FINANCIAL RESULTS

Total revenues increased 9% for fiscal 2007 to $125.3 million compared to $114.8 million for fiscal 2006. Rental and lease revenue increased 14% to $103.1 million from $90.5 million for the prior year. Equipment sales and other revenue decreased 9% to $22.2 million from $24.3 million for fiscal 2006.

Rental and lease revenue in our test and measurement equipment group increased 11% in fiscal 2007 versus the prior year. Demand for test and measurement equipment in our traditional markets remained on the upward trend that has characterized the past several years. We also experienced continued strength in telecommunications test equipment in both the U.S. and Europe. Although equipment utilization was generally higher during fiscal 2007 than it was in the prior year, largely unsuccessful efforts by our competitors to gain market share put pressure on profit margins.

Data products rental and lease revenue increased 27% in fiscal 2007 compared to fiscal 2006, primarily reflecting a full year of contributions from Rush Computer Rentals, Inc., which we acquired in January 2006. We are pleased by the progress we have made in this business this past year, and believe it remains a meaningful growth opportunity for us.

Sales of equipment and other revenues declined by 9% for fiscal 2007, primarily because growth in our rental business reduced our incentive to sell equipment from our pool.

Depreciation of rental and lease equipment increased 18% for fiscal 2007, to $42.2 million from $35.8 million for fiscal 2006. This increase was primarily due to an increase in the acquisition cost of our equipment pool to $302.0 million at the end of fiscal 2007 from $262.3 million at the prior year-end and the full year effect of the Rush acquisition in the prior year. The book value of our equipment pool rose to $161.8 million at the end of fiscal 2007 from $140.1 million a year earlier. Equipment purchases were $73.9 million, $65.8 million and $70.4 million for fiscal 2007, 2006 and 2005, respectively.

Selling, general and administrative (“SG&A”) expenses increased 20% for fiscal 2007, to $40.4 million from $33.8 million for fiscal 2006. The majority of this increase reflected the full-year effect and additional operating costs related to the Rush acquisition and the growth of our operations in Europe and China. SG&A expenses for fiscal 2007 also included $0.9 million of stock compensation expense as a result of the adoption of Statement of Financial Accounting Standards No.123R, Share-Based Payment. We expect the investments we made this past year will support higher revenue in the future without similar growth in SG&A expenses.

Income before taxes increased slightly to $34.5 million for fiscal 2007 from $34.4 million for fiscal 2006, reflecting $1.6 million we received from the settlement of a class action lawsuit and additional interest income of $1.2 million in fiscal 2007. Significantly, income before taxes for the fourth quarter of fiscal 2007 increased 7% to $9.7 million compared to$9.1 million for the prior year quarter. Since there were no unusual items recorded in either quarter, this increase is a positive sign for the future.

Net income for fiscal 2007 declined by $1.2 million, or 5.1%, to $21.0 million, or $0.81 per diluted share, compared to $22.2 million, or $0.86 per diluted share, for fiscal 2006. Our performance for fiscal 2007 nevertheless represented real tangible progress, since net income for fiscal 2006 benefited from higher rental rates, as well as a $1.0 million reduction in the provision for income taxes related to changes in estimated tax liabilities and rates. In contrast, the only unusual positive event in fiscal 2007 was $1.6 million of income from the class action settlement.

Cash, cash equivalents and marketable securities were $80.7 million at fiscal 2007 year end, down only slightly from $81.5 million at the close of fiscal 2006 despite the fact that we repurchased $3.0 million of our outstanding shares during the fiscal year and paid for $74.9 million of new and used equipment. Electro Rent has no debt. With our performance for the year, stockholders’ equity increased nearly 10%, to $243.5 million at May 31, 2007 from $221.8 million at the end of the prior year.

QUARTERLY DIVIDEND

In April 2007, Electro Rent's Board of Directors initiated a regular quarterly cash dividend program, and declared an initial quarterly dividend of $0.10 per share which was paid on July 10, 2007. During the year we also repurchased in open market transactions approximately 225,000 shares of our common stock.

Our decision to repurchase shares and initiate a regular quarterly dividend reflects Electro Rent's financial strength – more than $80 million in cash and cash equivalents, no funded debt, and a long history of profitable operations – as well as our confidence in the Company's future. We are pleased to return this cash as part of our overall effort to enhance our shareholders' investment in our Company.

INTERNATIONAL EXPANSION

In fiscal 2007 we made good progress towards our goal of building a fully integrated operating platform in the world's three key markets for test and measurement and data products equipment – Europe, Southeast Asia, and the Americas – and began seriously evaluating the next steps in our geographic expansion program. The success we achieved in both Europe and China this past year testifies to the wisdom of this course.

Our new businesses in Europe and China delivered solid revenue growth during fiscal 2007, their first full year of operations, and contributed to our profitability in the year's fourth quarter. We are optimistic that these trends will continue in the new fiscal year as we continue to benefit from the international infrastructure that we are creating.

What is more, with our emphasis on international growth, we are seeing something fundamentally different emerge in our business that has important implications for the future. In the United States and Europe, the bulk of our volume has been driven by customers' research and development activities primarily in aerospace, defense and telecommunications. In contrast, in China the emphasis has been primarily in manufacturing, a test equipment market that previously had been only a small contributor to the Company's overall performance. Based on our positive experience in China, and with the active encouragement of several of our multinational customers, we are developing plans for the next stage of our international expansion in other important manufacturing centers in Southeast Asia and the Americas.

Bolstered by our long-standing commitment to adding breadth and depth to our equipment pool as required to best serve our customers, the emergence of significant demand by manufacturing companies for test equipment is creating the opportunity for us to build a business with two different cores – one manufacturing, the other research and development– which we believe can improve our ability to sustain steady growth over time.

TEST & MEASUREMENT

We took a variety of steps this past year to enhance Electro Rent's leadership position in the U.S. test and measurement arena by adding sales channels and expanding our marketing efforts, steps that we believe will help us increase our customer base and build our market share. We also continue to invest in our traditional defense and aerospace, telecommunications and wireless communications markets, and are committing substantial resources to develop our position in the manufacturing market.

During fiscal 2007 we entered into North American distribution agreements with Agilent Technologies, Hioki and RAE Systems for a range of basic test and measurement products from these leading manufacturers.

We see distribution as a magnet for customer growth, a natural ally that allows us to provide additional services to mid-sized and small companies in particular, and creates a judicious balance with our existing rental and leasing businesses.

In addition to expanding our distribution business, we are working to build a foundation of trust and responsibility between ourselves, our vendors and our customers. We are also embarking on a significant expansion of our sales effort, including the recruitment of new sales personnel, in order to more aggressively attack market segments we need for growth.

DATA PRODUCTS

Despite some challenges early on, the integration of Rush Computer Rentals is now complete, and the acquisition appears to have helped revitalize our data products business. By the end of fiscal 2007 Rush was not only on an even keel, it was showing clear signs of serving as the foundation of a much broader data products renaissance for Electro Rent both domestically and abroad.

In addition to its immediate positive contributions to our revenue and customer base, the acquisition of Rush has helped us fill holes in our service offerings and created a new footprint for the business that has made us a truly full service data products rental company. By making it easier than ever before for our customers to work with us to plan events, we have strengthened our relationships in ways that can support continued growth in the new fiscal year.

SUMMING UP

While it has taken several years for us to design and implement a strategy that will allow us to take full advantage of our size, our financial strength, and our international service capability, the vision that has been implicit in our actions has now come into focus: we are integrating the disparate yet complementary elements of our business into a seamless whole that enhances the value we deliver to our customers in a way that no other competitor can match.

Our strategy to internationalize our company, expand the range of equipment and services we offer, and make it easier for our customers to do business with us is the right one for our future. The collaborative approach that characterizes the culture at Electro Rent is providing additional strength to our business by facilitating communication and encouraging creative approaches to problem-solving. The strength and energy of our team is an important asset as we work to take advantage of the opportunities ahead of us.

Daniel Greenberg
Chairman and
Chief Executive Officer

August 10, 2007