<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
________________
For Quarter Ended NOVEMBER 30, 1993 Commission file number 1-6263
--------------------------------- --------
AAR CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2334820
- ---------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 NICHOLAS BOULEVARD, ELK GROVE VILLAGE, ILLINOIS 60007
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 439-3939
-----------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----------- ----------
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under plan
confirmed by a court.
Yes No .
---------- ----------
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of share outstanding of each on the issuer's classed of
common stock, as of the close of the period covered by this report.
$1.00 par value, 15,909,216 shares outstanding as of NOVEMBER 30, 1993 .
- --------- ------------ -------------------
<PAGE>
AAR CORP.
PART I, ITEM I
FINANCIAL INFORMATION
The condensed consolidated financial statements as of November 30, 1993 and 1992
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
condensed consolidated financial statements as of May 31, 1993 have been derived
from audited financial statements. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. Effective June 1, 1993, the Company adopted required
accounting principles under Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions", and SFAS No. 109, "Accounting for Income Taxes". These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the consolidated financial
position of the Company as of November 30, 1993 and the consolidated results of
operations and cash flows for the three months and six months ended November 30,
1993 and 1992. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
-2-
<PAGE>
AAR CORP.
Condensed Consolidated Balance Sheets
As of November 30, 1993 and May 31, 1993
(000's omitted)
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
------------ -----------
(Unaudited) (Derived from
audited financial
statements)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (Note A) $ 28,654 $ 2,255
Accounts receivable, less allowances
of $2,000 at each date 81,447 68,849
Inventories 138,281 139,432
Equipment on or available for short-term lease 30,700 33,104
Prepaid income taxes and other 20,906 21,396
--------- --------
Total current assets 299,988 265,036
--------- --------
Property, plant and equipment, net 54,066 56,052
--------- --------
Other assets:
Investment in leveraged leases 30,988 30,210
Cost in excess of underlying net assets of
acquired companies 6,426 6,571
Prepaid income taxes, retirement benefits, notes
receivable and other (Notes A and D) 16,768 7,282
--------- --------
54,182 44,063
--------- --------
$408,236 $365,151
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans and current maturities of long-
term debt $ 615 $ 25,025
Accounts payable 43,750 32,525
Accrued liabilities and taxes on income 15,165 14,087
--------- --------
Total current liabilities 59,530 71,637
--------- --------
Retirement benefit obligation (Notes A and E) 5,000 -
--------- --------
Long-term debt, less current maturities (Note C) 115,990 66,298
--------- --------
Deferred income taxes (Notes A and D) 40,000 38,000
--------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized
250 shares; none issued - -
Common stock, $1.00 par value, authorized
80,000 shares; issued 16,214 and
16,205 shares at each date 16,214 16,205
Capital surplus 81,279 81,172
Retained earnings 98,690 97,637
Treasury stock, 304 shares at each date, at cost (3,490) (3,490)
Cumulative translation adjustments (3,977) (2,308)
Minimum pension liability adjustment (Note E) (1,000) -
--------- --------
187,716 189,216
--------- --------
$408,236 $365,151
--------- --------
--------- --------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
-3-
<PAGE>
AAR CORP.
Condensed Consolidated Statements of Income
For the three and six months ended November 30, 1993 and 1992
(Unaudited)
(000's omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------ ----------------
1993 1992 1993 1992
------------------ ----------------
<S> <C> <C> <C> <C>
Net sales $93,185 $101,930 $191,491 $200,002
------ ------- ------- -------
Costs and operating expenses:
Cost of sales 76,561 84,613 156,823 163,584
Selling, general and administrative 11,596 13,042 24,018 25,720
------ ------- ------- -------
88,157 97,655 180,841 189,304
------ ------- ------- -------
Operating income 5,028 4,275 10,650 10,698
Interest expense (2,324) (2,060) (4,357) (4,039)
Interest income (Note D) 724 160 817 369
------ ------- ------- -------
Income before provision for income taxes 3,428 2,375 7,110 7,028
Provision for income taxes (Note D) 1,050 800 2,250 2,350
------ ------- ------- -------
Income before cumulative effect
of changes in accounting principles 2,378 1,575 4,860 4,678
Cumulative effect of changes in
accounting principles (Note A):
Income taxes - - 900 -
Postretirement health care benefits,
net of tax - - (890) -
------ ------- ------- -------
Net income $ 2,378 $ 1,575 $ 4,870 $ 4,678
------ ------- ------- -------
------ ------- ------- -------
Net income per share of common stock:
Income before cumulative effect of changes
in accounting principles $ .15 $ .10 $ .31 $ .30
Net cumulative effect of changes in accounting
principles (Note A):
Income taxes - - .06 -
Postretirement health care benefits - - (.06) -
------ ------- ------- -------
$ .15 $ .10 $ .31 $ .30
------ ------- ------- -------
------ ------- ------- -------
Average shares outstanding 15,906 15,812 15,903 15,828
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
- 4 -
<PAGE>
AAR CORP.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended November 30, 1993 and 1992
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
-------------------
1993 1992
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,870 $ 4,678
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 4,977 5,622
Cumulative effect of changes in accounting principles:
Income tax benefit (900) -
Postretirement health care benefit expense 890 -
Leveraged lease income (700) -
Change in certain assets and liabilities:
Accounts receivable (13,120) 15,960
Inventories 488 (18,342)
Equipment on or available for short-term lease 2,404 3,968
Prepaid income taxes and other (2,472) (3,594)
Accounts payable 11,355 (3,242)
Accrued liabilities and taxes on income 880 (4,771)
------- -------
Net cash provided from
operating activities 8,672 279
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (1,960) (5,953)
Investment in leveraged leases (78) 436
Notes receivable and other ( 1,537) (452)
------- -------
Net cash used in investing activities ( 3,575) ( 5,969)
------- -------
Net cash provided from (used in) operating
and investing activities 5,097 ( 5,690)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Gross proceeds from issurance of long-term
notes payable 50,000 -
Repayment of bank loans with proceeds
from issuance of long-term notes payable (28,200) -
Net increase in other borrowings 3,482 13,209
Cash dividends (3,817) (3,798)
Purchase of treasury stock - (1,164)
Other, net 116 85
------- -------
Net cash provided from financing activities 21,581 8,332
------- -------
Effect of exchange rate changes on cash (279) (2)
------- -------
Increase in cash and cash equivalents 26,399 2,640
Cash and cash equivalents beginning
of period 2,255 2,250
------- -------
Cash and cash equivalents end
of period $28,654 $ 4,890
------- -------
------- -------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
- 5 -
<PAGE>
AAR CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1993
(000's omitted except per share and percent data)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents. At November 30, 1993, cash equivalents
of approximately $26,100 held by the Company principally represent investments
in funds holding high-quality commercial paper and U.S. government agency-issued
securities. The funds used to acquire these short-term investments represent
the remaining proceeds from a public debt offering. The carrying amount of cash
equivalents approximates their fair value at November 30, 1993.
INCOME TAXES
Effective June 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes". Prior years' results
were not restated. The cumulative effect of the accounting change was a tax
benefit of $900 ($.06 per share) recorded in the three month period ended August
31, 1993. The adoption of SFAS No. 109 changes the Company's method of
accounting for income taxes from the deferred method to the asset and liability
method of accounting. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using statutory tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect of changes in deferred tax assets and liabilities and tax
rates will be recognized in the consolidated results of operations in the period
the changes occurred.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective June 1, 1993, the Company adopted SFAS No. 106 "Employers' Accounting
for Postretirement Benefits Other than Pensions." Prior years' results were not
restated. Upon adoption, the Company elected as permitted under SFAS No. 106,
to record a one-time transition obligation of $1,350 ($890 after tax or $.06 per
share) which represents that portion of future retiree benefit costs related to
service already rendered by both active and retired employees up to the date of
adoption. It is important to note the charge to operating results will have no
direct impact on cash flows since the Company will continue its current practice
of paying benefits when incurred.
-6-
<PAGE>
AAR CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1993 (Continued)
(000's omitted except per share and percent data)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
The accumulated postretirement benefit obligation of $1,350 primarily represents
health and life insurance benefits for current employees and retirees. The
assumed discount rate used to measure the accumulated postretirement benefit
obligation was 8.0%. The assumed rate of future increases in health care costs
was 10.0% in 1993, declining to 6.0% by the year 2004 and remaining at that rate
thereafter. A one percent increase in the assumed health care cost trend rate
would increase the accumulated postretirement benefit obligation by
approximately $100 as of June 1, 1993 and would not result in a significant
change to the annual postretirement benefit expense.
NOTE B - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
<TABLE>
<CAPTION>
Six Months Ended
November 30,
------------------
1993 1992
------ ------
<S> <C> <C>
Interest paid $3,730 $4,100
Income taxes paid 800 3,300
Income tax refunds received 260 830
</TABLE>
NOTE C - LONG-TERM DEBT
On October 15, 1993, the Company had a public sale of $50,000 of unsecured 7.25%
Notes due October 15, 2003 under a debt offering. Interest payments will be
made semi-annually on April 15 and October 15. The net proceeds were used to
refinance $28,200 of short-term bank borrowings at a weighted average interest
rate of 3.8% with the remaining proceeds used to acquire highly liquid
investments until such time as the funds are utilized in the Company's business
operations.
-7-
<PAGE>
AAR CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1993 (Continued)
(000's omitted except per share and percent data)
NOTE D - INCOME TAXES
The following disclosures are in accordance with SFAS No. 109. Prior year
amounts have not been restated. The provision for income taxes before the
cumulative effect of the change in accounting principle differs from the amount
computed by applying the United States statutory Federal income tax rate of 34%
for the six month period ended November 30, 1993 for the following reasons:
<TABLE>
<S> <C>
Provision for income taxes
at the Federal statutory rate $2,420
Tax benefits on exempt earnings
from export sales (450)
State income taxes, net of Federal benefit 130
Amortization of goodwill 60
Other 90
-----
Provision for income taxes as reported $2,250
-----
-----
Effective income tax rate 31.6%
-----
-----
</TABLE>
The Company believes that its deferred tax assets will be fully realizable,
therefore a valuation allowance was not required at November 30, 1993.
The cumulative effect of the non-cash accounting charge for postretirement
benefits (health care and pension) was tax benefitted at the Federal Statutory
rate of 34%.
The Company recorded interest income of $430 in the three month period ended
November 30, 1993, relating to accrued interest due on Federal income tax
refunds.
NOTE E - MINIMUM PENSION LIABILITY ADJUSTMENT
The Company recorded a minimum pension liability of $3,650 reported within
Retirement benefit obligation in the Condensed Consolidated Balance Sheets with
$1,000 charged to Stockholders' equity in accordance with the method of
accounting prescribed by SFAS No. 87, "Employers' Accounting for Pensions".
The liability significantly increased recently as the result of the market
driven decrease in the discount rate used by the Company to determine pension
obligations. The non-cash adjustment did not impact the Company's results of
operations.
-8-
<PAGE>
AAR CORP.
PART I, ITEM II
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
(000's omitted except per share and percent data)
NET SALES SUMMARY
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 1993
(as compared with the same period of the prior year)
The Company reports its activities in one business segment: Aviation Services.
The following table sets forth net sales for the Company's classes of similar
products and services within this segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------ ------------------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales:
Trading $ 44,223 $ 60,037 $ 94,775 $112,977
Overhaul 24,729 24,494 50,812 50,202
Manufacturing 24,233 17,399 45,904 36,823
------ ------ ------ ------
$ 93,185 $101,930 $191,491 $200,002
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED NOVEMBER 30, 1993
(as compared with the same period of the prior year)
Net income increased by $803, or 51%, albeit on lower sales volume, primarily as
the result of improved operating margins. The operating income and margins
benefitted from sales mix, improved operating efficiencies and previously
implemented cost reductions. Also, additional interest income of $430 from
income tax refunds was recorded.
Net sales decreased $8,745, or 8.6%, primarily due to lower sales of major
components and aviation fasteners within trading activities, partially offset by
increased shipments of manufactured products related to the government's rapid
deployment program. Also, certain overhaul activities increased as airline
customers outsourced overhaul work as part of ongoing cost containment programs.
The Company's sales order backlog continued to increase during the three-month
period as certain operations entered into longer-term customer commitments. The
primary contributor to the backlog position was orders for manufactured products
related to the government's rapid deployment program.
-9-
<PAGE>
AAR CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS (Continued)
(000's omitted except per share and percent data)
SIX MONTH PERIOD ENDED NOVEMBER 30, 1993
(as compared with the same period of the prior year)
Net income increased $192 or 4.1% on a reduction in net sales of $8,511 or 4.3%.
Net sales during the period were impacted by the same factors described under
the three month results of operations discussed above. Operating income
remained level year over year as the Company was able to maintain its gross
profit margin by offsetting the competitive pressures of the marketplace with
the ongoing benefits of operating efficiencies and cost management, particularly
in the second quarter.
Gross profit contribution included $700 of income from a reduction in the
interest rate on a non-recourse leveraged lease obligation negotiated by the
Company. The effective tax rate reduction from 33.4% to 31.6% was due primarily
to increased benefits from export sales.
Effective June 1, 1993, the Company made two required changes in accounting
principles. The net cumulative effect of these changes was not material to the
results of operations. Specifically, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" which resulted in a non-cash income tax benefit of
$900 (or $.06 per share) and SFAS No. 106, "Employer's Accounting for Post-
retirement Benefits Other Than Pensions" which resulted in a non-cash charge of
$1,350 ($890 after tax or $.06 per share).
-10-
<PAGE>
AAR CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
FINANCIAL CONDITION AND LIQUIDITY
(000's omitted except ratios)
AT NOVEMBER 30, 1993
(as compared with May 31, 1993)
During the six month period ended November 30, 1993, cash provided from
operating activities was $8,672, and resulted primarily from increased earnings
and effective management of working capital. In addition, in October, 1993, the
Company sold $50,000 of unsecured ten-year notes (see Note C in Notes to the
Condensed Consolidated Financial Statements). The proceeds were used to
refinance $28,200 of short-term bank borrowings. Excess proceeds of $21,800
were invested in highly liquid short-term investments. Operating cash in excess
of working capital requirements was used primarily to pay dividends of $3,817.
The Company believes that the combination of cash flow from operating activities
and available bank credit lines of $127,300 position the Company to meet its
anticipated working capital requirements and to take advantage of business
growth opportunities. In addition, the Company has a shelf registration
statement on file with the Securities and Exchange Commission for $85,000 of
medium or long-term debt securities, which it may issue at its discretion and
subject to market conditions.
A summary of key indicators of financial condition and lines of credit follows:
<TABLE>
<CAPTION>
Description November 30, 1993 May 31, 1993
------------------------ ----------------- ------------
<S> <C> <C>
Working capital $240,458 $193,399
Current ratio 5.0:1 3.7:1
Bank Credit Lines:
Borrowings outstanding $ - $ 24,000
Available but unused lines 127,300 103,700
------- -------
$127,300 $127,700
------- -------
------- -------
Long-term debt less current
maturities $115,990 $ 66,298
Ratio of long-term debt to
long-term debt plus
stockholders' equity 38.2% 25.9%
</TABLE>
-11-
<PAGE>
AAR CORP.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on October 13,
1993, A. Robert Abboud, Ira A. Eichner and Robert D. Judson were elected
as directors of the Company to serve until the 1996 Annual Meeting of
Shareholders.
There were no abstentions and no broker non-votes for any of the nominees
for directors. The number of votes cast for, or withheld, for each nominee
for director were as follows:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
A. Robert Abboud 14,096,214 107,746
Ira A. Eichner 14,109,317 94,643
Robert D. Judson 14,110,869 93,091
</TABLE>
No other matters were presented to the Company's shareholders for action
at the Annual Meeting of Shareholders.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM
4. Instruments defining the rights of security holders
4.1 Restated Certificate of Incorporation:(1) Amendments
thereto dated November 3, 1987;(2) and
October 19, 1988.(2)
4.2 By-Laws, as amended.(2)
4.3 Credit Agreement dated June 1, 1993 between the
Registrant and Continental Bank N.A.(7)
4.4 Rights Agreement between the Registrant and The First
National Bank of Chicago;(1) Amendment thereto dated
July 18, 1989.(2)
4.5 Indenture dated October 15, 1989 between the Registrant
and Continental Bank, N.A., as Trustee, relating to
debt securities;(4) First Supplemental Indenture
thereto dated August 26, 1991.(5)
4.6 Officer's certificate dated October 24, 1989.(3)
4.7 Credit Agreement dated October 15, 1991 between the
Registrant and The First National Bank of Chicago, as
Agent.(6)
______________________
Notes:
(1) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1987.
(2) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1989.
(3) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated October 24, 1989.
(4) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-Q for the quarter ended November 30, 1989.
(5) Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form S-3 filed August 27, 1991.
(6) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1991.
(7) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993.
-12-
<PAGE>
AAR CORP.
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED NOVEMBER 30, 1993:
The Company filed its report on Form 8-K dated October 12, 1993
covering the Company's entering into an Underwriting Agreement and
the Officers' Certificate establishing the terms of the Company's
offering and sale of 7.25% Notes due October 15, 2003 in the
principal amount of $50 million. No financial statements were
required to be filed with this report.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
----------------------------------------
(Registrant)
Date: January 13, 1994 /s/ Joseph J. Dzurinko
------------------ ----------------------------------------
Joseph J. Dzurinko
Vice President Finance and
Chief Financial Officer
(Principal financial officer and officer
duly authorized to sign on behalf of
registrant)
-14-
