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 70% 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 is comprised of personal computers and workstations. Personal computer lines include those from Compaq, Dell, IBM, Apple, and Toshiba; while workstations are purchased primarily from Sun Microsystems and Hewlett Packard. A large part of our equipment portfolio is rented or leased to Fortune 500 companies in the aerospace, defense, electronics and telecommunications industries. We believe that our test and measurement equipment is primarily 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, 2002. No significant portion of our revenues are currently derived from direct United States Government contracts.
An important aspect of our equipment portfolio management is the resale of equipment from the portfolio, generally three to five years after purchase, which, on the average, have been at prices above book value. Such sales have historically provided a substantial portion of revenues and operating cash flow.
We service our customers through a network of equipment, 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.
After acquiring the rental business of General Electric Capital Technology Management Services in November 1997, Electro Rent became one of the largest companies in the highly competitive electronic equipment rental and lease business. Independent industry publications have identified a number of major competitors, including Technology Rentals & Services, a division of CIT Group, Telogy, McGrath Rent Corp. and Continental Resources. Some of our competitors are divisions of larger organizations, and, therefore, have access to greater internal financial and other resources than we do.
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 research and development, manufacturing and marketing trends and activities of our major suppliers tend to shape the nature of the rental and lease demand of our customers and the availability of equipment. As a result, our business is significantly affected by the continued research and development, manufacturing and financial condition of its major suppliers, particularly Agilent Technologies.
We believe that our relationships with our major suppliers are good. Because of the volume of our purchases and our long-term purchase arrangements, we often obtain favorable price discounts.
At May 31, 2002, Electro Rent and its subsidiary, Genstar Rental Electronics, Inc. employed approximately 425 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.
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 24,800 square feet are currently being listed for lease to other subtenants. These subtenant arrangements provide for all of the subleased property to be available for our future needs. There is no additional space in the building available for leasing.
We own a facility in Wood Dale, Illinois, containing approximately 30,750 square feet. This facility is currently unoccupied, and in fiscal 2003 the Company’s Illinois warehouse and service center will move to this facility from a leased facility in Aurora, Illinois.
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, 2002 Electro Rent had both sales offices and equipment calibration and service centers in the metropolitan areas of Atlanta and Los Angeles. We also have service centers in Boston, Chicago, Dallas, Denver, Detroit, Houston, Las Vegas, Montreal, New York/Newark, San Francisco, Seattle, Toronto and Washington/Baltimore.
Electro Rent’s facilities aggregate approximately 435,000 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 five years for aggregate annual rentals of approximately $2,698,000 in fiscal 2002. 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.
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.
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.
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, 2002, as quoted on NASDAQ, shareholder information and dividend information are set forth on page 23 of the 2002 Annual Report and are incorporated herein by reference.
None of our preferred shares are issued or outstanding.
Item 6.
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 2002 Annual Report, is hereby incorporated by reference.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Information appearing under the above caption on pages 5 to 9 of the 2002 Annual Report is hereby incorporated by reference.
Item 7A.
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.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements together with the report thereon of Deloitte & Touche LLP appearing on pages 11 to 23 of the 2002 Annual Report are hereby incorporated by reference.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
On April 30, 2002, we dismissed Arthur Andersen LLP (“Arthur Andersen”) as the Company’s independent auditors and engaged Deloitte & Touche LLP (“D&T”) as our new independent auditors. The decision to change our independent auditors was made by our Board of Directors.
Arthur Andersen’s reports on the financial statements of the Company for the fiscal years ended May 31, 2001 and May 31, 2000 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no disagreements with Arthur Andersen on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would have caused it to make reference thereto in its report on the financial statements for such years.
During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no “reportable events” (as defined below) requiring disclosure pursuant to Item 304(a)(1)(v) of Regulation S-K, promulgated under the Securities Act of 1934, as amended. As used herein, the term “reportable events” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K.
Effective April 30, 2002, we engaged D&T as our independent auditors. During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, neither the Company nor anyone acting on its behalf consulted D&T regarding either the application of accounting principles as to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, nor has D&T provided to the Company a written report or oral advice regarding such principles or audit opinion.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Information appearing in the 2002 Proxy Statement under the captions Election of Directors (pages 5 and 6), Executive Officers (page 6), Compliance With Section 16 of the Securities Exchange Act of 1934 (page 9), and Transactions With Management (page 9), is hereby incorporated by reference.
Item 11.
Item 11. Executive Compensation.
Information appearing in the 2002 Proxy Statement under the caption Executive Compensation (pages 6 to 15) is hereby incorporated by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning the ownership of Electro Rent’s securities by its principal holders and its management is set forth in the 2002 Proxy Statement (pages 4 and 5), and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Information appearing in the 2002 Proxy Statement under the caption Transactions With Management (page 9) is hereby incorporated by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following financial statements and financial statement schedule covered by the Independent Auditors’ Report are filed as a part of this report and are included or incorporated herein by reference to the following page or pages of the 2002 Annual Report.
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.
During the last quarter of the period covered by this Annual Report on Form 10-K, the Registrant did not file and was not required to file any Current Reports on Form 8-K.
(c) Exhibits listed by numbers corresponding to Exhibit Table of Item 601 of Regulation S-K.
Exhibit Index
(* Indicates compensation plan, contract or arrangement)
ELECTRO RENT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended May 31, 2002, 2001 and 2000
(in thousands)
*
Represents accounts written off against the allowance, net of recoveries.
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.