Company sells off assets and gives the cash to shareholders.

With ill-fated forays into computer and telecom equipment leasing sending revenues into free fall, Electro Rent Corp. is an unlikely high-flier.

But its stock hit a new 52-week high last week thanks to a decision to hand off most of its cash to shareholders.

Shares in the Van Nuys-based equipment rental company reached a high of $15.05 on Oct. 14. Their closing price of $14.63 on Oct. 15 represents a 17 percent gain so far this year.

Driving the most recent gains was Electro Rent's Oct. 9 announcement that it would declare a $4 per share extraordinary dividend. Shareholders will receive $100 million of Electro Rent's $168 million cash horde, money that has piled up over the past five years as the company liquidated its inventory of unneeded computers, oscilloscopes and other testing equipment.

Behind the sell-off is Electro Rent's troubled computer leasing business, which it had expanded in 1997 when it acquired General Electric Co.'s computer leasing division for $240 million.

Business has been hurt by the decline in tech spending and falling computer prices, which have made buying PCs and laptops a more attractive option than leasing them for three to five years.

Computer leasing made up just 31 percent of revenues for the fiscal year ended May 31, compared with more than 50 percent five years ago. "Many of our competitors have bit the dust. But things haven't gotten easier," said Chairman and Chief Executive Daniel Greenberg.

There also were missteps by entering the market for leasing telecom testing equipment. A collapse in telecom spending cut revenues in half in that business last year.

For the first quarter ended Aug. 31, net income was $2.1 million, compared with $2.6 million for the like period a year earlier. Revenues fell 28 percent, to $16.7 million.

Shifting strategies

Electro Rent has zigged and zagged since its founding 38 years ago by a scientist who began charging his friends for the use of an oscilloscope. It was acquired in 1973 by Telecor, a now-defunct Panasonic appliance distributor, and spun off seven years later.

To offset the testing business slowdown, the company got into computer leasing in 1989 and expanded it through a series of acquisitions, including the pickup of GE's business. Then came the move into telecom.

Those adjustments worked for a while. But falling PC prices and the collapse of the telecom bubble had their effects.

Now it's back to the traditional business of renting out items like logic and spectrum analyzers to defense and aerospace companies. Electro Rent is looking for a pick-up in demand for these items, which are used in the construction of radar systems and electronic circuits. These customers are launching divisions that will seek out business from the Department of Homeland Security, the new umbrella agency that includes the FBI, the Immigration and Naturalization Service, the Customs Service and Coast Guard.

To prepare for this, Electro Rent has stepped up its own purchases of test equipment. A total of $21 million has been spent in the past two quarters, more than twice the amount spent in the comparable year-ago periods.

Nevertheless, Greenberg acknowledges that overall revenues won't climb anytime soon. The company is still smarting from a restructuring that included the shutdown of a warehouse in Duluth, Ga., and the layoff of 27 employees. That, along with a $36 million write-down of the GE acquisition, resulted in a $15 million loss in last fiscal year.

The asset sales have helped eliminate debt, but they also added cash to the balance sheet that Electro Rent can't use.

There remains $87 million in equipment on the balance sheet. Gene Fox III, a portfolio manager for Greenwich, Conn.-based money manager Cardinal Capital, which holds 553,000 shares, expects Electro Rent to sell off more equipment at a 50 percent premium to book value net of depreciation, adding more cash onto the balance sheet.

Greenberg expects to eventually make an acquisition once the economy improves. But right now, he's standing pat.

"We looked at opportunities outside of our own industry, not renting earth movers or anything so obviously out of our depth, but other businesses similar to ours," he said. "But the risks would have outstripped the rewards. We weren't going to fritter away the money."

Electro Rent Corp.

Stock Prices

[GRAPHIC OMITTED]

YEAR (May 31)                    2003      2002

Revenues (millions)            $108.7    $147.8
Total Expenses (millions)       137.2     132.2
Operating Income (millions)    (28.4)      15.7
Net Income (millions)            (15)        13
Earnings Per Share            ($0.60)     $0.53

Quarterly Net Income (millions)

[GRAPHIC OMITTED]

SUMMARY

Business: Equipment rental
Headquarters: Van Nuys
CEO: Daniel Greenberg
Market Cap: $363.2 million Dividend Yield: N/A *
Total Liabilities: $27.6 million P/E Ratio: N/A **
Long-Term Debt: $0

* Company does not pay a dividend.

** Company was not profitable