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