-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J7Ov8Q5sxcmfG/StEWXjPlcD7prLKpDqFz7DhDiwUgIPW+/8gnUAgQp+tuHj4l1N i/WQsmKpJpYfoPQqoWNZdA== 0000032166-98-000002.txt : 19980128 0000032166-98-000002.hdr.sgml : 19980128 ACCESSION NUMBER: 0000032166-98-000002 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980123 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980126 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO RENT CORP CENTRAL INDEX KEY: 0000032166 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 952412961 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-09061 FILM NUMBER: 98512680 BUSINESS ADDRESS: STREET 1: 6060 SEPULVEDA BLVD CITY: VAN NUYS STATE: CA ZIP: 91411-2512 BUSINESS PHONE: 8187872100 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 23, 1998 (November 14, 1997) ELECTRO RENT CORPORATION Exact name of registrant as specified in its charter California 95-2412961 0-90611 (State of California) (I.R.S. Employer (Commission Identification No.) File No.) 6060 Sepulveda Boulevard Van Nuys, California 91411-2501 (Address of principal executive offices) (Zip Code) The undersigned registrant (the "Company") hereby amends the Current Report on Form 8-K dated November 14, 1997 by including herewith for filing the financial statements and pro forma financial information required by Item 7 on Form 8-K which information was not practicably available at the time of the filing of this Form as set forth on the pages indicated below and attached hereto. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired. Independent Auditors' Report............................................. F-1 Combined Balance Sheets as of November 14, 1997 and December 31, 1996.... F-2 Combined Statements of Operations for the Period from January 1, 1997 through November 14, 1997 and the Years ended December 31, 1996 and 1997............................................................... F-3 Combined Statements of Changes in Net Equity for the Period from January 1, 1997 through November 14, 1997 and for the Years ended December 31, 1996 and 1995............................................. F-4 Combined Statements of Cash Flows for the Period from January 1, 1997 through November 14, 1997 and for the Years ended December 31, 1996 and 1995.......................................................... F-5 Notes to Combined Financial Statements................................... F-7 (b) Pro Forma Financial Data. Unaudited Pro Forma Condensed Statements of Operations for the Six Months ended November 30, 1997 and the Year ended May 31, 1997..... F-17 (a) Financial Statements of Business Acquired. - ---------------------------------------------- COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Financial Statements November 14, 1997 and December 31, 1996 With Independent Auditors' Report Thereon Independent Auditors' Report The Board of Directors General Electric Capital Corporation: We have audited the accompanying combined balance sheets of Computer Rental and Test and Measurement Rental (divisions of General Electric Capital Technology Management Services Corporation - collectively "the Division") as of November 14, 1997 and December 31, 1996, and the related combined statements of operations, changes in net equity, and cash flows for the period from January 1, 1997 through November 14, 1997, and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Division at November 14, 1997 and December 31, 1996, and the results of its operations and its cash flows for the period from January 1, 1997 through November 14, 1997, and for the years ended December 31, 1996 and 1995 in conformity with generally accepted accounting principles. January 9, 1998 KPMG Peat Marwick LLP F1 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Balance Sheets November 14, 1997 and December 31, 1996 (In thousands)
Assets 1997 1996 ---- ---- Cash and cash equivalents $ 1,865 Lease receivables, net (notes 2, 3, and 9) 83,239 73,498 Inventories 2,147 3,007 Property and equipment, net (note 4) 10,762 12,266 Equipment leased to others, net (note 5) 192,736 204,237 Goodwill, net (note 10) 6,283 6,577 Prepaid expenses and other assets 4,416 1,471 --------- ------- Total assets $ 299,583 302,921 ========= ======= Liabilities and Net Equity Liabilities: Accounts payable $ 9,351 9,748 Accrued expenses and other liabilities 8,376 8,390 Deferred income taxes (note 7) 2,391 70 --------- ------ Total liabilities 20,118 18,208 Net equity (notes 6 and 10) 279,465 284,713 Commitments (note 8) --------- ------- Total liabilities and net equity $ 299,583 302,921 ========= =======
See accompanying notes to combined financial statements. F2 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Statements of Operations For the Period from January 1, 1997 through November 14, 1997 and for the Years ended December 31, 1996 and 1995 (In thousands)
1997 1996 1995 (318 (12 (12 days) months) months) ---- ---- ---- Revenues: Rental income from operating leases (notes 2 and 6) $ 169,173 194,509 153,185 Sales resulting from sales- type leases 4,013 18,139 6,476 Lease finance income 3,378 4,012 3,526 Equipment sales 38,389 37,263 31,643 --------- ------- ------- Total revenues 214,953 253,923 194,830 --------- ------- ------- Expenses: Compensation and employee benefits (note 6) 36,905 41,112 27,991 Depreciation and amortization 82,819 87,153 66,425 Repairs and maintenance 9,683 10,213 8,664 General and administrative (note 6) 37,715 35,596 33,284 Interest (note 6) 14,600 14,457 11,643 Provision for uncollectible receivables (note 3) 743 2,468 2,856 Cost of equipment sold under sales-type leases 3,803 15,388 6,876 Cost of equipment sold 26,927 25,957 22,106 ------- ------- ------- Total expenses 213,195 232,344 179,845 ------- ------- ------- Income before income taxes 1,758 21,579 14,985 Income tax expense (note 7) 701 8,671 5,978 ------- ------- ------- Net income $ 1,057 12,908 9,007 ========= ======= =======
See accompanying notes to combined financial statements. F3 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Statements of Changes in Net Equity For the Period from January 1, 1997 through November 14, 1997 and for the Years ended December 31, 1996 and 1995 (In thousands)
Total net equity ---------- Balance at December 31, 1994 $ 143,489 Net receipts from and payments incurred by affiliates on behalf of the Division and allocations of common expenses to the Division 84,445 Net income 9,007 --------- Balance at December 31, 1995 236,941 Net receipts from and payments incurred by affiliates on behalf of the Division and allocations of common expenses to the Division 8,462 Contribution of business acquired by GECC (note 10) 25,292 Contribution of assets previously held by affiliates 1,110 Net income 12,908 ------- Balance at December 31, 1996 284,713 Payments to affiliates, net of receipts from and payments incurred by affiliates on behalf of the Division and allocations of common expenses to the Division (7,648) Contribution of assets previously held by affiliates 1,343 Net income 1,057 ------- Balance at November 14, 1997 $ 279,465 ========= See accompanying notes to combined financial statements.
F4 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Statements of Cash Flows For the Period from January 1, 1997 through November 14, 1997 and for the Years ended December 31, 1996 and 1995 (In thousands)
1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $ 1,057 12,908 9,007 Adjustments to reconcile net income to net cash provided by operating activities: Provision for uncollectible receivables 743 2,468 2,856 Depreciation and amortization 82,819 87,153 66,425 Amortization of lease finance income (3,378) (4,012) (3,526) Gain on sale of equipment leased to others (11,462) (11,306) (9,537) (Gain) loss resulting from sales-type leases (210) (2,751) 400 Deferred income tax expense (benefit) 2,321 (2,646) 579 Changes in assets and liabilities: Increase in rental receivables under operating leases (15,963) (5,211) (17,337) (Increase) decrease in prepaid expenses and other assets (2,945) (584) 1 Decrease (increase) in inventories 860 (730) 1,044 (Decrease) increase in accounts payable (397) 1,027 2,828 (Decrease) increase in accrued expenses and other liabilities (14) 260 10,399 ------ ------ ------ Net cash provided by operating activities 53,431 76,576 63,139 ------ ------ ------ Cash flows from investing activities: Net decrease (increase) in direct financing and sales-type lease receivables 9,067 8,451 (10,803) Purchases of equipment for lease to others (91,631) 125,518) (164,837) Purchase of property and equipment, net (3,473) (3,656) (3,587) Proceeds from sale of equipment leased to others 38,389 37,263 31,643 Cash acquired from GECC's contribution of business - 287 - ------ ------ ------- Net cash used in investing activities (47,648) (83,173) (147,584) ------ ------ ------- Cash flows from financing activities - receipts from (payments to) affiliates (7,648) 8,462 84,445 ------ ------ ------ Net (decrease) increase in cash (1,865) 1,865 - Cash and cash equivalents at beginning of period 1,865 - - ------ ------ ------ Cash and cash equivalents at end of period $ - 1,865 - ====== ====== ======
(Continued) F5 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Combined Statements of Cash Flows (In thousands)
1997 1996 1995 ---- ---- ---- Supplemental disclosure of cash paid during the year for: Interest $ 14,600 14,457 11,643 ====== ====== ====== Income taxes $ - 11,317 5,399 ====== ====== ====== Supplemental disclosure of noncash financing activities: Contribution of business acquired by GECC to the Division's net equity (note 10) $ - 25,292 - ====== ====== ====== Contribution of assets previously held by affiliates $ 1,343 1,110 - ====== ====== ======
See accompanying notes to combined financial statements. F6 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements November 14, 1997 and December 31, 1996 and 1995 (In thousands) (1) Summary of Significant Accounting Policies (a) Description of the Business Computer Rental and Test and Measurement Rental (collectively the "Division") are divisions of General Electric Capital Technology Management Services Corporation ("GEC-TMS"), a wholly owned subsidiary of General Electric Capital Corporation ("GECC"), a wholly owned subsidiary of General Electric Corporation ("GE"). The Division is engaged primarily in providing computers and test and measurement equipment through finance and operating leases to customers operating in various locations primarily in the United States. On September 21, 1997, GEC-TMS and GECC signed a letter of intent with Electro Rent Corporation (the "Buyer") under which, on the contractually designated closing date, the Buyer would acquire substantially all assets of the Division and assume certain liabilities of the Division. Subsequent to signing the letter of intent, the parties agreed to exclude lease receivables from the sale. The final purchase agreement was executed on November 14, 1997, and the Buyer took ownership of substantially all assets other than outstanding lease receivables and assumed certain liabilities as of the close of business on November 14, 1997. (b) Basis of Financial Statement Presentation The Division's combined financial statements include direct expenses incurred on its behalf by GEC-TMS as well as a portion of common expenses incurred by GEC-TMS on behalf of all subsidiaries and divisions of GEC-TMS. Such allocation of common expenses is based on various factors considered by management to best represent the costs for the respective subsidiaries and divisions. To the extent not funded through operations of the Division, the Division's activities are funded by GEC-TMS and indirectly by GECC. GEC-TMS and GECC do not specifically distinguish payments to or costs incurred on behalf of the Division as contributed capital or as receivables from the Division, but rather consider all such amounts, including retained earnings of the Division, as net equity. The Division is charged interest on 90% of the net equity balance determined on a quarterly basis, with such interest amounts being reflected as expense in the Division's combined statements of operations. For purposes of the combined statement of cash flows, allocations of common expenses (including current income taxes calculated on a stand-alone basis) by GEC-TMS to the Division and interest charged to the Division by GECC and GEC-TMS are considered cash payments on behalf of the Division. F7 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management 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. Actual results could differ from those estimates. (c) Lease Receivables and Related Income and Expense Leases are accounted for as either direct financing, sales-type, or operating leases in accordance with Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. The majority of the Division's leases are classified as operating leases. Lease terms range from one to five years. Direct financing and sales-type lease receivables consist of the present value of the future minimum lease payments plus the present value of the residual (collectively referred to as the net investment). The residual value is the estimated fair value of the leased equipment at lease termination. Lease finance income results from the difference between the minimum rental payments received and the present value of the minimum rental payments which, upon inception, is recorded as unearned finance income and is recognized into income over the lease term using a method which approximates a level yield. Initial direct costs of direct financing and sales-type leases are charged against income as incurred as the effect is not materially different from deferring these costs and amortizing them over the term of the lease. Lease origination fees are recognized into income upon lease inception as the effect is not materially different from deferring these fees and recognizing them over the term of the lease. Sales resulting from sales-type leases consists of the present value of the total contractual lease payments and is recognized at lease inception. Cost of equipment sold under sales-type leases consists of the equipment's net book value at lease inception, less the present value of the residual, and is expensed at lease inception. (d) Equipment Leased to Others and Rental Income Under Operating Leases Equipment leased to others is recorded at cost and depreciated using the straight line method primarily over a three-year period for computers and seven-year period for test and measurement equipment. Upon retirement or disposal of assets, the costs and the related accumulated depreciation are removed from the accounts and any gain or loss on retirement or disposal is included in the results of operations. The Division maintains a reserve for equipment which may be damaged or unlocated. F8 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements Rental income under operating leases is recorded as income over the lease term as it becomes receivable according to the provisions of the lease. Due to the increased volume in operating leases, beginning October 1, 1996, initial direct costs net of lease origination fees related to computer operating leases are capitalized and amortized over the term of each lease. Prior to October 1, 1996, initial direct costs were expensed as incurred as the effect was not materially different from deferring these costs and amortizing them over the term of the lease. (e) Allowance for Uncollectible Receivables The allowance for uncollectible receivables is an amount that management believes will be adequate to absorb losses inherent in existing receivables. Additions to the allowance for uncollectible receivables are based on management's evaluation of the receivable portfolio under current economic conditions, past loss experience, changes in the nature and volume of the portfolio, overall portfolio quality, specific problem receivables, and such other factors which, in management's judgment, deserve recognition in estimating losses. Receivables are charged against the allowance when, in the opinion of management, such receivables are deemed to be uncollectible. Recoveries are added to the allowance. Management believes that the allowance for uncollectible receivables is adequate. While management uses available information to recognize losses on receivables, future additions to the allowance may be necessary based on changes in economic or other conditions. (f) Inventories Inventories consist of spare parts and are recorded using the average cost method. Spare parts are written off when determined to have no value. (g) Property and Equipment Equipment used by the Division is recorded at cost and depreciated over the estimated useful life using an accelerated method of depreciation. Depreciable lives of equipment range from 4 to 16 years. When events or changes in circumstances indicate that the carrying amounts of equipment may not be recoverable, they are assessed for impairment and, if impaired, a loss is recognized in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Leasehold improvements are recorded at cost and amortized using the straight line method over the life of the related lease, plus renewal option periods if exercise is deemed probable. F9 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements Maintenance and repairs are charged to operations as incurred. Major renewals and betterments are capitalized to the related asset accounts and are depreciated over the remaining useful life of the assets. When equipment and leasehold improvements are retired, abandoned or otherwise disposed of, the costs and the related accumulated depreciation and amortization are removed from the accounts and any gain or loss on disposal is included in the results of operations. Computer software which is purchased or developed for use by the Division is capitalized and amortized using the straight-line method over a five-year period. When events or changes in circumstances indicate that the carrying amounts of computer software may not be recoverable, they are assessed for impairment and, if impaired, a loss is recognized in accordance with SFAS No. 121. (h) Goodwill Goodwill, which represents the excess of cost over the fair value of net assets acquired by GECC from Ameridata, Inc. and subsequently contributed to the Division, is being amortized over 20 years using the straight-line method. When events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable, it is assessed for impairment and, if impaired, a loss is recognized in accordance with SFAS No. 121. (i) Income Taxes The Division's combined results of operations are included in the consolidated Federal income tax return of GE, of which GECC and its subsidiaries are a part. Income tax expense is computed by GECC as though it were filing separate returns for itself and its subsidiaries. GEC-TMS allocates income taxes to the Division as if it were filing a separate return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F10 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements (j) Fair Value of Financial Instruments SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments, including leases, and all nonfinancial instruments from its disclosure requirements. Financial instruments of the Division other than leases are short-term in nature and thus their cost bases approximate fair value. (2) Lease Receivables Lease receivables consist of the following at November 14, 1997 and December 31, 1996:
1997 1996 ---- ---- Direct financing and sales-type lease receivables: Minimum lease payments receivable $ 25,730 34,016 Estimated residual values of leased equipment (unguaranteed) 2,444 3,159 Less unearned finance income (3,214) (4,870) ------- ------- Direct financing and sales-type lease receivables, net of unearned income 24,960 32,305 Rental receivables under operating leases 61,325 45,362 ------ ------ Lease receivables, net of unearned income 86,285 77,667 Less allowance for uncollectible receivables 3,046 4,169 ------ ------ Lease receivables, net $ 83,239 73,498 ====== ======
At November 14, 1997, minimum lease payments receivable under direct financing and sales-type leases are approximately due as follows: The remainder of 1997 $ 1,801 Years ending December 31, 1998 12,093 1999 8,491 2000 3,088 2001 257 Thereafter - ------ $ 25,730 ======
F11 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements The Division leases equipment under noncancelable operating leases which expire at various dates through 2000. In most cases, management expects that in the normal course of business, leases that expire will be renewed or replaced by other leases. The following is a schedule of the minimum future rentals receivable under existing noncancelable operating leases in years subsequent to 1997: Years ending December 31, 1998 $ 35,397 1999 15,863 2000 1,882 Thereafter - ------ $ 53,142 ======
(3) Allowance for Uncollectible Receivables The following is a summary of transactions in the allowance for uncollectible receivables:
318-day period ended Year ended November 14, December 31, 1997 1996 1995 ------ ------ ------ Allowance at beginning of period $ 4,169 2,034 468 Provision for uncollectible receivables 743 2,468 2,856 Receivables charged off (2,597) (823) (2,085) Recoveries of receivables previously charged off 731 490 795 ----- ----- ----- Allowance at end of period $ 3,046 4,169 2,034 ===== ===== =====
The Division enters into a variety of transactions in the normal course of business that exposes it to both on- and off-balance sheet credit risk. Principal among these activities is leasing to various commercial customers. The Division maintains a diversified portfolio of leases by actively participating in leasing activities throughout the United States. There are no significant concentrations of credit or geographic risk at November 14, 1997. F12 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements (4) Property and Equipment Property and equipment as of November 14, 1997, and December 31, 1996 are summarized as follows:
1997 1996 ---- ---- Equipment $ 18,173 18,068 Computer software 1,887 1,700 Leasehold improvements 5,185 4,769 ------ ------ 25,245 24,537 Less accumulated depreciation and amortization 14,483 12,271 ------ ------ Net property and equipment $ 10,762 12,266 ====== ======
(5) Equipment Leased to Others Equipment leased to others as of November 14, 1997 and December 31, 1996 is summarized as follows:
1997 1996 ---- ---- Computer and related equipment $ 251,121 230,394 Test and measurement equipment 99,891 108,707 ------- ------- 351,012 339,101 Less accumulated depreciation 157,388 134,524 Less reserve for damaged or unlocated equipment 888 340 ------- ------- Equipment leased to others, net $ 192,736 204,237 ======= =======
(6) Related Party Transactions The Division leases equipment to various affiliates within GEC-TMS, GECC, and GE. These revenues from affiliates amounted to $14,222, $12,617, and $12,421 during the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995, respectively. GEC-TMS and GECC indirectly provide certain legal, data processing, personnel, insurance, and accounting services to the Division. Amounts charged to the Division related to such services, which have been reflected as general and administrative expenses in the accompanying statements of operations for the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995 were $14,190, $14,548, and $11,109, respectively. F13 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements Additionally, GECC charges the Division interest on 90% of the Division's average net equity at an annual rate of 6.5%, 6.3%, and 6.6% for the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995, respectively. Amounts included in interest expense related to such charges were $14,600, $14,457, and $11,643 for the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995, respectively. Employees of the Division also participate in various health and welfare, pension, and other benefit plans which are sponsored by GECC. (7) Income Taxes Income tax expense (benefit) for the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995 consists of:
1997 1996 1995 ---- ---- ---- Current $ (1,620) 11,317 5,399 Deferred 2,321 (2,646) 579 ----- ------ ----- $ 701 8,671 5,978 ===== ====== =====
Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the statutory Federal income tax rate of 35% to pretax income as a result of the following:
1997 1996 1995 ---- ---- ---- Computed "expected" tax expense $ 615 7,553 5,245 Increase in tax expense resulting from: State income taxes, net of Federal benefit 81 893 576 Other 5 225 157 --- ----- ----- Total income tax expense $ 701 8,671 5,978 === ===== =====
F14 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at November 14, 1997 and December 31, 1996 are presented below:
1997 1996 ---- ---- Deferred tax assets: Allowance for uncollectible receivables $ 1,188 1,626 Intangible assets basis difference 2,380 2,594 Miscellaneous reserves 1,561 1,217 ----- ----- Total deferred tax assets 5,129 5,437 Deferred tax liabilities - equipment leased to others basis difference 7,520 5,507 ----- ----- Net deferred tax liability $ (2,391) (70) ===== =====
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. No valuation allowance was deemed necessary as a result of a favorable assessment of future earnings expectations. Based upon the level of historical taxable income and the anticipated reversal of deferred tax liabilities over the period in which the deferred tax assets are deductible, management believes it is more likely than not the Division will realize the benefits of these deductible differences at November 14, 1997. (8) Commitments The Division leases office space under noncancelable operating leases which expire at various dates through October 2004. Total rent expense was $2,423, $2,051, and $1,485 for the 318-day period ended November 14, 1997 and the years ended December 31, 1996 and 1995, respectively. Future minimum lease payments at November 14, 1997 are as follows:
Amount ------ The remainder of 1997 $ 303 Years ending December 31, 1998 2,097 1999 1,532 2000 1,161 2001 917 2002 633 Thereafter 643 ----- $ 7,286 =====
F15 COMPUTER RENTAL AND TEST AND MEASUREMENT RENTAL (divisions of General Electric Capital Technology Management Services Corporation) Notes to Combined Financial Statements (9) Major Customer At November 14, 1997 and December 31, 1996, lease receivables included balances of $8,980 and $11,566, respectively, from a major customer. (10) Contribution by GECC On July 12, 1996, GECC completed its acquisition of Ameridata, Inc. (Ameridata), a company whose operations included a computer rental business, American Computer Rentals, Inc. (ACR). The acquisition was recorded by GECC as a purchase with assets purchased and liabilities assumed recorded at their fair values. GECC contributed certain of ACR's assets, net of certain related liabilities, to the Division effective July 12, 1996. The goodwill related to ACR resulting from GECC's purchase of Ameridata is based upon a corresponding purchase price allocation of $5,000 for ACR's net assets contributed to the Division. Assets contributed and liabilities assumed were as follows: Assets: Cash and cash equivalents $ 287 Rental receivables under operating leases, net 3,163 Property and equipment, net 217 Equipment leased to others, net 11,218 Goodwill 6,731 Deferred income taxes 6,133 Prepaid expenses and other assets 266 ------ Total assets 28,015 ------ Liabilities: Accounts payable 583 Accrued expenses and other liabilities 2,140 ----- Total liabilities 2,723 ----- Net contribution $ 25,292 ======
The pro forma effect of this acquisition on net income for periods prior to acquisition is not significant. F16 (b) Pro Forma Financial Data. - ----------------------------- On November 14, 1997, the Company acquired the computer and test and measurement rental business of GE Capital Technology Management Services (TMS), a business engaged in renting, leasing and selling computers, workstations and general purpose test and measurement equipment. TMS' finance leasing business was not purchased. The initial purchase price based on TMS' estimated tangible net assets at November 14, 1997, was $239.2 million, payable in cash. The purchase price is subject to adjustment as a result of an audit of net tangible assets to be completed within 90 days of closing. Financing for the transaction was achieved through short-term borrowings under a $330 million reducing revolving credit facility dated as of November 14, 1997. The following unaudited pro forma data for the six month period ended November 30, 1997 and the fiscal year ended May 31, 1997, combines the consolidated results of operations of the Company and TMS as if the acquisition had occurred at the beginning of fiscal 1997 after giving effect to certain adjustments, including amortization of goodwill, depreciation charges, estimated changes in interest expense due to acquisition debt, and related income tax effects. The historical financial data of the Company included in the pro forma summary is as of the periods presented. The historical financial data of TMS included in the pro forma summary for the six months ended November 30, 1997 and the fiscal year ended May 31, 1997 are for the six months ended September 30, 1997 and the twelve months ended March 31, 1997 (unaudited), respectively. The historical financial data of TMS for the six months ended September 30, 1997 has been adjusted on a pro rata basis to reflect the effect of the TMS acquisition date. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future. Furthermore, no effect has been given in the pro forma information for operating and synergistic benefits that are expected to be realized through the combination of the businesses. F17 ELECTRO RENT CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997 AND THE FISCAL YEAR ENDED MAY 31, 1997 (in thousands, except share information)
Six Months Ended November 30, 1997 Twelve Months Ended May 31, 1997 -------------------------------------------- --------------------------------------------- GE Capital GE Capital Technology Electro Pro Forma Pro Forma Technology Electro Pro Forma Pro Forma Management Rent Adjust- Combined Management Rent Adjust- Combined Services Corporation ments Totals Services Corporation ments Totals --------- --------- -------- ------- --------- ------- ------ -------- Revenues: Rentals and leases $88,865 $76,786 $165,651 $202,032 $129,181 $331,213 Sales of equipment and other revenues 21,992 12,607 34,599 40,638 21,319 61,957 --------- --------- -------- ------- --------- ------- ------ -------- Total revenues 110,857 89,393 0 200,250 242,670 150,500 0 393,170 --------- --------- -------- ------- --------- ------- ------ -------- Costs and expenses: Depreciation of equipment 41,770 26,731 (5,703)(a) 62,798 87,540 46,342 (11,624)(a) 122,258 Costs of revenues other than depreciation 20,192 12,292 32,484 38,717 20,091 58,808 Selling, administrative and general expenses 39,324 25,188 476 (b) 64,023 92,833 42,439 1,034 (b) 135,500 (965)(c) (806)(c) Interest 0 1,096 7,821 (d) 8,917 0 829 17,242 (d) 18,071 --------- --------- -------- ------- --------- ------- ------ -------- Total costs and expenses 101,286 65,307 1,629 168,222 219,090 109,701 5,846 334,637 --------- --------- -------- ------- --------- ------- ------ -------- Income before income taxes 9,571 24,086 (1,629) 32,028 23,580 40,799 (5,846) 58,533 Income taxes 0 9,874 3,256 (e) 13,131 0 16,726 7,271 (e) 23,997 --------- --------- -------- ------- --------- ------- ------ -------- Net income $9,571 $14,212 ($4,885) $18,897 $23,580 $24,073 ($13,117) $34,536 ========= ========= ======== ======= ========= ======= ====== ======== Earnings per share N/A $1.13 $1.51 N/A $1.94 $2.79 ====== ====== ====== ====== Average shares outstanding N/A 12,541 12,541 N/A 12,400 12,400 ====== ====== ====== ====== (a) Represents depreciation savings related to the application of the Company's historical depreciation policies to the assets acquired. (b) Represents the amortization of goodwill related to the acquisition. (c) Represents elimination of TMS' corporate charges. (d) Represents increased interest expense related to indebtedness incurred to complete the acquisition and amortization of deferred financing fees. (e) Represents the tax effects of the historical pre-tax income of TMS and the pro forma adjustments at the combined federal and state statutory rate of 41%.
F18 SIGNATURE 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, thereunto duly authorized. ELECTRO RENT CORPORATION Dated: January 23, 1998 By: /s/ Craig R. Jones --------------------- Craig R. Jones Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----