Basis of Presentation

3 Months Ended

Aug. 31, 2011

Basis of Presentation [Abstract]

Basis of Presentation

Note 1: Basis of Presentation

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. These condensed consolidated financial statements reflect all adjustments and disclosures that are, in our opinion, necessary for a fair presentation of our financial position and results of operations for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our latest Annual Report on Form 10-K filed with the SEC on August 8, 2011.

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

Foreign Currency

The U.S. dollar has been determined to be our functional currency. The assets and liabilities of our foreign subsidiaries are remeasured from their functional currency to U.S. dollars at current or historic exchange rates, as appropriate. Revenues and expenses are remeasured from any foreign currencies to U.S. dollars using historic rates or an average monthly rate, as appropriate, for the month in which the transaction occurred. Remeasurement gains and losses are included in selling, general and administrative expenses or income taxes, as appropriate. The assets, liabilities, revenues and expenses of our foreign subsidiaries are individually less than 10% of our respective consolidated amounts. The euro, Canadian dollar and Chinese yuan are our primary foreign currencies.

We enter into forward contracts to hedge against unfavorable fluctuations in our monetary assets and liabilities in our European and Canadian operations. These contracts are designed to minimize the effect of fluctuations in foreign currencies. Such derivative instruments are not designated as hedging instruments and, therefore, are recorded at fair value as a current asset or liability, and any changes in fair value are recorded in our condensed consolidated statements of operations.

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

	Consolidated
Derivatives Not Designated as	Balance Sheet	August 31,		May 31,
Hedging Instruments	Location	2011		2011
Foreign exchange forward contracts	Other assets	$	78	$	15

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

		Three Months		Three Months
	Location of Loss	Ended		Ended
Derivatives Not Designated as	Recognized in	August 31,		August 31,
Hedging Instruments	Income on Derivatives	2011		2010
Foreign exchange forward contracts	Selling, general and administrative expenses	$	6	$	138

Other Assets

We include demonstration equipment used in connection with our resale activity of $4,520 and $3,894 as of August 31, 2011 and May 31, 2011, respectively, 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.

Other assets consisted of the following:

	August 31,		May 31,
	2011		2011
Net investment in sales-type leases	$	7,907	$	7,478
Demonstration equipment		4,520		3,894
Supplemental executive retirement plan assets		2,481		2,671
Income taxes receivable		—		3,066
Prepaid expenses and other		2,803		2,679
	$	17,711	$	19,788

Recent Accounting Pronouncements

In December 2010, the FASB issued an update to its existing guidance for goodwill and other intangible assets. This guidance modifies testing for reporting units with zero or negative carrying amounts. For those reporting units, in addition to evaluating whether the carrying amount of a reporting unit exceeds fair value, an entity must assess whether it is more likely than not that a goodwill impairment exists. To make that determination, an entity must consider whether there are any adverse qualitative factors indicating potential impairment. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We do not anticipate that the adoption of this guidance will have a material impact on our financial condition, results of operations or cash flows.

In May 2011, the FASB issued guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. generally accepted accounting principles and International Financial Reporting Standards. The guidance also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. We will be required to adopt this guidance beginning with our fourth quarter of fiscal 2012. We do not anticipate that the adoption of this guidance will have a material impact on our financial condition, results of operations or cash flows.

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption of the new guidance is permitted and full retrospective application is required. We will be required to adopt this guidance beginning with our first quarter of fiscal 2013. We do not anticipate that the adoption of this guidance will have a material impact on our financial condition, results of operations or cash flows.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.