10-K

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended May 31, 2003
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	Commission File Number: 0-9061

ELECTRO RENT CORPORATION

(Exact name of registrant as specified in its charter)

CALIFORNIA	95-2412961
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6060 Sepulveda Boulevard
Van Nuys, California 91411-2512
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (818) 786-2525

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock without par value

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   X   No      

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2). Yes       No   X  .

The aggregate market value of the registrant’s Voting Stock, held by non-affiliates of the registrant, as of August 11, 2003, was $220,649,703.

Number of shares of Common Stock outstanding as of August 11, 2003: 24,824,015 shares.

TABLE OF CONTENTS

PART I
	Item 1. Business.
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures About Market Risks.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
	Item 9A. Controls and Procedures.
PART III
	Item 10. Directors and Executive Officers of the Registrant.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
	Item 13. Certain Relationships and Related Transactions.
	Item 14. Principal Account Fees and Services.
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Exhibit Index
SIGNATURES
Exhibit 10(D)1
EXHIBIT 22
Exhibit 23(A)
Exhibit 23(B)
Exhibit 31(A)
Exhibit 31(B)
Exhibit 32(A)
Exhibit 32(B)
Exhibit 99(A)

DOCUMENTS INCORPORATED BY REFERENCE

1.	Inside front cover and pages 5-12 and 14-29 of the Annual Report to Security Holders for the fiscal year ended May 31, 2003 (the “2003 Annual Report”) are incorporated by reference in this Form 10-K Annual Report.
2.	Proxy Statement for the Annual Meeting of Shareholders to be held on October 9, 2003 (the “2003 Proxy Statement”).

CROSS REFERENCE SHEET

Showing Location in 2003 Annual Report
and 2003 Proxy Statement of Information
Required by Items of Form 10-K

PART II

		Caption and Reference
	Form 10-K Item	in 2003 Annual Report
	Number and Caption	or 2003 Proxy Statement
5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	Annual Report page 30
6.	Selected Financial Data	Annual Report inside front cover
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Annual Report pages 5 to 12
8.	Financial Statements and Supplementary Data	Annual Report pages 14 to 29
9A.	Controls and Procedures	Annual Report page 9

PART III

10.	Directors and Executive Officers of the Registrant	Proxy Statement pages 4, 5 and 9
11.	Executive Compensation	Proxy Statement pages 9 to 16
12.	Security Ownership of Certain Beneficial Owners and Management	Proxy Statement pages 3 and 4
13.	Certain Relationships and Related Transactions	Proxy Statement page 9

2

PART I

     EXCEPT FOR THE HISTORICAL STATEMENTS AND DISCUSSIONS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, STATEMENTS CONTAINED IN THIS FORM 10-K CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS REFLECT CURRENT VIEWS OF OUR MANAGEMENT WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. ALL PLANS, PROJECTIONS, AND FUTURE ESTIMATES ARE FORWARD-LOOKING STATEMENTS, WHICH IN SOME, BUT NOT ALL, CASES, ARE IDENTIFIED BY WORDS SUCH AS “ANTICIPATE,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FUTURE,” AND OTHER SIMILAR EXPRESSIONS. PLEASE DO NOT PUT UNDUE RELIANCE ON FORWARD LOOKING STATEMENTS. FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, NOT ALL OF WHICH ARE DISCLOSED IN THIS FORM 10-K. ALTHOUGH WE BELIEVE OUR ASSUMPTIONS ARE REASONABLE, IT IS LIKELY THAT AT LEAST SOME OF THESE ASSUMPTIONS WILL NOT COME TRUE. ACCORDINGLY, OUR ACTUAL RESULTS WILL PROBABLY DIFFER FROM THE OUTCOMES CONTAINED IN ANY FORWARD-LOOKING STATEMENT, AND THOSE DIFFERENCES COULD BE MATERIAL. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THE ONES DISCUSSED BELOW, AND IN THE “RISK FACTORS” ATTACHED AS EXHIBIT 99(A) TO THIS 10-K, AS WELL AS IN OUR ANNUAL REPORT TO OUR SHAREHOLDERS (ESPECIALLY IN THE SECTIONS ENTITLED “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” AND IN “QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT INTEREST RATES AND CURRENCY RATES”) AND OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THE RISKS DISCUSSED, OR ANY OTHER RISKS, MATERIALIZE, OR SHOULD ONE OR MORE OF OUR UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED, EXPECTED OR PROJECTED. IN LIGHT OF THE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING INFORMATION WILL IN FACT PROVE TO BE CORRECT. WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.

     Unless otherwise noted (1) the terms “Electro Rent,” “we,” “us,” and “our,” refer to Electro Rent Corporation and its subsidiaries, and (2) the terms “Common Stock” and “shareholder(s)” refer to Electro Rent’s common stock and the holders of that stock, respectively.

Item 1. Business.

     Electro Rent was incorporated in California in 1965 and became a publicly held corporation on March 31, 1980.

     We primarily engage in the rental, lease and sale of state-of-the-art electronic equipment. About 77% of our equipment portfolio at acquisition cost is composed of general purpose test and measurement instruments purchased from leading manufacturers such as Agilent Technologies and Tektronix. The remainder of our equipment portfolio is comprised of personal computers and servers, from manufacturers including Dell, HP/Compaq, IBM and Toshiba. A large part of our test and measurement equipment portfolio is rented or leased to Fortune 500 companies in the aerospace, defense, electronics and telecommunications industries. We believe that a large part of our test and measurement equipment is used in research and development activities and that a significant amount of this equipment is used in connection with government-generated projects. We also rent equipment to companies of various sizes representing a cross-section of American industry. No customer accounted for more than 10% of our revenues for any of the three fiscal years ended May 31, 2003. No significant portion of our revenues is currently derived from direct United States Government contracts.

     An important aspect of our equipment portfolio management is the resale of equipment from the portfolio, generally after three years from initial purchase, which, on the average, have been at prices above book value. Such sales have historically provided a substantial portion of revenues and operating cash flow.

3

     We service our customers through sales offices and calibration and service centers in the United States and Canada, which are linked by an on-line computer system. These centers also function as depots for the sale of used equipment.

     After acquiring the rental business of General Electric Capital Technology Management Services in November 1997, Electro Rent became one of the largest companies in the highly competitive electronic equipment rental and lease business. Independent industry publications have identified a number of major competitors, including Technology Rentals & Services, a division of CIT Group, Telogy, McGrath Rent Corp. and Continental Resources. Some of our competitors are divisions of larger organizations, and, therefore, have access to greater internal financial and other resources than we do.

     Our business is relatively non-seasonal except for the third quarter months of December, January and February, when rental activity declines due to extended holiday closings by a number of customers. In addition, because February is a short month, rental billing is reduced.

     We purchase the majority of our equipment from leading suppliers of electronic equipment. The product development activities of our major suppliers tend to shape the nature of the rental and lease demand of our customers and the demand for equipment. As a result, our business is significantly affected by the introduction of new products from our major suppliers, particularly Agilent Technologies and Tektronix.

     We believe that our relationships with our major suppliers are good. Because of the volume of our purchases and the nature of our relationships, often we are considered part of their distribution strategy.

     At May 31, 2003, Electro Rent employed approximately 304 individuals. None of these employees is a member of a labor union. We consider our employee relations to be satisfactory and provide standard employee benefits and pay certain of the costs of employee education.

Item 2. Properties.

     Electro Rent’s corporate headquarters and Los Angeles sales office are located at 6060 Sepulveda Boulevard, Van Nuys, California. The building contains approximately 84,500 square feet of office space. Approximately 24,800 square feet are currently leased to other subtenants. These subtenant arrangements provide for all of the subleased property to be available for our future needs. An additional 15,000 square feet in the building are available for leasing.

     We own a facility in Wood Dale, Illinois, containing approximately 30,750 square feet. This facility houses our Illinois warehouse and service center.

     Our building at 15385 Oxnard Street, Van Nuys, California, contains approximately 68,200 square feet. We use all of this space, except for 4,500 square feet which is currently being leased to others. This building houses our California warehouse and equipment calibration center.

     As of May 31, 2003 Electro Rent had sales offices in the metropolitan areas of Atlanta and Los Angeles. We also have service centers in Boston, Chicago, Dallas, Denver, Detroit, Houston, Los Angeles, Montreal, New York/Newark, San Francisco, Seattle, Toronto and Washington/Baltimore.

     Electro Rent’s facilities aggregate approximately 341,000 square feet. Except for the corporate headquarters, the Chicago area facilities, and the Oxnard Street building, all of the facilities are rented pursuant to leases for up to three years for aggregate annual rentals of approximately $1,871,000 in fiscal 2003. We do not consider any rented facility essential to our operations. We consider our facilities to be in good condition, well maintained and adequate for our needs.

4

Item 3. Legal Proceedings.

     In the normal course of our business, we are involved in various claims and legal proceedings. We believe these matters will not have a material adverse effect on our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote by our security holders.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

     Electro Rent’s Common Stock is listed by the National Association of Securities Dealers and is quoted on the NATIONAL MARKET SYSTEM OF NASDAQ. Our symbol is “ELRC.” The quarterly market price ranges for our Common Stock for the two fiscal years ended May 31, 2003, as quoted on NASDAQ, shareholder information and dividend information are set forth on page 30 of the 2003 Annual Report and are incorporated herein by reference.

     None of our preferred shares are issued or outstanding.

Item 6. Selected Financial Data.

     The summary of the selected financial data referred to as Financial Highlights, appearing on the inside front cover of the 2003 Annual Report, is hereby incorporated by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Information appearing under the above caption on pages 5 to 12 of the 2003 Annual Report is hereby incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks.

     The information appearing in the Risk Factors, filed with this 10-K as Exhibit 99(A), is hereby incorporated by reference.

Item 8. Financial Statements and Supplementary Data.

     Our consolidated financial statements together with the report thereon of Deloitte & Touche LLP appearing on pages 14 to 29 of the 2003 Annual Report are hereby incorporated by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

     On April 30, 2002, we dismissed Arthur Andersen LLP (“Arthur Andersen”) as the Company’s independent auditors and engaged Deloitte & Touche LLP (“D&T”) as our new independent auditors. The decision to change our independent auditors was made by our Board of Directors.

     Arthur Andersen’s report on the financial statements of the Company for the fiscal year ended May 31, 2001 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.

5

     During the year ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no disagreements with Arthur Andersen on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would have caused it to make reference thereto in its report on the financial statements for such years.

     During the year ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no “reportable events” (as defined below) requiring disclosure pursuant to Item 304(a)(1)(v) of Regulation S-K, promulgated under the Securities Act of 1934, as amended. As used herein, the term “reportable events” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K.

     Effective April 30, 2002, we engaged D&T as our independent auditors. During the year ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, neither the Company nor anyone acting on its behalf consulted D&T regarding either the application of accounting principles as to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, nor has D&T provided to the Company a written report or oral advice regarding such principles or audit opinion.

Item 9A. Controls and Procedures.

     Information appearing under the above caption on page 9 of the 2003 Annual Report is hereby incorporated by reference.

PART III

Item 10. Directors and Executive Officers of the Registrant.

     Information appearing in the 2003 Proxy Statement under the captions Election of Directors (pages 4 and 5), Executive Officers (page 5), Compliance With Section 16 of the Securities Exchange Act of 1934 (pages 8 and 9), and Transactions With Management (page 9), is hereby incorporated by reference.

Item 11. Executive Compensation.

     Information appearing in the 2003 Proxy Statement under the caption Executive Compensation (pages 9 to 16) is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     Information concerning the ownership of Electro Rent’s securities by its principal holders and its management is set forth in the 2003 Proxy Statement (pages 3 and 4), and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

     Information appearing in the 2003 Proxy Statement under the caption Transactions With Management (page 9) is hereby incorporated by reference.

Item 14. Principal Accountant Fees and Services.

     Information appearing in the 2003 Proxy Statement under the caption Proposal 2 – Approval of Selection of Independent Auditors (page 18) is hereby incorporated by reference.

6

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  The following financial statements covered by the Independent Auditors’ Consent are filed as a part of this report and are included or incorporated herein by reference to the following page or pages of the 2003 Annual Report.

		2003 Annual Report		Form 10-K Page
	Item	Page Number		Number
1.	Financial Statements
	Consolidated Statements of Operations for each of the three years in the period ended May 31, 2003		14
	Consolidated Balance Sheets at May 31, 2003 and 2002		15
	Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended May 31, 2003		16
	Consolidated Statements of Cash Flows for each of the three years in the period ended May 31, 2003		17
	Notes to Consolidated Financial Statements		18-28
	Independent Auditors’ Report		29		Exhibit 23(B)
2.	Financial Statement Schedules		25
3.	Exhibits
	See the Exhibit Index. The Exhibits listed in the Exhibit Index are filed as part of this report and are incorporated herein by reference.

     All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of a schedule, or because the information required is included in the financial statements or related notes.

     (b)  Reports on Form 8-K.

     During the last quarter of the period covered by this Annual Report on Form 10-K, the Registrant did not file and was not required to file any Current Reports on Form 8-K.

7

     (c)  Exhibits listed by numbers corresponding to Exhibit Table of Item 601 of Regulation S-K.

Exhibit Index
(* Indicates compensation plan, contract or arrangement)

Exhibit Number	Document Description
(3)	Articles of Incorporation (Restated) and bylaws are incorporated by reference to Exhibits 1.2 and 6.1, respectively, of Registration Statement (Form S-14), File No. 2-63532. A copy of the Restated Articles of Incorporation and the Certificate of Amendment of Restated Articles of Incorporation filed October 24, 1988 are incorporated by reference to Exhibit (3) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1989. A copy of the Certificate of Amendment of Restated Articles of Incorporation filed October 15, 1997 is filed as Exhibit (3) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1999. A copy of the amendment to the bylaws adopted October 6, 1994 is incorporated by reference to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1995. A copy of the amendment to the bylaws adopted November 15, 1996 is incorporated by reference to Exhibit (3) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1997.
(10)(A)(1)	The Electro Rent Corporation Employee Stock Ownership And Savings Plan, June 1, 1985 Restatement, and the Electro Rent Corporation Employee Stock Ownership And Savings Plan Trust Agreement, are incorporated by reference to Exhibits 10(A)-(1) and 10(A)-(2) of the Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1985. A copy of Amendment No. One to the Restated ESOP is incorporated by reference to Exhibit (10)(A) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1987.*
(10)(A)(2)	A copy of the Electro Rent Corporation Employee Stock Ownership And Savings Plan, Restated As Of June 1, 1989 is incorporated by reference to Exhibit (10)(A) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1989.*
(10)(A)(3)	Copies of the following documents amending and supplementing the ESOSP and ESOP as heretofore amended are incorporated by reference to Exhibit (10)(A)-(1) to (7) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1995:
(10)(A)(4)	Adoption Agreement For The Vanguard Prototype 401(K) Savings Plan dated August 1, 1994.*
(10)(A)(5)	Electro Rent Corporation Savings Plan Trust Agreement dated September 1, 1994.*
(10)(A)(6)	Electro Rent Savings Plan Supplement To The Vanguard Prototype 401(K) Savings Plan Adoption Agreement dated September 24, 1994.*
(10)(A)(7)	Second Amendment To Electro Rent Corporation Employee Stock Ownership & Savings Plan (Restated As Of June 1, 1989) dated as of June 1, 1991*
(10)(A)(8)	Third Amendment To Electro Rent Corporation Employee Stock Ownership And Savings Plan (Restated As Of June 1, 1989) dated June 15, 1994*
(10)(A)(9)	Fourth Amendment To Electro Rent Corporation Savings Plan (Restated As Of June 1, 1989) dated September 1, 1994*
(10)(A)(10)	Electro Rent Corporation Employee Stock Ownership Plan Trust Agreement dated

8

Exhibit Number	Document Description
	September 1, 1994.*
(10)(A)(11)	A copy of the GE Rentals Supplement to the Vanguard Prototype 401(k) Savings Plan Adoption Agreement adopted October 10, 1997 is incorporated by reference to Exhibit 10(A) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1998.*
(10)(C)	A copy of the Electro Rent Corporation Supplemental Retirement Plan is incorporated by reference to Exhibit (10)(C) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1987.*
(10)(D)(1)	The Executive Employment Agreement between the Company and Daniel Greenberg, Chairman of the Board of Directors and Chief Executive Officer, originally entered into December 15, 1986 and amended November 22, 1988 by Amendment No. One To Executive Employment Agreement, as further amended and restated as of July 15, 1992. A copy of the Executive Employment Agreement (Amended And Restated as of July 15, 1992), and as further amended as of October 2001) is incorporated by reference to Exhibit (10)(D)-(1) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1993. A copy of Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated October 12, 2001 is filed herewith.*
(10)(D)(2)	The Executive Employment Agreement between the Company and William Weitzman, President and Chief Operating Officer, originally entered into December 15, 1986 and amended November 22, 1988 by Amendment No. One To Executive Employment Agreement, as further amended and restated as of July 15, 1992 and amended by Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated October 12, 2001. A copy of Executive Employment Agreement (Amended And Restated as of July 15, 1992, and as further amended as of October 2001) is incorporated by reference to Exhibit (10)(D)-(1) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1993. A copy of Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated October 12, 2001 is incorporated by reference to Exhibit 10(D)(2) of the Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 2002.*
(10)(E)(1)	A copy of the Electro Rent Corporation 1990 Stock Option Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock Option) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory Option) are incorporated by reference to Exhibits (10)(E)-(1), (10)(E)-(2) and (10)(E)-(3), respectively to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1990. A copy of Amendment Number One To Electro Rent Corporation 1990 Stock Option Plan adopted October 3, 1991 is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1992. A copy of Amendment Number Two To Electro Rent Corporation 1990 Stock Option Plan adopted April 11, 1995 is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1995.*
(10)(E)(2)	A copy of the Electro Rent Corporation 1996 Stock Option Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock Options) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory Stock Options) are incorporated by reference to Exhibits (10)(E)-(1), (2) and (3) respectively to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1996. A copy of Amendment Number One To Electro Rent Corporation 1996 Stock Option Plan adopted November 1, 1996 is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1998.*

9

Exhibit Number	Document Description
(10)(E)(3)	A copy of the Electro Rent Corporation 1996 Director Option Plan and the Electro Rent Corporation Stock Option Agreement for the 1996 Director Option Plan are incorporated by reference to Exhibits (10)(E)-(4) and (5) respectively to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1996.
(10)(E)(4)	Electro Rent Corporation 1996 Director Option Plan Amendment No. One is incorporated by reference to Exhibit (10)(E) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 2001.
10(E)(5)	A copy of the Electro Rent Corporation 2002 Employee Stock Option Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock Options) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory Stock Options) is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 2002.
(11)	Statement re computation of per share earnings is incorporated by reference to the 2003 Annual Report, page 24.
(13)	2003 Annual Report. Only those portions of the 2003 Annual Report expressly incorporated hereby by reference are deemed “filed.”
(21)	Subsidiaries of the Registrant.
	•       Genstar Rental Electronics, Inc., a Canadian corporation
	•       ER International, Inc., a Delaware corporation
(22)	Inside front cover and pages 5-12 and 14-29 of the 2003 Annual Report are appended hereto as Exhibit 22 hereof and are being electronically filed with this Form 10-K Annual Report.
(23)(A)	Consent of Deloitte & Touche LLP, the Company’s independent auditors.
(23)(B)	Report of Arthur Andersen LLP, the Company’s former independent auditors.
(31)(A)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
(31)(B)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
(32)(A)	Section 1350 Certification by Principal Executive Officer
(32)(B)	Section 1350 Certification by Chief Financial Officer
(99)(A)	Risk Factors

     (d)  Schedule of Financial Statements Required by Regulation S-X, which is excluded from the 2003 Annual Report by Rule 14 a 3(b) (1):

     None. See Cross Reference Table under Item 15 (Exhibits, Financial Statement Schedules and Reports on Form 8-K) of this Form 10-K.

10

SIGNATURES

     Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Electro Rent Corporation
Dated: August 26, 2003.	By	/s/ Daniel Greenberg
		Daniel Greenberg
		Chief Executive Officer and Director

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ Daniel Greenberg Daniel Greenberg	Chairman of the Board and Chief Executive Officer	August 26, 2003
/s/ William Weitzman William Weitzman	President, Chief Operating Officer and Director	August 26, 2003
/s/ Craig R. Jones Craig R. Jones	Chief Financial Officer	August 26, 2003
/s/ Gerald D. Barrone Gerald D. Barrone	Director	August 26, 2003
/s/ Nancy Y. Bekavac Nancy Y. Bekavac	Director	August 26, 2003
/s/ Joseph J. Kearns Joseph J. Kearns	Director	August 26, 2003
/s/ S. Lee Kling S. Lee Kling	Director	August 26, 2003
/s/James S. Pignatelli James S. Pignatelli	Director	August 26, 2003

11 EX-10.(D).1 3 v92703exv10wxdyw1.txt EXHIBIT 10(D)1 EXHIBIT 10(D)(1) AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT The Executive Employment Agreement, as amended and restated as of July 15, 1992 (the "AGREEMENT"), by and between Electro Rent Corporation (the "COMPANY") and Daniel Greenberg (the "EXECUTIVE") is amended and supplemented by the terms of this Amendment No. 1 (this "AMENDMENT") as set forth below. Capitalized terms not otherwise defined herein are given the meanings ascribed to such terms in the Agreement. 1. SECTION 1.2(C). Section 1.2(c) shall be modified by adding the following two sentences at the end of Section 1.2(c): "In addition, during the continuation of the Executive's employment hereunder, the Company shall maintain (by insurance policy or, if not available on commercially reasonable terms, self insurance with reserves reasonably satisfactory to the Executive) medical and dental coverage and all other health benefits, including, without limitation, the special executive benefit insurance, consistent with the standard of coverage available to the Executive as of the date of this Amendment, for the Executive and his spouse for as long as they each shall live. If the Company does not maintain an insurance policy for the Family Medical Benefits, the Company shall reimburse the Executive for any tax liabilities the Executive incurs that he would not have incurred if the Company maintained an insurance policy for the Executive's Family Medical Benefits." The benefits described in the previous two (2) sentences of this Section 1.2(c) are collectively referred to as the "FAMILY MEDICAL BENEFITS." 2. NEW SECTION 2.4. A new Section 2.4 shall be added to the Agreement as follows: "Section 2.4. Regardless of any termination of the employment relationship, at its expense, the Company shall continue to maintain the Family Medical Benefits." 3. SECTION 2.2(B). In order to correct a misstatement in the Agreement, Section 2.2(b) shall be revised to replace the words "during the Employment Term" on the eighth line of page 6 with the words "with respect to any fiscal year of the Company in which Executive was employed by the Company." 4. SECTION 2.3(A). In order to correct a misstatement in the Agreement, the words "during the Term" on the sixth line of Section 2.3(a) shall be replaced with the words "with respect to any fiscal year of the Company in which Executive was employed by the Company." 5. SECTION 2.3 (B). The words ", including the Family Medical Benefits" will be added following the words "Termination of Employment" in the third line of page 8. 6. GENERAL. Except as explicitly modified in this Amendment, the Agreement shall continue in full force and effect. Exhibit 10(D)(1) IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment on the 12th day of October 2001. ELECTRO RENT CORPORATION EXECUTIVE By: /s/ William Weitzman By: /s/ Daniel Greenberg --------------------------------- --------------------------- William Weitzman Daniel Greenberg President By: /s/ Steven Markheim --------------------------------- Steven Markheim Secretary Exhibit 10(D)(1) EX-22 4 v92703exv22.htm EXHIBIT 22

EXHIBIT 22

The inside front cover and pages 5-12 and 14-29 of the Annual Report to Security Holders for the fiscal year ended May 31, 2003 are appended hereto as Exhibit 22 hereof and are being electronically filed with this Form 10-K Annual Report.

Exhibit 22

FINANCIAL HIGHLIGHTS

		May 31,
(in thousands, except per share information)		2003			2002			2001			2000		1999
Revenues		$	108,796		$	147,864		$	211,176		$	241,793	$	269,739
Costs of revenues and depreciation			62,663			81,678			99,724			131,125		139,338
Selling, general and administrative expenses			37,399			50,492			62,625			65,104		77,612
Loss on impairment of goodwill and intangibles			37,135			—			—			—		—
Interest and other, net			(4,091	)		(2,232	)		(708	)		5,465		11,999
Income (loss) before income taxes			(24,310	)		17,926			49,535			40,099		40,790
Income tax (benefit) provision			(9,324	)		4,804			18,822			15,237		16,725
Net income (loss)		$	(14,986	)	$	13,122		$	30,713		$	24,862	$	24,065
Earnings (loss) per share:
	Basic	$	(0.60	)	$	0.53		$	1.26		$	1.01	$	0.98
	Diluted	$	(0.60	)	$	0.53		$	1.24		$	1.00	$	0.96
Shares used in per share calculation:
	Basic		24,810			24,602			24,416			24,571		24,443
	Diluted		24,810			24,837			24,753			24,972		25,004
Total assets		$	277,100		$	307,141		$	312,468		$	306,435	$	368,708
Bank borrowings		$	—		$	—		$	—		$	21,800	$	107,500
Shareholders’ equity		$	252,508		$	264,717		$	250,186		$	221,665	$	196,174
Shareholders’ equity per common share		$	10.17		$	10.68		$	10.21		$	9.00	$	8.01

ELECTRO RENT 2003 ANNUAL REPORT

 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the fiscal 2003 Consolidated Financial Statements and the notes thereto and the other financial and statistical information appearing elsewhere in this annual report.

Overview

The Company generates revenues through the rental, lease and sale of electronic equipment, including test and measurement (T&M) and computer-related (DP) equipment. In fiscal 2003, 69% of rental and lease revenues was derived from T&M equipment. This percentage has been increasing over the last four years as a result of a steady erosion of DP revenues related to declines in product purchase prices and unit volume. Rental revenues comprised 72% of fiscal 2003 rental and lease revenue, and this percentage also has been increasing over the last four years due to a significant decline in personal computer leasing activity.

The Company’s profitability is primarily a function of the volume and pricing of rental and lease transactions, and utilization of the equipment pool. Significant changes in the purchase or disposal price of equipment or interest rates can also have a significant effect on the Company’s profitability, depending on the ability of the Company to adjust rental and lease rates for these changes. The Company’s business requires significant expenditures for equipment and, consequently, requires substantial liquidity to finance such expenditures.

During fiscal 2003, demand for rental equipment declined along with the global economic slowdown, which negatively impacted all of the Company’s major market segments. Additionally, rental rates and lease rates reached historic lows. Monthly rental rates declined by 15% and monthly lease rates declined by 10% during fiscal 2003. However, during that same period overall utilization for the Company’s equipment pool, based on acquisition cost, remained constant at 54%, which reflects the Company’s continued liquidation and write-off of under-performing assets.

We believe that demand for rental electronic equipment should improve when the U.S. economy begins to recover. Also, increased defense spending on advanced weapons and intelligence systems should benefit the Company. Until these events take place, however, the Company will strive to operate the business efficiently at the prevailing activity levels.

Fiscal 2003 Compared with Fiscal 2002

TOTAL REVENUES: Total revenues for fiscal 2003 decreased $39.1 million, or 26%, to $108.8 million compared to $147.9 million in the prior year. The decline in total revenues was due to a decrease in rental and lease revenue of 30% and a decrease in sales of equipment and other revenues of 14%.

Rental and lease revenues in fiscal 2003 were $80.7 million, a 30% decline from the prior year. This decrease was primarily the result of lower demand in the Company’s major market segments stemming from the global economic slowdown. Additionally, DP rental revenue continued to be negatively impacted by declining purchase prices of new personal computers and competition.

Sales of equipment and other revenues were $28.1 million in fiscal 2003, a decrease of 14% as compared to fiscal 2002. This decrease reflects lower demand and a smaller equipment pool, primarily for DP equipment.

DEPRECIATION OF RENTAL AND LEASE EQUIPMENT: Depreciation of equipment decreased from $58.6 million in fiscal 2002, to $44.7 million, in fiscal 2003 as a result of our efforts to dispose of equipment coupled with our decision to reduce purchases of new equipment significantly. Although depreciation expense was reduced by $13.9 million, or 24%, for fiscal 2003, depreciation increased to 55% of rental and lease revenues in fiscal 2003 from 51% of rental and lease revenues in fiscal 2002 because the 30% decline in rental and lease revenues in fiscal 2003 was not entirely offset by the Company’s efforts in reducing the equipment pool size.

COSTS OF REVENUES OTHER THAN DEPRECIATION: Costs of revenues other than depreciation decreased from $23.0 million in fiscal 2002 to $17.9 million in fiscal 2003. Costs of revenues other than depreciation primarily includes the cost of equipment sales, which decreased from 70% of equipment sales in fiscal 2002 to 65% of equipment sales in fiscal 2003. This cost ratio decrease reflects the liquidation of older used equipment, which during fiscal 2003 the Company was able to sell at higher prices relative to its book value.

ELECTRO RENT 2003 ANNUAL REPORT

 6

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses decreased $13.1 million, or 26%, to $37.4 million in fiscal 2003 as compared to $50.5 million in fiscal 2002. These expenses as a percentage of total revenues remained unchanged at 34% for each year. The decline in SG&A expenses is the result of reductions in almost all areas of the business, with approximately 52% of the reduction relating to personnel costs, partly offset by certain restructuring costs described below.

During fiscal 2003, we continued our cost reduction activities to better align expense levels with current revenue levels and reduce spending under the current economic conditions. In particular, we closed our Duluth, Georgia, distribution center during the fourth quarter of fiscal 2003, reducing the total number of Company locations to fourteen, and we had 304 employees at the end of fiscal 2003, compared to 425 at the end of the prior year. As a result of these actions, we recorded restructuring charges of approximately $821,000 during the fourth quarter of fiscal 2003. These charges included approximately $570,000 for the lease liability and approximately $31,000 for property and equipment related to our Duluth facility and severance from employee terminations of approximately $220,000. Approximately $113,000 of the employee severance was paid during fiscal 2003 and the remainder will be paid in fiscal 2004. No comparable restructuring charges were recorded during fiscal 2002.

LOSS ON IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS: During fiscal 2003, the Company incurred an expense of $37.1 million as a result of an evaluation done under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. In accordance with SFAS No. 142, we performed impairment testing for goodwill and other intangible assets during the quarter ended May 31, 2003. Recorded goodwill related primarily to the GE Capital Technology Management Services (“TMS”) acquisition in fiscal 1998, and other intangible assets related to the Genstar Rental Electronics, Inc. acquisition in fiscal 1995. Since we operate in a single business segment as a single business unit, the determination of whether an impairment of goodwill existed was based on a comparison of the fair value of the entire Company to the carrying value of our net assets. In estimating the fair value of the entire Company, we reviewed the average and closing stock prices for our Common Stock, as well as other factors. Because the fair value of the entire Company was determined to be less than the carrying value of our net assets, we were required to record an impairment loss on goodwill of $35.7 million. Additionally, because the Genstar trade name and customer contracts were deemed to no longer have value to the Company, we were required to record an impairment loss on intangible assets of $1.4 million. As a result of these impairment losses recorded in the quarter ended May 31, 2003, the balances for goodwill and intangible assets were reduced to zero. There were no charges for impairment of goodwill and other intangible assets in fiscal 2002.

OPERATING PROFIT (LOSS): As a result of the changes in revenues and operating expenses discussed above, the operating loss before interest and insurance settlement income was $28.4 million or 26% of total revenues in fiscal 2003 compared to operating earnings of $15.7 million or 11% of total revenues in fiscal 2002. The operating loss in fiscal 2003 includes the write-off of goodwill and other intangibles of $37.1 million.

INTEREST INCOME, NET: Net interest income decreased from $2.2 million in fiscal 2002 to $2.1 million in fiscal 2003, despite a substantial increase in cash equivalent investments. This was due to lower prevailing rates of interest in money-market instruments.

INCOME FROM INSURANCE SETTLEMENT: On July 22, 2003, the Company received a one-time insurance settlement of $2.0 million related to unrecoverable rental and lease equipment written off in years prior to fiscal 2003. The Company’s claim was settled and the insurance proceeds were recorded as other income in fiscal 2003. There was no comparable income in fiscal 2002.

INCOME TAX (BENEFIT) PROVISION: The Company recorded a tax benefit in fiscal 2003 due to the operating loss discussed above. In addition, at fiscal year-end, the Company re-evaluated its accrued liability relating to state, federal, local and foreign income taxes and reduced income tax expense by approximately $500,000 in the fourth quarter of fiscal 2003. In the prior year, we recorded a $2.0 million reduction in income tax expense related to a similar re-evaluation. As a result, the effective tax benefit rate was 38% in fiscal 2003, as compared to a 27% tax provision rate in fiscal 2002.

Fiscal 2002 Compared with Fiscal 2001

TOTAL REVENUES: Total revenues for fiscal 2002 decreased 30% to $147.9 million from $211.2 million for the prior year. Rental and lease revenues decreased 34% to $115.3 million, primarily as a result of continued weakness in the business. Sales of equipment and other revenues decreased 14% to $32.6 million due to lower demand for T&M and DP equipment.

ELECTRO RENT 2003 ANNUAL REPORT

 7

DEPRECIATION OF RENTAL AND LEASE EQUIPMENT: In spite of progress in reducing our DP equipment pool and related depreciation, depreciation of equipment increased from 42% of rental and lease revenues in fiscal 2001 to 51% of rental and lease revenues in fiscal 2002. This expense ratio increased because the 19% decline in depreciation expense from the prior year period was exceeded by a 34% decline in rental and lease revenues. These changes also reflect the lower rates of equipment utilization and lower rental and lease yields in the current year, as compared to the prior year.

DP equipment utilization continued a four-year decline to its lowest historical level, while T&M equipment utilization continued a decline, which began in the fourth quarter of fiscal 2001 and reached its lowest level since fiscal 1994.

COSTS OF REVENUES OTHER THAN DEPRECIATION: Costs of revenues other than depreciation primarily includes the cost of equipment sales, which increased from 69% of equipment sales in fiscal 2001 to 70% of equipment sales in fiscal 2002. This cost ratio increase reflects the liquidation of used equipment which is cumulatively less depreciated in the current year, compared to the prior year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses totaled $50.5 million for fiscal 2002, or 34% of revenues, as compared to $62.6 million, or 30% of revenues, for fiscal 2001. Although SG&A expenses were reduced by 19%, reflecting a reduction in personnel, the closing of certain locations, resolution of the TMS arbitration, and the termination of goodwill amortization, total revenues declined at a faster rate of 30%.

OPERATING PROFIT: As a result of the changes in revenues, operating costs and expenses discussed above, earnings before interest and taxes were $15.7 million, or 11% of total revenues, in fiscal 2002 compared to $48.8 million, or 23% of total revenues, in fiscal 2001.

INTEREST INCOME, NET: Net interest income increased from $0.7 million in fiscal 2001 to $2.2 million in fiscal 2002. This change is due to the repayment of all bank borrowings during fiscal 2001, and subsequent investment of the Company’s net cash flow in money market instruments.

INCOME TAX PROVISION: At year-end, the Company re-evaluated its accrued liability for income taxes and reduced income tax expense by approximately $2.0 million in the fourth quarter of fiscal 2002. As a result, the effective tax rate was 27% in fiscal 2002, as compared to 38% in fiscal 2001.

Liquidity and Capital Resources

Historically, the Company’s primary capital requirements have been purchases of rental and lease equipment and debt service. However, because of the decline in business over the last four years, the Company has had no bank borrowings since the third quarter of fiscal 2001. The Company purchases equipment throughout each year to replace equipment, that has been sold, and to maintain adequate levels of rental equipment to meet existing and new customer demands. The rental and leasing market for personal computers has declined over the last four years, and the T&M market began declining in the last quarter of fiscal 2001. However, during fiscal 2003, the Company continued to make modest purchases of T&M and DP equipment in order to support some areas of potential growth, and to keep the Company’s equipment pool technologically up-to-date. Cash and cash equivalents are likely to continue to accumulate, unless the Company decides to buy back additional shares of its common stock, pay a dividend, finance another acquisition, or pursue other opportunities. The Company has invested its growing cash balance in U.S. government money market funds and other instruments with maturities of less than 90 days.

During fiscal year 2001, the Company’s Board of Directors authorized management to implement a limited stock repurchase program in the amount of 1,500,000 shares. As of May 31, 2003, the Company had bought back 318,000 common shares for $3.0 million, or $9.37 per share. The only shares repurchased since fiscal 2001 have been in connection with the stock-for-stock exercise of employee options. Shares acquired are restored to the status of authorized but un-issued shares.

Since the Company began accumulating significant cash balances in fiscal 2001, the Company’s Board of Directors has continuously reviewed investment alternatives. The Company is currently conducting a thorough review of its opportunities for growing the business, including what financial resources would be required to accomplish its goals. During fiscal 2004 the Company expects to be in a position to make a judgment as to what best to do with its cash for the benefit of our shareholders.

Electro Rent’s rental and lease equipment portfolio totaled $252.7 million, at acquisition cost, at May 31, 2003, decreasing $70.2 million from last year. During the three years ended May 31, 2003, the Company made payments for equipment purchases totaling

ELECTRO RENT 2003 ANNUAL REPORT

 8

$144.8 million, while recording a net decrease in its equipment portfolio at acquisition cost of $191.8 million resulting from the liquidation of used equipment. The Company has three principal sources of liquidity: cash flows provided by its operating activities, proceeds from the sale of equipment from its portfolio, and external funds that historically have been provided by bank borrowings.

During the years ended May 31, 2003 and 2002 net cash provided by operating activities was $49.1 million and $76.4 million, respectively. The decrease in fiscal 2003 results primarily from the declines in net income and depreciation expense.

During the years ended May 31, 2003 and 2002 net cash used in investing activities was $13.6 million and $23.3 million, respectively. This change is primarily attributable to the significant reduction of payments for the purchase of rental and lease equipment to $26.7 million in fiscal 2003 from $51.1 million in fiscal 2002, partly offset by declines in proceeds from the sale of used equipment to $24.0 million in fiscal 2003 from $27.9 in fiscal 2002 and the purchase of marketable securities of $10.0 million in fiscal 2003.

During fiscal 2003 net cash provided from financing activities was $200,000 compared to $1.4 million in fiscal 2002. This decrease is largely due to lower proceeds from stock issuance on fewer option exercises in the current year. The total result of the cash flows from operating, investing and financing activities in fiscal 2003 was an increase in cash and cash equivalents of $35.8 million.

As the following table illustrates, cash flows from operating activities and proceeds from the sale of equipment have been more than sufficient to fund the Company’s operations during the last three years.

										Three Years Ended
(in thousands)	2001			2002			2003			May 31, 2003
Cash flows from operating activities(1)	$	97,434		$	76,411		$	49,148		$	222,993
Proceeds from sale of equipment		32,745			27,913			24,005			84,663
Total cash flows available for equipment purchases		130,179			104,324			73,153			307,656
Payments for equipment purchases		(66,987	)		(51,159	)		(26,653	)		(144,799	)
Net decrease in bank borrowings		(21,800	)		0			0			(21,800	)
Net decrease in equipment portfolio at acquisition cost		(55,048	)		(66,549	)		(70,186	)		(191,783	)

⁽¹⁾ For the components of cash flows from operating activities, see the Consolidated Statements of Cash Flows.

As indicated by the table, cash flows from operating activities and proceeds from sale of equipment provided 212% of the funds required for equipment purchased during the three-year period ended May 31, 2003. Rental and lease revenues have been significantly supplemented as a source of cash flow by proceeds from the sale of equipment from Electro Rent’s portfolio. Management believes that cash and cash equivalents, cash flows from operating activities, proceeds from the sale of equipment and its borrowing capacity (see Note 4 of Notes to Consolidated Financial Statements) will be sufficient to fund the Company’s operations for at least the next twelve months.

The market for personal computers and test equipment continued to weaken during fiscal 2003, and as a result, the Company’s expenditures for equipment decreased. The Company repaid its bank borrowings in full during the first half of fiscal 2001. Since then, the Company has accumulated cash which has been invested in short-term money market funds. The Company’s cash and cash equivalents are likely to continue to accumulate, unless the Company decides to buy back additional shares, pay a dividend, finance an acquisition, or pursue other opportunities.

The Company has a $10.0 million revolving line of credit with a bank, subject to certain restrictions; to meet equipment acquisition needs as well as working capital and general corporate requirements. The Company had no borrowings outstanding at May 31, 2003.

The Company leases certain facilities under various operating leases. Most of the lease agreements provide the Company with the option of renewing its lease at the end of the initial lease term, at the fair rental value, for periods of up to five years. In most cases, management expects that in the normal course of business facility leases will be renewed or replaced by other leases.

ELECTRO RENT 2003 ANNUAL REPORT

 9

Inflation generally has favorably influenced the Company’s results of operations by enhancing the sale prices of its used equipment. However, lower inflation rates and the continued availability of newer, less expensive equipment with similar or better specifications could result, over a period of several years, in lower relative sale prices for used electronic equipment. If this should occur, the Company’s margins and earnings will be reduced. Prices of new and used electronic test equipment have not consistently followed the overall inflation rate. Prices of new and used personal computers and servers have consistently declined for the past three years. Because management is unable to predict the advances in technology and the rate of inflation for the next several years, it is not possible to estimate the impact of these factors on the Company’s margins and earnings.

Contractual Obligations

The table below presents the amount of payments due under the Company’s contractual obligations. The table reflects expected payments due as of May 31, 2003 and does not reflect changes which could arise after that time.

	Payments due by period
			Less						More
			than 1		1-3		3-5		than 5
Contractual Obligations (in thousands)	Total		year		years		years		years
Facility lease payments, not including property taxes and insurance	$	1,738	$	952	$	786	$	—	$	—
Total	$	1,738	$	952	$	786	$	—	$	—

Qualitative and Quantitative Disclosures About Interest Rates and Currency Rates

The Company is exposed to market risks related to changes in interest rates and foreign currency exchange rates, however, the Company believes those risks to be not material in relation to our operations. We do not have any derivative financial instruments.

As of May 31, 2003 and 2002, our cash and cash equivalents included money market securities. Due to the short-term duration of our investment portfolio, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio, therefore, the Company would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.

The Company is also subject to risks associated with foreign currency rate fluctuations to the extent of financing arrangements for rented and leased equipment denominated in Canadian dollars. The Company has determined that hedging of these assets is not cost effective and instead attempts to minimize its risks due to currency and exchange rate fluctuations through working capital management. The Company does not believe that any foreseeable change in currency rates would materially or adversely affect its financial position or results of operations.

Controls and Procedures

Electro Rent maintains disclosure controls and procedures designed to ensure that information required to be disclosed by Electro Rent in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, Electro Rent carried out an evaluation of the effectiveness of the design and operation of Electro Rent’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation was conducted under the supervision of, and with the participation of, Electro Rent’s management, including Electro Rent’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, Electro Rent’s CEO and CFO concluded that Electro Rent’s disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to Electro Rent (including its consolidated subsidiaries) that is required to be included in its periodic filings with the Securities and Exchange Commission. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.

ELECTRO RENT 2003 ANNUAL REPORT

10

Since the most recent evaluation of Electro Rent’s internal control over financial reporting by Electro Rent’s CEO and CFO, there have been no significant changes in its internal control over financial reporting or in other factors that could materially affect, or is reasonably likely to materially affect, Electro Rent’s internal control over financial reporting. To maintain adequate and efficient controls, over time, Electro Rent’s CEO and CFO periodically review Electro Rent’s internal and disclosure controls with other members of Electro Rent’s management and update controls and systems as needed.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, management reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets including rental and lease equipment and intangibles, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on management’s historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management believes, however, that the estimates, including those for the above-listed items, are reasonable.

Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s financial statements:

ASSET LIVES AND DEPRECIATION METHODS: The Company’s primary business involves the purchase and subsequent rent and lease of long-lived electronic equipment. Management has chosen assets lives that it believes correspond to the economic life of the related asset. Management has chosen depreciation methods that it believes matches the benefit to the Company from the asset with the associated costs. These judgments have been made based on management’s expertise in each equipment type that the Company carries. If the asset life and depreciation method chosen do not reduce the book value of the asset to at least the potential future cash flows from the asset to the Company, the Company would be required to record a loss on revaluation.

IMPAIRMENT OF LONG-LIVED ASSETS: On a regular basis, management reviews the carrying value of its rental and lease equipment and intangible assets to determine if the carrying value of the assets may not be recoverable due to current and forecasted economic conditions. This requires management to make estimates related to future cash flows from the assets and to determine whether any deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, management may be required to record additional impairment charges.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, we performed impairment testing for goodwill and other intangible assets during the quarter ended May 31, 2003. Since we operate in a single business segment as a single business unit, the determination of whether an impairment of goodwill existed was based on a comparison of the fair value of the entire Company to the carrying value of our net assets. In estimating the fair value of the entire Company, we reviewed the average and closing stock prices for our Common Stock, as well as other factors. Because the fair value of the entire Company was determined to be less than the carrying value of our net assets, we were required to record an impairment loss on goodwill of $35.7 million. Additionally, because the Genstar trade name and customer contracts were deemed to no longer have value to the Company, we were required to record an impairment loss on intangible assets of $1.4 million. As a result of these impairment losses recorded in the quarter ended May 31, 2003, the balances for goodwill and intangible assets were reduced to zero.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make rental and lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of customers to make the required payments. If the financial condition of the Company’s customers were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the customers were to improve or if legal remedies to collect past due amounts were more successful than expected, the allowance for doubtful accounts may need to be reduced and income would be increased.

ELECTRO RENT 2003 ANNUAL REPORT

11

CONTINGENCIES AND LITIGATION: The Company is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. 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, the Company may be required to record either more or less litigation expense.

RECENT ACCOUNTING PRONOUNCEMENTS: In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for the fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 as required on June 1, 2002. This standard did not have a significant effect on the Company’s consolidated financial statements.

In June 2002, the FASB issued SFAS 146,“Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 eliminates the definition and requirement for recognition of exit costs in Emerging Issues Task Force Issue No. 94-3 where a liability for an exit is recognized at the date of an entity’s commitment to an exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002. Adoption of SFAS No. 146 did not have a significant effect on the Company’s consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45,“Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107”, and rescission of FIN No. 34,“Disclosure of Indirect Guarantees of Indebtedness of Others.” FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption of such interpretation did not have a material impact on the Company’s results of operations, financial position or cash flows.

In December 2002, the FASB issued SFAS No. 148,“Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for entities that voluntarily change to the fair value method of accounting for stock-based employee compensation, and it also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based employee compensation in both annual and interim reporting. The amendments are effective for fiscal years ending after December 15, 2002. The Company adopted SFAS No. 148 on March 1, 2003.

In April 2003, the FASB issued SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FASB Statement No. 133,“Accounting for Derivative Instruments and Hedging Activities.” The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not believe the adoption of this statement will have a material impact on its financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic companies. The Company does not believe that the adoption of SFAS No. 150 will have a significant impact on its financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

12

Special Note About Forward-Looking Statements

Except for the historical statements and discussions contained in this Annual Report, statements contained in this Annual Report constitute forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward- looking statements reflect the current views of the Company’s management with respect to future events and financial performance; however, you should not put undue reliance on these statements. The Company undertakes no obligation to update or revise any forward-looking statements that are or may be affected by developments, which the Company’s management does not deem material. When used or incorporated by reference in this Annual Report, the words “anticipate,” “believes,” “expects,” “intends,” “future,” and other similar expressions identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, not all of which are disclosed in this Annual Report. The Company believes its management’s assumptions are reasonable; nonetheless, it is likely that at least some of these assumptions will not come true. Accordingly, the Company’s actual results will probably differ from the outcomes contained in any forward-looking statement, and those differences could 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 Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in “Quantitative and Qualitative Disclosure About Interest Rates and Currency Rates,” as well as in the Company’s Annual Report on Form 10-K for the year ended May 31, 2003, including the “Risk Factors” attached as Exhibit 99 to that document, the Company’s Proxy Statement for its 2003 Annual Meeting of Shareholders and the Company’s other filings with the Securities and Exchange Commission. Should one or more of the risks discussed, or any other risks, materialize, or should one or more of the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated, estimated, expected or projected.

ELECTRO RENT 2003 ANNUAL REPORT

14

CONSOLIDATED STATEMENTS OF OPERATIONS

			Year Ended May 31,
(in thousands, except per share information)			2003			2002		2001
REVENUES:
	Rentals and leases		$	80,667		$	115,310	$	173,495
	Sales of equipment and other revenues			28,129			32,554		37,681
		Total revenues		108,796			147,864		211,176
OPERATING EXPENSES:
	Depreciation of rental and lease equipment			44,733			58,639		72,753
	Costs of revenues other than depreciation of rental and lease equipment			17,930			23,039		26,971
	Selling, general and administrative expenses			37,399			50,492		62,625
	Loss on impairment of goodwill			35,703			—		—
	Loss on impairment of intangibles			1,432			—		—
		Total operating expenses		137,197			132,170		162,349
Operating profit (loss)				(28,401	)		15,694		48,827
Interest income, net				2,091			2,232		708
Income from insurance settlement				2,000			—		—
Income (loss) before income taxes				(24,310	)		17,926		49,535
Income tax (benefit) provision				(9,324	)		4,804		18,822
Net income (loss)			$	(14,986	)	$	13,122	$	30,713
Earnings (loss) per share:
	Basic		$	(0.60	)	$	0.53	$	1.26
	Diluted		$	(0.60	)	$	0.53	$	1.24
Shares used in per share calculation:
	Basic			24,810			24,602		24,416
	Diluted			24,810			24,837		24,753

     The accompanying notes are an integral part of these consolidated financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

15

CONSOLIDATED BALANCE SHEETS

			As of May 31,
(in thousands, except share information)			2003		2002
ASSETS
	Cash and cash equivalents		$	151,448	$	115,623
	Marketable securities			10,000		—
	Accounts receivable, net of allowance for doubtful accounts of $1,106 and $2,461			6,874		12,023
	Rental and lease equipment, net of accumulated depreciation of $165,334 and $201,438			87,344		121,426
	Other property, net of accumulated depreciation and amortization of $10,997 and $12,241			16,409		16,912
	Goodwill			—		35,703
	Intangibles, net of amortization of $4,942			—		1,558
	Other			5,025		3,896
			$	277,100	$	307,141
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Accounts payable		$	6,332	$	7,185
	Accrued expenses			13,248		16,706
	Deferred revenue			1,833		2,716
	Deferred income taxes			3,179		15,817
	Total liabilities			24,592		42,424
Commitments and contingencies (Note 9)
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 2003 — 24,821,015; 2002 — 24,774,734			16,023		13,246
Retained earnings				236,485		251,471
		Total shareholders’ equity		252,508		264,717
			$	277,100	$	307,141

     The accompanying notes are an integral part of these consolidated financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

16

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

		Three years ended May 31, 2003
		Common Stock
		Number						Retained
(in thousands)		of Shares			Amount			Earnings
Balance, May 31, 2000			24,635		$	11,139		$	210,526
	Exercise of stock options, net, including related tax effect		186			789			—
	Repurchase of common stock		(318	)		(146	)		(2,835	)
	Net income for the year ended May 31, 2001		—			—			30,713
Balance, May 31, 2001			24,503			11,782			238,404
	Exercise of stock options, net, including related tax effect		276			1,467			—
	Repurchase of common stock		(4	)		(3	)		(55	)
	Net income for the year ended May 31, 2002		—			—			13,122
Balance, May 31, 2002			24,775			13,246			251,471
Exercise of stock options, net, including related tax effect			46			242			—
Tax benefit for stock options exercised (Note 1)			—			2,535			—
Net loss for the year ended May 31, 2003			—			—			(14,986	)
Balance, May 31, 2003			24,821		$	16,023		$	236,485

     The accompanying notes are an integral part of these consolidated financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

17

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Year Ended May 31,
(in thousands)					2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)				$	(14,986	)	$	13,122		$	30,713
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				46,279			60,781			76,856
		Loss on impairment of goodwill				35,703			—			—
		Loss on impairment of intangibles				1,432			—			—
		Provision for losses on accounts receivable				605			2,930			2,479
		Gain on sale of rental and lease equipment				(8,386	)		(8,294	)		(10,226	)
		Deferred income taxes				(12,638	)		(1,126	)		1,529
		Changes in operating assets and liabilities:
			Accounts receivable			4,544			8,856			3,574
			Other assets			(1,129	)		(122	)		402
			Accounts payable			(470	)		448			(2,578	)
			Accrued expenses			(923	)		(2,900	)		(5,315	)
			Deferred revenue			(883	)		2,716			—
				Net cash provided by operating activities		49,148			76,411			97,434
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from sale of rental and lease equipment					24,005			27,913			32,745
	Proceeds from purchase price settlement					—			—			20,800
	Payments for purchase of rental and lease equipment					(26,653	)		(51,159	)		(66,987	)
	Purchases of marketable securities					(10,000	)		—			—
	Payments for purchase of other property					(917	)		(87	)		(469	)
			Net cash used in investing activities			(13,565	)		(23,333	)		(13,911	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Decrease in short-term bank borrowings					—			—			(21,800	)
	Proceeds from issuance of common stock					242			1,467			789
	Payment for repurchase of common stock					—			(58	)		(2,981	)
		Net cash provided by (used in) financing activities				242			1,409			(23,992	)
	Net increase in cash and cash equivalents					35,825			54,487			59,531
	Cash and cash equivalents at beginning of year					115,623			61,136			1,605
	Cash and cash equivalents at end of year				$	151,448		$	115,623		$	61,136

     The accompanying notes are an integral part of these consolidated financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended May 31, 2003, 2002 and 2001
(U.S. dollar amounts in thousands, except per share amounts)

Note 1: Summary Of Significant Accounting Policies

BUSINESS AND ORGANIZATION: Electro Rent Corporation primarily engages in the short-term rental and the lease of state-of-the-art electronic equipment. The Company maintains an equipment portfolio composed primarily of general purpose test and measure- ment instruments (T&M) and personal computers and servers (DP) purchased from leading manufacturers. Another aspect of the Company’s business is the sale of equipment after its utilization for rental or lease. The Company’s wholly owned subsidiaries, Genstar Rental Electronics, Inc., and ER International, Inc., act as the Company’s agents in Canada and Europe, respectively, for all of these business activities.

The Company’s customers are primarily located in the United States and operate in various industry segments including aerospace and defense, telecommunications, consulting and computer technology. During fiscal 2003, 2002 and 2001 no customer accounted for more than 10% of total revenues.

BASIS OF PRESENTATION: The consolidated financial statements include Electro Rent Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. In 2003, the Company reclassified approximately $2.5 million from accrued expenses to common stock in the accompanying consolidated balance sheets for tax benefits received on the exercise of stock options between the fiscal years 1996 to 2003.

USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management 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. Management’s use of estimates also affects the reported amounts of revenues and expenses during the reporting period. On a regular basis, management reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets including rental and lease equipment and intangibles, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on management’s historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management believes, however, that the estimates, including those for the above-listed items, are reasonable.

REVENUE RECOGNITION: Rental and lease revenues are recognized in the month they are due on the accrual basis of accounting. Rentals and leases are billed to customers in advance, and unearned billings are recorded as deferred revenue. Other revenues con- sist of billings to customers for equipment sales, delivery, or repairs, which are recognized in the period in which the respective equipment is shipped and risk of loss is passed to the customer or the services are performed. Interest income on cash equivalents is recognized in the period earned.

RENTAL AND LEASE EQUIPMENT AND OTHER PROPERTY: Assets are generally stated at cost, less accumulated depreciation. Upon retire- ment or disposal of assets, the cost and the related allowance for depreciation are eliminated from the accounts and any gain or loss is recognized. Depreciation of rental and lease equipment and other property is computed using the straight-line and sum-of-the- years’-digits methods over the estimated useful lives of the respective equipment. New rental and lease equipment is depreciated over three to seven years, and used equipment over two to six years, depending on the type of equipment. Normal maintenance and repairs are expensed as incurred. Rental and lease equipment at net book value comprised $75,314 of T&M equipment and $12,030 of DP equipment at May 31, 2003, and $99,208 of T&M equipment and $20,467 of DP equipment at May 31, 2002.

CAPITAL LEASES: The Company has certain customer leases providing bargain purchase options, which are accounted for as sales- type leases. At May 31, 2003 and 2002 investment in sales-type leases of $671 and $1,321 net of deferred interest of $39 and $77, is included in other assets. Interest income is recognized over the life of the lease using the effective interest method.

INCOME TAXES: The Company recognizes 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.

ELECTRO RENT 2003 ANNUAL REPORT

19

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents and accounts receivable approximates fair value due to the short maturity of these instruments. Cash and short-term investments with original maturities of 90 days or less are considered to be cash equivalents.

IMPAIRMENT OF ASSETS: The carrying value of equipment held for rental and lease is assessed quarterly or when factors indicating impairment are present. The Company recognizes impairment losses on equipment held for rental and lease when the expected future undiscounted cash flows are less than the asset’s carrying value, in which case the asset is written down to its estimated fair value.

GOODWILL AND INTANGIBLES: Until May 31, 2001, goodwill was amortized over a period of 40 years and intangibles were amortized on a straight-line basis over their estimated useful lives, to a residual of zero. On June 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets”, which provides that intangible assets with finite useful lives be amortized over that life and that goodwill and intangible assets with indefinite lives not be amortized, but will be tested at least annually for impairment. We conducted impairment reviews of goodwill and other intangible assets in fiscal 2003. As a result of the reviews, we wrote off $35,703 of goodwill and $1,432 of intangible assets in fiscal 2003. (See Note 3.)

CASH AND CASH EQUIVALENTS: All highly liquid investments purchased with an original maturity of three months or less at the date acquired are cash equivalents. These investments, consisting primarily of money market funds, are stated at cost, which approximates market.

MARKETABLE SECURITIES: The Company considers its marketable securities available-for-sale as defined in SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities,” and, accordingly, they are carried at fair value. Realized gains and losses and declines in value considered to be other than temporary are included in income. The cost of securities sold is based on the specific identification method. There were no material realized or unrealized gains or losses, nor any material differences between esti- mated fair values, based on quoted market prices, and the costs of securities in the investment portfolio as of May 31, 2003. The Company’s marketable securities consist of auction rate securities, which carry dividend rates that reset every 49 days but have contractual maturities of greater than one year.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make rental and lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of customers to make the required payments. If the financial condition of the Company’s customers were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the customers were to improve or if legal remedies to collect past due amounts were more successful than expected, the allowance for doubtful accounts may need to be reduced and income would be increased.

CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash equivalents, marketable securities and trade accounts receivable. The Company invests excess cash primarily in money market funds of major financial institutions and auction rate securities of rated or investment grade corporate issuers. Excess cash of $145.6 million was invested in eight large U.S. Government money market funds, $5.0 million was invested in a large municipal money market fund, and $10.0 million was invested in auction rate securities as of May 31, 2003. For trade accounts receivable, the Company sells primarily on 30-day terms, performs credit evaluation procedures on each customer’s individual trans- actions and requires security deposits or personal guarantees from its customers when significant credit risks are identified. Typically, most customers are large, established firms. An allowance for potential credit losses is maintained.

The Company purchases rental and lease equipment from numerous vendors. During fiscal 2003 and 2002, Agilent Technologies, Inc. was the only vendor that accounted for more than 10% of such purchases.

DERIVATIVE FINANCIAL INSTRUMENTS: During 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and for Hedging Activities,” which establishes new standards for reporting derivative and hedging information. The standard as amended in SFAS No. 138 is effective for periods beginning after June 15, 2000 and was adopted by the Company in fiscal 2002. The Company did not have any derivative financial instruments as of May 31, 2003 or 2002. The adoption of this standard did not have a significant impact on the consolidated financial statements.

ELECTRO RENT 2003 ANNUAL REPORT

20

COMPREHENSIVE INCOME: SFAS No. 130, “Reporting Comprehensive Income,“establishes standards to measure all changes in equity that result from transactions and other economic events other than transactions with shareholders. Comprehensive income is the total of net income and all other non-shareholder changes in equity. Other than net income, the Company has no compre- hensive income.

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Basic earnings per share (“EPS”) is computed as net income divided by the weighted average number of shares of common stock outstanding for the reported year, excluding the dilutive effects of stock options and other potentially dilutive securities. Diluted EPS is computed as net income divided by the weighted average number of shares outstanding of common stock and common stock equivalents for the reported year. Common stock equivalents result from the dilutive stock options computed using the treasury stock method.

CASH FLOW: Supplemental disclosures of cash paid during the year for:

	2003		2002		2001
Interest	$	10	$	9	$	271
Income taxes		3,962		4,666		19,095

Supplemental disclosure of non-cash investing and financing activities: The Company acquired equipment of $6,243, $6,626, and $25,623, at May 31, 2003, 2002 and 2001, respectively, which was paid for during the subsequent year. The Company recorded the tax benefit of $2,535 for employee stock options exercised which increased common stock in the fiscal year ended May 31, 2003.

RECENT PRONOUNCEMENTS: In August 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for the fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 as required on June 1, 2002. This standard did not have a significant effect on the Company’s consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities.“SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 eliminates the definition and requirement for recognition of exit costs in Emerging Issues Task Force Issue No. 94-3 where a liability for an exit is recognized at the date of an entity’s commitment to an exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002. Adoption of SFAS No. 146 did not have a significant effect on the Company’s consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45,“Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107”, and rescission of FIN No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others.“FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption of such interpretation did not have a material impact on the Company’s results of operations, financial position or cash flows.

In December 2002, the FASB issued SFAS No. 148,“Accounting for Stock-Based Compensation-Transition and Disclosure-an amend- ment of FASB Statement No. 123” SFAS No. 148 provides alternative methods of transition for entities that voluntarily change to the fair value method of accounting for stock-based employee compensation, and it also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based employee compensation in both annual and interim reporting. The amendments are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure only provisions of SFAS No. 148 on March 1, 2003.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instru- ments embedded in other contracts, and for hedging activities under FASB Statement No. 133,“Accounting for Derivative Instruments and Hedging Activities.” The provisions of SFAS No. 149 are effective for contracts entered into or modified after

ELECTRO RENT 2003 ANNUAL REPORT

21

June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company believes the adoption of such standard will not have a material impact on its financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instru- ments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic companies. The Company does not believe that the adoption of SFAS No. 150 will have a significant impact on its financial statements.

STOCK-BASED COMPENSATION: The Company applies the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” in accounting for employee stock options. Accordingly, compensation expense is recognized only when options are granted with a discounted exercise price. Any such compensation expense is recog nized ratably over the associated service period, which is generally the option vesting term.

The Company’s net earnings and earnings per share would have been reduced to the pro forma amounts shown below if compensa- tion cost had been determined based on the fair value at the grant dates in accordance with SFAS Nos. 123 and 148,“Accounting for Stock-Based Compensation.”

		2003			2002		2001
Net income (loss), as reported		$	(14,986	)	$	13,122	$	30,713
Less: compensation cost determined under the fair value method, net of tax			931			541		930
Pro forma net income (loss)		$	(15,917	)	$	12,581	$	29,783
Basic earnings (loss) per share:
	As reported	$	(.60	)	$	.53	$	1.26
	Pro forma		(.64	)		.51		1.22
Diluted earnings (loss) per share:
	As reported		(.60	)		.53		1.24
	Pro forma		(.64	)		.51		1.21

The fair value of these options was estimated at grant date using a Black-Scholes option pricing model with the following weighted- average assumptions:

	2003			2002			2001
Average risk-free interest rate		3.8	%		4.8	%		6.2	%
Expected dividend yield		0			0			0
Expected volatility		45.5			44.1			44.4
Expected life in years		4.8			4.2			7.2

The weighted average fair value per option granted was $4.93 in 2003, $6.81 in 2002 and $6.62 in 2001.

Note 2: Restructuring Charge

Due to the prolonged downturn in our industry, in May 2003 the Company restructured our business as part of its continuing program to create efficiencies within our operations. The Company recorded restructuring charges of $821 in selling, general and administrative expenses, which included the following:

ELECTRO RENT 2003 ANNUAL REPORT

22

Reducing the Company’s workforce by approximately 27 employees, mainly in the Duluth, Georgia, warehouse and sales office, resulting in a severance charge of approximately $220. Approximately $113 was paid in May 2003, and the remainder will be paid in fiscal 2004.

Consolidating the Company’s facilities through the closing of the Duluth, Georgia, warehouse, from a total of approximately 435,000 square feet into approximately 399,000 square feet. Property and equipment that was disposed of or removed from operations resulted in a charge of $31 and consisted primarily of leasehold improvements, equipment and furniture and fixtures. In addition, we incurred a charge of $570 associated with the lease related to the closed facility, which represents the fair value of the liability determined based on the remaining lease rentals, reduced by estimated sublease rentals. Amounts accrued (net of estimated sublease proceeds) related to the facility closure will be paid over the remaining lease term through May 2005.

									Remaining
									Liability
									Balances
	Total		Cash			Non-Cash			as of
	Charges		Payments			Charges			May 31, 2003
Severance	$	220	$	(113	)		0		$	107
Property and equipment		31		0		$	(31	)		0
Lease commitments		570		0			0			570
	$	821	$	(113	)	$	(31	)	$	677

Note 3: Goodwill and Other Intangible Assets

In July 2001, the FASB issued SFAS No. 141, “Business Combinations.” SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS No. 141 also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those that are required to be included in goodwill. The Company adopted SFAS No. 141 in the first quarter of fiscal 2002. Adoption of SFAS No. 141 did not have a significant impact on the financial statements.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. The Company adopted SFAS No.142 in the first quarter of fiscal 2002. The impact of SFAS No. 142 on the Company’s financial position and results of operations was primarily the elimination of annual goodwill amortization of $1,400.

In accordance with SFAS No. 142, the Company performed impairment testing for goodwill and other intangible assets during the quarter ended May 31, 2003. Recorded goodwill related primarily to the GE Capital Technology Management Services (“TMS”) acqui- sition in fiscal 1998, and other intangible assets related to the Genstar Rental Electronics, Inc. acquisition in fiscal 1995. Since the Company operates in a single business segment as a single business unit, the determination of whether an impairment of goodwill existed was based on a comparison of the fair value of the entire Company to the carrying value of our net assets. In estimating the fair value of the entire Company, the Company’s management reviewed the average and closing stock prices for our Common Stock, as well as other factors. Because the fair value of the entire Company was determined to be less than the carrying value of our net assets, the Company was required to record an impairment loss on goodwill of $35.7 million. Additionally, because the Genstar trade name and customer contracts were deemed to no longer have value to the Company, we were required to record an impair- ment loss on intangible assets of $1.4 million. As a result of these impairment losses recorded in the quarter ended May 31, 2003, the balances for goodwill and intangible assets were reduced to zero. There were no charges for impairment of goodwill and other intangible assets in fiscal 2002.

ELECTRO RENT 2003 ANNUAL REPORT

23

Aggregate amortization expense on intangible assets, prior to their write-off, was approximately $130 for the year ended May 31, 2003. The following sets forth the intangible assets by major class as of May 31, 2002:

	Gross
	Carrying		Accumulated
	Amount		Amortization
Asset class:
Customer contracts and related relationships	$	4,500	$	(3,920	)
Trade name		2,000		(1,012	)
Total intangibles	$	6,500	$	(4,942	)

The following table presents net income on a comparable basis, after adjustment for goodwill amortization for the fiscal years ended May 31:

		2003			2002		2001
Reported net income (loss)		$	(14,986	)	$	13,122	$	30,713
	Add back: goodwill amortization, net of tax effect		0			0		857
Adjusted net income (loss)		$	(14,986	)	$	13,122	$	31,570
Basic earnings (loss) per share
	As reported	$	(0.60	)	$	0.53	$	1.26
	As adjusted	$	(0.60	)	$	0.53	$	1.29
Diluted earnings (loss) per share
	As reported	$	(0.60	)	$	0.53	$	1.24
	As adjusted	$	(0.60	)	$	0.53	$	1.28

Note 4: Borrowings

On November 28, 2002, the Company renewed its 364-day agreement with a bank to provide a revolving line of credit for $10,000, subject to certain restrictions, to meet potential equipment acquisition needs as well as working capital and general corporate requirements. The interest rate on the line of credit is based on the prime rate or LIBOR, and the Company had no borrowings out standing during the fiscal years ended May 31, 2003 and 2002.

Derivative Positions — The Company entered into various interest rate protection agreements, which all expired during fiscal 2001. The Company’s exposure under these agreements was limited to the impact of variable interest rate fluctuations and the periodic settlement of amounts due under these agreements if the other parties failed to perform. There were no derivative financial instru ments outstanding as of May 31, 2003, 2002 or 2001.

Note 5: Income Taxes

The provision (benefit) for income taxes consists of the following for the fiscal years ended May 31:

		2003			2002			2001
Current
	Federal	$	2,912		$	4,939		$	15,131
	State		402			991			2,162
Deferred
	Federal		(11,105	)		(985	)		1,338
	State		(1,533	)		(141	)		191
		$	(9,324	)	$	4,804		$	18,822

ELECTRO RENT 2003 ANNUAL REPORT

24

A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows for the fiscal years ended May 31:

	2003			2002			2001
Statutory federal rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		4.7			5.0			5.0
Change in tax estimates on existing local, state, federal and foreign tax liabilities		2.1			(11.2	)		—
Non-deductible portion of impairment loss		(5.2	)		—			—
Other — net		1.8			(2.0	)		(2.0	)
Effective tax rate		38.4	%		26.8	%		38.0	%

The tax effects of temporary differences that give rise to significant portions of the net deferred tax liabilities at May 31, 2003 and 2002 are as follows:

		2003			2002
Deferred tax assets:
	Goodwill and intangible assets	$	8,306		$	(4,290	)
	Allowance for doubtful accounts		428			984
	Net operating loss carry forwards		386			646
	Deferred compensation and benefits		962			781
	Other		137			68
			10,219			(1,811	)
Deferred tax liabilities:
	Accumulated depreciation and amortization		(13,398	)		(14,006	)
Net deferred tax liabilities		$	(3,179	)	$	(15,817	)

Net operating loss carry forwards for federal income tax reporting purposes approximate $1,134 at May 31, 2003 and are available for use against taxable income through 2006. The utilization of operating loss carry forwards is limited to $356 per year for federal income tax reporting purposes.

Note 6: Computation of Earnings Per Share

Following is a reconciliation of the denominator used in the computation of basic and diluted EPS:

			2003			2002		2001
Denominator:
	Denominator for basic earnings per share-weighted average common shares outstanding			24,810			24,602		24,416
	Effect of dilutive-options			—			235		337
				24,810			24,837		24,753
Net income (loss)			$	(14,986	)	$	13,122	$	30,713
Earnings (loss) per share:
		Basic	$	(.60	)	$	.53	$	1.26
		Diluted	$	(.60	)	$	.53	$	1.24

ELECTRO RENT 2003 ANNUAL REPORT

25

Certain options to purchase the Company’s common stock were not included in the computation of diluted earnings per share because to do so would have been antidilutive. The quantity of such options is 1,131,408, 654,823, and 387,661 at May 31, 2003, 2002, and 2001, respectively.

Note 7: Rentals Under Noncancellable Operating Leases

The Company rents equipment on a short-term basis and leases equipment for periods greater than 12 months. Such leases provide the lessee with the option of renewing the agreement for periods of up to twelve months or purchasing the equipment at fair market value at the end of the initial or renewal term. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make rental and lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of customers to make the required payments. If the financial condition of the Company’s customers were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the customers were to improve or if legal remedies to collect past due amounts were more successful than expected, the allowance for doubtful accounts may need to be reduced and income would be increased. A roll-forward of the allowance is as follows at May 31:

	2003			2002			2001
Beginning of year	$	2,461		$	1,840		$	4,866
Provision for doubtful accounts		605			2,930			2,479
Write-offs		(1,960	)		(2,309	)		(5,505	)
End of year	$	1,106		$	2,461		$	1,840

The Company’s cost of equipment under operating leases at May 31, 2003, with remaining noncancellable lease terms of more than one year, is $21,145 before accumulated depreciation of $9,373, and the net book value is $11,772.

A schedule of minimum future rentals to be received on noncancellable operating leases with remaining lease terms of more than one year as of May 31, 2003 is as follows:

2004	$	9,753
2005		6,700
2006		1,773
	$	18,226

Note 8: Other Property

Other property, at cost, consists of the following at May 31:

	2003			2002
Land	$	6,985		$	6,985
Buildings		13,781			13,682
Furniture and other equipment		6,259			6,992
Leasehold improvements		381			1,494
		27,406			29,153
Less — accumulated depreciation and amortization		(10,997	)		(12,241	)
	$	16,409		$	16,912

ELECTRO RENT 2003 ANNUAL REPORT

26

Note 9: Commitments and Contingencies

The Company leases certain facilities under various operating leases. Most of the lease agreements provide the Company with the option of renewing its lease at the end of the initial lease term, at the fair rental value, for periods of up to five years. In most cases, management expects that in the normal course of business facility leases will be renewed or replaced by other leases.

Minimum payments under these leases, exclusive of property taxes and insurance, are as follows:

2004	$	952
2005		744
2006		42
	$	1,738

Rent expense was $2,643, $2,698, $2,969 in fiscal 2003, 2002, and 2001, respectively.

The Company is subject to legal proceedings and business disputes involving ordinary and routine claims. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. 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, the Company may be required to record either more or less litigation expense. It is management’s opinion that none of the open matters at May 31, 2003 will have a material adverse effect on the Company’s financial condition or operations.

Note 10: Stock Option Plans

The Company has Stock Option Plans (the “Plans”) that authorize the Board of Directors to grant options for 3,667,500 shares of the Company’s common stock, of which 1,142,312 were available for future grants at May 31, 2003. The Plans provide for both incentive stock options, which may be granted only to employees, and non-statutory stock options, which may be granted to directors and consultants who are not employees. Pursuant to the Plans, options have been granted to directors, officers and key employees at prices not less than 100% of the fair market value on the day of grant. Options are exercisable at various dates over a five-year or ten-year period from the date of grant. The Plans provide for a variety of vesting dates with the majority of the options vesting at a rate of one-third per year over a period of three years or one-fourth per year over a period of four years from the date of grant. All outstanding options expire at dates ranging from October 2003 to July 2010. The following table summarizes certain information relative to options for common stock.

		2003					2002					2001
					Weighted					Weighted					Weighted
					Average					Average					Average
		Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Options outstanding, beginning of year			783,269		$	12.15		1,068,794		$	10.35		1,100,847		$	9.19
	Granted		528,704			11.27		7,574			16.44		172,640			11.60
	Exercised		(46,281	)		5.22		(276,361	)		5.31		(192,693	)		4.52
	Forfeited		(98,687	)		14.61		(16,738	)		12.13		(12,000	)		14.97
Options outstanding, end of year			1,167,005		$	11.82		783,269		$	12.15		1,068,794		$	10.35
Options exercisable at end of year			580,055		$	12.34		667,429		$	12.25		799,494		$	9.56

ELECTRO RENT 2003 ANNUAL REPORT

27

The following summarizes information regarding stock options outstanding at May 31, 2003:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
$  4.36 – $11.30		169,804		2.5	$	8.54		156,804	$	8.47
$11.31 – $11.50		505,750		4.1		11.31		0		0
$11.51 – $20.25		491,451		5.0		13.48		423,251		13.78
		1,167,005		4.3	$	11.82		580,055	$	12.34

Note 11: Savings Plan and Employee Stock Ownership Plan

The Company maintains a Savings Plan (401(k)) and a frozen Employee Stock Ownership Plan (ESOP). Employees become eligible to participate in the 401(k) after one year of employment. The Company has the option to match contributions of participants at a rate management determines each year. For participants with three or more years of service, the Company also may elect to make additional discretionary matching contributions in excess of the rate elected for participants with less than three years of service.

The Board of Directors determines the amount to be contributed annually to the 401(k) in cash, provided that such contributions shall not exceed the amount deductible for federal income tax purposes. Cash contributions to the 401(k) of $335, $441, and $670 were made for 2003, 2002, and 2001, respectively.

The ESOP was established in 1975 and was frozen in 1994, at which time all participants became fully vested. Contributions to the ESOP were invested primarily in stock of the Company. The ESOP held 499,096 shares of the Company’s stock at May 31, 2003.

Note 12: Insurance Settlement

On July 22, 2003, the Company received a one-time insurance settlement of $2,000 related to unrecoverable rental and lease equipment written off in years prior to fiscal 2003. The Company’s claim was settled and the insurance proceeds were recorded as other income in fiscal 2003.

Note 13: Segment Reporting

SFAS No. 131,“Disclosure about Segments of an Enterprise and Related Information,” establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Under SFAS No. 131, the Company’s operations are treated as one operating segment because discrete financial information is not available for its product groups and the economic characteristics of the product groups are similar.

Although the Company has no reportable segments, it has two groups of similar products: test and measurement (T&M) and computer-related (DP) equipment. The Company’s equipment pool, based on acquisition cost, comprised $194,433 of T&M equipment and $58,245 of DP equipment at May 31, 2003, and $225,099 of T&M equipment and $97,765 of DP equipment at May 31, 2002.

ELECTRO RENT 2003 ANNUAL REPORT

28

Revenues for these product groups were as follows for the fiscal year ended May 31:

	T&M		DP		Total
2003
Rentals and leases	$	52,990	$	27,677	$	80,667
Sales of equipment and other revenues		22,736		5,393		28,129
	$	75,726	$	33,070	$	108,796
2002
Rentals and leases	$	71,546	$	43,764	$	115,310
Sales of equipment and other revenues		23,954		8,600		32,554
	$	95,500	$	52,364	$	147,864
2001
Rentals and leases	$	87,533	$	85,962	$	173,495
Sales of equipment and other revenues		23,929		13,752		37,681
	$	111,462	$	99,714	$	211,176

No single customer accounted for more than 10% of total revenues during fiscal 2003 and 2002. In addition, total foreign country customers and operations accounted for less than 10% of the Company’s revenues and long-lived assets for the same periods.

Note 14: Quarterly Information (Unaudited)

Quarterly information is as follows:

		Total		Income (Loss)			Net			Earnings (Loss) Per Share
		Revenues		Before Taxes			Income (Loss)			Basic			Diluted
Fiscal Year 2003
	First Quarter	$	31,065	$	4,192		$	2,601		$	0.10		$	0.10
	Second Quarter		28,770		3,112			1,930			0.08			0.08
	Third Quarter		24,642		1,383			857			0.04			0.04
	Fourth Quarter		24,319		(32,997	)		(20,374	)(1)		(0.82	)(1)		(0.82	)(1)
		$	108,796	$	(24,310	)	$	(14,986	)	$	(0.60	)	$	(0.60	)
Fiscal Year 2002
	First Quarter	$	42,956	$	6,441		$	3,994		$	0.16		$	0.16
	Second Quarter		39,081		5,164			3,202			0.13			0.13
	Third Quarter		31,993		2,913			1,807			0.07			0.07
	Fourth Quarter		33,834		3,408			4,119	(2)		0.17	(2)		0.17	(2)
		$	147,864	$	17,926		$	13,122		$	0.53		$	0.53

(1)	Includes pre-tax loss on impairment of goodwill and other intangible assets of $37.1 million and pre-tax income from an insurance settlement of $2.0 million.
(2)	Includes reduction in income tax expense of $2.0 million related to a re-evaluation of the Company’s accrued liability for state, federal, local and foreign income taxes.

ELECTRO RENT 2003 ANNUAL REPORT

29

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of Electro Rent Corporation:

We have audited the accompanying consolidated balance sheets of Electro Rent Corporation (a California Corporation) and subsidiaries (the “Company”) as of May 31, 2003 and 2002 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended May 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated August 6, 2001.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of Electro Rent Corporation and subsidiaries as of May 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in fiscal year ended May 31, 2002, the Company changed its method of accounting for goodwill and other intangibles to conform to Statement of Financial Accounting Standards No. 142, resulting in the discontinuation of amortization of goodwill during the fiscal year ended May 31, 2002.

Los Angeles, California
August 21, 2003

EX-23.(A) 5 v92703exv23wxay.txt EXHIBIT 23(A) EXHIBIT 23(A) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-37692 on Form S-8 and 333-17295 on Forms S-8 and S-3 of Electro Rent Corporation of our report dated August 21, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in accounting principle), appearing in the Annual Report on Form 10-K of Electro Rent Corporation for the year ended May 31, 2003. /s/ Deloitte & Touche LLP Los Angeles, California August 28, 2003 Exhibit 23(A) EX-23.(B) 6 v92703exv23wxby.txt EXHIBIT 23(B) EXHIBIT 23(B) THE FOLLOWING REPORTS ARE COPIES OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORTS AND HAVE NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Electro Rent Corporation: We have audited the accompanying consolidated balance sheets of Electro Rent Corporation (a California corporation) and subsidiaries as of May 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Electro Rent Corporation and its subsidiaries as of May 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Los Angeles, California August 6, 2001 Exhibit 23(B) EX-31.(A) 7 v92703exv31wxay.txt EXHIBIT 31(A) EXHIBIT 31(A) RULE 13A-14(A)/15D-14(A) CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER I, Daniel Greenberg, certify that: 1. I have reviewed this Annual Report on Form 10-K of Electro Rent Corporation; 2. Based on my knowledge, this annual 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)) 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) 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 c) 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 reports, to the registrant's auditors and the audit committee of 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: August 26, 2003 /s/ Daniel Greenberg --------------------------------- Daniel Greenberg Chief Executive Officer Exhibit 31(A) EX-31.(B) 8 v92703exv31wxby.txt EXHIBIT 31(B) EXHIBIT 31(B) RULE 13A-14(A)/15D-14(A) CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER I, Craig R. Jones, certify that: 1. I have reviewed this Annual Report on Form 10-K of Electro Rent Corporation; 2. Based on my knowledge, this annual 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)) 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) 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 c) 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 reports, to the registrant's auditors and the audit committee of 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: August 26, 2003 /s/ Craig R. Jones ----------------------------------- Craig R. Jones Chief Financial Officer Exhibit 31(B) EX-32.(A) 9 v92703exv32wxay.txt EXHIBIT 32(A) EXHIBIT 32(A) SECTION 1350 CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER I, Daniel Greenberg, certify that the periodic report, to which this Statement is attached, 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 the periodic report to which this Statement is attached, fairly present, in all material respects, the financial condition and results of operations of the registrant. IN WITNESS WHEREOF, the undersigned have executed this Statement as of the date first written above. Dated August 26, 2003 /s/ Daniel Greenberg ------------------------------------ Daniel Greenberg Chief Executive Officer Exhibit 32(A) EX-32.(B) 10 v92703exv32wxby.txt EXHIBIT 32(B) EXHIBIT 32(B) SECTION 1350 CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER I, Craig R. Jones, certify that the periodic report, to which this Statement is attached, 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 the periodic report to which this Statement is attached, fairly present, in all material respects, the financial condition and results of operations of the registrant. IN WITNESS WHEREOF, the undersigned have executed this Statement as of the date first written above. Dated August 26, 2003 /s/ Craig R. Jones ----------------------- Craig R. Jones Chief Financial Officer EXHIBIT 32(B) EX-99.(A) 11 v92703exv99wxay.txt EXHIBIT 99(A) EXHIBIT 99(A) RISK FACTORS You should carefully consider the following discussion of various risks and uncertainties, keeping in mind that they are not the only ones that affect us. Additional risks which we do not presently consider material, or of which we are not currently aware, may also have an adverse impact on us. Unless otherwise noted (1) the terms "Electro Rent," "we," "us," and "our," refer to Electro Rent Corporation and its subsidiaries, and (2) the terms "Common Stock" and "shareholder(s)" refer to Electro Rent's common stock and the holders of that stock, respectively. Except for the historical statements and discussions contained in these Risk Factors, statements contained in these Risk Factors constitute forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect the current views of our management with respect to future events and financial performance. All plans, projections, and future estimates are forward-looking statements, which in some, but not all, cases, are identified by words such as "anticipates," "believes," "expects," "intends," "future," and other similar expressions. Please do not put undue reliance on forward looking statements. Forward looking statements are subject to certain risks and uncertainties, not all of which are disclosed in the following Risk Factors. Although we believe our assumptions are reasonable, it is likely that at least some of these assumptions will not come true. Accordingly, our actual results will probably differ from the outcomes contained in any forward-looking statement, and those differences could be material. Factors that could cause or contribute to those differences include the ones discussed below, as well as those discussed elsewhere in our Annual Report on Form 10-K for the fiscal year ended May 31, 2003, our Annual Report to Shareholders (especially in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in "Quantitative and Qualitative Disclosure About Interest Rates and Currency Rates,") and our other filings with the Securities and Exchange Commission. Should one or more of the risks discussed, or any other risks, materialize, or should one or more of our underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, expected or projected. In light of the risks and uncertainties, there can be no assurance that any forward-looking information will in fact prove to be correct. We do not undertake any obligation to update forward-looking statements. COMMON STOCK PRICE FLUCTUATIONS Our Common Stock price has fluctuated significantly and may continue to do so in the future. General Factors. We believe some of the reasons for past fluctuations in the price of our stock have included: - announcements of developments related to our business; - announcements concerning new products or enhancements in the equipment that we rent; - developments in our relationships with our customers; - variations in our revenues, gross margins, earnings or other financial results from investors' expectations; and - fluctuations in results of our operations and general conditions in the economy, our market, and the markets served by our customers. In addition, prices in the stock market have been volatile in recent years. In many cases, the fluctuations have been unrelated to the operating performance of the affected companies. As a result, the price of our Common Stock could fluctuate in the future without regard to our operating performance. Future Sales of Electro Rent Common Stock. Sales of Electro Rent's Common Stock by our officers, directors and employees could adversely and unpredictably affect the price of our shares. Additionally, the price could be affected even by the potential for sales by these persons. In addition to the approximately 24,821,015 shares outstanding as of May 31, 2003, we are authorized to issue up to 1,167,005 shares of Common Stock upon exercise of stock options issued under our Stock Option Plans. We cannot predict the EXHIBIT 99(A) effect that any future sales of our Common Stock, or the potential for those sales, will have on our share price. FLUCTUATIONS IN OPERATING RESULTS Historically, Electro Rent's operating results have fluctuated, and we expect that fluctuations could continue in the future. The fluctuations in our past results have resulted from many factors, some of which are beyond our control. In the future, these or other factors could have a material adverse impact on our operating results and cause our stock price to decrease. Timing of Equipment Purchases, and Sales and Marketing Expenditures. We try to base expenditures for equipment purchases, sales and marketing and other items on our expectations of future customer demand. If our assumptions prove to be wrong, and our revenues fall short of our expectations, we may not be able to adjust our inventory quickly enough to compensate for lower demand. In addition, as demand for a product falls, we may have difficulty in selling any of our excess inventory at a favorable price or at all. Both of these factors can compound the impact of any revenue shortfall and further affect our operating results and the price of our stock. Seasonal and Quarterly Fluctuations. December and January typically reflect lower rental activity. In addition, because February is a short month, revenue billing in that month is reduced. We cannot predict whether these seasonal factors or their effects will change in the future. The seasonal spending patterns of our customers are affected by factors such as: - weather, holiday and vacation considerations; and - budgetary considerations. Additionally, our operating results are subject to quarterly fluctuations resulting from a variety of factors, including remarketing activities, product announcements by manufacturers, economic conditions and variations in the financial mix of new rentals and leases. The financial mix of new rentals and leases is a result of a combination of factors such as: - changes in customer demands and/or requirements; - new product announcements; - price changes; - changes in delivery dates; - changes in maintenance policies and the pricing policies of equipment manufacturers; and - price competition from other rental, leasing and finance companies. Other Factors. Other factors that may affect our operating results include: - competitive forces within our current and anticipated future markets; - changes in interest rates; - our ability to attract customers and meet their expectations; - currency fluctuations and other risks of international operations; - general economic conditions; and - differences in the timing of our spending on acquiring equipment, renting or leasing that equipment and receiving revenues from our customers. All or any of these and similar factors could result in our operating results differing substantially from the expectations of public market analysts and investors, which would likely have a material adverse impact on our stock price. EXHIBIT 99(A) RISKS ASSOCIATED WITH TECHNOLOGY CHANGES If we do not adequately anticipate or respond to changes in technology, it could have a material adverse effect on our operating results and stock price. Technological Advancements. We must anticipate and keep pace with the introduction of new hardware, software and networking technologies and acquire equipment that will be marketable to our current and prospective customers. The equipment we rent can be the subject of rapid technological developments, evolving customer demands and frequent new product announcements and enhancements. If we fail to adequately anticipate or adapt to new technological developments or to recognize changing market conditions, our operating results and stock price could be materially and adversely affected. Expenses Resulting from Technological Advancements. As a result of technology developments, we may have to make substantial and unanticipated expenditures to acquire new equipment or invest in further staff education on operating and servicing the equipment we deliver to our customers. Further, we may not adequately anticipate or respond successfully to technological changes for many reasons, including misjudging the impact of technological changes as well as financial, technological or other constraints. If we do not adequately anticipate or respond to changes in technological advancements or customer preferences, it would likely have a material adverse impact on our operating results and stock price. Introducing New Products and Services. The markets in which we operate are characterized by rapidly changing technology, evolving industry standards and declining prices of certain products. Our operating results will depend to a significant extent on our ability to continue to introduce new services and to control and/or reduce costs on existing services. Whether we succeed in our new offerings depends on several factors such as: - including proper identification of customer needs; - our costs; - timely completion and introduction of products and services as compared to our competitors; - our ability to differentiate our equipment and services from our competitors; and - market acceptance of our business. RISKS ASSOCIATED WITH THE CUSTOMER SOLVENCY If we do not collect on contracts with customers, it could have a material adverse effect on our operating results and stock price. One of the reasons some of our customers find it more attractive to rent or lease electronic equipment than owning that equipment is the need to deploy their capital elsewhere. This can be particularly true in industries with high growth rates such as the telecommunications industries. However, some of our customers have liquidity issues, and ultimately cannot fulfill the terms of their agreements with us. If we are not able to manage credit risk issues, or if a large number of customers should have financial difficulties at the same time, our credit losses would increase above historical levels. If this should occur, our results of operations and stock price may be materially and adversely affected. COMPETITION If we do not effectively compete in our market, our operating results and stock price will be materially and adversely affect. Our industry is characterized by intense competition from several large competitors, some of which have access to greater financial and other resources than we do. Although no single competitor holds a dominant market share, we face intensifying competition from both established entities and new entries in the market. Our primary competitors have been identified by independent industry publications to include: - Technology Rentals & Services, a division of CIT Group; EXHIBIT 99(A) - McGrath Rent Corp.; - Telogy; and - Continental Resources. Some of our competitors may offer similar equipment for lease, rental or sale at lower prices and may offer more extensive servicing options. Some of our competitors are divisions of larger organizations, and, therefore, have access to greater internal financial and other resources than we do. RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS General domestic and international economic conditions could have a material adverse effect on our operating results and stock price. Domestic and/or International Economic Downturns. Historically, our customers have reduced their expenditures for electronic equipment during economic downturns. When the domestic and/or international economy weakens, demand for our services may decline. This could have a material adverse effect on our operating results and stock price. Industry-Specific Slowdowns. A large part of our equipment portfolio is rented or leased to customers in the aerospace, defense, electronics and telecommunications industries. Slowdowns in one or more of these industries could have a material adverse effect on our operating results and stock price. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS If we do not adequately anticipate and respond to the risks inherent in international operations, it could have a material adverse effect on our operating results and stock price. We generate a meaningful portion of our revenues from contracts with Canadian parties. These contracts are generally priced in Canadian dollars. Our consolidated financial statements are prepared in U.S. dollars. Consequently, changes in exchange rates can unpredictably and adversely affect our consolidated operating results, and could result in exchange losses. We do not hedge against the risks associated with fluctuations in exchange rates. Although we may use hedging techniques in the future, we may not be able to eliminate or reduce the effects of currency fluctuations. Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock price. Other Risks Associated with International Operations. Additionally, our financial results may be adversely affected by other international risks, such as: - international political and economic conditions; - changes in government regulation in various countries; - trade barriers; - difficulty in staffing our foreign sales and services centers, and in training and retaining foreign employees; adverse tax consequences; - adverse tax consequences; and - costs associated with expansion into new territories. We expect to continue our international operations and that the revenues we derive from these activities will continue to be a meaningful portion of our total revenues. If we do not anticipate and respond to the risks associated with international operations, it could have a material adverse effect on our operating results and stock price. RISKS ASSOCIATED WITH OUR MANUFACTURERS AND SUPPLIERS If we are not able to obtain equipment at favorable rates, it could have a material adverse effect on our operating results and stock price. EXHIBIT 99(A) About 70% of our equipment portfolio at acquisition cost is composed of general purpose test and measurement instruments purchased from leading manufacturers such as Agilent Technologies and Tektronix. The remainder of our equipment portfolio is comprised of personal computers and workstations which include personal computers from Compaq, Dell, IBM, Apple, and Toshiba and workstations primarily from Sun Microsystems and Hewlett Packard. We depend on these manufacturers and suppliers to contract for our equipment. If, in the future, we are not able in to purchase necessary equipment from one or more of these suppliers on favorable terms, our business and stock price may be materially and adversely affected. Additionally, if this should occur, we can make no assurance that we will be able to secure necessary equipment from an alternative source on acceptable terms. DEPENDENCE ON KEY PERSONNEL If we are unable to recruit and retain qualified personnel, it could have a material adverse effect on our operating results and stock price. Our success depends in large part on the continued services of our executive officers, our senior managers and other key personnel, including, among others, our Chief Executive Officer, Daniel Greenberg, our President, William Weitzman, our Senior Vice President of Sales, Gary Phillips, our Chief Financial Officer, Craig Jones, and our Vice President and Secretary, Steven Markheim. The loss of these people, especially without advance notice, could materially and adversely impact our results of operations. It is also very important that we attract and retain highly skilled personnel to accommodate growth and to replace personnel who leave. Competition for qualified personnel can be intense, especially in technology industries, and there are a limited number of people with the requisite knowledge and experience to market, sell and service our equipment. Under these conditions, we could be unable to recruit, train, and retain employees. If we cannot attract and retain qualified personnel, it could have a material adverse impact on our operating results and stock price. CONTROL BY MANAGEMENT AND OTHERS Senior management has significant influence over Electro Rent's policies and affairs and may be in a position to determine the outcome of corporate actions. Our executive officers and directors collectively own approximately 18% of our Common Stock. Mr. Greenberg, Electro Rent's Chairman and Chief Executive Officer, beneficially owns approximately 17% of Electro Rent's outstanding shares of Common Stock, and other members of his immediate family own approximately an additional 13%. In addition, another shareholder controls 23% of Electro Rent's outstanding shares of Common Stock. Consequently, these shareholders, including Mr. Greenberg, may have significant influence over Electro Rent's policies and affairs and may be in a position to determine the outcome of corporate actions requiring stockholder approval. These may include, for example, the election of directors, the adoption of amendments to our corporate documents and the approval of mergers and sales of our assets. RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS AND NEW BUSINESS VENTURES If we cannot successfully implement any future acquisitions or new business ventures, it could have a material adverse effect on our operating results and stock price. On occasion we evaluate business opportunities that appear to fit within our overall business strategy. We could decide to pursue one or more of these opportunities by acquisition or internal development. Acquisitions and new business ventures involve many risks, including: - the difficulty of integrating acquired operations and personnel with our existing operations; - the difficulty of developing and marketing new products and services; - the diversion of our management's attention as a result of evaluating, negotiating and integrating acquisitions or new business ventures; - our exposure to unforeseen liabilities of acquired companies; and EXHIBIT 99(A) - the loss of key employees of an acquired operation. In addition, an acquisition or new business venture could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including: - charges to our income to reflect the impairment of acquired intangible assets, including goodwill; - interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and - any issuance of securities in connection with an acquisition or new business venture which dilutes or lessens the rights of our current shareholders. We have had only one significant experience in executing and implementing an acquisition, which was our acquisition of General Electric Capital Technology Management Services' test and measurement operations in November 1997. As a result of this 1997 acquisition Electro Rent was a party to an arbitration proceeding in connection with the purchase price that settled in 2001. Although we have implemented new business ventures, those ventures have not always been successful, and we may not succeed in the future. The risks associated with acquisitions and new business ventures could have a material adverse impact on our operating results and stock price. RISKS ASSOCIATED WITH FLUCTUATING INTEREST RATES Interest Rate Fluctuations could have a material adverse effect on our operating results and stock price. Historically, our primary market risk exposure has been risks related to interest rate fluctuations, primarily related to our previous borrowings under our unsecured revolving credit facility. While we have the ability to draw on our revolving credit line, we currently have no borrowings under this credit facility. Instead, our financial results reflect the effect of changes in interest rates on our leasing yields. Our leasing yields generally directly correlate with market interest rates: When interest rates are higher, our leasing terms incorporate a higher financing charge. However, in times of relatively lower interest rates our financing charges also decrease, and some of our customers choose to purchase new equipment, rather than lease equipment at all. Lower leasing yields are reflected in lower rental and lease revenues. ANTI-TAKEOVER PROVISIONS The anti-takeover provisions contained in our Charter Documents could materially and adversely impact the value of our Common Stock. Certain provisions of Electro Rent's Articles of Incorporation, our Bylaws and California law could, together or separately, discourage, delay or prevent a third party from acquiring Electro Rent, even if doing so might benefit our shareholders. This may adversely impact the interests of our shareholders with respect to a potential acquisition and may also affect the price investors would receive for their shares of Common Stock. Some examples of these provisions in our Articles of Incorporation and Bylaws are: - the right of our board of directors to issue preferred stock with rights and privileges which are senior to the Common Stock, without prior stockholder approval; and - certain limitations of the rights of stockholders to call a special meeting of stockholders. EXHIBIT 99(A) GRAPHIC 12 v92703v9270300.gif GRAPHIC begin 644 v92703v9270300.gif M1TE&.#EAS``:`/<```````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___RP`````S``:```(_P#_"1Q(L*#!@P@3*ES(L*'# MAQ`C2IQ(L:+%A\;B7=S(L:-'B?RJY?OHD9<+$MXH"MK0I2(X?`3AK4C1M*M7 MCNYFW)D8K80?.Q2]#4E'4`H`2%_CRGW(:P@3*1.=?&G$B*(=)`2%&:"Q;RY! M=^*8N8[;[Y@@ M*#9`P`#RI`L:7B33?))+J9/">"FF""0B"F(Z'*G:"$IX;XFG@>F(,7($R(2! M(D1R-)$!8,460BTMBO^3%U'9FAL:4BSYPF<8.Y>J0C3;6`M6Q'MJ7)#(EC"/ M"W<".9$(1&;H\`H2&B$$3Q*K#$3$!AIT0,`%4B011AY;/`"'-O#80U`]H#VD M#A680/1(!RO(@4L[;D!3DSL^]'51/S>H\1`^T!B11#DER()0/3SD,M`8CA5$ M32)1%01,#M%D88U"_8PT4#+`A*-)"+K\XX]`/>AAD#9*D(!+1$\(L$$+1FQ1 MAR/!))2-#K'0(Y`.+&#VTA,[A&=1&BN@9%`LX!C$2`)U_.-,!L(@%$L1!&5A M'T&"8`'%%'H*Q`8A5I0RT3XI5#%0)!"4<4T0,01]#_ M42E!X/@FD"L@]%+3+!SH>M$V&1ART#4R'%,0-S'$\`,;+MQ0ST']+(''0/5T ML0U!;/#@##Q,W$,0("U$`0A%9*B`CD#9(*$`'07Y(P07BCSQ+$2A1-&,'+,R MM,X*N]5DQ!P;R3,#%OGF@P.C!3F1Q#^`2+$%30=10X)2`N5RA)3_Q-'$//2, M\=Q`N1S@02L#O;,*)>0T1$X*)/]CS0^/]#!*09G@T(<*OTC$"Q+\X-'F0_TX M\4)A`OF3Z$=M#!$B1?Q@P0)6!@%#P=$#_8(!)PVQ<8.>CY0Q$#DS>(-/&6@1 M%,4%#0ZT1@QLI#&0/JE\8U`X+C0AT"XM#/+/#<00_\1/"CKP\/-*0,A@`S`0 M_5+!+01E\L`<4`L422@488,"*ANU8D&6`M53SD"F.(`&*YNDHM0/.S3DSP^5 M#$1*"\JX#D@A3A0ID#YGU(`,0=*L"L8+0`1!A`L>.%-0,VR`T$D\6]`P[C\T M""N0.W1`$,63%`$3QB);/O0$NP3]((4@D&M_0PDE(C1/(H!X:U`02HBS$2,A MO/-/-7U(@;A`]!#21+-)D$0H!""]A;QB`]?XQSUB\8$W#&0?49`!$G9!$'), MP0`M$\@O0/`$-;S``T'``APN``J"Z*,00]@%%VA@@A$(22".N$`7S$`$%FB` M"%Y9A@W<)Y!P>``)-X,!"O\F0`#*$:0:1-/''0P`@#5T;R"A6,`#PD`0=I@B M%4]LB#A,X($97*`#Z2M(.^8UB!5\CB&U^$`9F)`""GCM'^,X`Q$*((7"S",> MV^@#"0A`@F^<0QS#D(,("-`W+0SH'Z18PC_B<8YG3*((-J"@,V[0AO>\#0T8 MX(`,",$('T`KJ$`&1O""+8R"`W60@0[F(1!+7*`('\!`#;(@BBPJJ)G_Z$4$ M_H#_#WWD8Q_D`$442),2?9!A!N09R#IBX`N!R,$3^$!!W^SQB!L8@0&["48, M5$`:>!P#8^Q002M/@9=_T",*17!![`:R!VE&IC\^$$(3P#"+@?0B#G0`A3+Y M`80!`.&,_TC'&(I@A3SP1R+YT((#7F`#&]P`!")(!#$_,HX)P*$@N8#!EHXQ M!'24XP))^,(+-I"'1'C@%6/```E@8!!H&*(&+F`G*&P@D$TD``8N%<@G"'#5 MEV[D&Z3H24HP084J?$$,@ZC&2^2!"&P4I!<>L$(13O"'?^@##S]`@AF,1X<' M\.`(EB"'#WZP!3!PX0E0X`,.`%"FQA!"JHP192!M[VNC^=+W_HV)"``.S\_ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.(D).1

                                                                EXHIBIT 10(D)(1)

                               AMENDMENT NO. 1 TO
                         EXECUTIVE EMPLOYMENT AGREEMENT

      The Executive Employment Agreement, as amended and restated as of July 15,
1992 (the "AGREEMENT"), by and between Electro Rent Corporation (the "COMPANY")
and Daniel Greenberg (the "EXECUTIVE") is amended and supplemented by the terms
of this Amendment No. 1 (this "AMENDMENT") as set forth below. Capitalized terms
not otherwise defined herein are given the meanings ascribed to such terms in
the Agreement.

1.    SECTION 1.2(C). Section 1.2(c) shall be modified by adding the following
two sentences at the end of Section 1.2(c):

      "In addition, during the continuation of the Executive's
      employment hereunder, the Company shall maintain (by insurance
      policy or, if not available on commercially reasonable terms,
      self insurance with reserves reasonably satisfactory to the
      Executive) medical and dental coverage and all other health
      benefits, including, without limitation, the special executive
      benefit insurance, consistent with the standard of coverage
      available to the Executive as of the date of this Amendment,
      for the Executive and his spouse for as long as they each
      shall live. If the Company does not maintain an insurance
      policy for the Family Medical Benefits, the Company shall
      reimburse the Executive for any tax liabilities the Executive
      incurs that he would not have incurred if the Company
      maintained an insurance policy for the Executive's Family
      Medical Benefits." The benefits described in the previous two
      (2) sentences of this Section 1.2(c) are collectively referred
      to as the "FAMILY MEDICAL BENEFITS."

2.    NEW SECTION 2.4. A new Section 2.4 shall be added to the Agreement as
                  follows:

      "Section 2.4. Regardless of any termination of the employment
      relationship, at its expense, the Company shall continue to
      maintain the Family Medical Benefits."

3.    SECTION 2.2(B). In order to correct a misstatement in the Agreement,
Section 2.2(b) shall be revised to replace the words "during the Employment
Term" on the eighth line of page 6 with the words "with respect to any fiscal
year of the Company in which Executive was employed by the Company."

4.    SECTION 2.3(A). In order to correct a misstatement in the Agreement, the
words "during the Term" on the sixth line of Section 2.3(a) shall be replaced
with the words "with respect to any fiscal year of the Company in which
Executive was employed by the Company."

5.    SECTION 2.3 (B). The words ", including the Family Medical Benefits" will
be added following the words "Termination of Employment" in the third line of
page 8.

6.    GENERAL. Except as explicitly modified in this Amendment, the Agreement
shall continue in full force and effect.


                                Exhibit 10(D)(1)

      IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
on the 12th day of October 2001.

ELECTRO RENT CORPORATION                 EXECUTIVE

By:      /s/ William Weitzman            By:       /s/ Daniel Greenberg
   ---------------------------------        ---------------------------
   William Weitzman                            Daniel Greenberg
   President

By:       /s/ Steven Markheim
   ---------------------------------
   Steven Markheim
   Secretary


                                Exhibit 10(D)(1)

EX-22

Electro Rent Corporation

EX-23.(A)

                                                                   EXHIBIT 23(A)

                         INDEPENDENT AUDITORS' CONSENT

      We consent to the incorporation by reference in Registration Statement
Nos. 33-37692 on Form S-8 and 333-17295 on Forms S-8 and S-3 of Electro Rent
Corporation of our report dated August 21, 2003 (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to a change
in accounting principle), appearing in the Annual Report on Form 10-K of Electro
Rent Corporation for the year ended May 31, 2003.

/s/ Deloitte & Touche LLP
Los Angeles, California
August 28, 2003


                                  Exhibit 23(A)

EX-23.(B)

                                                                   EXHIBIT 23(B)

THE FOLLOWING REPORTS ARE COPIES OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP
REPORTS AND HAVE NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

                         REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of Electro Rent Corporation:

      We have audited the accompanying consolidated balance sheets of Electro
Rent Corporation (a California corporation) and subsidiaries as of May 31, 2001
and 2000, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended May 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electro Rent Corporation and
its subsidiaries as of May 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended May 31, 2001,
in conformity with accounting principles generally accepted in the United
States.


/s/ Arthur Andersen LLP
Los Angeles, California
August 6, 2001


                                 Exhibit 23(B)

EX-31.(A)

                                                                   EXHIBIT 31(A)

                     RULE 13A-14(A)/15D-14(A) CERTIFICATION
                         BY PRINCIPAL EXECUTIVE OFFICER

I, Daniel Greenberg, certify that:

1.    I have reviewed this Annual Report on Form 10-K of Electro Rent
Corporation;


2.    Based on my knowledge, this annual 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)) 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)    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

      c)    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 reports, to the
registrant's auditors and the audit committee of 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: August 26, 2003

                                    /s/ Daniel Greenberg
                                    ---------------------------------
                                    Daniel Greenberg
                                    Chief Executive Officer


                                 Exhibit 31(A)

EX-31.(B)

                                                                   EXHIBIT 31(B)

                     RULE 13A-14(A)/15D-14(A) CERTIFICATION
                         BY PRINCIPAL FINANCIAL OFFICER

I, Craig R. Jones, certify that:


1.    I have reviewed this Annual Report on Form 10-K of Electro Rent
Corporation;


2.    Based on my knowledge, this annual 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)) 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)    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

      c)    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 reports, to the
registrant's auditors and the audit committee of 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: August 26, 2003

                                    /s/ Craig R. Jones
                                    -----------------------------------
                                    Craig R. Jones
                                    Chief Financial Officer


                                  Exhibit 31(B)

EX-32.(A)

                                                                   EXHIBIT 32(A)

                           SECTION 1350 CERTIFICATION
                         BY PRINCIPAL EXECUTIVE OFFICER

      I, Daniel Greenberg, certify that the periodic report, to which this
Statement is attached, 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 the periodic report to which this Statement is attached, fairly present, in
all material respects, the financial condition and results of operations of the
registrant.

      IN WITNESS WHEREOF, the undersigned have executed this Statement as of the
date first written above.

      Dated August 26, 2003

                                    /s/ Daniel Greenberg
                                    ------------------------------------
                                    Daniel Greenberg
                                    Chief Executive Officer


                                  Exhibit 32(A)

EX-32.(B)

                                                                   EXHIBIT 32(B)


                           SECTION 1350 CERTIFICATION
                         BY PRINCIPAL FINANCIAL OFFICER

         I, Craig R. Jones, certify that the periodic report, to which this
Statement is attached, 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 the periodic report to which this Statement is attached, fairly present, in
all material respects, the financial condition and results of operations of the
registrant.

         IN WITNESS WHEREOF, the undersigned have executed this Statement as of
the date first written above.

         Dated August 26, 2003





                                   /s/ Craig R. Jones
                                   -----------------------
                                   Craig R. Jones
                                   Chief Financial Officer




                                  EXHIBIT 32(B)

EX-99.(A)

                                                                   EXHIBIT 99(A)

                                  RISK FACTORS

         You should carefully consider the following discussion of various risks
and uncertainties, keeping in mind that they are not the only ones that affect
us. Additional risks which we do not presently consider material, or of which we
are not currently aware, may also have an adverse impact on us. Unless otherwise
noted (1) the terms "Electro Rent," "we," "us," and "our," refer to Electro Rent
Corporation and its subsidiaries, and (2) the terms "Common Stock" and
"shareholder(s)" refer to Electro Rent's common stock and the holders of that
stock, respectively.

         Except for the historical statements and discussions contained in these
Risk Factors, statements contained in these Risk Factors constitute
forward-looking statements within the meaning of section 21E of the Securities
Exchange Act of 1934. These forward-looking statements reflect the current views
of our management with respect to future events and financial performance. All
plans, projections, and future estimates are forward-looking statements, which
in some, but not all, cases, are identified by words such as "anticipates,"
"believes," "expects," "intends," "future," and other similar expressions.
Please do not put undue reliance on forward looking statements. Forward looking
statements are subject to certain risks and uncertainties, not all of which are
disclosed in the following Risk Factors. Although we believe our assumptions are
reasonable, it is likely that at least some of these assumptions will not come
true. Accordingly, our actual results will probably differ from the outcomes
contained in any forward-looking statement, and those differences could be
material. Factors that could cause or contribute to those differences include
the ones discussed below, as well as those discussed elsewhere in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2003, our Annual Report to
Shareholders (especially in the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in "Quantitative
and Qualitative Disclosure About Interest Rates and Currency Rates,") and our
other filings with the Securities and Exchange Commission. Should one or more of
the risks discussed, or any other risks, materialize, or should one or more of
our underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, expected or projected. In light of
the risks and uncertainties, there can be no assurance that any forward-looking
information will in fact prove to be correct. We do not undertake any obligation
to update forward-looking statements.

COMMON STOCK PRICE FLUCTUATIONS

         Our Common Stock price has fluctuated significantly and may continue to
do so in the future.

         General Factors. We believe some of the reasons for past fluctuations
in the price of our stock have included:

      -     announcements of developments related to our business;

      -     announcements concerning new products or enhancements in the
            equipment that we rent;

      -     developments in our relationships with our customers;

      -     variations in our revenues, gross margins, earnings or other
            financial results from investors' expectations; and

      -     fluctuations in results of our operations and general conditions in
            the economy, our market, and the markets served by our customers.

         In addition, prices in the stock market have been volatile in recent
years. In many cases, the fluctuations have been unrelated to the operating
performance of the affected companies. As a result, the price of our Common
Stock could fluctuate in the future without regard to our operating performance.

         Future Sales of Electro Rent Common Stock. Sales of Electro Rent's
Common Stock by our officers, directors and employees could adversely and
unpredictably affect the price of our shares. Additionally, the price could be
affected even by the potential for sales by these persons. In addition to the
approximately 24,821,015 shares outstanding as of May 31, 2003, we are
authorized to issue up to 1,167,005 shares of Common Stock upon exercise of
stock options issued under our Stock Option Plans. We cannot predict the




                                  EXHIBIT 99(A)

effect that any future sales of our Common Stock, or the potential for those
sales, will have on our share price.

FLUCTUATIONS IN OPERATING RESULTS

         Historically, Electro Rent's operating results have fluctuated, and we
expect that fluctuations could continue in the future. The fluctuations in our
past results have resulted from many factors, some of which are beyond our
control. In the future, these or other factors could have a material adverse
impact on our operating results and cause our stock price to decrease.

         Timing of Equipment Purchases, and Sales and Marketing Expenditures. We
try to base expenditures for equipment purchases, sales and marketing and other
items on our expectations of future customer demand. If our assumptions prove to
be wrong, and our revenues fall short of our expectations, we may not be able to
adjust our inventory quickly enough to compensate for lower demand. In addition,
as demand for a product falls, we may have difficulty in selling any of our
excess inventory at a favorable price or at all. Both of these factors can
compound the impact of any revenue shortfall and further affect our operating
results and the price of our stock.

         Seasonal and Quarterly Fluctuations. December and January typically
reflect lower rental activity. In addition, because February is a short month,
revenue billing in that month is reduced. We cannot predict whether these
seasonal factors or their effects will change in the future. The seasonal
spending patterns of our customers are affected by factors such as:

         -        weather, holiday and vacation considerations; and

         -        budgetary considerations.

         Additionally, our operating results are subject to quarterly
fluctuations resulting from a variety of factors, including remarketing
activities, product announcements by manufacturers, economic conditions and
variations in the financial mix of new rentals and leases. The financial mix of
new rentals and leases is a result of a combination of factors such as:

         -        changes in customer demands and/or requirements;

         -        new product announcements;

         -        price changes;

         -        changes in delivery dates;

         -        changes in maintenance policies and the pricing policies of
                  equipment manufacturers; and

         -        price competition from other rental, leasing and finance
                  companies.

         Other Factors. Other factors that may affect our operating results
include:

         -        competitive forces within our current and anticipated future
                  markets;

         -        changes in interest rates;

         -        our ability to attract customers and meet their expectations;

         -        currency fluctuations and other risks of international
                  operations;

         -        general economic conditions; and

         -        differences in the timing of our spending on acquiring
                  equipment, renting or leasing that equipment and receiving
                  revenues from our customers.

         All or any of these and similar factors could result in our operating
results differing substantially from the expectations of public market analysts
and investors, which would likely have a material adverse impact on our stock
price.




                                  EXHIBIT 99(A)

RISKS ASSOCIATED WITH TECHNOLOGY CHANGES

         If we do not adequately anticipate or respond to changes in technology,
it could have a material adverse effect on our operating results and stock
price.

         Technological Advancements. We must anticipate and keep pace with the
introduction of new hardware, software and networking technologies and acquire
equipment that will be marketable to our current and prospective customers. The
equipment we rent can be the subject of rapid technological developments,
evolving customer demands and frequent new product announcements and
enhancements. If we fail to adequately anticipate or adapt to new technological
developments or to recognize changing market conditions, our operating results
and stock price could be materially and adversely affected.

         Expenses Resulting from Technological Advancements. As a result of
technology developments, we may have to make substantial and unanticipated
expenditures to acquire new equipment or invest in further staff education on
operating and servicing the equipment we deliver to our customers. Further, we
may not adequately anticipate or respond successfully to technological changes
for many reasons, including misjudging the impact of technological changes as
well as financial, technological or other constraints. If we do not adequately
anticipate or respond to changes in technological advancements or customer
preferences, it would likely have a material adverse impact on our operating
results and stock price.

         Introducing New Products and Services. The markets in which we operate
are characterized by rapidly changing technology, evolving industry standards
and declining prices of certain products. Our operating results will depend to a
significant extent on our ability to continue to introduce new services and to
control and/or reduce costs on existing services. Whether we succeed in our new
offerings depends on several factors such as:

         -        including proper identification of customer needs;

         -        our costs;

         -        timely completion and introduction of products and services as
                  compared to our competitors;

         -        our ability to differentiate our equipment and services from
                  our competitors; and

         -        market acceptance of our business.

RISKS ASSOCIATED WITH THE CUSTOMER SOLVENCY

         If we do not collect on contracts with customers, it could have a
material adverse effect on our operating results and stock price.

         One of the reasons some of our customers find it more attractive to
rent or lease electronic equipment than owning that equipment is the need to
deploy their capital elsewhere. This can be particularly true in industries with
high growth rates such as the telecommunications industries. However, some of
our customers have liquidity issues, and ultimately cannot fulfill the terms of
their agreements with us. If we are not able to manage credit risk issues, or if
a large number of customers should have financial difficulties at the same time,
our credit losses would increase above historical levels. If this should occur,
our results of operations and stock price may be materially and adversely
affected.

COMPETITION

         If we do not effectively compete in our market, our operating results
and stock price will be materially and adversely affect.

         Our industry is characterized by intense competition from several large
competitors, some of which have access to greater financial and other resources
than we do. Although no single competitor holds a dominant market share, we face
intensifying competition from both established entities and new entries in the
market. Our primary competitors have been identified by independent industry
publications to include:

         -        Technology Rentals & Services, a division of CIT Group;



                                  EXHIBIT 99(A)

         -        McGrath Rent Corp.;

         -        Telogy; and

         -        Continental Resources.

         Some of our competitors may offer similar equipment for lease, rental
or sale at lower prices and may offer more extensive servicing options. Some of
our competitors are divisions of larger organizations, and, therefore, have
access to greater internal financial and other resources than we do.

RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS

         General domestic and international economic conditions could have a
material adverse effect on our operating results and stock price.

         Domestic and/or International Economic Downturns. Historically, our
customers have reduced their expenditures for electronic equipment during
economic downturns. When the domestic and/or international economy weakens,
demand for our services may decline. This could have a material adverse effect
on our operating results and stock price.

         Industry-Specific Slowdowns. A large part of our equipment portfolio is
rented or leased to customers in the aerospace, defense, electronics and
telecommunications industries. Slowdowns in one or more of these industries
could have a material adverse effect on our operating results and stock price.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

         If we do not adequately anticipate and respond to the risks inherent in
international operations, it could have a material adverse effect on our
operating results and stock price.

         We generate a meaningful portion of our revenues from contracts with
Canadian parties. These contracts are generally priced in Canadian dollars. Our
consolidated financial statements are prepared in U.S. dollars. Consequently,
changes in exchange rates can unpredictably and adversely affect our
consolidated operating results, and could result in exchange losses. We do not
hedge against the risks associated with fluctuations in exchange rates. Although
we may use hedging techniques in the future, we may not be able to eliminate or
reduce the effects of currency fluctuations. Thus, exchange rate fluctuations
could have a material adverse impact on our operating results and stock price.

         Other Risks Associated with International Operations. Additionally, our
financial results may be adversely affected by other international risks, such
as:

         -        international political and economic conditions;

         -        changes in government regulation in various countries;

         -        trade barriers;

         -        difficulty in staffing our foreign sales and services centers,
                  and in training and retaining foreign employees; adverse tax
                  consequences;

         -        adverse tax consequences; and

         -        costs associated with expansion into new territories.

         We expect to continue our international operations and that the
revenues we derive from these activities will continue to be a meaningful
portion of our total revenues. If we do not anticipate and respond to the risks
associated with international operations, it could have a material adverse
effect on our operating results and stock price.

RISKS ASSOCIATED WITH OUR MANUFACTURERS AND SUPPLIERS

         If we are not able to obtain equipment at favorable rates, it could
have a material adverse effect on our operating results and stock price.



                                  EXHIBIT 99(A)

         About 70% of our equipment portfolio at acquisition cost is composed of
general purpose test and measurement instruments purchased from leading
manufacturers such as Agilent Technologies and Tektronix. The remainder of our
equipment portfolio is comprised of personal computers and workstations which
include personal computers from Compaq, Dell, IBM, Apple, and Toshiba and
workstations primarily from Sun Microsystems and Hewlett Packard. We depend on
these manufacturers and suppliers to contract for our equipment. If, in the
future, we are not able in to purchase necessary equipment from one or more of
these suppliers on favorable terms, our business and stock price may be
materially and adversely affected. Additionally, if this should occur, we can
make no assurance that we will be able to secure necessary equipment from an
alternative source on acceptable terms.

DEPENDENCE ON KEY PERSONNEL

         If we are unable to recruit and retain qualified personnel, it could
have a material adverse effect on our operating results and stock price.

         Our success depends in large part on the continued services of our
executive officers, our senior managers and other key personnel, including,
among others, our Chief Executive Officer, Daniel Greenberg, our President,
William Weitzman, our Senior Vice President of Sales, Gary Phillips, our Chief
Financial Officer, Craig Jones, and our Vice President and Secretary, Steven
Markheim. The loss of these people, especially without advance notice, could
materially and adversely impact our results of operations. It is also very
important that we attract and retain highly skilled personnel to accommodate
growth and to replace personnel who leave. Competition for qualified personnel
can be intense, especially in technology industries, and there are a limited
number of people with the requisite knowledge and experience to market, sell and
service our equipment. Under these conditions, we could be unable to recruit,
train, and retain employees. If we cannot attract and retain qualified
personnel, it could have a material adverse impact on our operating results and
stock price.

CONTROL BY MANAGEMENT AND OTHERS

         Senior management has significant influence over Electro Rent's
policies and affairs and may be in a position to determine the outcome of
corporate actions.

         Our executive officers and directors collectively own approximately 18%
of our Common Stock. Mr. Greenberg, Electro Rent's Chairman and Chief Executive
Officer, beneficially owns approximately 17% of Electro Rent's outstanding
shares of Common Stock, and other members of his immediate family own
approximately an additional 13%. In addition, another shareholder controls 23%
of Electro Rent's outstanding shares of Common Stock. Consequently, these
shareholders, including Mr. Greenberg, may have significant influence over
Electro Rent's policies and affairs and may be in a position to determine the
outcome of corporate actions requiring stockholder approval. These may include,
for example, the election of directors, the adoption of amendments to our
corporate documents and the approval of mergers and sales of our assets.

RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS AND NEW BUSINESS VENTURES

         If we cannot successfully implement any future acquisitions or new
business ventures, it could have a material adverse effect on our operating
results and stock price.

         On occasion we evaluate business opportunities that appear to fit
within our overall business strategy. We could decide to pursue one or more of
these opportunities by acquisition or internal development. Acquisitions and new
business ventures involve many risks, including:

         -        the difficulty of integrating acquired operations and
                  personnel with our existing operations;

         -        the difficulty of developing and marketing new products and
                  services;

         -        the diversion of our management's attention as a result of
                  evaluating, negotiating and integrating acquisitions or new
                  business ventures;

         -        our exposure to unforeseen liabilities of acquired companies;
                  and



                                  EXHIBIT 99(A)

         -        the loss of key employees of an acquired operation.

         In addition, an acquisition or new business venture could adversely
impact cash flows and/or operating results, and dilute shareholder interests,
for many reasons, including:

         -        charges to our income to reflect the impairment of acquired
                  intangible assets, including goodwill;

         -        interest costs and debt service requirements for any debt
                  incurred in connection with an acquisition or new business
                  venture; and

         -        any issuance of securities in connection with an acquisition
                  or new business venture which dilutes or lessens the rights of
                  our current shareholders.

         We have had only one significant experience in executing and
implementing an acquisition, which was our acquisition of General Electric
Capital Technology Management Services' test and measurement operations in
November 1997. As a result of this 1997 acquisition Electro Rent was a party to
an arbitration proceeding in connection with the purchase price that settled in
2001. Although we have implemented new business ventures, those ventures have
not always been successful, and we may not succeed in the future. The risks
associated with acquisitions and new business ventures could have a material
adverse impact on our operating results and stock price.

RISKS ASSOCIATED WITH FLUCTUATING INTEREST RATES

Interest Rate Fluctuations could have a material adverse effect on our operating
results and stock price.

         Historically, our primary market risk exposure has been risks related
to interest rate fluctuations, primarily related to our previous borrowings
under our unsecured revolving credit facility. While we have the ability to draw
on our revolving credit line, we currently have no borrowings under this credit
facility. Instead, our financial results reflect the effect of changes in
interest rates on our leasing yields. Our leasing yields generally directly
correlate with market interest rates: When interest rates are higher, our
leasing terms incorporate a higher financing charge. However, in times of
relatively lower interest rates our financing charges also decrease, and some of
our customers choose to purchase new equipment, rather than lease equipment at
all. Lower leasing yields are reflected in lower rental and lease revenues.

ANTI-TAKEOVER PROVISIONS

         The anti-takeover provisions contained in our Charter Documents could
materially and adversely impact the value of our Common Stock.

         Certain provisions of Electro Rent's Articles of Incorporation, our
Bylaws and California law could, together or separately, discourage, delay or
prevent a third party from acquiring Electro Rent, even if doing so might
benefit our shareholders. This may adversely impact the interests of our
shareholders with respect to a potential acquisition and may also affect the
price investors would receive for their shares of Common Stock. Some examples of
these provisions in our Articles of Incorporation and Bylaws are:

         -        the right of our board of directors to issue preferred stock
                  with rights and privileges which are senior to the Common
                  Stock, without prior stockholder approval; and

         -        certain limitations of the rights of stockholders to call a
                  special meeting of stockholders.





                                  EXHIBIT 99(A)