10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2015

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number: 000-09061

ELECTRO RENT CORPORATION

(Exact name of registrant as specified in its charter)

California	95-2412961
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6060 Sepulveda Boulevard, Van Nuys, California	91411-2501
(Address of principal executive offices)	(Zip Code)

(818) 787-2100

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	ý
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  ý

The number of shares outstanding of the issuer’s common stock as of October 7, 2015 was 24,127,743.

Electro Rent Corporation

Quarterly Report on Form 10-Q

For the Quarterly Period Ended August 31, 2015

TABLE OF CONTENTS

		Page
EXPLANATORY NOTE		3
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		3
PART I—FINANCIAL INFORMATION		4
Item 1.	Financial Statements.	4
	Consolidated Statements of Operations for the Three Months Ended August 31, 2015 and 2014 (Unaudited)	4
	Consolidated Balance Sheets at August 31, 2015 and May 31, 2015 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2015 and 2014 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 4.	Controls and Procedures.	24
PART II—OTHER INFORMATION		25
Item 1.	Legal Proceedings.	25
Item 1A.	Risk Factors.	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults Upon Senior Securities.	25
Item 4.	Mine Safety Disclosures.	25
Item 5.	Other Information.	25
Item 6.	Exhibits.	26
SIGNATURES		27

Page 2

EXPLANATORY NOTE

In this report, unless the context indicates otherwise, the terms “Electro Rent,” “Company,” “we”, “us” and “our” refer to Electro Rent Corporation, a California corporation, and its consolidated subsidiaries.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this report. Any statements that refer to projections of our future financial or operating performance, anticipated trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results, are forward-looking statements.

We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this report, or that we may make orally or in writing from time to time, are 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.

Factors that could cause or contribute to these differences include, among others, those risks and uncertainties discussed under the sections contained in this Form 10-Q entitled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk,” and “Part II, Item 1A. Risk Factors” as well as in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015 (including the “Risk Factors” discussed in Item 1A in that document), and our other filings with the Securities and Exchange Commission. The risks included in those documents are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We are not undertaking any obligation to update any forward-looking statements. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends.

Page 3

Part I. - FINANCIAL INFORMATION

Item 1. Financial Statements.

ELECTRO RENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (in thousands, except per share data)

	Three Months Ended   August 31,
	2015			2014
Revenues:
Rentals and leases	$	32,303		$	33,889
Sales of equipment and other revenues	21,040			27,982
Total revenues	53,343			61,871
Operating expenses:
Depreciation of rental and lease equipment	14,601			13,915
Costs of rentals and leases, excluding depreciation	4,912			4,574
Costs of sales of equipment and other revenues	14,866			20,902
Selling, general and administrative expenses	14,771			15,021
Total operating expenses	49,150			54,412
Operating profit	4,193			7,459
Interest income/(expense), net	(242		)	103
Income before income taxes	3,951			7,562
Income tax provision	1,481			2,791
Net income	$	2,470		$	4,771
Earnings per share:
Basic	$	0.10		$	0.20
Diluted	$	0.10		$	0.20
Shares used in per share calculation:
Basic	24,416			24,372
Diluted	24,426			24,396
Cash dividend declared per share	$	0.13		$	0.20

See accompanying notes to consolidated financial statements (unaudited).

Page 4

ELECTRO RENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited) (in thousands, except share numbers)

	August 31, 2015		May 31, 2015
Assets
Cash	$	8,749	$	4,064
Accounts receivable, net of allowance for doubtful accounts of $553 and $604	26,917		33,863
Rental and lease equipment, net of accumulated depreciation of $237,652 and $241,116	226,764		231,671
Other property, net of accumulated depreciation and amortization of $16,983 and $16,749	12,901		13,120
Goodwill	3,109		3,109
Intangibles, net of accumulated amortization of $1,790 and $1,761	715		744
Other assets	13,587		13,743
	$	292,742	$	300,314
Liabilities and Shareholders' Equity
Liabilities:
Bank borrowings	$	—	$	2,387
Accounts payable	6,233		8,234
Accrued expenses	16,636		18,487
Deferred revenue	5,607		5,576
Deferred tax liability	36,716		37,652
Total liabilities	65,192		72,336
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, $1 par - shares authorized 1,000,000, none issued	—		—
Common stock, no par - shares authorized 40,000,000; issued and outstanding August 31, 2015 - 24,126,792; May 31, 2015 - 24,108,176	40,598		40,440
Retained earnings	186,952		187,538
Total shareholders’ equity	227,550		227,978
	$	292,742	$	300,314

See accompanying notes to consolidated financial statements (unaudited).

Page 5

ELECTRO RENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)

	Three Months Ended August 31,
	2015			2014
Cash flows from operating activities:
Net income	$	2,470		$	4,771
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,919			14,168
Rental and lease equipment impairment	443			—
Remeasurement (gain)/loss on foreign currency	48			(41		)
Provision for losses on accounts receivable	68			107
Gain on sale of rental and lease equipment	(3,754		)	(3,082		)
Stock compensation expense	273			288
Excess tax benefit for share-based compensation	1			(82		)
Deferred income taxes	(936		)	(1,235		)
Change in operating assets and liabilities:
Accounts receivable	6,076			(89		)
Other assets	9			(2,433		)
Accounts payable	(1,222		)	632
Accrued expenses	(1,764		)	(508		)
Deferred revenue	23			(64		)
Net cash provided by operating activities	16,654			12,432
Cash flows from investing activities:
Proceeds from sale of rental and lease equipment	10,046			8,284
Payments for purchase of rental and lease equipment	(16,266		)	(17,823		)
Payments for purchase of other property	(70		)	(61		)
Net cash used in investing activities	(6,290		)	(9,600		)
Cash flows from financing activities:
Borrowings under bank line of credit	10,407			8,581
Payments under bank line of credit	(12,794		)	(8,581		)
Minimum tax withholdings on share-based compensation	(114		)	(10		)
Excess tax benefit for share-based compensation	(1		)	82
Payment of dividends	(3,151		)	(5,015		)
Net cash used in financing activities	(5,653		)	(4,943		)
Effect of exchange rate changes on cash	(26		)	139
Net increase (decrease) in cash	4,685			(1,972		)
Cash at beginning of period	4,064			5,946
Cash at end of period	$	8,749		$	3,974
Interest paid, during the period	$	14		$	4
Income taxes paid, during the period	$	3,029		$	369
Dividends accrued during the period, not yet paid	$	60		$	87
Rental equipment acquisitions, not yet paid	$	3,633		$	4,304
Used equipment sales in accounts receivable and other assets, not yet collected	$	6,432		$	7,811
Transfers from other assets to rental and lease equipment	$	71		$	413

See accompanying notes to consolidated financial statements (unaudited).

Page 6

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Note 1: Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared by Electro Rent Corporation, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The consolidated financial statements include the accounts of Electro Rent Corporation and its wholly owned subsidiaries, Electro Rent, LLC, ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc. and Electro Rent (Beijing) Test and Measurement Equipment Rental Co., Ltd. (collectively “we”, “us”, or “our”). All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations. These unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, and disclosures that are, in our opinion, necessary for a fair presentation of our financial position and results of operations for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our latest Annual Report on Form 10-K filed with the SEC on August 13, 2015.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosures of contingent assets and liabilities as of the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Revenue Recognition

We generate revenues primarily through the rental and leasing of test and measurement equipment (“T&M”) and personal computer-related data products equipment (“DP”) and through the sale of new and used equipment. Rental revenues comprise short term agreements that can be daily, weekly or monthly. Rental revenues are recognized in the month they are due on the accrual basis of accounting. We lease equipment under both operating and finance lease agreements.

Our operating lease agreements have varying terms, typically one to three years. Upon lease termination, customers have the option to renew the lease term, purchase the equipment at fair market value, or continue to rent on a month-to-month basis. Our operating leases do not provide for contingent rentals. Revenues related to operating leases are recognized on a straight-line basis over the term of the lease. Negotiated lease early-termination charges are recognized upon receipt. Rentals and leases are primarily billed to customers in advance, and unearned billings are recorded as deferred revenue.

We enter into finance leases as lessor for some of our equipment. Our finance lease agreements contain bargain purchase options and are accounted for as sale-type leases. Revenues from finance leases, which are recorded at the present value of the aggregate future lease payments, net of unearned interest, are included in sales of equipment and other revenues in our consolidated statements of operations. Unearned interest is recognized over the life of the finance lease term using the effective interest method. Our finance lease terms vary, and are typically one to three years. The net investment in finance leases, which represents the receivables due from lessees, net of unearned interest, is included in other assets in our consolidated balance sheets. Historically, we have not required security deposits based on our assessed credit risk within our customer bases.

Initial direct costs for operating and finance leases are insignificant.

Sales of new equipment are recognized in the period in which the equipment is delivered and risk of loss passes to the customer, while sales of used equipment from our rental and lease equipment pool are recognized in the period in which the equipment is shipped and risk of loss passes to the customer. In the case of equipment sold to customers that is already on rent or lease to the same party, revenue is recognized at the agreed-upon date when the rent or lease term ends and the risk of loss passes to the customer.

Page 7

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

The amount of revenue recognized for sales of new equipment depends on whether we sell as principal or as agent for the original equipment manufacturer.  Prior to May 31, 2015, our sales of new equipment were derived primarily from the reseller agreement with Keysight Technologies, Inc.  Under the terms of that agreement we acted as the principal with respect to sales of new equipment, based on several factors, including:

(1) We acted as the primary obligor by working directly with our customers to define their needs, providing them with options to satisfy such needs, contracting directly with the customer, and, to the extent required, providing customers with instruction on the use of the product and additional technical support once the product is received by the customer. The product manufacturer was not a party to our customer sales agreements, nor was it referenced in the agreements, and therefore had no obligation to our customers with the exception of the manufacturer’s standard warranty on the product;

(2) We bore back-end risk of inventory loss with respect to any product return from the customer as the original manufacturer was not required to accept returns of equipment from us. We also bore front-end risk of inventory loss in those cases where we acquired products for resale into our equipment pool prior to shipment to customers;

(3) We had full discretion in setting pricing terms with our customers and negotiated all such terms ourselves; and

(4) We assumed all credit risk.

In situations where we act as principal, the gross sales of new equipment are recorded in sales of equipment and other revenues, while the related equipment costs, including the purchase price from the original equipment manufacturer, are recorded in costs of sales of equipment and other revenues in our consolidated statements of operations. 

We are currently establishing new resale relationships, where we may act as an agent for the original equipment manufacturer.  Under those arrangements, we recognize revenue only on the commissions that we receive, which are recorded in other revenue within the sales of equipment and other revenues in our consolidated statement of operations.

Other revenues, which primarily include billings to customers for delivery and repairs, are recognized in the period in which the respective services are performed.

Operating Expenses

Costs of rentals and leases, excluding depreciation, primarily include labor related costs of our operations personnel, supplies, repairs, insurance and warehousing costs associated with our rental and lease equipment, relating to our rental and lease revenues. Costs of rentals and leases included impairment charges of $443 and $0 related to our T&M rental and lease equipment during the three months ended August 31, 2015 and 2014, respectively.

Costs of sales of equipment and other revenues primarily include the cost of new equipment and the carrying value of used equipment sold.

Selling, general and administrative (“SG&A”) expenses include sales and advertising costs, payroll and related benefit costs, insurance expenses, property taxes on our property and rental and lease equipment, legal and professional fees, and administrative overhead. Advertising costs are expensed as incurred. Total advertising expenses were $217 for the three months ended August 31, 2015 and $169 for three months ended August 31, 2014. SG&A expenses also include shipping and handling costs of $944 for the three months ended August 31, 2015 and $1,036 for the three months ended August 31, 2014.

Foreign Currency

The U.S. dollar has been determined to be the functional currency of all foreign subsidiaries. The euro, Canadian dollar and Chinese yuan are our primary foreign currencies. The assets and liabilities of our foreign subsidiaries are remeasured from their local currency to U.S. dollars at current or historic exchange rates, as appropriate. Revenues and expenses are remeasured from any foreign currencies to U.S. dollars using historic or average monthly exchange rates, as appropriate, for the month in which the transaction occurred. Remeasurement gains and losses are included in SG&A expenses or income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign operations that are susceptible to foreign currency fluctuations are individually less than 10% of our respective consolidated amounts. Net remeasurement gains and losses have not been significant.

We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. These contracts are designed to minimize the effect of fluctuations in foreign currencies. To qualify for hedge accounting, contracts must reduce the foreign currency exchange rate and interest rate risk

Page 8

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies. Our derivative instruments are not designated as hedging instruments and, therefore, are recorded at fair value as an asset or liability, and any changes in fair value are recorded in our consolidated statements of operations. We do not use derivative financial instruments for speculative trading purposes.

The fair value of our foreign exchange forward contracts in the consolidated balance sheets is shown in the table below:

Derivatives Not Designated as Hedging Instruments	Consolidated Balance Sheet Location	August 31, 2015		May 31, 2015
Foreign exchange forward contracts	Other assets	$	10	$	(16	)

The table below provides data about the amount of gains and losses recognized in income for derivative instruments not designated as hedging instruments:

Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivatives	Three Months Ended August 31, 2015		Three Months Ended August 31, 2014
Foreign exchange forward contracts	SG&A expenses	$	28	$	127

Other Assets

We include demonstration equipment used in connection with our resale activity in other assets for a period of up to two years. Demonstration equipment is recorded at the lower of cost or estimated market value until the units are sold or transferred to our rental and lease equipment pool. Demonstration equipment transferred to our rental and lease equipment pool is depreciated over its remaining estimated useful life.

We also have a Supplemental Executive Retirement Plan (“SERP”) that provides for automatic deferral of contributions in excess of the maximum amount permitted under the 401(k) for our executives who choose to participate. The SERP is a non-qualified deferred compensation program. We have the option to match contributions of participants at a rate we determine each year.

Other assets consisted of the following:

	August 31, 2015		May 31, 2015
Net investment in sales-type leases	$	5,545	$	5,876
Prepaid expenses and other	4,584		4,265
SERP	3,218		3,521
Demonstration equipment	240		81
	$	13,587	$	13,743

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued guidance to establish a new, more robust framework for the recognition of revenue related to the transfer of goods and services to customers. This guidance is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The impact this guidance will have on the consolidated financial statements cannot be determined at this time.

Other Comprehensive Income

Comprehensive income is equivalent to net income for all periods presented.

Note 2: Cash and Cash Equivalents

We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. We held no cash equivalents at August 31, 2015 and May 31, 2015 except for the money market funds that are part of our SERP assets.

Page 9

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Note 3: Fair Value Measurements

We measure certain financial assets and liabilities at fair value on a recurring basis, including SERP assets and liabilities, and foreign currency derivatives. The fair value of financial assets and liabilities can be determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, as follows:

Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or through corroboration with observable market data; and

Level 3 – Unobservable inputs, for which there is little or no market data for the assets or liabilities, such as those that may be used with internally-developed valuation models.

Our assets and liabilities measured at fair value on a recurring basis were determined as follows:

	August 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,052		—		—		3,052
Foreign exchange forward contracts	—		10		—		10
Total assets measured at fair value	$	3,218	$	10	$	—	$	3,228
Liabilities
SERP	$	3,218	$	—	$	—	$	3,218
Total liabilities measured at fair value	$	3,218	$	—	$	—	$	3,218

	May 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,355		—		—		3,355
Total assets measured at fair value	$	3,521	$	—	$	—	$	3,521
Liabilities
SERP	$	3,521	$	—	$	—	$	3,521
Foreign exchange forward contracts	—		16		—		16
Total liabilities measured at fair value	$	3,521	$	16	$	—	$	3,537

The fair value measures for our SERP assets and liabilities were derived from quoted market prices in active markets and are included in Level 1 inputs. Our SERP assets include money market and mutual funds, which we classify as trading securities.

Page 10

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Foreign currency forward contracts were valued based on observable market spot and forward rates as of our reporting date and are included in Level 2 inputs.

Note 4: Equity Incentive Plan

Our 2005 Equity Incentive Plan (the “Equity Incentive Plan”) authorizes our Board of Directors to grant incentive and non-statutory stock option grants, stock appreciation rights, restricted stock awards, restricted stock units, performance unit awards and performance share awards covering a maximum of 1,000 shares of our common stock. Pursuant to the Equity Incentive Plan, we have granted restricted stock units to directors, officers and key employees. Our Equity Incentive Plan expired on August 22, 2015. The proposal to approve the amended and restated 2005 Equity Incentive Plan is pending vote at our Annual Meeting of Shareholders to be held on October 15, 2015.

Restricted Stock Units

Each vested restricted stock unit entitles the holder to be issued one share of common stock. The vested restricted stock units settle into common stock on the earliest of (i) the first January 1st after the fifth anniversary of the grant, (ii) a change of control, or (iii) termination of the holder’s employment or membership on our Board of Directors. Restricted stock units vest according to a vesting schedule determined by the Compensation Committee of our Board of Directors, generally over a one to three year period.

The following table represents restricted stock unit activity for the three months ended August 31, 2015:

	Restricted Stock Units		Weighted – Average Grant Date Fair Value
Nonvested at June 1, 2015	129		$	16.75
Granted	104		11.02
Vested	(65	)	16.83
Forfeited/canceled	(6	)	16.72
Nonvested at August 31, 2015	162		$	13.02

We granted 104 restricted stock units during the three months ended August 31, 2015 and 69 restricted stock units during the three months ended August 31, 2014.

Under the terms of our restricted stock unit agreements, nonvested restricted stock unit awards contain forfeitable rights to dividends. Because the dividends are forfeitable, the restricted stock units are defined as non-participating securities. As of August 31, 2015, we have unrecognized share-based compensation cost of approximately $1,971 associated with restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of approximately 2.3 years.

We had 310 and 393 vested restricted stock units outstanding as of August 31, 2015 and 2014, respectively, which receive dividends following vesting and are convertible to common shares five years after the grant date.

Accounting for Share-Based Payments

Accounting guidance requires all share-based payments to employees, including grants of restricted stock units, to be recognized as compensation expense in the consolidated financial statements based on their fair values. Compensation expense is recognized over the period that an employee provides service in exchange for the award, which is approximately three years.

Forfeitures are estimated at the date of grant based on historical experience. We use the market price of our common stock on the date of grant to calculate the fair value of each grant of restricted stock units.

We recorded $273 and $288 of share-based compensation as part of SG&A expenses for the three months ended August 31, 2015 and 2014, respectively.

We receive a tax deduction for certain restricted stock units on the date the related shares are issued, generally for (1) the fair value of our common stock at the date of issuance and (2) for dividends paid on vested restricted stock units where the underlying shares have not been issued. Excess tax benefits are realized when restricted stock units are issued and the tax deductions (fair value at issuance) are greater than the compensation expense for financial reporting purposes (fair value at the

Page 11

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

date of grant). Shortfalls are realized when the fair value at issuance is less than the fair value at grant. For the three months ended August 31, 2015, we realized a total shortfall of $1. We realized a total excess tax benefit of $82 for the three months ended August 31, 2014.

Note 5: Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets consist of purchased customer relationships and trade names.

Our goodwill and intangibles at August 31, 2015 are the result of our acquisition of Equipment Management Technology, Inc. on August 24, 2011, Telogy LLC on March 31, 2010, and Rush Computer Rentals, Inc. on January 31, 2006.

The changes in carrying amount of goodwill and other intangible assets for the three months ended August 31, 2015 were as follows:

	Balance as of June 1, 2015 (net of amortization)		Additions		Amortization			Balance as of August 31, 2015
Goodwill	$	3,109	$	—	$	—		$	3,109
Trade name	411		—		—			411
Customer relationships	333		—		(29		)	304
	$	3,853	$	—	$	(29	)	$	3,824

Goodwill is not deductible for tax purposes.

We evaluate the recoverability of goodwill and indefinite-lived intangible assets annually as of May 31, and whenever events or changes in circumstances indicate to us that the carrying amount may not be recoverable. There were no conditions that indicated any impairment of goodwill or identifiable intangible assets as of August 31, 2015 and May 31, 2015.

Intangible assets with finite useful lives are amortized over their respective estimated useful lives. The following tables provide a summary of our intangible assets:

	August 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,790		)	304
		$	2,505	$	(1,790	)	$	715
	May 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,761		)	333
		$	2,505	$	(1,761	)	$	744

Amortization expense related to intangible assets was $29 and $41 for the three months ended August 31, 2015 and 2014, respectively.

Page 12

ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Amortization expense for customer relationships is included in SG&A expenses. The following table provides estimated future amortization expense related to intangible assets as of August 31, 2015:

Year ending May 31,	Future Amortization
2016 (remaining)	$	89
2017	118
2018	97
2019	—
2020	—
	$	304

Note 6: Borrowings

On November 19, 2013, we entered into a credit agreement (the “Credit Agreement”) with J.P. Morgan Chase Bank, National Association (“JPM”), as administrative agent, J.P. Morgan Securities LLC, as sole bookrunner and sole lead arranger, and a syndicate of lenders. The Credit Agreement provides for a $25,000 revolving credit facility, including swingline loans and letters of credit, and has a term of three years. We have an option to increase the commitments under the Credit Agreement by up to an additional $25,000, upon our request and subject to the lenders electing to increase their commitments or by means of the addition of new lenders. Borrowings under the Credit Agreement bear interest at a rate equal to, at our election, the applicable rate for a “Eurodollar Loan” or a “CB Floating Rate Loan.” Eurodollar Loan advances accrue interest at a per annum interest rate equal to (i) the quotient (rounded upwards to the next 1/16th of 1%) of (a) the applicable LIBO Rate, divided by (b) one minus the maximum aggregate reserve requirement (expressed as a decimal) imposed under Federal Reserve Board Regulation D (the “Adjusted LIBO Rate”), plus (ii) 0.75%. CB Floating Rate Loan advances accrue interest at a per annum interest rate equal to (i) the higher of (a) JPM’s Prime Rate or (b) the Adjusted LIBO Rate for a one month interest period plus 2.5%, minus (ii) 2.0%. In addition, we pay a commitment fee of 0.10% of the unused amount if the average borrowing under the Credit Agreement is less than or equal to $8,000 on a quarterly basis.

The Credit Agreement contains customary affirmative and negative covenants (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on the ability to incur additional indebtedness, create liens, make certain investments, make restricted payments, enter into or undertake certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries. In addition, the Credit Agreement requires us to maintain minimum earnings and tangible net worth. We were in compliance with all financial covenants at August 31, 2015.

We had no borrowings outstanding under the Credit Agreement at August 31, 2015 and $2,387 of borrowings outstanding at May 31, 2015. The weighted average interest rate under the line of credit was approximately 1.25% at May 31, 2015.

Note 7: Sales-Type Leases

We have certain customer leases providing bargain purchase options, which are accounted for as sales-type leases. Interest income is recognized over the life of the lease using the effective interest method.

The initial acceptance of customer finance arrangements is based on a review of each customer’s credit profile, which may include the review of third party credit reports, customer financial statements and/or bank verifications. We monitor the credit quality of our sales-type lease portfolio based on payment activity and the related finance lease receivable aging. This credit quality is assessed on a monthly basis. Our historical losses on finance lease receivables are insignificant, and therefore we do not have a specific allowance for credit losses.

The minimum lease payments receivable and the net investment included in other assets for such leases were as follows:

	August 31, 2015			May 31, 2015
Gross minimum lease payments receivable	$	5,750		$	6,109
Less – unearned interest	(205		)	(233		)
Net investment in sales-type lease receivables	$	5,545		$	5,876

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ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

The following table provides estimated future minimum lease payments by year related to sales-type leases:

Year ending May 31,	Future Payments
2016 (remaining)	$	3,637
2017	1,892
2018	221
2019	—
2020	—
	$	5,750

Note 8: Segment Reporting and Related Disclosures

Accounting guidance establishes reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available and is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. In order to determine our operating segments, we considered the following: an operating segment is a component of an enterprise (i) that engages in business activities from which it may earn revenues and incur expenses, (ii) whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. In accordance with this guidance, we have identified two operating segments in our business: our T&M and DP businesses.

In the past, we concluded that although we had separate operating segments for T&M and DP equipment, these two segments could be aggregated into a single reportable segment because they had similar economic characteristics and qualitative factors. However, as a result of a change in economic characteristics in fiscal 2015 in our T&M segment, primarily attributable to the expiration of the Keysight reseller agreement and greater competition in the marketplace, we concluded that we no longer expected similar economic characteristics and qualitative factors to continue in the future. As such, management concluded that the operating segments should no longer be aggregated. Following the change in the composition of our reportable operating segments, we restated the segment information for fiscal 2015.

Our equipment pool, based on acquisition cost, consisted of $425,684 of T&M equipment and $38,732 of DP equipment at August 31, 2015 and $434,963 of T&M equipment and $37,824 of DP equipment at May 31, 2015. Additional segment asset information is not available.

Revenues for these operating segments were as follows for the three months ended August 31, 2015 and 2014:

	T&M		DP		Total
2015
Rentals and leases	$	27,130	$	5,173	$	32,303
Sales of equipment and other revenues	20,543		497		21,040
Segment and consolidated total	$	47,673	$	5,670	$	53,343
2014
Rentals and leases	$	29,249	$	4,640	$	33,889
Sales of equipment and other revenues	27,476		506		27,982
Segment and consolidated total	$	56,725	$	5,146	$	61,871

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ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Depreciation of rental and lease equipment for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015		2014
T&M	$	13,454	$	12,932
DP	1,147		983
Segment and consolidated total	$	14,601	$	13,915

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

We consider the marginal contribution as our measure of segment profit or loss. The marginal contribution is calculated as operating revenue less operating costs and direct and allocated SG&A expenses. Marginal contribution for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015			2014
T&M	$	11,707		$	14,716
DP	933			681
Total marginal contribution of operating segments	12,640			15,397
Deduct:
Unallocated SG&A expenses	8,447			7,938
Add:
Interest income (expense), net	(242		)	103
Income before income taxes	$	3,951		$	7,562

No single customer accounted for more than 10% of total revenues during the three months ended August 31, 2015 and 2014.

We conduct rental, leasing and sales activities in foreign countries. Selected country information is presented below:

	Three Months Ended August 31,
	2015		2014
Revenues:1
U.S.	$	44,347	$	51,152
Other 2	8,996		10,719
Total	$	53,343	$	61,871

	As of
	August 31, 2015		May 31, 2015
Net Long-Lived Assets:3
U.S.	$	191,166	$	197,514
Other 2	48,499		47,277
Total	$	239,665	$	244,791

¹  Revenues by country are based on the shipping destination.

²  Other consists of countries other than the U.S. Each foreign country individually accounts for less than 10% of the total consolidated revenues and net long-lived assets.

³  Net long-lived assets include rental and lease equipment and other property, net of accumulated depreciation and amortization.

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ELECTRO RENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar and share amounts in thousands, except per share amounts)

Note 9: Computation of Earnings per Share

The following is a reconciliation of the denominator used in the computation of basic and diluted earnings per share for the three months ended August 31, 2015 and 2014:

	Three Months Ended   August 31,
	2015		2014
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding (including shares issuable for vested restricted stock units)	24,416		24,372
Effect of unvested restricted stock units	10		24
Diluted shares used in per share calculation	24,426		24,396
Net income	$	2,470	$	4,771
Earnings per share:
Basic	$	0.10	$	0.20
Diluted	$	0.10	$	0.20

We did not include 146 and 69 shares in the calculation of diluted earnings per share for the three months ended August 31, 2015 and 2014, respectively, as to do so would be antidilutive.

Note 10: Income Taxes

We recognize a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are periodically reviewed for recoverability.

Accounting guidance for uncertain tax positions prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

We recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We recognize interest, penalties and foreign currency gains and losses with respect to uncertain tax positions as components of our income tax provision. Accrued interest and penalties are included within accrued expenses in the consolidated balance sheet. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. There were no uncertain tax positions in fiscal 2016 and 2015.

We are subject to taxation in the U.S., as well as various state and foreign jurisdictions. We have substantially settled all income tax matters for the United States federal jurisdiction for years through fiscal 2011. Major state jurisdictions have been examined through fiscal years 2004 and 2005, and foreign jurisdictions have not been examined for their respective initial statutory periods of approximately 3 years.

Note 11: Commitments and Contingencies

We are subject to legal proceedings and business disputes involving ordinary routine legal proceedings and claims incidental to our business. The ultimate legal and financial liability with respect to such matters generally cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements or awards against us. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, we may be required to record either more or less litigation expense. We are not involved in any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our financial condition, results of operations or cash flows.

Page 16

Note 12: Subsequent Events

On September 3, 2015, our Board of Directors declared a quarterly cash dividend of $0.125 per common share. The dividend will be paid on October 9, 2015 to shareholders of record as of September 18, 2015.

Page 17

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion addresses (a) our financial condition as of August 31, 2015 and May 31, 2015, (b) the results of our operations for the three months ended August 31, 2015 and 2014, and (c) our cash flows for the three months ended August 31, 2015 and 2014. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and the Risk Factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2015, to which you are directed for additional information.

Overview

We are a global organization devoted to the rental, lease and sale of new and used electronic test and measurement (“T&M”) equipment. We purchase T&M equipment from leading manufacturers such as Keysight Technologies, Inc. (formerly Agilent Technologies, Inc., “Keysight”), Anritsu, Inc. ("Anritsu"), Rohde & Schwarz Gmbh & Co. KG ("Rohde & Schwarz") and Tektronix Inc. Our customers rent, lease and buy our T&M equipment, and use that equipment primarily in the aerospace and defense, telecommunications, electronics, industrial and semiconductor industries.

In addition, although it represented only approximately 10.6% of our revenues for the first three months of fiscal 2016, our Data Products ("DP") division is a large United States rental segment offering personal computers from manufacturers including Dell, HP, IBM, Toshiba and Apple.

Our Businesses

Our businesses are as follows:

• Rental and Lease Business. We rent and lease state-of-the-art electronic equipment. We maintain an equipment portfolio comprising T&M and DP equipment purchased from leading manufacturers, which we warehouse in various locations around the world to enable us to serve rental and lease customers.

• Used Equipment Sales. We sell used T&M and DP equipment that we previously held for rent and lease. Used equipment is sold at substantial discounts compared to new equipment, and provides an economic advantage for customers seeking ownership of used equipment. All of our used equipment has been maintained and serviced by our professional maintenance team, and our customers have confidence in the quality of the used equipment purchased from us.

• New Equipment Sales. We sell new T&M equipment. We were, through May 31, 2015, an authorized reseller of certain new Keysight T&M products and services to small and medium size customers in the United States and Canada. Substantially all of our new equipment sales prior to May 31, 2015 were through our Keysight reseller agreement. In the first quarter of fiscal 2016, we were able to enter into reseller agreements with other T&M equipment manufacturers, including Anritsu, Rohde & Schwarz and ART-Fi SAS.

Our Sales Strategy

We have a focused sales strategy, using a direct sales force to meet our customers’ needs in our T&M equipment rental, lease and sales business. We have an experienced, highly technical sales force that specializes in all the products and services offered by our Company. Our sales force identifies potential customers through coordinated efforts with our marketing organization, which is staffed by professionals with many years of industry-related experience. As our customers have a wide range of requirements for equipment, our sales force is able to leverage our extensive knowledge of the T&M and DP equipment environment to determine the right product to rent, lease or sell to the customer to meet the customer’s specific needs.

Our Equipment Management Strategy

To maximize our overall profitability 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 for our rental pool to meet current technological standards and current and anticipated customer demand, and we sell our used equipment where we believe that is the most lucrative option. We employ a complex equipment management strategy utilizing our proprietary PERFECT software to adjust our equipment pool and pricing on a dynamic basis in order to maximize equipment availability, utilization and profitability. We manage each specific equipment class based on a separate assessment of that equipment’s historical and projected life cycle and numerous other factors, including the U.S. and global economy, interest rates and new product launches. If we do not accurately predict market trends, or if demand for the equipment we supply

Page 18

declines, we can be left with equipment that we are unable to rent or sell for a profit. We assess the carrying value of the equipment pool on an annual basis or more frequently when factors indicating potential impairment are present. We recognized $0.4 million equipment impairment charges related to our equipment pool during the three months ended August 31, 2015.

Foreign Operations and Hedging

Due to our foreign operations, we have revenue, expenses, assets and liabilities in foreign currencies, primarily the euro, Canadian dollar and Chinese yuan. We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. As a result of these forward contracts, we were able to reduce the impact of foreign currency fluctuations flowing through our operating results during the three months ended August 31, 2015.

Profitability and Key Business Trends

The following is a summary of certain financial metrics, comparing the first three months of fiscal 2016 to the first three months of fiscal 2015, that our management deem important indicators of the performance of the Company:

• our rental and lease revenues decreased by 4.7% to $32.3 million from $33.9 million primarily due to the negative effect of a decline in foreign exchange rates and a decrease in rates as a result of competition;

• our sales of equipment and other revenues decreased by 24.8% to $21.0 million from $28.0 million primarily due to a decrease in new equipment sales of $9.0 million as a result of the expiration of Keysight reseller agreement;

• our operating profit decreased 43.8% to $4.2 million from $7.5 million primarily due to the decrease in revenues without a commensurate decrease in costs and expenses;

• our net income decreased 48.2% to $2.5 million from $4.8 million;

• our net income per diluted common share (EPS) decreased 50.0% to $0.10 from $0.20;

• our net income (annualized) as a percentage of average assets declined to 3.3% from 6.3%; and

• our net income (annualized) as a percentage of average equity declined to 4.3% from 8.3%.

Comparison of Three Months EndedAugust 31, 2015 and August 31, 2014

Revenues

Total revenues for the three months ended August 31, 2015 and 2014 were $53.3 million and $61.9 million, respectively. The 13.8%decrease in total revenues was due to a 4.7%decrease in rental and lease revenues and a 24.8%decrease in sales of equipment and other revenues.

Rental and Lease Revenues

Rental and lease revenues for the three months ended August 31, 2015 were $32.3 million, compared to $33.9 million for the same period of the prior fiscal year as follows:

	Three Months Ended August 31,
	2015		2014
T&M rental and lease revenue	$	27,130	$	29,249
DP rental and lease revenue	5,173		4,640
	$	32,303	$	33,889

Our T&M rental and lease revenues decreased by $2.1 million primarily due to a decrease in rental rates of $2.0 million. The decrease in rates was primarily driven by competition and a change in product mix and included the effect of a decrease in foreign exchange rates of $0.8 million affecting our European and Canadian operations.

The decrease in T&M rental and lease business was partially offset by a $0.5 million increase in DP rental and lease revenues primarily due to increase in demand.

Page 19

Sales and Other Revenues

Sales of equipment and other revenues decreased to $21.0 million for the first three months of fiscal 2016 from $28.0 million in the prior fiscal year as follows:

	Three Months Ended August 31,
	2015		2014
Sales of new equipment	$	10,839	$	19,809
Sales of used equipment and other revenues	10,201		8,173
	$	21,040	$	27,982

The decrease in sales of equipment and other revenues for the three months ended August 31, 2015 as compared to fiscal 2015 was primarily the result of a $9.0 million, or 45.3%, decrease in sales of new equipment as a result of the expiration of the Keysight reseller agreement, partially offset by a $2.1 million, or 30.0%, increase in sales of used equipment due to increase in demand. Other revenues for the first quarter of fiscal 2016 remained comparable to the first quarter of fiscal 2015.

Substantially all of our new equipment sales prior to May 31, 2015 were through our Keysight reseller agreement. Keysight elected not to renew our reseller agreement on its expiration on May 31, 2015, as part of a strategic decision to pursue a direct sales approach. In the first quarter of fiscal 2016, we entered into reseller agreements with other T&M equipment manufacturers, including Anritsu, Rohde & Schwarz and ART-Fi SAS. The expiration of the Keysight reseller agreement will continue to affect our new equipment sales, and consequently our revenues and net income, as we fulfill our existing backlog of sales and look to rebuild our new equipment sales under reseller agreements with other equipment manufacturers.

Operating Expenses

Depreciation of rental and lease equipment for the first three months of fiscal 2016 and 2015 increased to $14.6 million from $13.9 million, respectively, primarily due to the depreciation expense related to Keysight demonstration equipment that was transferred into our rental pool after the reseller agreement expired on May 31, 2015. Depreciation as a percentage of rental and lease revenues also increased from 41.1% to 45.2% for the three months ended August 31, 2014 and 2015, respectively, due to an increase in the equipment pool and a decrease in rental and lease revenues.

Costs of rentals and leases, excluding depreciation, which primarily include labor related costs of our operations personnel, supplies, repairs, equipment subrentals, insurance and warehousing costs associated with our rental and lease equipment, increased slightly to $4.9 million for the three months ended August 31, 2015 compared to $4.6 million for the three months ended August 31, 2014 primarily due to the $0.4 million equipment impairment loss recognized in the first quarter of fiscal 2016.

Costs of sales of equipment and other revenues, which primarily include the cost of equipment sales, decreased to $14.9 million in the first three months of fiscal 2016 from $20.9 million in the same period of fiscal 2015 primarily due to a decrease in sales of equipment and other revenue. Costs of sales of equipment and other revenues as a percentage of sales of equipment and other revenues decreased to 70.7% in the first three months of fiscal 2016 from 74.7% in fiscal 2015. This decrease was primarily due to a change in product mix with a decline in new equipment sales, while used equipment sales, which generally result in higher margins, increased. Our sales margin percentage is expected to fluctuate depending on the mix of used and new equipment sales and is also impacted by competition.

Selling, general and administrative expenses remained relatively comparable to fiscal 2015 at $14.8 million in the first three months of fiscal 2016 and $15.0 million in the same period of fiscal 2015. As a percentage of total revenues, SG&A expenses increased to 27.7% for the first three months of fiscal 2016 compared to 24.3% for the first three months of fiscal 2015 primarily due to decrease in revenue without a commensurate decrease in SG&A expenses. While sales of new equipment declined for the first quarter, we did not implement any reductions in our sales team. The knowledge and experience of our sales team are a key competitive differentiator for our business, and we believe that they will be instrumental in developing revenues under the new reseller agreements.

Operating Profit

Our operating profit decreased43.8%, or $3.3 million, from $7.5 million for the first three months of fiscal 2015 to $4.2 million for the first three months of fiscal 2016. As compared to the same period in the prior fiscal year, our rental and lease business contributed $2.6 million less to operating profit, resulting from a $1.6 milliondecrease in rental and lease revenues, an increase in our costs of rentals and leases, excluding depreciation of $0.3 million, which included an impairment charge of $0.4 million,

Page 20

and a $0.7 million increase in depreciation expense. Operating profit from sales of equipment and other revenues decreased by $0.9 million as compared to fiscal 2015 as our sales of equipment and other revenues decreased by $6.9 million while the related costs decreased by only $6.0 million. Our SG&A expenses for the first quarter of fiscal 2016 remained comparable to the first quarter of fiscal 2015.

Average Acquisition Cost of Equipment

The following table sets forth the average acquisition cost of our equipment on rent and lease:

Average acquisition cost of equipment on rent and lease (in millions)	Three Months Ended August 31,
	2015		2014		Change
T&M	$	257.7	$	257.5	0.1	%
DP	$	14.8	$	13.1	13.0	%

Average T&M acquisition cost of equipment on rent and lease for the three months ended August 31, 2015 remained comparable to fiscal 2015 levels. Our average acquisition cost of DP equipment on rent and lease for the three months ended August 31, 2015 increased as compared to fiscal 2015 due to an increase in demand for DP products.

Average Rental and Lease Rates

Average T&M rates decreased by 6.9% for the three months ending August 31, 2015 while average DP rates increased by 0.7% for the three months ended August 31, 2015 as compared to the prior fiscal year. The decrease in T&M rental rates is due to competition in the marketplace, the negative effect of exchange rates on our European and Canadian operations and a change in product mix. The increase in DP rates is the result of an increase in demand.

Average Utilization

Average utilization for our T&M equipment pool, calculated based on average acquisition cost of equipment on rent and lease compared to the average total equipment pool, decreased to 62.4% from 64.0% for the three months ended August 31, 2015 and 2014, respectively. The average utilization of our DP equipment pool, based on the same method of calculation, increased from 38.1% to 44.1% for the three months ended August 31, 2014 and 2015, respectively. Our utilization rate is impacted by new equipment purchases in support of existing and potential business, transfers of demonstration equipment into the rental and lease equipment pool, and sales of used equipment.

Backlog

As of August 31, 2015, our sales order backlog for T&M equipment relating to our resale channel was $2.0 million, a decrease of 68.8% from $6.4 million at August 31, 2014. Backlog represents the cumulative balance, at a given point in time, of recorded customer sales orders that have not yet been shipped or recognized as sales. The majority of the backlog is related to the Keysight reseller agreement and is expected to be delivered to customers within the next three months. Although backlog consists of firm orders for which goods and services are yet to be provided, customers can, and sometimes do, terminate or modify these orders. Backlog, on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.

Income Tax Provision

Our effective tax rate increased to 37.5% in the first three months of fiscal 2016 from 36.9% in the first three months of fiscal 2015 primarily due to higher losses in our China operations for which we receive no tax benefit.

Page 21

Liquidity and Capital Resources

Capital Expenditures

Our primary capital expenditures have been for purchases of rental and lease equipment. We generally purchase equipment throughout the year to replace equipment that has been sold and to maintain adequate levels of rental equipment to meet existing and expected customer demands. Our equipment purchases will fluctuate based on changes in our utilization, used equipment sales activity and technology trends. To meet current rental demand, support areas of potential growth for both T&M and DP equipment, and to keep our equipment pool technologically up-to-date, we paid for $16.3 million of rental and lease equipment purchases during the first three months of fiscal 2016 compared to $17.8 million during the first three months of fiscal 2015, a decline of 8.7%.

Dividends Paid

We paid dividends of $0.13 and $0.20 per common share during the first three months ended August 31, 2015 and 2014, respectively, amounting to an aggregate of $3.2 million and $5.0 million during the first three months of fiscal 2016 and 2015, respectively. Payment of future dividends is in the discretion of our Board of Directors and depends on sales, profitability and other performance metrics of the Company, subject to compliance with applicable law.

Cash

The balance of our cash was $8.7 million at August 31, 2015, an increase of $4.7 million from May 31, 2015, due to cash provided by operating activities of $16.7 million partially offset by cash used in financing activities of $6.3 million and cash used in investing activities of $5.7 million. Outside our normal operations and equipment purchases, we use our cash to pay dividends to shareholders.

Cash Flows and Credit Facility

During the first three months of fiscal 2016 and 2015, net cash provided by operating activities was $16.7 million and $12.4 million, respectively. The increase of $4.2 million in net cash provided by operating activities for the first three months of fiscal 2016 was primarily due to changes in working capital, primarily accounts receivable, partially offset by a decrease in net income.

During the first three months of fiscal 2016 and 2015, net cash used in investing activities was $6.3 million and $9.6 million, respectively. The decrease in cash used in investing activities for the first three months of fiscal 2016 was primarily due to a decrease in payments for purchases of rental and lease equipment of $1.6 million and an increase in proceeds from sale of rental and lease equipment of $1.8 million.

Net cash used in financing activities was $5.7 million and $4.9 million for the first three months of fiscal 2016 and 2015, respectively. Borrowings under our bank line of credit were $10.4 million for the first three months of fiscal 2016 compared to $8.6 million for the first three months of fiscal 2015. Payments under our bank line of credit were $12.8 million for the three months ended August 31, 2015 compared to $8.6 million for the three months ended August 31, 2014. Payments of dividends decreased to $3.2 million for the first three months of fiscal 2016 from $5.0 million for the first three months in fiscal 2015.

We believe that cash, cash flows from operating activities, proceeds from the sale of equipment and our borrowing capacity will be sufficient to fund our operations for at least the next twelve months.

Contractual Obligations

Our contractual obligations have not changed materially from those included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015.

Page 22

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we review these estimates, including those related to asset lives and depreciation methods, impairment of long-lived assets including rental and lease equipment, goodwill and definite lived intangible assets, allowance for doubtful accounts and income taxes, and adjust them as appropriate. These estimates are based on our historical experience and on various other assumptions we believe to be reasonable under the circumstances.

These determinations, even though inherently subjective and subject to change, affect the reported amounts of our assets, liabilities and expenses. While we believe that our estimates are based on reasonable assumptions and judgments at the time they are made, some of our assumptions, estimates and judgments will inevitably prove to be incorrect. As a result, actual outcomes will likely differ from our accruals, and those differences—positive or negative—could be material.

We identified certain critical accounting policies that affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015. Those include our policies related to Asset Lives and Depreciation Methods, Impairment of Long-Lived Assets, Goodwill Impairment, and Revenue Recognition. We have not made any material changes to these policies as previously disclosed in our Annual Report.

Page 23

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

During the first three months of fiscal 2016, there were no material changes in the information regarding market risk contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in this report is: (1) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

As of August 31, 2015, the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective for their intended purpose described above.

During the fiscal quarter covered by this report, Craig Jones, our longtime Chief Financial Officer retired following a 26-year career with our Company. On the effectiveness of Mr. Jones’ resignation, Allen Sciarillo assumed the roles of Acting Chief Financial Officer, principal accounting officer and principal financial officer. Mr. Sciarillo has served as our VP Finance since February 12, 2015 and our Controller since he joined our company in 2006.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

Page 24

PART II. - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this report, we are not a party to any material litigation, other than ordinary routine legal proceedings and claims incidental to our business.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the discussion of various risks and uncertainties contained in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2015. We believe those risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. However, those are not the only risk factors that we face. Additional risks that we do not consider material, or of which we are not currently aware, may also have an adverse impact on us. Our business, financial condition, and results of operations could be seriously harmed if any of these risks or uncertainties actually occurs or materializes. In that event, the market price for our common stock could decline, and our shareholders may lose all or part of their investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Page 25

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	Furnished herewith.
32.2*	Section 1350 Certification by Chief Financial Officer	Furnished herewith.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

* This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Page 26

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:	October 8, 2015	/s/    Allen Sciarillo
		Allen Sciarillo Vice President of Finance and Acting Chief Financial Officer (Principal Financial and Accounting Officer and duly authorized to sign this report on behalf of the company)

Page 27

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

By Principal Executive Officer

I, Daniel Greenberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Electro Rent Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 8, 2015

/s/ Daniel Greenberg

Daniel Greenberg

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification

By Principal Financial Officer

I, Allen Sciarillo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Electro Rent Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 8, 2015

/s/ Allen Sciarillo

Allen Sciarillo

Vice President of Finance and Acting Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

By Principal Executive Officer

I, Daniel Greenberg, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report on Form 10-Q of Electro Rent Corporation (the “Company”) for the quarter ended August 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission upon request.

Date: October 8, 2015

/s/ Daniel Greenberg

Daniel Greenberg

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Section 1350 Certification

By Principal Financial Officer

I, Allen Sciarillo, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report on Form 10-Q of Electro Rent Corporation (the “Company”) for the quarter ended August 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission upon request.

Date: October 8, 2015

/s/ Allen Sciarillo

Allen Sciarillo

Vice President of Finance and Acting Chief Financial Officer

XML

Sales-Type Leases - Estimated Future Minimum Lease Payments Receivable Related to Sales-Type Leases (Detail) $ in Thousands	Aug. 31, 2015 USD ($)
Leases [Abstract]
2016 (remaining)	$ 3,637
2016	1,892
2017	221
2018	0
2019	0
Total intangible assets	$ 5,750

XML

Subsequent Events - Additional Information (Details) - $ / shares		3 Months Ended
	Sep. 03, 2015	Aug. 31, 2015	Aug. 31, 2014
Subsequent Event [Line Items]
Dividends declared per share (in dollars per share)		$ 0.125	$ 0.20
Subsequent Event
Subsequent Event [Line Items]
Dividends declared per share (in dollars per share)	$ 0.125
Dividends payable, date to be paid	Oct. 09, 2015
Dividends payable, date of record	Sep. 18, 2015

XML

Goodwill and Intangibles - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense of intangible assets	$ 29	$ 41

XML

Computation of Earnings Per Share (Tables)

3 Months Ended

Aug. 31, 2015

Earnings Per Share [Abstract]

Reconciliation of Denominator Used in Computation of Basic and Diluted 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 months ended August 31, 2015 and 2014:

	Three Months Ended   August 31,
	2015		2014
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding (including shares issuable for vested restricted stock units)	24,416		24,372
Effect of unvested restricted stock units	10		24
Diluted shares used in per share calculation	24,426		24,396
Net income	$	2,470	$	4,771
Earnings per share:
Basic	$	0.10	$	0.20
Diluted	$	0.10	$	0.20

XML

Segment Reporting and Related Disclosures - Marginal Contribution by Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Segment Reporting Information [Line Items]
Marginal contribution	$ 12,640	$ 15,397
Unallocated SG&A expenses	8,447	7,938
Interest income/(expense), net	(242)	103
Income before income taxes	3,951	7,562
Operating Segments | T&M
Segment Reporting Information [Line Items]
Marginal contribution	11,707	14,716
Operating Segments | DP
Segment Reporting Information [Line Items]
Marginal contribution	$ 933	$ 681

XML

Borrowings - Additional Information (Detail) - USD ($)	Nov. 19, 2013	Aug. 31, 2015	May. 31, 2015
Line of Credit Facility [Line Items]
Additional borrowing capacity under Credit Agreement	$ 25,000,000
Credit Agreement
Line of Credit Facility [Line Items]
Borrowing outstanding		$ 0	$ 2,387,000
Weighted average interest rate			1.25%
JP Morgan Chase Bank | Credit Agreement
Line of Credit Facility [Line Items]
Current borrowing capacity under Credit Agreement	$ 25,000,000
Expiration period of Credit Agreement	3 years
JP Morgan Chase Bank | Credit Agreement | Eurodollar
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.75%
Commitment fee percentage on unused capacity	0.10%
JP Morgan Chase Bank | Credit Agreement | CB Floating Rate
Line of Credit Facility [Line Items]
Basis spread on variable rate	2.50%
JP Morgan Chase Bank | Credit Agreement | Adjusted LIBO Rate
Line of Credit Facility [Line Items]
Basis spread on variable rate	2.00%
JP Morgan Chase Bank | Credit Agreement | Maximum | Eurodollar
Line of Credit Facility [Line Items]
Commitment fee threshold on unused capacity	$ 8,000,000

XML

Equity Incentive Plan

3 Months Ended

Aug. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity Incentive Plan

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. Pursuant to the Equity Incentive Plan, we have granted restricted stock units to directors, officers and key employees. Our Equity Incentive Plan expired on August 22, 2015. The proposal to approve the amended and restated 2005 Equity Incentive Plan is pending vote at our Annual Meeting of Shareholders to be held on October 15, 2015.

Restricted Stock Units

Each vested restricted stock unit entitles the holder to be issued one share of common stock. The vested restricted stock units settle into common stock on the earliest of (i) the first January 1st after the fifth anniversary of the grant, (ii) a change of control, or (iii) termination of the holder’s employment or membership on our Board of Directors. Restricted stock units vest according to a vesting schedule determined by the Compensation Committee of our Board of Directors, generally over a one to three year period.

The following table represents restricted stock unit activity for the three months ended August 31, 2015:

	Restricted Stock Units		Weighted – Average Grant Date Fair Value
Nonvested at June 1, 2015	129		$	16.75
Granted	104		11.02
Vested	(65	)	16.83
Forfeited/canceled	(6	)	16.72
Nonvested at August 31, 2015	162		$	13.02

We granted 104 restricted stock units during the three months ended August 31, 2015 and 69 restricted stock units during the three months ended August 31, 2014.

Under the terms of our restricted stock unit agreements, nonvested restricted stock unit awards contain forfeitable rights to dividends. Because the dividends are forfeitable, the restricted stock units are defined as non-participating securities. As of August 31, 2015, we have unrecognized share-based compensation cost of approximately $1,971 associated with restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of approximately 2.3 years.

We had 310 and 393 vested restricted stock units outstanding as of August 31, 2015 and 2014, respectively, which receive dividends following vesting and are convertible to common shares five years after the grant date.

Accounting for Share-Based Payments

Accounting guidance requires all share-based payments to employees, including grants of restricted stock units, to be recognized as compensation expense in the consolidated financial statements based on their fair values. Compensation expense is recognized over the period that an employee provides service in exchange for the award, which is approximately three years.

Forfeitures are estimated at the date of grant based on historical experience. We use the market price of our common stock on the date of grant to calculate the fair value of each grant of restricted stock units.

We recorded $273 and $288 of share-based compensation as part of SG&A expenses for the three months ended August 31, 2015 and 2014, respectively.

We receive a tax deduction for certain restricted stock units on the date the related shares are issued, generally for (1) the fair value of our common stock at the date of issuance and (2) for dividends paid on vested restricted stock units where the underlying shares have not been issued. Excess tax benefits are realized when restricted stock units are issued and the tax deductions (fair value at issuance) are greater than the compensation expense for financial reporting purposes (fair value at the date of grant). Shortfalls are realized when the fair value at issuance is less than the fair value at grant. For the three months ended August 31, 2015, we realized a total shortfall of $1. We realized a total excess tax benefit of $82 for the three months ended August 31, 2014.

XML

Segment Reporting and Related Disclosures - Revenues from External Customers and Long-Lived Assets, by Geographical Areas (Detail) - USD ($) $ in Thousands		3 Months Ended
		Aug. 31, 2015	Aug. 31, 2014	May. 31, 2015
Revenues:
Total revenues	[1]	$ 53,343	$ 61,871
Net Long-Lived Assets:
Total net long-lived assets	[2]	239,665		$ 244,791
U.S.
Revenues:
Total revenues	[1]	44,347	51,152
Net Long-Lived Assets:
Total net long-lived assets	[2]	191,166		197,514
Other
Revenues:
Total revenues	[1],[3]	8,996	$ 10,719
Net Long-Lived Assets:
Total net long-lived assets	[2],[3]	$ 48,499		$ 47,277

[1] Revenues by country are based on the shipping destination.

[2] Net long-lived assets include rental and lease equipment and other property, net of accumulated depreciation and amortization.

[3] Other consists of countries other than the U.S. Each foreign country individually accounts for less than 10% of the total consolidated revenues and net long-lived assets.

XML

Basis of Presentation - Summary of Other Assets (Detail) - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Accounting Policies [Abstract]
Net investment in sales-type leases	$ 5,545	$ 5,876
Prepaid expenses and other	4,584	4,265
SERP	3,218	3,521
Demonstration equipment	240	81
Total other assets	$ 13,587	$ 13,743

XML

Basis of Presentation - Losses Recognized in Income for Derivative Instruments (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Foreign exchange forward contracts | Selling, general and administrative expenses
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in income for derivative instruments	$ 28	$ 127

XML

Computation of Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding (including shares issuable for vested restricted stock units)	24,416	24,372
Effect of unvested restricted stock units	10	24
Diluted shares used in per share calculation	24,426	24,396
Net income	$ 2,470	$ 4,771
Earnings per share:
Basic (in dollars per share)	$ 0.10	$ 0.20
Diluted (in dollars per share)	$ 0.10	$ 0.20
Antidilutive securities excluded from computation of earnings per share (shares)	146	69

XML

Fair Value Measurements (Detail) - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Assets
Supplemental executive retirement plan	$ 3,218	$ 3,521
Fair Value, Measurements, Recurring
Assets
Total assets measured at fair value	3,228	3,521
Liabilities
Supplemental executive retirement plan liabilities	3,218	3,521
Total liabilities measured at fair value	3,218	3,537
Fair Value, Measurements, Recurring | Foreign exchange forward contracts
Assets
Foreign exchange forward contracts	10
Liabilities
Foreign exchange forward contracts		16
Fair Value, Measurements, Recurring | Money market funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	166	166
Fair Value, Measurements, Recurring | Mutual funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	3,052	3,355
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Instruments (Level 1)
Assets
Total assets measured at fair value	3,218	3,521
Liabilities
Supplemental executive retirement plan liabilities	3,218	3,521
Total liabilities measured at fair value	3,218	3,521
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Foreign exchange forward contracts
Assets
Foreign exchange forward contracts	0
Liabilities
Foreign exchange forward contracts		0
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Money market funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	166	166
Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Mutual funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	3,052	3,355
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Assets
Total assets measured at fair value	10	0
Liabilities
Supplemental executive retirement plan liabilities	0	0
Total liabilities measured at fair value	0	16
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Foreign exchange forward contracts
Assets
Foreign exchange forward contracts	10
Liabilities
Foreign exchange forward contracts		16
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Money market funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	0	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Mutual funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Assets
Total assets measured at fair value	0	0
Liabilities
Supplemental executive retirement plan liabilities	0	0
Total liabilities measured at fair value	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Foreign exchange forward contracts
Assets
Foreign exchange forward contracts	0
Liabilities
Foreign exchange forward contracts		0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Money market funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Mutual funds | Supplemental executive retirement plan
Assets
Supplemental executive retirement plan	$ 0	$ 0

XML

Equity Incentive Plan - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period to recognize the unrecognized share based compensation cost	3 years
Selling, general and administrative expenses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	$ 273	$ 288
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units granted (in shares)	104,000	69,000
Unrecognized share based compensation cost	$ 1,971
Expected period to recognize the unrecognized share based compensation cost	2 years 3 months 6 days
Vested restricted stock units	310,000	393,000
Exercise of conversion right, period	5 years
Total excess tax benefit (shortfall) realized	$ (1)	$ 82
2005 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares authorized	1,000,000

XML

Fair Value Measurements

3 Months Ended

Aug. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We measure certain financial assets and liabilities at fair value on a recurring basis, including SERP assets and liabilities, and foreign currency derivatives. The fair value of financial assets and liabilities can be determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, as follows:

Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or through corroboration with observable market data; and

Level 3 – Unobservable inputs, for which there is little or no market data for the assets or liabilities, such as those that may be used with internally-developed valuation models.

Our assets and liabilities measured at fair value on a recurring basis were determined as follows:

	August 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,052		—		—		3,052
Foreign exchange forward contracts	—		10		—		10
Total assets measured at fair value	$	3,218	$	10	$	—	$	3,228
Liabilities
SERP	$	3,218	$	—	$	—	$	3,218
Total liabilities measured at fair value	$	3,218	$	—	$	—	$	3,218

	May 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,355		—		—		3,355
Total assets measured at fair value	$	3,521	$	—	$	—	$	3,521
Liabilities
SERP	$	3,521	$	—	$	—	$	3,521
Foreign exchange forward contracts	—		16		—		16
Total liabilities measured at fair value	$	3,521	$	16	$	—	$	3,537

The fair value measures for our SERP assets and liabilities were derived from quoted market prices in active markets and are included in Level 1 inputs. Our SERP assets include money market and mutual funds, which we classify as trading securities. Foreign currency forward contracts were valued based on observable market spot and forward rates as of our reporting date and are included in Level 2 inputs.

XML

Equity Incentive Plan - Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock Units - $ / shares shares in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Restricted Stock Units
Nonvested at June 1, 2015 (in shares)	129
Granted (in shares)	104	69
Vested (in shares)	(65)
Forfeited/canceled (in shares)	(6)
Nonvested at August 31, 2015 (in shares)	162
Weighted – Average Grant Date Fair Value
Nonvested at June 1, 2015 (in dollars per share)	$ 16.75
Granted (in dollars per share)	11.02
Vested (in dollars per share)	16.83
Forfeited/canceled (in dollars per share)	16.72
Nonvested at August 31, 2015 (in dollars per share)	$ 13.02

XML

Segment Reporting and Related Disclosures - Additional Information (Detail) $ in Thousands	3 Months Ended
	Aug. 31, 2015 USD ($) Segment Customer	May. 31, 2015 USD ($)
Revenue from External Customer [Line Items]
Number of operating segment | Segment	2
Number of major customer accounted for more than 10% of total revenues | Customer	0
DP
Revenue from External Customer [Line Items]
Equipment pool, based on acquisition cost	$ 38,732	$ 37,824
T&M
Revenue from External Customer [Line Items]
Equipment pool, based on acquisition cost	$ 425,684	$ 434,963

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Aug. 31, 2015	Aug. 31, 2014
Revenues:
Rentals and leases		$ 32,303	$ 33,889
Sales of equipment and other revenues		21,040	27,982
Total revenues	[1]	53,343	61,871
Operating expenses:
Depreciation of rental and lease equipment		14,601	13,915
Costs of rentals and leases, excluding depreciation		4,912	4,574
Costs of sales of equipment and other revenues		14,866	20,902
Selling, general and administrative expenses		14,771	15,021
Total operating expenses		49,150	54,412
Operating profit		4,193	7,459
Interest income/(expense), net		(242)	103
Income before income taxes		3,951	7,562
Income tax provision		1,481	2,791
Net income		$ 2,470	$ 4,771
Earnings per share:
Basic (in dollars per share)		$ 0.10	$ 0.20
Diluted (in dollars per share)		$ 0.10	$ 0.20
Shares used in per share calculation:
Basic (in shares)		24,416	24,372
Diluted (in shares)		24,426	24,396
Cash dividend declared per share (in dollars per share)		$ 0.125	$ 0.20

[1] Revenues by country are based on the shipping destination.

XML

Income Taxes - Additional Information (Detail)	3 Months Ended
	Aug. 31, 2015
Income Tax Disclosure [Abstract]
Tax impact realization likelihood percentage	50.00%

XML

Basis of Presentation

3 Months Ended

Aug. 31, 2015

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared by Electro Rent Corporation, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The consolidated financial statements include the accounts of Electro Rent Corporation and its wholly owned subsidiaries, Electro Rent, LLC, ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc. and Electro Rent (Beijing) Test and Measurement Equipment Rental Co., Ltd. (collectively “we”, “us”, or “our”). All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations. These unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, and disclosures that are, in our opinion, necessary for a fair presentation of our financial position and results of operations for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our latest Annual Report on Form 10-K filed with the SEC on August 13, 2015.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosures of contingent assets and liabilities as of the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Revenue Recognition

We generate revenues primarily through the rental and leasing of test and measurement equipment (“T&M”) and personal computer-related data products equipment (“DP”) and through the sale of new and used equipment. Rental revenues comprise short term agreements that can be daily, weekly or monthly. Rental revenues are recognized in the month they are due on the accrual basis of accounting. We lease equipment under both operating and finance lease agreements.

Our operating lease agreements have varying terms, typically one to three years. Upon lease termination, customers have the option to renew the lease term, purchase the equipment at fair market value, or continue to rent on a month-to-month basis. Our operating leases do not provide for contingent rentals. Revenues related to operating leases are recognized on a straight-line basis over the term of the lease. Negotiated lease early-termination charges are recognized upon receipt. Rentals and leases are primarily billed to customers in advance, and unearned billings are recorded as deferred revenue.

We enter into finance leases as lessor for some of our equipment. Our finance lease agreements contain bargain purchase options and are accounted for as sale-type leases. Revenues from finance leases, which are recorded at the present value of the aggregate future lease payments, net of unearned interest, are included in sales of equipment and other revenues in our consolidated statements of operations. Unearned interest is recognized over the life of the finance lease term using the effective interest method. Our finance lease terms vary, and are typically one to three years. The net investment in finance leases, which represents the receivables due from lessees, net of unearned interest, is included in other assets in our consolidated balance sheets. Historically, we have not required security deposits based on our assessed credit risk within our customer bases.

Initial direct costs for operating and finance leases are insignificant.

Sales of new equipment are recognized in the period in which the equipment is delivered and risk of loss passes to the customer, while sales of used equipment from our rental and lease equipment pool are recognized in the period in which the equipment is shipped and risk of loss passes to the customer. In the case of equipment sold to customers that is already on rent or lease to the same party, revenue is recognized at the agreed-upon date when the rent or lease term ends and the risk of loss passes to the customer.

The amount of revenue recognized for sales of new equipment depends on whether we sell as principal or as agent for the original equipment manufacturer.  Prior to May 31, 2015, our sales of new equipment were derived primarily from the reseller agreement with Keysight Technologies, Inc.  Under the terms of that agreement we acted as the principal with respect to sales of new equipment, based on several factors, including:

(1) We acted as the primary obligor by working directly with our customers to define their needs, providing them with options to satisfy such needs, contracting directly with the customer, and, to the extent required, providing customers with instruction on the use of the product and additional technical support once the product is received by the customer. The product manufacturer was not a party to our customer sales agreements, nor was it referenced in the agreements, and therefore had no obligation to our customers with the exception of the manufacturer’s standard warranty on the product;

(2) We bore back-end risk of inventory loss with respect to any product return from the customer as the original manufacturer was not required to accept returns of equipment from us. We also bore front-end risk of inventory loss in those cases where we acquired products for resale into our equipment pool prior to shipment to customers;

(3) We had full discretion in setting pricing terms with our customers and negotiated all such terms ourselves; and

(4) We assumed all credit risk.

In situations where we act as principal, the gross sales of new equipment are recorded in sales of equipment and other revenues, while the related equipment costs, including the purchase price from the original equipment manufacturer, are recorded in costs of sales of equipment and other revenues in our consolidated statements of operations. 

We are currently establishing new resale relationships, where we may act as an agent for the original equipment manufacturer.  Under those arrangements, we recognize revenue only on the commissions that we receive, which are recorded in other revenue within the sales of equipment and other revenues in our consolidated statement of operations.

Other revenues, which primarily include billings to customers for delivery and repairs, are recognized in the period in which the respective services are performed.

Operating Expenses

Costs of rentals and leases, excluding depreciation, primarily include labor related costs of our operations personnel, supplies, repairs, insurance and warehousing costs associated with our rental and lease equipment, relating to our rental and lease revenues. Costs of rentals and leases included impairment charges of $443 and $0 related to our T&M rental and lease equipment during the three months ended August 31, 2015 and 2014, respectively.

Costs of sales of equipment and other revenues primarily include the cost of new equipment and the carrying value of used equipment sold.

Selling, general and administrative (“SG&A”) expenses include sales and advertising costs, payroll and related benefit costs, insurance expenses, property taxes on our property and rental and lease equipment, legal and professional fees, and administrative overhead. Advertising costs are expensed as incurred. Total advertising expenses were $217 for the three months ended August 31, 2015 and $169 for three months ended August 31, 2014. SG&A expenses also include shipping and handling costs of $944 for the three months ended August 31, 2015 and $1,036 for the three months ended August 31, 2014.

Foreign Currency

The U.S. dollar has been determined to be the functional currency of all foreign subsidiaries. The euro, Canadian dollar and Chinese yuan are our primary foreign currencies. The assets and liabilities of our foreign subsidiaries are remeasured from their local currency to U.S. dollars at current or historic exchange rates, as appropriate. Revenues and expenses are remeasured from any foreign currencies to U.S. dollars using historic or average monthly exchange rates, as appropriate, for the month in which the transaction occurred. Remeasurement gains and losses are included in SG&A expenses or income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign operations that are susceptible to foreign currency fluctuations are individually less than 10% of our respective consolidated amounts. Net remeasurement gains and losses have not been significant.

We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. These contracts are designed to minimize the effect of fluctuations in foreign currencies. To qualify for hedge accounting, contracts must reduce the foreign currency exchange rate and interest rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies. Our derivative instruments are not designated as hedging instruments and, therefore, are recorded at fair value as an asset or liability, and any changes in fair value are recorded in our consolidated statements of operations. We do not use derivative financial instruments for speculative trading purposes.

The fair value of our foreign exchange forward contracts in the consolidated balance sheets is shown in the table below:

Derivatives Not Designated as Hedging Instruments	Consolidated Balance Sheet Location	August 31, 2015		May 31, 2015
Foreign exchange forward contracts	Other assets	$	10	$	(16	)

The table below provides data about the amount of gains and losses recognized in income for derivative instruments not designated as hedging instruments:

Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivatives	Three Months Ended August 31, 2015		Three Months Ended August 31, 2014
Foreign exchange forward contracts	SG&A expenses	$	28	$	127

Other Assets

We include demonstration equipment used in connection with our resale activity in other assets for a period of up to two years. Demonstration equipment is recorded at the lower of cost or estimated market value until the units are sold or transferred to our rental and lease equipment pool. Demonstration equipment transferred to our rental and lease equipment pool is depreciated over its remaining estimated useful life.

We also have a Supplemental Executive Retirement Plan (“SERP”) that provides for automatic deferral of contributions in excess of the maximum amount permitted under the 401(k) for our executives who choose to participate. The SERP is a non-qualified deferred compensation program. We have the option to match contributions of participants at a rate we determine each year.

Other assets consisted of the following:

	August 31, 2015		May 31, 2015
Net investment in sales-type leases	$	5,545	$	5,876
Prepaid expenses and other	4,584		4,265
SERP	3,218		3,521
Demonstration equipment	240		81
	$	13,587	$	13,743

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued guidance to establish a new, more robust framework for the recognition of revenue related to the transfer of goods and services to customers. This guidance is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The impact this guidance will have on the consolidated financial statements cannot be determined at this time.

Other Comprehensive Income

Comprehensive income is equivalent to net income for all periods presented.

XML

Goodwill and Intangibles - Summary of Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	May. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 2,505	$ 2,505
Accumulated Amortization	(1,790)	(1,761)
Customer relationships, Net Carrying Amount	304
Net Carrying Amount	715	744
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Customer relationships, Gross Carrying Amount	2,094	2,094
Accumulated Amortization	(1,790)	(1,761)
Customer relationships, Net Carrying Amount	$ 304	333
Customer relationships | Minimum
Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life	3 years
Customer relationships | Maximum
Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life	8 years
Trade name
Finite-Lived Intangible Assets [Line Items]
Trade names, Gross Carrying Amount	$ 411	411
Trade names, Net Carrying Amount	$ 411	$ 411

XML

Goodwill and Intangibles (Tables)

3 Months Ended

Aug. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill and Other Intangible Assets

The changes in carrying amount of goodwill and other intangible assets for the three months ended August 31, 2015 were as follows:

	Balance as of June 1, 2015 (net of amortization)		Additions		Amortization			Balance as of August 31, 2015
Goodwill	$	3,109	$	—	$	—		$	3,109
Trade name	411		—		—			411
Customer relationships	333		—		(29		)	304
	$	3,853	$	—	$	(29	)	$	3,824

Summary of Intangible Assets

The following tables provide a summary of our intangible assets:

	August 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,790		)	304
		$	2,505	$	(1,790	)	$	715
	May 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,761		)	333
		$	2,505	$	(1,761	)	$	744

Estimated Future Amortization Expense Related to Intangible Assets

The following table provides estimated future amortization expense related to intangible assets as of August 31, 2015:

Year ending May 31,	Future Amortization
2016 (remaining)	$	89
2017	118
2018	97
2019	—
2020	—
	$	304

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Goodwill and Intangibles - Estimated Future Amortization Expense Related to Intangible Assets (Detail) $ in Thousands	Aug. 31, 2015 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2016 (remaining)	$ 89
2016	118
2017	97
2018	0
2019	0
Customer relationships, Net Carrying Amount	$ 304

XML

Segment Reporting and Related Disclosures (Tables)

3 Months Ended

Aug. 31, 2015

Segment Reporting [Abstract]

Revenues from Rental, Lease and Sale Group

Revenues for these operating segments were as follows for the three months ended August 31, 2015 and 2014:

	T&M		DP		Total
2015
Rentals and leases	$	27,130	$	5,173	$	32,303
Sales of equipment and other revenues	20,543		497		21,040
Segment and consolidated total	$	47,673	$	5,670	$	53,343
2014
Rentals and leases	$	29,249	$	4,640	$	33,889
Sales of equipment and other revenues	27,476		506		27,982
Segment and consolidated total	$	56,725	$	5,146	$	61,871

Depreciation of rental and lease equipment for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015		2014
T&M	$	13,454	$	12,932
DP	1,147		983
Segment and consolidated total	$	14,601	$	13,915

Schedule of Segment Reporting Information, by Segment

Marginal contribution for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015			2014
T&M	$	11,707		$	14,716
DP	933			681
Total marginal contribution of operating segments	12,640			15,397
Deduct:
Unallocated SG&A expenses	8,447			7,938
Add:
Interest income (expense), net	(242		)	103
Income before income taxes	$	3,951		$	7,562

Revenues from External Customers and Long-Lived Assets, by Geographical Areas

Selected country information is presented below:

	Three Months Ended August 31,
	2015		2014
Revenues:1
U.S.	$	44,347	$	51,152
Other 2	8,996		10,719
Total	$	53,343	$	61,871

	As of
	August 31, 2015		May 31, 2015
Net Long-Lived Assets:3
U.S.	$	191,166	$	197,514
Other 2	48,499		47,277
Total	$	239,665	$	244,791

¹  Revenues by country are based on the shipping destination.

²  Other consists of countries other than the U.S. Each foreign country individually accounts for less than 10% of the total consolidated revenues and net long-lived assets.

³  Net long-lived assets include rental and lease equipment and other property, net of accumulated depreciation and amortization.

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Cash and Cash Equivalents

3 Months Ended

Aug. 31, 2015

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. We held no cash equivalents at August 31, 2015 and May 31, 2015 except for the money market funds that are part of our SERP assets.

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Assets
Cash	$ 8,749	$ 4,064
Accounts receivable, net of allowance for doubtful accounts of $553 and $604	26,917	33,863
Rental and lease equipment, net of accumulated depreciation of $237,652 and $241,116	226,764	231,671
Other property, net of accumulated depreciation and amortization of $16,983 and $16,749	12,901	13,120
Goodwill	3,109	3,109
Intangibles, net of accumulated amortization of $1,790 and $1,761	715	744
Other assets	13,587	13,743
Total assets	292,742	300,314
Liabilities:
Bank borrowings	0	2,387
Accounts payable	6,233	8,234
Accrued expenses	16,636	18,487
Deferred revenue	5,607	5,576
Deferred tax liability	36,716	37,652
Total liabilities	$ 65,192	$ 72,336
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $1 par - shares authorized 1,000,000, none issued	$ 0	$ 0
Common stock, no par - shares authorized 40,000,000; issued and outstanding August 31, 2015 - 24,126,792; May 31, 2015 - 24,108,176	40,598	40,440
Retained earnings	186,952	187,538
Total shareholders’ equity	227,550	227,978
Total liabilities and shareholders' equity	$ 292,742	$ 300,314

XML

Subsequent Events

3 Months Ended

Aug. 31, 2015

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On September 3, 2015, our Board of Directors declared a quarterly cash dividend of $0.125 per common share. The dividend will be paid on October 9, 2015 to shareholders of record as of September 18, 2015.

XML

Document and Entity Information - shares	3 Months Ended
	Aug. 31, 2015	Oct. 07, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2015
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Trading Symbol	ELRC
Entity Registrant Name	ELECTRO RENT CORP
Entity Central Index Key	0000032166
Current Fiscal Year End Date	--05-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		24,127,743

XML

Basis of Presentation (Policies)

3 Months Ended

Aug. 31, 2015

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

We generate revenues primarily through the rental and leasing of test and measurement equipment (“T&M”) and personal computer-related data products equipment (“DP”) and through the sale of new and used equipment. Rental revenues comprise short term agreements that can be daily, weekly or monthly. Rental revenues are recognized in the month they are due on the accrual basis of accounting. We lease equipment under both operating and finance lease agreements.

Our operating lease agreements have varying terms, typically one to three years. Upon lease termination, customers have the option to renew the lease term, purchase the equipment at fair market value, or continue to rent on a month-to-month basis. Our operating leases do not provide for contingent rentals. Revenues related to operating leases are recognized on a straight-line basis over the term of the lease. Negotiated lease early-termination charges are recognized upon receipt. Rentals and leases are primarily billed to customers in advance, and unearned billings are recorded as deferred revenue.

We enter into finance leases as lessor for some of our equipment. Our finance lease agreements contain bargain purchase options and are accounted for as sale-type leases. Revenues from finance leases, which are recorded at the present value of the aggregate future lease payments, net of unearned interest, are included in sales of equipment and other revenues in our consolidated statements of operations. Unearned interest is recognized over the life of the finance lease term using the effective interest method. Our finance lease terms vary, and are typically one to three years. The net investment in finance leases, which represents the receivables due from lessees, net of unearned interest, is included in other assets in our consolidated balance sheets. Historically, we have not required security deposits based on our assessed credit risk within our customer bases.

Initial direct costs for operating and finance leases are insignificant.

Sales of new equipment are recognized in the period in which the equipment is delivered and risk of loss passes to the customer, while sales of used equipment from our rental and lease equipment pool are recognized in the period in which the equipment is shipped and risk of loss passes to the customer. In the case of equipment sold to customers that is already on rent or lease to the same party, revenue is recognized at the agreed-upon date when the rent or lease term ends and the risk of loss passes to the customer.

The amount of revenue recognized for sales of new equipment depends on whether we sell as principal or as agent for the original equipment manufacturer.  Prior to May 31, 2015, our sales of new equipment were derived primarily from the reseller agreement with Keysight Technologies, Inc.  Under the terms of that agreement we acted as the principal with respect to sales of new equipment, based on several factors, including:

(1) We acted as the primary obligor by working directly with our customers to define their needs, providing them with options to satisfy such needs, contracting directly with the customer, and, to the extent required, providing customers with instruction on the use of the product and additional technical support once the product is received by the customer. The product manufacturer was not a party to our customer sales agreements, nor was it referenced in the agreements, and therefore had no obligation to our customers with the exception of the manufacturer’s standard warranty on the product;

(2) We bore back-end risk of inventory loss with respect to any product return from the customer as the original manufacturer was not required to accept returns of equipment from us. We also bore front-end risk of inventory loss in those cases where we acquired products for resale into our equipment pool prior to shipment to customers;

(3) We had full discretion in setting pricing terms with our customers and negotiated all such terms ourselves; and

(4) We assumed all credit risk.

In situations where we act as principal, the gross sales of new equipment are recorded in sales of equipment and other revenues, while the related equipment costs, including the purchase price from the original equipment manufacturer, are recorded in costs of sales of equipment and other revenues in our consolidated statements of operations. 

We are currently establishing new resale relationships, where we may act as an agent for the original equipment manufacturer.  Under those arrangements, we recognize revenue only on the commissions that we receive, which are recorded in other revenue within the sales of equipment and other revenues in our consolidated statement of operations.

Other revenues, which primarily include billings to customers for delivery and repairs, are recognized in the period in which the respective services are performed.

Operating expenses

Operating Expenses

Costs of rentals and leases, excluding depreciation, primarily include labor related costs of our operations personnel, supplies, repairs, insurance and warehousing costs associated with our rental and lease equipment, relating to our rental and lease revenues. Costs of rentals and leases included impairment charges of $443 and $0 related to our T&M rental and lease equipment during the three months ended August 31, 2015 and 2014, respectively.

Costs of sales of equipment and other revenues primarily include the cost of new equipment and the carrying value of used equipment sold.

Selling, general and administrative (“SG&A”) expenses include sales and advertising costs, payroll and related benefit costs, insurance expenses, property taxes on our property and rental and lease equipment, legal and professional fees, and administrative overhead. Advertising costs are expensed as incurred.

Foreign Currency

Foreign Currency

The U.S. dollar has been determined to be the functional currency of all foreign subsidiaries. The euro, Canadian dollar and Chinese yuan are our primary foreign currencies. The assets and liabilities of our foreign subsidiaries are remeasured from their local currency to U.S. dollars at current or historic exchange rates, as appropriate. Revenues and expenses are remeasured from any foreign currencies to U.S. dollars using historic or average monthly exchange rates, as appropriate, for the month in which the transaction occurred. Remeasurement gains and losses are included in SG&A expenses or income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign operations that are susceptible to foreign currency fluctuations are individually less than 10% of our respective consolidated amounts. Net remeasurement gains and losses have not been significant.

We enter into forward contracts to hedge against unfavorable currency fluctuations in our monetary assets and liabilities in our European, Chinese and Canadian operations. These contracts are designed to minimize the effect of fluctuations in foreign currencies. To qualify for hedge accounting, contracts must reduce the foreign currency exchange rate and interest rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies. Our derivative instruments are not designated as hedging instruments and, therefore, are recorded at fair value as an asset or liability, and any changes in fair value are recorded in our consolidated statements of operations. We do not use derivative financial instruments for speculative trading purposes.

Other Assets

Demonstration equipment is recorded at the lower of cost or estimated market value until the units are sold or transferred to our rental and lease equipment pool. Demonstration equipment transferred to our rental and lease equipment pool is depreciated over its remaining estimated useful life.

We also have a Supplemental Executive Retirement Plan (“SERP”) that provides for automatic deferral of contributions in excess of the maximum amount permitted under the 401(k) for our executives who choose to participate. The SERP is a non-qualified deferred compensation program. We have the option to match contributions of participants at a rate we determine each year.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued guidance to establish a new, more robust framework for the recognition of revenue related to the transfer of goods and services to customers. This guidance is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The impact this guidance will have on the consolidated financial statements cannot be determined at this time.

Other Comprehensive Income

Other Comprehensive Income

Comprehensive income is equivalent to net income for all periods presented.

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 553	$ 604
Accumulated depreciation on rental and lease equipment	237,652	241,116
Accumulated depreciation and amortization for other property	16,983	16,749
Accumulated amortization of intangibles	$ 1,790	$ 1,761
Preferred stock, par value	$ 1	$ 1
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued
Common stock, par value
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	24,126,792	24,008,489
Common stock, shares outstanding	24,126,792	24,008,489

XML

Sales-Type Leases

3 Months Ended

Aug. 31, 2015

Leases [Abstract]

Sales-Type Leases

Sales-Type Leases

We have certain customer leases providing bargain purchase options, which are accounted for as sales-type leases. Interest income is recognized over the life of the lease using the effective interest method.

The initial acceptance of customer finance arrangements is based on a review of each customer’s credit profile, which may include the review of third party credit reports, customer financial statements and/or bank verifications. We monitor the credit quality of our sales-type lease portfolio based on payment activity and the related finance lease receivable aging. This credit quality is assessed on a monthly basis. Our historical losses on finance lease receivables are insignificant, and therefore we do not have a specific allowance for credit losses.

The minimum lease payments receivable and the net investment included in other assets for such leases were as follows:

	August 31, 2015			May 31, 2015
Gross minimum lease payments receivable	$	5,750		$	6,109
Less – unearned interest	(205		)	(233		)
Net investment in sales-type lease receivables	$	5,545		$	5,876

The following table provides estimated future minimum lease payments by year related to sales-type leases:

Year ending May 31,	Future Payments
2016 (remaining)	$	3,637
2017	1,892
2018	221
2019	—
2020	—
	$	5,750

XML

Borrowings

3 Months Ended

Aug. 31, 2015

Debt Disclosure [Abstract]

Borrowings

Borrowings

On November 19, 2013, we entered into a credit agreement (the “Credit Agreement”) with J.P. Morgan Chase Bank, National Association (“JPM”), as administrative agent, J.P. Morgan Securities LLC, as sole bookrunner and sole lead arranger, and a syndicate of lenders. The Credit Agreement provides for a $25,000 revolving credit facility, including swingline loans and letters of credit, and has a term of three years. We have an option to increase the commitments under the Credit Agreement by up to an additional $25,000, upon our request and subject to the lenders electing to increase their commitments or by means of the addition of new lenders. Borrowings under the Credit Agreement bear interest at a rate equal to, at our election, the applicable rate for a “Eurodollar Loan” or a “CB Floating Rate Loan.” Eurodollar Loan advances accrue interest at a per annum interest rate equal to (i) the quotient (rounded upwards to the next 1/16th of 1%) of (a) the applicable LIBO Rate, divided by (b) one minus the maximum aggregate reserve requirement (expressed as a decimal) imposed under Federal Reserve Board Regulation D (the “Adjusted LIBO Rate”), plus (ii) 0.75%. CB Floating Rate Loan advances accrue interest at a per annum interest rate equal to (i) the higher of (a) JPM’s Prime Rate or (b) the Adjusted LIBO Rate for a one month interest period plus 2.5%, minus (ii) 2.0%. In addition, we pay a commitment fee of 0.10% of the unused amount if the average borrowing under the Credit Agreement is less than or equal to $8,000 on a quarterly basis.

The Credit Agreement contains customary affirmative and negative covenants (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on the ability to incur additional indebtedness, create liens, make certain investments, make restricted payments, enter into or undertake certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries. In addition, the Credit Agreement requires us to maintain minimum earnings and tangible net worth. We were in compliance with all financial covenants at August 31, 2015.

We had no borrowings outstanding under the Credit Agreement at August 31, 2015 and $2,387 of borrowings outstanding at May 31, 2015. The weighted average interest rate under the line of credit was approximately 1.25% at May 31, 2015.

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Sales-Type Leases (Tables)

3 Months Ended

Aug. 31, 2015

Leases [Abstract]

Minimum Lease Payments Receivable and Net Investment

The minimum lease payments receivable and the net investment included in other assets for such leases were as follows:

	August 31, 2015			May 31, 2015
Gross minimum lease payments receivable	$	5,750		$	6,109
Less – unearned interest	(205		)	(233		)
Net investment in sales-type lease receivables	$	5,545		$	5,876

Estimated Future Minimum Lease Payments Receivable Related to Sales-Type Leases

The following table provides estimated future minimum lease payments by year related to sales-type leases:

Year ending May 31,	Future Payments
2016 (remaining)	$	3,637
2017	1,892
2018	221
2019	—
2020	—
	$	5,750

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Basis of Presentation (Tables)

3 Months Ended

Aug. 31, 2015

Accounting Policies [Abstract]

Fair Value of Foreign Exchange Forward Contracts

The fair value of our foreign exchange forward contracts in the consolidated balance sheets is shown in the table below:

Derivatives Not Designated as Hedging Instruments	Consolidated Balance Sheet Location	August 31, 2015		May 31, 2015
Foreign exchange forward contracts	Other assets	$	10	$	(16	)

Losses Recognized in Income for Derivative Instruments

The table below provides data about the amount of gains and losses recognized in income for derivative instruments not designated as hedging instruments:

Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivatives	Three Months Ended August 31, 2015		Three Months Ended August 31, 2014
Foreign exchange forward contracts	SG&A expenses	$	28	$	127

Summary of Other Assets

Other assets consisted of the following:

	August 31, 2015		May 31, 2015
Net investment in sales-type leases	$	5,545	$	5,876
Prepaid expenses and other	4,584		4,265
SERP	3,218		3,521
Demonstration equipment	240		81
	$	13,587	$	13,743

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Income Taxes

3 Months Ended

Aug. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We recognize a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are periodically reviewed for recoverability.

Accounting guidance for uncertain tax positions prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

We recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We recognize interest, penalties and foreign currency gains and losses with respect to uncertain tax positions as components of our income tax provision. Accrued interest and penalties are included within accrued expenses in the consolidated balance sheet. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. There were no uncertain tax positions in fiscal 2016 and 2015.

We are subject to taxation in the U.S., as well as various state and foreign jurisdictions. We have substantially settled all income tax matters for the United States federal jurisdiction for years through fiscal 2011. Major state jurisdictions have been examined through fiscal years 2004 and 2005, and foreign jurisdictions have not been examined for their respective initial statutory periods of approximately 3 years.

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Segment Reporting and Related Disclosures

3 Months Ended

Aug. 31, 2015

Segment Reporting [Abstract]

Segment Reporting and Related Disclosures

Segment Reporting and Related Disclosures

Accounting guidance establishes reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Operating segments are defined as components of an enterprise for which separate financial information is available and is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. In order to determine our operating segments, we considered the following: an operating segment is a component of an enterprise (i) that engages in business activities from which it may earn revenues and incur expenses, (ii) whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. In accordance with this guidance, we have identified two operating segments in our business: our T&M and DP businesses.

In the past, we concluded that although we had separate operating segments for T&M and DP equipment, these two segments could be aggregated into a single reportable segment because they had similar economic characteristics and qualitative factors. However, as a result of a change in economic characteristics in fiscal 2015 in our T&M segment, primarily attributable to the expiration of the Keysight reseller agreement and greater competition in the marketplace, we concluded that we no longer expected similar economic characteristics and qualitative factors to continue in the future. As such, management concluded that the operating segments should no longer be aggregated. Following the change in the composition of our reportable operating segments, we restated the segment information for fiscal 2015.

Our equipment pool, based on acquisition cost, consisted of $425,684 of T&M equipment and $38,732 of DP equipment at August 31, 2015 and $434,963 of T&M equipment and $37,824 of DP equipment at May 31, 2015. Additional segment asset information is not available.

Revenues for these operating segments were as follows for the three months ended August 31, 2015 and 2014:

	T&M		DP		Total
2015
Rentals and leases	$	27,130	$	5,173	$	32,303
Sales of equipment and other revenues	20,543		497		21,040
Segment and consolidated total	$	47,673	$	5,670	$	53,343
2014
Rentals and leases	$	29,249	$	4,640	$	33,889
Sales of equipment and other revenues	27,476		506		27,982
Segment and consolidated total	$	56,725	$	5,146	$	61,871

Depreciation of rental and lease equipment for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015		2014
T&M	$	13,454	$	12,932
DP	1,147		983
Segment and consolidated total	$	14,601	$	13,915

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

We consider the marginal contribution as our measure of segment profit or loss. The marginal contribution is calculated as operating revenue less operating costs and direct and allocated SG&A expenses. Marginal contribution for these operating segments was as follows for the three months ended August 31, 2015 and 2014:

	Three Months Ended August 31,
	2015			2014
T&M	$	11,707		$	14,716
DP	933			681
Total marginal contribution of operating segments	12,640			15,397
Deduct:
Unallocated SG&A expenses	8,447			7,938
Add:
Interest income (expense), net	(242		)	103
Income before income taxes	$	3,951		$	7,562

No single customer accounted for more than 10% of total revenues during the three months ended August 31, 2015 and 2014.

We conduct rental, leasing and sales activities in foreign countries. Selected country information is presented below:

	Three Months Ended August 31,
	2015		2014
Revenues:1
U.S.	$	44,347	$	51,152
Other 2	8,996		10,719
Total	$	53,343	$	61,871

	As of
	August 31, 2015		May 31, 2015
Net Long-Lived Assets:3
U.S.	$	191,166	$	197,514
Other 2	48,499		47,277
Total	$	239,665	$	244,791

¹  Revenues by country are based on the shipping destination.

²  Other consists of countries other than the U.S. Each foreign country individually accounts for less than 10% of the total consolidated revenues and net long-lived assets.

³  Net long-lived assets include rental and lease equipment and other property, net of accumulated depreciation and amortization.

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Computation of Earnings Per Share

3 Months Ended

Aug. 31, 2015

Earnings Per Share [Abstract]

Computation of Earnings Per Share

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 months ended August 31, 2015 and 2014:

	Three Months Ended   August 31,
	2015		2014
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding (including shares issuable for vested restricted stock units)	24,416		24,372
Effect of unvested restricted stock units	10		24
Diluted shares used in per share calculation	24,426		24,396
Net income	$	2,470	$	4,771
Earnings per share:
Basic	$	0.10	$	0.20
Diluted	$	0.10	$	0.20

We did not include 146 and 69 shares in the calculation of diluted earnings per share for the three months ended August 31, 2015 and 2014, respectively, as to do so would be antidilutive.

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Commitments and Contingencies

3 Months Ended

Aug. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

We are subject to legal proceedings and business disputes involving ordinary routine legal proceedings and claims incidental to our business. The ultimate legal and financial liability with respect to such matters generally cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements or awards against us. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, we may be required to record either more or less litigation expense. We are not involved in any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our financial condition, results of operations or cash flows.

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Goodwill and Intangibles - Changes in Carrying Amount of Goodwill and Other Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2015
Goodwill [Roll Forward]
Balance as of June 1, 2015 (net of amortization)	$ 3,109
Additions	0
Balance as of August 31, 2015	3,109
Customer Relationships [Roll Forward]
Amortization	(29)	$ (41)
Balance as of August 31, 2015			$ 304
Goodwill and Other Intangible Assets [Roll Forward]
Balance as of June 1, 2015 (net of amortization)	3,853
Additions	0
Amortization	(29)	$ (41)
Balance as of August 31, 2015	3,824
Customer relationships
Customer Relationships [Roll Forward]
Balance as of June 1, 2015 (net of amortization)	333
Additions	0
Amortization	(29)
Balance as of August 31, 2015	333		$ 304
Goodwill and Other Intangible Assets [Roll Forward]
Amortization	(29)
Trade name
Trade Name [Roll Forward]
Balance as of June 1, 2015 (net of amortization)	411
Additions	0
Balance as of August 31, 2015	$ 411

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Equity Incentive Plan (Tables)

3 Months Ended

Aug. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Restricted Stock Unit Activity

The following table represents restricted stock unit activity for the three months ended August 31, 2015:

	Restricted Stock Units		Weighted – Average Grant Date Fair Value
Nonvested at June 1, 2015	129		$	16.75
Granted	104		11.02
Vested	(65	)	16.83
Forfeited/canceled	(6	)	16.72
Nonvested at August 31, 2015	162		$	13.02

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Basis of Presentation - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Summary Of Significant Accounting Policies [Line Items]
Rental and lease equipment impairment	$ 443	$ 0
Advertising expenses	217	169
Shipping and handling cost	$ 944	1,036
Assets, liabilities, revenues and expenses of foreign subsidiaries	0.1
Minimum
Summary Of Significant Accounting Policies [Line Items]
Operating lease agreements Period	1 year
Finance lease agreements Period	1 year
Maximum
Summary Of Significant Accounting Policies [Line Items]
Operating lease agreements Period	3 years
Finance lease agreements Period	3 years
Period for demonstration equipment included in other assets	2 years
T&M
Summary Of Significant Accounting Policies [Line Items]
Rental and lease equipment impairment	$ 443	$ 0

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Segment Reporting and Related Disclosures - Revenues from Rental, Lease and Sale Group (Detail) - USD ($) $ in Thousands		3 Months Ended
		Aug. 31, 2015	Aug. 31, 2014
Revenue from External Customer [Line Items]
Rentals and leases		$ 32,303	$ 33,889
Sales of equipment and other revenues		21,040	27,982
Total revenues	[1]	53,343	61,871
Depreciation		14,601	13,915
T&M | Operating Segments
Revenue from External Customer [Line Items]
Rentals and leases		27,130	29,249
Sales of equipment and other revenues		20,543	27,476
Total revenues		47,673	56,725
Depreciation		13,454	12,932
DP | Operating Segments
Revenue from External Customer [Line Items]
Rentals and leases		5,173	4,640
Sales of equipment and other revenues		497	506
Total revenues		5,670	5,146
Depreciation		$ 1,147	$ 983

[1] Revenues by country are based on the shipping destination.

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Cash flows from operating activities:
Net income	$ 2,470	$ 4,771
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,919	14,168
Rental and lease equipment impairment	443	0
Remeasurement (gain)/loss on foreign currency	48	(41)
Provision for losses on accounts receivable	68	107
Gain on sale of rental and lease equipment	(3,754)	(3,082)
Stock compensation expense	273	288
Excess tax benefit for share-based compensation	1	(82)
Deferred income taxes	(936)	(1,235)
Change in operating assets and liabilities:
Accounts receivable	6,076	(89)
Other assets	9	(2,433)
Accounts payable	(1,222)	632
Accrued expenses	(1,764)	(508)
Deferred revenue	23	(64)
Net cash provided by operating activities	16,654	12,432
Cash flows from investing activities:
Proceeds from sale of rental and lease equipment	10,046	8,284
Payments for purchase of rental and lease equipment	(16,266)	(17,823)
Payments for purchase of other property	(70)	(61)
Net cash used in investing activities	(6,290)	(9,600)
Cash flows from financing activities:
Borrowings under bank line of credit	10,407	8,581
Payments under bank line of credit	(12,794)	(8,581)
Minimum tax withholdings on share-based compensation	(114)	(10)
Excess tax benefit for share-based compensation	(1)	82
Payment of dividends	(3,151)	(5,015)
Net cash used in financing activities	(5,653)	(4,943)
Effect of exchange rate changes on cash	(26)	139
Net increase (decrease) in cash	4,685	(1,972)
Cash at beginning of period	4,064	5,946
Cash at end of period	8,749	3,974
Supplemental Cash Flow Information
Interest paid, during the period	14	4
Income taxes paid, during the period	3,029	369
Dividends accrued during the period, not yet paid	60	87
Rental equipment acquisitions, not yet paid	3,633	4,304
Used equipment sales in accounts receivable and other assets, not yet collected	6,432	7,811
Transfers from other assets to rental and lease equipment	$ 71	$ 413

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Goodwill and Intangibles

3 Months Ended

Aug. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangibles

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets consist of purchased customer relationships and trade names.

Our goodwill and intangibles at August 31, 2015 are the result of our acquisition of Equipment Management Technology, Inc. on August 24, 2011, Telogy LLC on March 31, 2010, and Rush Computer Rentals, Inc. on January 31, 2006.

The changes in carrying amount of goodwill and other intangible assets for the three months ended August 31, 2015 were as follows:

	Balance as of June 1, 2015 (net of amortization)		Additions		Amortization			Balance as of August 31, 2015
Goodwill	$	3,109	$	—	$	—		$	3,109
Trade name	411		—		—			411
Customer relationships	333		—		(29		)	304
	$	3,853	$	—	$	(29	)	$	3,824

Goodwill is not deductible for tax purposes.

We evaluate the recoverability of goodwill and indefinite-lived intangible assets annually as of May 31, and whenever events or changes in circumstances indicate to us that the carrying amount may not be recoverable. There were no conditions that indicated any impairment of goodwill or identifiable intangible assets as of August 31, 2015 and May 31, 2015.

Intangible assets with finite useful lives are amortized over their respective estimated useful lives. The following tables provide a summary of our intangible assets:

	August 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,790		)	304
		$	2,505	$	(1,790	)	$	715
	May 31, 2015
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name	—	$	411	$	—		$	411
Customer relationships	3-8 years	2,094		(1,761		)	333
		$	2,505	$	(1,761	)	$	744

Amortization expense related to intangible assets was $29 and $41 for the three months ended August 31, 2015 and 2014, respectively.

Amortization expense for customer relationships is included in SG&A expenses. The following table provides estimated future amortization expense related to intangible assets as of August 31, 2015:

Year ending May 31,	Future Amortization
2016 (remaining)	$	89
2017	118
2018	97
2019	—
2020	—
	$	304

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Basis of Presentation - Fair Value of Foreign Exchange Forward Contracts (Detail) - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Derivatives Not Designated as Hedging Instruments | Foreign exchange forward contracts | Other assets
Derivatives Not Designated as Hedging Instruments
Foreign exchange forward contracts Other assets	$ 10	$ (16)

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Sales-Type Leases - Minimum Lease Payments Receivable and Net Investment (Detail) - USD ($) $ in Thousands	Aug. 31, 2015	May. 31, 2015
Leases [Abstract]
Gross minimum lease payments receivable	$ 5,750	$ 6,109
Less – unearned interest	(205)	(233)
Net investment in sales-type lease receivables	$ 5,545	$ 5,876

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Fair Value Measurements (Tables)

3 Months Ended

Aug. 31, 2015

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Our assets and liabilities measured at fair value on a recurring basis were determined as follows:

	August 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,052		—		—		3,052
Foreign exchange forward contracts	—		10		—		10
Total assets measured at fair value	$	3,218	$	10	$	—	$	3,228
Liabilities
SERP	$	3,218	$	—	$	—	$	3,218
Total liabilities measured at fair value	$	3,218	$	—	$	—	$	3,218

	May 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets
SERP
Money market fund	$	166	$	—	$	—	$	166
Mutual funds	3,355		—		—		3,355
Total assets measured at fair value	$	3,521	$	—	$	—	$	3,521
Liabilities
SERP	$	3,521	$	—	$	—	$	3,521
Foreign exchange forward contracts	—		16		—		16
Total liabilities measured at fair value	$	3,521	$	16	$	—	$	3,537