|
Section 1350 Certification by Chief Financial Officer | Filed herewith. |
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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 5, 2011 | /s/ Craig R. Jones | |||
Craig R. Jones | ||||
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and duly authorized to sign this report on behalf of the company) |
||||
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