##### 



Financial Highlights
 
02

(in thousands, except per share information)

|                                             |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |      |        | 
|-------------------------------------------- | ------- | ------- | ------- | ------- | ------ | ---- | ------- | ---- | ------ | ---- | ------- | ---- | ------ | - | ------- | ---- | ------ | - | ------- | ---- | ------ | 
|                                             |         |         |         | May 31,
|                                             |         |         |         |        
|                                             |         |         |         | 2002    |        | 2001 |         | 2000 |        | 1999 |         | 1998
|                                             |         |         |         |         |        |      |         |      |        |      |         |     
|Revenues                                     |         | $       | 147,864 |         |        | $    | 211,176 |      |        | $    | 241,793 |      |        | $ | 269,739 |      |        | $ | 255,505 |     
|Costs of revenues and depreciation           |         |         | 81,678  |         |        |      | 99,724  |      |        |      | 131,125 |      |        |   | 139,338 |      |        |   | 122,080 |     
|Selling, administrative and
general expenses |         |         | 50,492  |         |        |      | 62,625  |      |        |      | 65,104  |      |        |   | 77,612  |      |        |   | 69,099  |     
|Interest (income) expense, net               |         |         | (2,232  | )       |        |      | (708    | )    |        |      | 5,465   |      |        |   | 11,999  |      |        |   | 9,506   |     
|                                             |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |     
|Income before income taxes                   |         |         | 17,926  |         |        |      | 49,535  |      |        |      | 40,099  |      |        |   | 40,790  |      |        |   | 54,820  |     
|Income taxes                                 |         |         | 4,804   |         |        |      | 18,822  |      |        |      | 15,237  |      |        |   | 16,725  |      |        |   | 22,476  |     
|                                             |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |     
|Net income                                   |         | $       | 13,122  |         |        | $    | 30,713  |      |        | $    | 24,862  |      |        | $ | 24,065  |      |        | $ | 32,344  |     
|                                             |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |     
|Earnings per share:                          |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |     
|                                             | Basic   |         | $       | 0.53    |        |      | $       | 1.26 |        |      | $       | 1.01 |        |   | $       | 0.98 |        |   | $       | 1.33 |       
|                                             | Diluted |         | $       | 0.53    |        |      | $       | 1.24 |        |      | $       | 1.00 |        |   | $       | 0.96 |        |   | $       | 1.29 |       
|Shares used in per share calculation:        |         |         |         |         |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |     
|                                             |         | Basic   |         |         | 24,602 |      |         |      | 24,416 |      |         |      | 24,571 |   |         |      | 24,443 |   |         |      | 24,305 | 
|                                             |         | Diluted |         |         | 24,837 |      |         |      | 24,753 |      |         |      | 24,972 |   |         |      | 25,004 |   |         |      | 25,141 | 
|Total assets                                 |         | $       | 305,390 |         |        | $    | 312,468 |      |        | $    | 306,435 |      |        | $ | 368,708 |      |        | $ | 457,896 |     
|Bank borrowings                              |         | $       |        |         |        | $    |        |      |        | $    | 21,800  |      |        | $ | 107,500 |      |        | $ | 226,900 |     
|Shareholders equity                         |         | $       | 264,717 |         |        | $    | 250,186 |      |        | $    | 221,665 |      |        | $ | 196,174 |      |        | $ | 172,009 |     
|Shareholders equity per
common share        |         | $       | 10.68   |         |        | $    | 10.21   |      |        | $    | 9.00    |      |        | $ | 8.01    |      |        | $ | 7.04    |     





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Electro Rent 2002 Annual Report

Managements Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion of the Companys financial condition and results of
operations should be read in conjunction with the fiscal 2002 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 equipment and data
products (personal computers and workstations). In fiscal 2002, 62.6% of
rental and lease revenues were derived from test and measurement equipment.
This percentage has been increasing over the last four years as a result of a
steady erosion of data products revenues related to the weak economy and
declines in product purchase prices and rental and lease rates. Short-term
rental revenues comprised 73.2% of fiscal 2002 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 pricing and 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.

Critical Accounting Policies and Estimates

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.
On a regular basis, management reviews these estimates including those related
to asset lives and depreciation methods, impairment of long-lived assets
including 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 rental and leasing of long-lived electronic
equipment. Management has chosen asset 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. The
Company records an impairment when the future undiscounted cash flows are
below net book value.

Impairment of long-lived assets: On a regular basis, management reviews the
carrying value of its rental and leasing 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 undiscounted 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.

Allowance for doubtful accounts: The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of customers to
make rental and leasing 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.

5



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Electro Rent 2002 Annual Report

Contingencies and litigation: 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.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations. SFAS 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. SFAS 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 141 in the first quarter of fiscal year 2002. Adoption of
SFAS 141 did not have a significant impact on our financial statements.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible Assets. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization and the
testing for impairment of goodwill at least annually. The Company adopted SFAS 142
in the first quarter of fiscal year 2002. The impact of SFAS 142 on the
Companys financial position and results of operations was primarily the
elimination of annual goodwill amortization of $1.4 million.

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 will adopt SFAS No. 144 as
required on June 1, 2002. This standard will not have a significant effect on
the Companys consolidated financial statements upon adoption.

Fiscal 2002 Compared with Fiscal 2001

Total revenues for fiscal 2002 decreased 30% to $147.9 million from $211.2
million for the prior year. Rental and leasing 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 test and measurement (T&M) and data products (DP) equipment.
The T&M and DP businesses were negatively impacted by the weak economy in
fiscal 2002. Additionally, rental and lease revenues declined significantly as
a result of lower demand in the telecommunications sector for T&M equipment
and in the consulting services sector for DP 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 remained near 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. As discussed
above, the weak economy and certain distressed market sectors reduced demand
for rental and lease equipment, which in turn decreased overall equipment
utilization. DP equipment utilization actually increased slightly to 60% at
the end of fiscal 2002 from 58% at the end of fiscal 2001, while T&M equipment
utilization declined to 52% from 59% for the respective dates.

6



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Electro Rent 2002 Annual Report

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 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 GE
Capital Technology Management Services (TMS) arbitration, and the termination
of goodwill amortization, total revenues declined at a faster rate of 30%.

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.

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.

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 $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.

Fiscal 2001 Compared with Fiscal 2000

Total revenues for the year ended May 31, 2001 decreased 13% to $211.2 million
from $241.8 million, primarily as a result of continuing attrition of the GE
Capital Technology Management Services (TMS) business acquired by the Company
in November 1997 and a generally weak personal computer market during the last
12 months, partially offset by increased rentals of test and measurement
equipment in the Companys telecommunications product line. Rental and lease
revenues decreased 13% to $173.5 million in fiscal 2001, largely for the
reasons noted above, and sales of equipment and other revenues decreased 12%
to $37.7 million in fiscal 2001.

Depreciation of equipment decreased from 48% of rental and lease revenues in
fiscal 2000 to 42% of rental and lease revenues in fiscal 2001. This decrease
is primarily due to the fact that a large portion of computers acquired from
TMS in fiscal 1998 became fully depreciated in the last half of fiscal 2000.
This decrease also reflects the shift in the Companys equipment portfolio
from personal computers, having relatively shorter useful lives, to test and
measurement equipment, having relatively longer useful lives.

Costs of revenues other than depreciation primarily includes the cost of
equipment sales, which decreased from 82% of equipment sales in fiscal 2000 to
69% of equipment sales in fiscal 2001. This cost ratio decrease primarily
results from the sale of equipment that is generally more depreciated than in
the prior fiscal year and several non-recurring customer settlements.

Selling, general and administrative expenses totaled $62.6 million in fiscal
2001, or 30% of revenues, as compared to $65.1 million, or 27% of revenues, in
fiscal 2000. This expense ratio increase reflects the 13% decline in
total revenues, partially offset by a 4% decline in SG&A primarily resulting from a
reduction in personnel and the closing of certain facilities.

As a result of the changes in revenues, operating costs and expenses discussed
above, earnings before interest and taxes were $48.8 million, or 23% of total
revenues in fiscal 2001, compared to $45.6 million, or 19% of total revenues
in fiscal 2000.

Net interest income and expense changed from expense of $5.5 million in fiscal
2000 to income of $0.7 million in fiscal 2001. This change results from the
Companys repayment of all of its bank borrowings during the second quarter of
fiscal 2001, and the Companys subsequent investment of its cash in money
market instruments.

7



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Electro Rent 2002 Annual Report

Liquidity and Capital Resources

Electro Rents rental and lease equipment portfolio totaled $320.7 million, at
acquisition cost, at May 31, 2002, decreasing $68.7 million from last year.
During the three years ended May 31, 2002, the Company made payments for
equipment purchases totaling $198 million, while recording a net decrease in
its equipment portfolio at acquisition cost of $148 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, 2002 and 2001 net cash provided by operating
activities was $74.7 million and $97.4 million, respectively. The decrease in
fiscal 2002 results primarily from the decline in net income.

During the years ended May 31, 2002 and 2001 net cash used in investing
activities was $21.6 million and $13.9 million, respectively. This change is
primarily attributable to reduced purchases of rental and lease equipment, net
of decreased proceeds from the sale of used equipment. Also contributing to
this change is the receipt in the prior year of a $20.8 million purchase price
reduction related to the GE TMS acquisition in fiscal 1998.

During fiscal 2002 net cash provided from financing activities was $1.4
million, compared to $24.0 million net cash used in financing activities in
fiscal 2001. This change is largely the result of the repayments of all bank
borrowings in the prior fiscal year. The total result of the cash flows from
operating, investing and financing activities in fiscal 2002 was an increase
in cash and cash equivalents of $54.5 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.

(in thousands)

|                                                        |  |      |         |      |  |      |         |              |  |   |         |   |  |                   |          |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ------------ |  | - | ------- | - |  | ----------------- | -------- | -
|                                                        |  |      |         |      |  |      |         |              |  |   |         |   |  | Three Years Ended
|                                                        |  | 2000 |         | 2001 |  | 2002 |         | May 31, 2002
|                                                        |  |      |         |      |  |      |         |             
|Cash flows from operating activities(1)                 |  | $    | 127,771 |      |  | $    | 97,434  |              |  | $ | 74,660  |   |  | $                 | 299,865  |  
|Proceeds from sale of equipment                         |  |      | 37,016  |      |  |      | 32,745  |              |  |   | 27,913  |   |  |                   | 97,674   |  
|Total cash flows available for equipment purchases      |  |      | 164,787 |      |  |      | 130,179 |              |  |   | 102,573 |   |  |                   | 397,539  |  
|Payments for equipment purchases                        |  |      | (81,802 | )    |  |      | (66,987 | )            |  |   | (49,408 | ) |  |                   | (198,197 | )
|Net decrease in bank borrowings                         |  |      | (85,700 | )    |  |      | (21,800 | )            |  |   | 0       |   |  |                   | (107,500 | )
|Net decrease in equipment portfolio at acquisition cost |  |      | (23,958 | )    |  |      | (55,048 | )            |  |   | (68,675 | ) |  |                   | (147,681 | )



---

|(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 201% of the funds required for equipment
purchased during the three-year period ended May 31, 2002. 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 3 of
Notes to Consolidated Financial Statements) will be sufficient to fund the
Companys operations.

The market for personal computers and test equipment continued to weaken
during fiscal 2002, 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 invested its growing cash
balance in short-term money market funds. The Companys cash and cash
equivalents are likely to continue to grow, unless the Company decides to buy
back additional shares, 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, 2002. The Company has cash commitments under
various facility operating leases which are due as follows: $1.5 million in
fiscal 2003, $1.9 million in fiscal 2004 to 2006, and $.4 million in fiscal
2007.

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Electro Rent 2002 Annual Report

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
workstations 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.

Qualitative and Quantitative Disclosures About Interest Rates and Currency
Rates

The Companys primary market risk exposure historically has been risks related
to interest rate fluctuations, primarily related to its previous borrowings
under its unsecured revolving credit facility. However, interest rates do not
necessarily impact the Companys margins or earnings because the effects of
higher or lower borrowing costs may be reflected in the financing rates on
newly rented and leased assets. The Company may attempt to reduce this  risk
by utilizing derivative financial instruments, namely interest rate caps and
swaps, pursuant to Company policies. The Company does not enter into
derivative financial instruments for the purpose of trading. Although the
Company has the ability to draw on its revolving credit line, the Company
currently has no outstanding borrowings under its credit facility or interest
rate protection agreements in place.

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.

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.
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 Annual Report. Although the Company
believes its managements assumptions are reasonable, 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, 2002,
including the Risk Factors attached as Exhibit 99 to that document, the
Companys Proxy Statement for its 2002 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. 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.

9



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Electro Rent 2002 Annual Report

Consolidated Statements of Income

(in thousands, except per share information)

|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |         |         | 
|------------------------------------- | -------------------------------------------- | ------------------------ | ------ | ------------------ | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                      |                                              |                          |        | Year Ended May 31,
|                                      |                                              |                          |        |                   
|                                      |                                              |                          |        | 2002               |         | 2001 |        | 2000   
|                                      |                                              |                          |        |                    |         |      |        |        
|Revenues:                             |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      | Rentals and leases                           |                          | $      | 115,310            |         |      | $      | 173,495 |         |   | $      | 199,022 |        
|                                      | Sales of equipment and other revenues        |                          |        | 32,554             |         |      |        | 37,681  |         |   |        | 42,771  |        
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      |                                              | Total revenues           |        |                    | 147,864 |      |        |         | 211,176 |   |        |         | 241,793 | 
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|Costs and expenses:                   |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      | Depreciation of rental and lease equipment   |                          |        | 58,639             |         |      |        | 72,753  |         |   |        | 95,769  |        
|                                      | Costs of revenues other than depreciation    |                          |        | 23,039             |         |      |        | 26,971  |         |   |        | 35,356  |        
|                                      | Selling, administrative and general expenses |                          |        | 50,492             |         |      |        | 62,625  |         |   |        | 65,104  |        
|                                      | Interest (income) expense, net               |                          |        | (2,232             | )       |      |        | (708    | )       |   |        | 5,465   |        
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      |                                              | Total costs and expenses |        |                    | 129,938 |      |        |         | 161,641 |   |        |         | 201,694 | 
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|Income before income taxes            |                                              |                          | 17,926 |                    |         |      | 49,535 |         |         |   | 40,099 |        
|Income taxes                          |                                              |                          | 4,804  |                    |         |      | 18,822 |         |         |   | 15,237 |        
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|Net income                            |                                              | $                        | 13,122 |                    |         | $    | 30,713 |         |         | $ | 24,862 |        
|                                      |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|Earnings per share:                   |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      | Basic                                        |                          | $      | 0.53               |         |      | $      | 1.26    |         |   | $      | 1.01    |        
|                                      | Diluted                                      |                          | $      | 0.53               |         |      | $      | 1.24    |         |   | $      | 1.00    |        
|Shares used in per share calculation: |                                              |                          |        |                    |         |      |        |         |         |   |        |        
|                                      | Basic                                        |                          |        | 24,602             |         |      |        | 24,416  |         |   |        | 24,571  |        
|                                      | Diluted                                      |                          |        | 24,837             |         |      |        | 24,753  |         |   |        | 24,972  |        

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

10



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Electro Rent 2002 Annual Report

Consolidated Balance Sheets

(in thousands, except share information)

|                                     |                                                                                                                  |                            |         |               |         |      |         |         |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------- | ---- | ------- | ------- | ------- | 
|                                     |                                                                                                                  |                            |         | As of May 31,
|                                     |                                                                                                                  |                            |         |              
|                                     |                                                                                                                  |                            |         | 2002          |         | 2001
|                                     |                                                                                                                  |                            |         |               |         |     
|Assets                               |                                                                                                                  |                            |         |               |         |      |         |        
|                                     | Cash and cash equivalents                                                                                        |                            | $       | 115,623       |         |      | $       | 61,136  |        
|                                     | Accounts receivable, net of allowance for doubtful accounts of $2,461
and $1,840                                 |                            |         | 12,023        |         |      |         | 23,809  |        
|                                     | Rental and lease equipment, net of accumulated depreciation of $201,063
and $221,892                             |                            |         | 119,675       |         |      |         | 167,521 |        
|                                     | Other property, net of accumulated depreciation and amortization of $12,241
and $10,447                          |                            |         | 16,912        |         |      |         | 18,841  |        
|                                     | Goodwill                                                                                                         |                            |         | 35,703        |         |      |         | 35,703  |        
|                                     | Intangibles, net of amortization of $4,942 and $4,816                                                            |                            |         | 1,558         |         |      |         | 1,684   |        
|                                     | Other                                                                                                            |                            |         | 3,896         |         |      |         | 3,774   |        
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|                                     |                                                                                                                  | $                          | 305,390 |               |         | $    | 312,468 |        
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|Liabilities and Shareholders Equity |                                                                                                                  |                            |         |               |         |      |         |        
|Liabilities:                         |                                                                                                                  |                            |         |               |         |      |         |        
|                                     | Accounts payable                                                                                                 |                            |         | 7,185         |         |      |         | 25,733  |        
|                                     | Accrued expenses                                                                                                 |                            |         | 17,671        |         |      |         | 19,606  |        
|                                     | Deferred income taxes, net                                                                                       |                            |         | 15,817        |         |      |         | 16,943  |        
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|                                     |                                                                                                                  | Total liabilities          |         |               | 40,673  |      |         |         | 62,282  | 
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|Commitments and contingencies        |                                                                                                                  |                            |         |               |         |      |         |        
|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
2002  24,774,734; 2001  24,502,879 |                            |         | 13,246        |         |      |         | 11,782  |        
|                                     | Retained earnings                                                                                                |                            |         | 251,471       |         |      |         | 238,404 |        
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|                                     |                                                                                                                  | Total shareholders equity |         |               | 264,717 |      |         |         | 250,186 | 
|                                     |                                                                                                                  |                            |         |               |         |      |         |        
|                                     |                                                                                                                  | $                          | 305,390 |               |         | $    | 312,468 |        
|                                     |                                                                                                                  |                            |         |               |         |      |         |        

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

11



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Electro Rent 2002 Annual Report

Consolidated Statements of Shareholders Equity

(in thousands)

|                      |                                                              |  |                                |      |        |   |          |       |          |   |         |        |  
|--------------------- | ------------------------------------------------------------ |  | ------------------------------ | ---- | ------ | - | -------- | ----- | -------- | - | ------- | ------ | -
|                      |                                                              |  | Three years ended May 31, 2002
|                      |                                                              |  |                               
|                      |                                                              |  | Common Stock                   |      |        |   |         
|                      |                                                              |  |                                |      |        |   |         
|                      |                                                              |  | Number                         |      |        |   |          |       | Retained
|                      |                                                              |  | of Shares                      |      | Amount |   | Earnings
|                      |                                                              |  |                                |      |        |   |         
|Balance, May 31, 1999 |                                                              |  | 24,476                         |      |        | $ | 10,510   |       |          | $ | 185,664 |       
|                      | Exercise of stock options, net, including related tax effect |  |                                | 159  |        |   |          | 629   |          |   |         |       |  
|                      | Net income for the year ended May 31, 2000                   |  |                                |     |        |   |          |      |          |   |         | 24,862 |  
|                      |                                                              |  |                                |      |        |   |          |       |          |   |         |       
|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 |       
|                      |                                                              |  |                                |      |        |   |          |       |          |   |         |       

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

12



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##### 



Electro Rent 2002 Annual Report

Consolidated Statements of Cash Flows

(in thousands)

|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |         |         |         |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ------- | ------------------ | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | -
|                                               |                                                                                   |                                             |                                                     |         | Year Ended May 31,
|                                               |                                                                                   |                                             |                                                     |         |                   
|                                               |                                                                                   |                                             |                                                     |         | 2002               |         | 2001   |         | 2000   
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |        
|Cash flows from operating activities:          |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               | Net income                                                                        |                                             | $                                                   | 13,122  |                    |         | $      | 30,713  |         |         | $      | 24,862  |        
|                                               | Adjustments to reconcile net income to net cash provided by
operating activities: |                                             |                                                     |         |                    |         |        |         |         |         |        |         |        
|                                               |                                                                                   | Depreciation and amortization               |                                                     |         | 60,781             |         |        |         | 76,856  |         |        |         | 100,655 |        
|                                               |                                                                                   | Provision for losses on accounts receivable |                                                     |         | 2,930              |         |        |         | 2,479   |         |        |         | 1,265   |        
|                                               |                                                                                   | Gain on sale of rental and lease equipment  |                                                     |         | (8,294             | )       |        |         | (10,226 | )       |        |         | (6,767  | )      
|                                               |                                                                                   | Change in operating assets and liabilities: |                                                     |         |                    |         |        |         |         |         |        |         |         |        
|                                               |                                                                                   |                                             | Decrease in accounts receivable                     |         |                    | 8,856   |        |         |         | 3,574   |        |         |         | 14,747  |  
|                                               |                                                                                   |                                             | (Increase) decrease in other assets                 |         |                    | (122    | )      |         |         | 402     |        |         |         | 43      |  
|                                               |                                                                                   |                                             | Increase (decrease) in accounts payable             |         |                    | 448     |        |         |         | (2,578  | )      |         |         | (3,890  | )
|                                               |                                                                                   |                                             | Increase (decrease) in accrued expenses             |         |                    | (1,935  | )      |         |         | (5,315  | )      |         |         | (1,804  | )
|                                               |                                                                                   |                                             | Increase (decrease) in deferred income taxes        |         |                    | (1,126  | )      |         |         | 1,529   |        |         |         | (1,340  | )
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               |                                                                                   |                                             | Net cash provided by operating activities           |         |                    | 74,660  |        |         |         | 97,434  |        |         |         | 127,771 |  
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|Cash flows from investing activities:          |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               | Proceeds from sale of rental and lease equipment                                  |                                             |                                                     | 27,913  |                    |         |        | 32,745  |         |         |        | 37,016  |        
|                                               | Proceeds from purchase price settlement                                           |                                             |                                                     |        |                    |         |        | 20,800  |         |         |        |        |        
|                                               | Payments for purchase of rental and lease equipment                               |                                             |                                                     | (49,408 | )                  |         |        | (66,987 | )       |         |        | (81,802 | )      
|                                               | Payments for purchase of other property                                           |                                             |                                                     | (87     | )                  |         |        | (469    | )       |         |        | (348    | )      
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               |                                                                                   |                                             | Net cash used in investing activities               |         |                    | (21,582 | )      |         |         | (13,911 | )      |         |         | (45,134 | )
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|Cash flows from financing activities:          |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               | Decrease in short-term bank borrowings                                            |                                             |                                                     |        |                    |         |        | (21,800 | )       |         |        | (85,700 | )      
|                                               | Proceeds from issuance of common stock                                            |                                             |                                                     | 1,467   |                    |         |        | 789     |         |         |        | 629     |        
|                                               | Payment for repurchase of common stock                                            |                                             |                                                     | (58     | )                  |         |        | (2,981  | )       |         |        |        |        
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|                                               |                                                                                   |                                             | Net cash provided by (used in) financing activities |         |                    | 1,409   |        |         |         | (23,992 | )      |         |         | (85,071 | )
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|Net increase in cash and cash equivalents      |                                                                                   |                                             | 54,487                                              |         |                    |         | 59,531 |         |         |         | (2,434 | )      
|Cash and cash equivalents at beginning of year |                                                                                   |                                             | 61,136                                              |         |                    |         | 1,605  |         |         |         | 4,039  |        
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        
|Cash and cash equivalents at end of year       |                                                                                   | $                                           | 115,623                                             |         |                    | $       | 61,136 |         |         | $       | 1,605  |        
|                                               |                                                                                   |                                             |                                                     |         |                    |         |        |         |         |         |        |        

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

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##### 



Electro Rent 2002 Annual Report

Notes to Consolidated Financial
Statements
For the years ended May 31, 2002, 2001 and 2000

(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 measurement instruments, personal computers and workstations
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 subsidiary, Genstar Rental Electronics, Inc., acts as
the Companys agent in Canada for all of these business activities. The
Companys wholly owned subsidiary, Electro Rent de Mexico, S.A.  de C.V., was
liquidated in fiscal 2002.

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 2002,
2001 and 2000 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.

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.
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 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. Other revenues consist 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 retirement 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. At
 May 31, 2002, rental and lease equipment at net book value comprised $99,208
of test and measurement equipment and $20,467 of data products equipment.

Capital Leases: The Company has certain customer leases providing bargain
purchase options, which are accounted for as sales-type leases. At May 31,
2002 and 2001 investment in sales-type leases of $1,321 and $1,334 net of
deferred interest of $77 and $72, is included in other assets. Interest income
is recognized over the life of the lease using the effective interest method.

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 and/or when factors indicating an 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

14



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Electro Rent 2002 Annual Report

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 rather be
tested at least annually for impairment.

Concentration of Credit Risk: Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of trade
accounts receivable. The Company sells primarily on 30-day terms, performs
credit evaluation procedures on each customers individual transactions 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 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 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 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, 2002 or 2001. The adoption of this standard did not
have a significant impact on the consolidated financial statements.

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
comprehensive income.

Segment Reporting: The Company adopted SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information, at May 31, 1999. SFAS No.
131 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.

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:

|             |  |      |       |      |  |      |        |  |  |   |        | 
|------------ |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|             |  | 2002 |       | 2001 |  | 2000
|             |  |      |       |      |  |     
|Interest     |  | $    | 9     |      |  | $    | 271    |  |  | $ | 4,545  | 
|Income taxes |  |      | 4,666 |      |  |      | 19,095 |  |  |   | 17,030 | 

Supplemental disclosure of non-cash investing and financing activities: The
Company acquired equipment of $6,626, $25,623, and $19,947, at May 31, 2002,
2001 and 2000, respectively, which was paid for during the subsequent year.

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
will adopt SFAS No. 144 as required on June 1, 2002. This standard will not
have a significant effect on the Companys consolidated financial statements
upon adoption.

Note 2  Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations. SFAS 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. SFAS 141 also

15



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Electro Rent 2002 Annual Report

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 141 in the first quarter
of fiscal year 2002. Adoption of SFAS 141 did not have a significant impact on
the financial statements.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 (SFAS 142), Goodwill and Other Intangible Assets. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization and the
testing for impairment of goodwill at least annually. The Company adopted SFAS
142 in the first quarter of fiscal year 2002. The impact of SFAS 142 on the
Companys financial position and results of operations was primarily the
elimination of annual goodwill amortization of $1.4 million.

In accordance with SFAS 142, the Company discontinued goodwill amortization
and tested goodwill for impairment as of June 1, 2001; no such impairment was
noted. The Company will continue to test goodwill for impairment at least
annually. Other intangible assets, with finite lives, continue to be amortized
over their useful life of twenty years.

Goodwill was $35.7 million as of May 31, 2002, and was unchanged for the year.
The following sets forth the intangible assets by major asset 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 | )
|                                             |                   |   |          |       |              |   |        |       

Aggregate amortization expense on intangible assets was approximately $0.13
million for the year ended May 31, 2002. There was no impairment loss recorded
during the year. Amortization expense is expected to be approximately $0.13
million in each of the next five fiscal years.

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

|                           |                                                    |   |        |      |      |   |        |      |  |   |        |      | 
|-------------------------- | -------------------------------------------------- | - | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                           |                                                    |   | 2002   |      | 2001 |   | 2000  
|                           |                                                    |   |        |      |      |   |       
|Reported net income        |                                                    | $ | 13,122 |      |      | $ | 30,713 |      |  | $ | 24,862 |     
|                           | Add back: goodwill amortization,
net of tax effect |   |        | 0    |      |   |        | 857  |  |   |        | 857  | 
|                           |                                                    |   |        |      |      |   |        |      |  |   |        |     
|Adjusted net income        |                                                    | $ | 13,122 |      |      | $ | 31,570 |      |  | $ | 25,719 |     
|                           |                                                    |   |        |      |      |   |        |      |  |   |        |     
|Basic earnings per share   |                                                    |   |        |      |      |   |        |      |  |   |        |     
|                           | As reported                                        |   | $      | 0.53 |      |   | $      | 1.26 |  |   | $      | 1.01 | 
|                           | As adjusted                                        |   | $      | 0.53 |      |   | $      | 1.29 |  |   | $      | 1.05 | 
|Diluted earnings per share |                                                    |   |        |      |      |   |        |      |  |   |        |     
|                           | As reported                                        |   | $      | 0.53 |      |   | $      | 1.24 |  |   | $      | 1.00 | 
|                           | As adjusted                                        |   | $      | 0.53 |      |   | $      | 1.28 |  |   | $      | 1.03 | 

Note 3  Borrowings

On November 29, 2001, the Company renewed its 364-day agreement with a bank to
provide a revolving line of credit for a reduced amount of $10.0 million from
$25.0 million, 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 outstanding during the fiscal
year ended May 31, 2002.

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Electro Rent 2002 Annual Report

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 instruments outstanding as of May 31, 2002 or 2001.

Note 4  Income Taxes

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

|         |         |   |       |       |      |   |        |        |  |   |        |        |  
|-------- | ------- | - | ----- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|         |         |   | 2002  |       | 2001 |   | 2000  
|         |         |   |       |       |      |   |       
|Current  |         |   |       |       |      |   |        |        |  |   |        |       
|         | Federal |   | $     | 4,939 |      |   | $      | 15,131 |  |   | $      | 14,505 |  
|         | State   |   |       | 991   |      |   |        | 2,162  |  |   |        | 2,072  |  
|Deferred |         |   |       |       |      |   |        |        |  |   |        |       
|         | Federal |   |       | (985  | )    |   |        | 1,338  |  |   |        | (1,172 | )
|         | State   |   |       | (141  | )    |   |        | 191    |  |   |        | (168   | )
|         |         |   |       |       |      |   |        |        |  |   |        |       
|         |         | $ | 4,804 |       |      | $ | 18,822 |        |  | $ | 15,237 |       
|         |         |   |       |       |      |   |        |        |  |   |        |       

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

|                                                                                      |  |      |       |      |  |      |      |   |  |  |      |  
|------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                      |  | 2002 |       | 2001 |  | 2000
|                                                                                      |  |      |       |      |  |     
|Statutory federal rate                                                                |  |      | 35.0  | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State taxes, net of federal benefit                                                   |  |      | 5.0   |      |  |      | 5.0  |   |  |  | 5.5  |  
|Change in tax estimates on existing local, state,
federal and foreign tax liabilities |  |      | (11.2 | )    |  |      |     |   |  |  |     |  
|Other  net                                                                           |  |      | (2.0  | )    |  |      | (2.0 | ) |  |  | 0.5  |  
|                                                                                      |  |      |       |      |  |      |      |   |  |  |      |  
|Effective tax rate                                                                    |  |      | 26.8  | %    |  |      | 38.0 | % |  |  | 41.0 | %
|                                                                                      |  |      |       |      |  |      |      |   |  |  |      |  

The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities at May 31, 2002 and 2001 are as follows:

|                          |                                           |                              |         |         |         |      |         |         |         |  
|------------------------- | ----------------------------------------- | ---------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | -
|                          |                                           |                              |         | 2002    |         | 2001
|                          |                                           |                              |         |         |         |     
|Deferred tax assets:      |                                           |                              |         |         |         |      |         |        
|                          | Allowance for doubtful accounts           |                              | $       | 984     |         |      | $       | 736     |        
|                          | Net operating loss carryforwards          |                              |         | 646     |         |      |         | 770     |        
|                          | Deferred compensation and benefits        |                              |         | 781     |         |      |         | 625     |        
|                          | Other                                     |                              |         | 68      |         |      |         | 1,073   |        
|                          |                                           |                              |         |         |         |      |         |        
|                          |                                           |                              | 2,479   |         |         |      | 3,204   |        
|                          |                                           |                              |         |         |         |      |         |        
|Deferred tax liabilities: |                                           |                              |         |         |         |      |         |        
|                          | Accumulated depreciation and amortization |                              |         | (18,296 | )       |      |         | (16,919 | )      
|                          | Deferred revenue                          |                              |         | 0       |         |      |         | (2,388  | )      
|                          | Other                                     |                              |         | 0       |         |      |         | (840    | )      
|                          |                                           |                              | (18,296 | )       |         |      | (20,147 | )      
|                          |                                           |                              |         |         |         |      |         |        
|                          |                                           | Net deferred tax liabilities |         | $       | (15,817 | )    |         | $       | (16,943 | )
|                          |                                           |                              |         |         |         |      |         |        

Net operating loss carryforwards for federal income tax reporting purposes
approximate $1,845 at May 31, 2002 and are available for use against taxable
income through 2006. The utilization of operating loss carryforwards is
limited to $356 per year for federal income tax reporting purposes.

17



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##### 



Electro Rent 2002 Annual Report

Note 5  Computation of Earnings Per Share

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

|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |        | 
|------------------- | ------------------------------------------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                    |                                                                                       |   | 2002   |        | 2001 |   | 2000  
|                    |                                                                                       |   |        |        |      |   |       
|Denominator:        |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                    | Denominator for basic earnings per share 
weighted average common shares outstanding |   |        | 24,602 |      |   |        | 24,416 |  |   |        | 24,571 | 
|                    | Effect of dilutive securities options                                                |   |        | 235    |      |   |        | 337    |  |   |        | 401    | 
|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                    |                                                                                       |   | 24,837 |        |      |   | 24,753 |        |  |   | 24,972 |       
|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|Net income          |                                                                                       | $ | 13,122 |        |      | $ | 30,713 |        |  | $ | 24,862 |       
|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|Earnings per share: |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                    | Basic                                                                                 |   | $      | .53    |      |   | $      | 1.26   |  |   | $      | 1.01   | 
|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |       
|                    | Diluted                                                                               |   | $      | .53    |      |   | $      | 1.24   |  |   | $      | 1.00   | 
|                    |                                                                                       |   |        |        |      |   |        |        |  |   |        |       

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 654,823, 387,661, and 507,137 at
May 31, 2002, 2001, and 2000, respectively.

Note 6  Rentals and 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:

|                                |  |      |        |  
|------------------------------- |  | ---- | ------ | -
|                                |  | 2002
|                                |  |     
|Beginning of year               |  | $    | 1,840  |  
|Provision for doubtful accounts |  |      | 2,930  |  
|Write-offs, net of recoveries   |  |      | (2,309 | )
|                                |  |      |        |  
|End of year                     |  | $    | 2,461  |  
|                                |  |      |        |  

The Companys cost of equipment under operating leases at May 31, 2002, with
remaining noncancellable lease terms of more than one year, is $20,078 before
accumulated depreciation of $9,093, and the net book value is $10,985.

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,
2002 is as follows:

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 10,051 | 
|2004 |  |   | 6,955  | 
|2005 |  |   | 1,717  | 
|     |  |   |        | 
|     |  | $ | 18,723 | 
|     |  |   |        | 

18



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##### 



Electro Rent 2002 Annual Report

Note 7  Other Property

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

|                                                 |  |      |         |      |  |   |         |  
|------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                                 |  | 2002 |         | 2001
|                                                 |  |      |         |     
|Land                                             |  | $    | 6,985   |      |  | $ | 6,985   |  
|Buildings                                        |  |      | 13,682  |      |  |   | 13,682  |  
|Furniture and other equipment                    |  |      | 6,992   |      |  |   | 6,957   |  
|Leasehold improvements                           |  |      | 1,494   |      |  |   | 1,664   |  
|                                                 |  |      |         |      |  |   |         |  
|                                                 |  |      | 29,153  |      |  |   | 29,288  |  
|Less  accumulated depreciation and amortization |  |      | (12,241 | )    |  |   | (10,447 | )
|                                                 |  |      |         |      |  |   |         |  
|                                                 |  | $    | 16,912  |      |  | $ | 18,841  |  
|                                                 |  |      |         |      |  |   |         |  

Note 8  Acquisition Purchase Price Settlement

On December 13, 2000, the Company entered into a settlement agreement to fully
resolve its closing balance sheet and purchase price disagreements with GE
Capital Technology Management Services (TMS), regarding the Companys
acquisition of the TMS computer and test and measurement equipment rental
business. The Company received the related settlement payment of $20.8 million
on December 14, 2000.

On November 14, 1997, the Company acquired the TMS business for a purchase
price of approximately $240 million. The acquisition was accounted for as a
purchase and, accordingly, the acquired assets and assumed liabilities were
recorded at their estimated fair value at the date of the acquisition. Before
the settlement, the purchase price exceeded the fair market value of the
tangible net assets acquired resulting in goodwill of approximately $60
million.

The TMS acquisition agreement included provisions for a reduction in the
purchase price paid by the Company in the event there were objections to the
TMS closing date balance sheet. The Companys objections were subject to
resolution as set forth in the TMS acquisition agreement and were the subject
of on-going discussions between the parties. The settlement related to these
objections has been used primarily to reduce the TMS goodwill originally
recorded.

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:

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 1,491 | 
|2004 |  |   | 924   | 
|2005 |  |   | 574   | 
|2006 |  |   | 448   | 
|2007 |  |   | 388   | 
|     |  |   |       | 
|     |  | $ | 3,825 | 
|     |  |   |       | 

Rent expense was $2,698, $2,969, $3,630 in fiscal 2002, 2001, and 2000,
respectively.

19



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##### 



Electro Rent 2002 Annual Report

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, 2002 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) which authorize the Board of
Directors to grant options for 2,167,500 shares of the Companys common stock,
of which 72,329 were available for future grants at May 31, 2002. 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 ten-year period from the date of grant or a five-year
period in the case of an employee who is also a 10 percent stockholder. The
Plans provide for a variety of vesting dates with the majority of the options
vesting at a rate of 25 percent per year over a period of four years from the
date of grant. All outstanding options expire at dates ranging from October
2002 to July 2010. The following table summarizes certain information relative
to options for common stock.

|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |      |       | 
|---------------------------------------------------------- | --------- |  | --------- | -------- | -------------- | - | -------- | ----- | -------------- |  | --------- | -------- | -------------- | - | ----- | ----- |  |  | --------- | -------- | - | - | ---- | ----- | 
|                                                           |           |  | 2002      |          | 2001           |   | 2000    
|                                                           |           |  |           |          |                |   |         
|                                                           |           |  |           |          |                |   | Weighted |       |                |  |           |          | Weighted       |   |       |       |  |  | Weighted 
|                                                           |           |  |           |          |                |   | Average  |       |                |  |           |          | Average        |   |       |       |  |  | Average  
|                                                           |           |  | Shares    |          | Exercise Price |   | Shares   |       | Exercise Price |  | Shares    |          | Exercise Price
|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |               
|Options outstanding,
beginning of year                     |           |  | 1,068,794 |          |                | $ | 10.35    |       |                |  | 1,100,847 |          |                | $ | 9.19  |       |  |  | 1,305,771 |          |   | $ | 8.54 |      
|                                                           | Granted   |  |           | 7,574    |                |   |          | 16.44 |                |  |           | 172,640  |                |   |       | 11.60 |  |  |           | 9,618    |   |   |      | 12.94 | 
|                                                           | Exercised |  |           | (276,361 | )              |   |          | 5.31  |                |  |           | (192,693 | )              |   |       | 4.52  |  |  |           | (167,664 | ) |   |      | 2.92  | 
|                                                           | Forfeited |  |           | (16,738  | )              |   |          | 12.13 |                |  |           | (12,000  | )              |   |       | 14.97 |  |  |           | (46,878  | ) |   |      | 14.47 | 
|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |      |      
|Options outstanding, end of year                           |           |  | 783,269   |          |                | $ | 12.15    |       |                |  | 1,068,794 |          |                | $ | 10.35 |       |  |  | 1,100,847 |          |   | $ | 9.19 |      
|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |      |      
|Options exercisable at end of year                         |           |  | 667,429   |          |                | $ | 12.25    |       |                |  | 799,494   |          |                | $ | 9.56  |       |  |  | 866,597   |          |   | $ | 7.83 |      
|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |      |      
|Weighted-average fair value of
options granted during year |           |  |           |          |                | $ | 6.81     |       |                |  |           |          |                | $ | 6.62  |       |  |  |           |          |   | $ | 6.44 |      
|                                                           |           |  |           |          |                |   |          |       |                |  |           |          |                |   |       |       |  |  |           |          |   |   |      |      

The following summarizes information regarding stock options outstanding at May 31, 2002:

|                         |  |                     |         |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | ------------------- |  | --------- | --- | ----------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                         |  | 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   
|                         |  |                     |         |                     |  |           |     |             |  |         
|$  2.41  $11.58         |  |                     | 200,430 |                     |  |           | 2.8 |             |  | $        | 7.42  |  |  |          | 195,555 |  |  | $ | 7.33  | 
|$11.59  $13.86          |  |                     | 199,333 |                     |  |           | 7.1 |             |  |          | 11.73 |  |  |          | 88,368  |  |  |   | 11.87 | 
|$13.87  $24.11          |  |                     | 383,506 |                     |  |           | 4.4 |             |  |          | 14.84 |  |  |          | 383,506 |  |  |   | 14.84 | 
|                         |  |                     |         |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 
|                         |  |                     | 783,269 |                     |  |           | 4.7 |             |  | $        | 12.15 |  |  |          | 667,429 |  |  | $ | 12.25 | 
|                         |  |                     |         |                     |  |           |     |             |  |          |       |  |  |          |         |  |  |   |       | 

Pro Forma Information: 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 recognized
ratably over the associated service period, which is generally the option
vesting term.

20



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##### 



Electro Rent 2002 Annual Report

Pro forma net earnings and earnings per share information, as required by
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, has been determined as if the Company had
accounted for employee stock options under SFAS 123s fair value method. The
fair value of these options was estimated at grant date using a Black-Scholes
option pricing model with the following weighted-average assumptions for
fiscal 2002, 2001, and 2000, respectively: risk-free interest rates of 4.8,
6.2, and 5.8 percent; dividend yield of 0 percent; expected option life of
4.2, 7.2, and 5.0, years; and volatility of 44.1, 44.4, and 47.8 percent.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the 4-year average vesting period of the
options. The Companys pro forma net earnings for 2002, 2001, and 2000 were
$12,581, $29,783, and $23,994, and pro forma net earnings per share were $.51,
$1.21, and $.97, respectively, on a diluted earnings per share basis.

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 $441, $670, and $756 were made for 2002, 2001, and 2000, 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 523,269 shares of the
Companys stock at May 31, 2002.

Note 12  Quarterly Information (Unaudited)

Quarterly information is as follows:

|                 |                |   |          |        |              |   |        |        |       |   |         |       |  |   |                    |      |  |   |      |      | 
|---------------- | -------------- | - | -------- | ------ | ------------ | - | ------ | ------ | ----- | - | ------- | ----- |  | - | ------------------ | ---- |  | - | ---- | ---- | 
|                 |                |   |          |        |              |   |        |        |       |   |         |       |  |   | Earnings per share
|                 |                |   | Total    |        | Income       |   | Net    |        |      
|                 |                |   | Revenues |        | Before Taxes |   | Income |        | Basic |   | Diluted
|                 |                |   |          |        |              |   |        |        |       |   |        
|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 |  |   |                    | 0.17 |  |   |      | 0.17 | 
|                 |                |   |          |        |              |   |        |        |       |   |         |       |  |   |                    |      |  |   |      |      | 
|                 |                | $ | 147,864  |        |              | $ | 17,926 |        |       | $ | 13,122  |       |  | $ | 0.53               |      |  | $ | 0.53 |     
|                 |                |   |          |        |              |   |        |        |       |   |         |       |  |   |                    |      |  |   |      |      | 
|Fiscal Year 2001 |                |   |          |        |              |   |        |        |       |   |         |       |  |   |                    |      |  |   |      |     
|                 | First Quarter  |   | $        | 57,333 |              |   | $      | 14,339 |       |   | $       | 8,890 |  |   | $                  | 0.36 |  |   | $    | 0.36 | 
|                 | Second Quarter |   |          | 54,517 |              |   |        | 14,020 |       |   |         | 8,692 |  |   |                    | 0.36 |  |   |      | 0.35 | 
|                 | Third Quarter  |   |          | 50,752 |              |   |        | 12,079 |       |   |         | 7,490 |  |   |                    | 0.31 |  |   |      | 0.30 | 
|                 | Fourth Quarter |   |          | 48,574 |              |   |        | 9,097  |       |   |         | 5,641 |  |   |                    | 0.23 |  |   |      | 0.23 | 
|                 |                | $ | 211,176  |        |              | $ | 49,535 |        |       | $ | 30,713  |       |  | $ | 1.26               |      |  | $ | 1.24 |     

21



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##### 



Electro Rent 2002 Annual Report

Independent Auditors Report

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

We have audited the accompanying consolidated balance sheet of Electro Rent
Corporation (a California Corporation) and subsidiaries (the Company) as of
May 31, 2002, and the related consolidated statements of income, shareholders
equity, and cash flows for the year 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 audit. The
financial statements of the Company as of May 31, 2001 and for the years ended
May 31, 2001 and 2000 were audited by other auditors whose report, dated
August 6, 2001, expressed an unqualified opinion on those statements.

We conducted our audit 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
audit provides a reasonable basis for our opinion.

In our opinion, such 2002 financial statements present fairly, in all material
respects, the financial position of Electro Rent Corporation and subsidiaries
as of May 31, 2002, and the results of their operations and their cash flows
for the year 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 the 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.

-s- Deloitte & Touche LLP

Los Angeles, California
August 5, 2002



---

Capital Stock, Shareholders and Cash Dividend Information (Unaudited)

The common stock of the Company is quoted on NASDAQ under the symbol ELRC.
There were approximately 464 shareholders of record at August 5, 2002. The
Company has not, and does not expect in the future, to pay regular cash or
non-cash distributions or dividends to its shareholders. The following table
sets forth, for the period shown, the high and low closing sale prices in the
NASDAQ National Market System as reported by NASDAQ.

|               |  |                  |       |                  |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---------------- | ----- | ---------------- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  | Fiscal Year 2002 |       | Fiscal Year 2001
|               |  |                  |       |                 
|               |  | High             |       | Low              |  | High |       | Low
|               |  |                  |       |                  |  |      |       |    
|First Quarter  |  | $                | 17.39 |                  |  | $    | 14.15 |     |  | $ | 12.75 |  |  | $ | 9.50  | 
|Second Quarter |  |                  | 15.90 |                  |  |      | 12.40 |     |  |   | 13.69 |  |  |   | 11.25 | 
|Third Quarter  |  |                  | 14.30 |                  |  |      | 12.56 |     |  |   | 18.00 |  |  |   | 11.06 | 
|Fourth Quarter |  |                  | 14.32 |                  |  |      | 12.50 |     |  |   | 16.30 |  |  |   | 13.00 | 

22