<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended AUGUST 31, 1994 Commission file number 1-6263
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AAR CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2334820
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 NICHOLAS BOULEVARD, ELK GROVE VILLAGE, ILLINOIS 60007
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 439-3939
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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 .
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(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 .
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(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, 15,906,792 shares outstanding as of AUGUST 31, 1994.
<PAGE>
AAR CORP.
PART I
FINANCIAL INFORMATION
The condensed consolidated financial statements as of August 31, 1994 and 1993
included herein have been prepared by AAR CORP. ("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, 1994 have been
derived from audited financial statements with certain prior amounts having been
reclassified, in particular, noncurrent deferred tax assets of $6.6 million
against noncurrent deferred tax liabilities, to conform to the August 31, 1994
presentation. 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. 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 AAR CORP. as of August 31, 1994 and the consolidated results of
operations and cash flows for the three months ended August 31, 1994 and 1993.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year. Certain prior period amounts have
been reclassified to conform to the August 31, 1994 presentation.
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<PAGE>
AAR CORP.
Condensed Consolidated Balance Sheets
As of August 31, 1994 and May 31, 1994
(000s omitted)
<TABLE>
<CAPTION>
August 31, May 31,
1994 1994
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(Unaudited) (Derived from
audited financial
statements)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 7,199 $ 18,074
Accounts receivable, less allowances
of $2,327 and $2,000 86,634 85,947
Inventories (Note B) 157,206 146,039
Equipment on or available for
short-term lease 24,899 28,881
Prepaid income taxes, deposits and other 31,944 28,782
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Total current assets 307,882 307,723
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Property, plant and equipment, net 54,856 54,783
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Other assets:
Investment in leveraged leases 32,572 32,618
Cost in excess of underlying net assets of
acquired companies 6,260 6,313
Notes receivable, retirement benefits and
other (Notes A and E) 9,074 9,579
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47,906 48,510
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$410,644 $411,016
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans and current maturities of long-
term debt $ 2,230 $ 568
Accounts payable 46,700 49,599
Accrued liabilities and taxes on income 14,189 15,432
Accrued interest 3,443 2,115
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Total current liabilities 66,562 67,714
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Long-term debt, less current maturities 115,512 115,729
Deferred tax liabilities (Note A) 32,390 32,390
Retirement benefit obligation and
other deferred credits (Notes A and E) 6,060 5,695
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153,962 153,814
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Stockholders' equity:
Preferred stock, $1.00 par value, authorized
250 shares; none issued -- --
Common stock, $1.00 par value, authorized 80,000
shares; issued 16,216 and 16,215 shares
at each date 16,216 16,215
Capital surplus 81,302 81,296
Retained earnings 99,592 99,496
Treasury stock, 309 shares at each date,
at cost (3,556) (3,556)
Cumulative translation adjustments (Note D) (2,064) (2,963)
Minimum pension liability adjustment (Note E) (1,370) (1,000)
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190,120 189,488
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$410,644 $411,016
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------- -------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<PAGE>
AAR CORP.
Condensed Consolidated Statements of Income
For the three months ended August 31, 1994 and 1993
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
1994 1993
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<S> <C> <C>
Net sales $ 97,191 $ 98,306
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Costs and operating expenses:
Cost of sales 80,377 80,262
Selling, general and administrative 11,563 12,422
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91,940 92,684
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Operating income 5,251 5,622
Interest expense (2,597) (2,033)
Interest income 171 93
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Income before provision for income taxes
and cumulative effect of changes in
accounting principles 2,825 3,682
Provision for income taxes 820 1,200
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Income before cumulative effect
of changes in accounting principles 2,005 2,482
Cumulative effect of changes in
accounting principles: (Note A)
Income taxes -- 900
Postretirement health care benefits,
net of tax -- (890)
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Net income $ 2,005 $ 2,492
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Net income per share of common stock (Note D):
Income before cumulative effect of changes
in accounting principles $ .13 $ .16
Net cumulative effect of changes in accounting
principles:
Income taxes -- .06
Postretirement health care benefits,
net of tax -- (.06)
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Net income per share of common stock $ .13 $ .16
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Dividends paid and declared per share
of common stock $ .12 $ .12
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Average shares outstanding 15,907 15,900
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<PAGE>
AAR CORP.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended August 31, 1994 and 1993
(Unaudited)
(000s omitted)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------
1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,005 $ 2,492
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 2,557 2,544
Cumulative effect of changes in accounting principles:
Income tax benefit -- (900)
Postretirement health care benefit expense -- 890
Leveraged lease repricing -- (700)
Change in certain assets and liabilities:
Accounts receivable, net (472) (7,170)
Inventories, net (10,695) 1,824
Equipment on or available for
short-term lease 3,982 1,881
Prepaid income taxes, deposits and other (3,255) (2,997)
Accounts payable (3,012) 8,561
Accrued liabilities and taxes on income (2,416) (1,545)
Accrued interest 2,436 1,582
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Net cash provided from (used in)
operating activities (8,870) 6,462
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (1,812) (764)
Investment in leveraged leases 46 (29)
Notes receivable and other 115 31
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Net cash used in investing activities (1,651) (762)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in other borrowings, net 1,426 (3,651)
Cash dividends (1,909) (1,908)
Proceeds from employee stock purchases 7 -
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Net cash used in financing activities (476) (5,559)
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Effect of exchange rate changes on cash 122 (223)
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Decrease in cash and cash equivalents (10,875) (82)
Cash and cash equivalents, beginning of period 18,074 2,255
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Cash and cash equivalents, end of period $ 7,199 $ 2,173
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</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<PAGE>
AAR CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1994
(000s omitted except per share and percent data)
NOTE A - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
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 occur.
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.
NOTE B - INVENTORY
The summary of inventories is as follows:
<TABLE>
<CAPTION>
August 31, May 31,
1994 1994
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<S> <C> <C>
Raw materials and parts $ 29,028 $ 25,349
Work-in-process 13,291 11,974
Purchased aircraft parts,
engines and components
held for sale or exchange 112,944 106,529
Finished goods 1,944 2,189
--------- ---------
157,207 146,041
Progress billings on long-term
contracts and programs (1) (2)
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$ 157,206 $ 146,039
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--------- ---------
</TABLE>
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<PAGE>
AAR CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1994 (Continued)
(000s omitted except per share and percent data)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
1994 1993
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<S> <C> <C>
Interest paid $ 110 $ 390
Income taxes paid 1,270 300
Income tax refunds received 140 200
</TABLE>
NOTE D - STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The Cumulative translation adjustments account increased due to a net
translation gain of $899 for the three-month period ended August 31, 1994. The
gain resulted from an increase in the value of the Company's net investment in
foreign subsidiaries primarily resulting from an increase in the value of the
U.S. dollar against most European currencies. The per share data was calculated
using the weighted average shares outstanding for the periods presented. Common
stock equivalents consisting of employee stock options have not been included in
the per share calculation as their dilutive effect is not material.
NOTE E - MINIMUM PENSION LIABILITY ADJUSTMENT
The Company recorded a minimum pension liability during the three-month periods
ended August 31, 1994 and 1993 of $365 and $3,650, respectively, reported within
Retirement benefit obligation in the Consolidated Balance Sheets with $370 and
$1,000, at each respective date, charged to Stockholders' equity in accordance
with the method of accounting prescribed by SFAS No. 87, "Employers' Accounting
for Pensions". The liability significantly increased as the result of the
market-driven decrease in the discount rate used by the Company to determine
pension obligations. The noncash adjustment did not affect the Company's
results of operations.
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<PAGE>
AAR CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
(000s omitted except per share and percent data)
THREE-MONTH PERIOD ENDED AUGUST 31, 1994
(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 for the three-month periods ended
August 31:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------
1994 1993
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<S> <C> <C>
Net Sales:
Trading $47,671 $52,796
Overhaul 24,121 23,839
Manufacturing 25,399 21,671
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$97,191 $98,306
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</TABLE>
Net income for the first quarter of fiscal 1995 decreased $487 or 19.5% from the
same period in the prior year primarily as the result of a decrease in
consolidated gross profit contribution. Net income was also affected by
increased interest expense due to additional borrowings and higher interest
rates resulting primarily from the sale of $50 million of 10-year, 7-1/4% notes.
The reduction in net income was partially offset by lower operating expenses and
a lower effective tax rate resulting from tax benefits on certain export sales.
While total net sales remained generally constant for the respective three-month
periods, trading sales decreased $5,125 or 9.7% due to reduced sales of parts
and aviation fasteners. This decline was partially offset by increased sales of
manufactured products of $3,728 or 17.2% under existing and new contracts for
products supporting the United States Government's Rapid Deployment Program as
well as increased sales of commercial cargo systems.
Consolidated gross profit contribution decreased $1,230 or 6.8% as the result of
the decrease in consolidated gross profit margin from 18.4% to 17.3% and
slightly lower consolidated net sales. The gross profit margin was lower from
the effects of continued competitive pricing pressures on overhaul margins
stemming in part from overcapacity in certain areas of the industry and product
mix at our floor maintenance equipment manufacturing unit. These margin
decreases were partially offset by improved margins on certain manufactured
products, as well as on aircraft and engine parts. Consolidated gross profit
contribution in the prior year included $700 of income from a reduction in the
interest rate on a non-recourse leveraged lease obligation negotiated by the
Company.
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<PAGE>
AAR CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
FINANCIAL CONDITION
(000s omitted except ratios)
AT AUGUST 31, 1994
(as compared with May 31, 1994)
In the three-month period ended August 31, 1994, the Company utilized cash to
meet working capital requirements, make capital expenditures and pay dividends.
The Company's working capital requirements exceeded operating cash flow due to
payments or deposits on the purchase of advantageously priced inventory and
inventory to support existing or new inventory management programs.
The Company continues to maintain sources of financing amounting to $131,065 of
available bank lines and has a shelf registration 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.
The Company believes that its continued strong financial position within the
aviation services industry, available sources of financing and future income
will continue to give the Company the ability to meet ongoing working capital
requirements and take advantage of additional business opportunities.
A summary of key indicators of financial condition and lines of credit follows:
<TABLE>
<CAPTION>
Description August 31, 1994 May 31, 1994
------------------------ --------------- ------------
<S> <C> <C>
Working capital $ 241,320 $ 240,009
Current ratio 4.6:1 4.5:1
Bank Credit Lines:
Borrowings outstanding $ 1,685 $ -
Available but unused lines 131,065 132,500
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$ 132,750 $132,500
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Long-term debt less current
maturities $ 115,512 $ 115,729
Ratio of long-term debt to
capitalization 37.8% 37.9%
</TABLE>
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<PAGE>
AAR CORP.
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM
4. Instruments 4.1 Restated Certificate of Incorporation:(1) Amendments
defining the thereto dated November 3, 1987;(2) and October 19,
rights of 1988.(2)
security
holders 4.2 By-Laws, as amended.(8)
4.3 Credit Agreement dated June 1, 1993 between the
Registrant and Continental Bank N.A.(7) and amendment
thereto dated May 16, 1994.(8)
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) and
October 12, 1993.(3)
4.7 Credit Agreement dated October 15, 1991 between the
Registrant and The First National Bank of Chicago, as
Agent (6) and amendment thereto dated March 31,
1994.(8)
27. Financial 27.1 Financial Data Schedule for the Registrant's three-
Data month interim period ended August 31, 1994.
Schedule
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<PAGE>
AAR CORP.
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
- - ----------------------
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 and October 12, 1993.
(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.
(8) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1994.
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED AUGUST 31, 1994:
The Company filed no reports on Form 8-K during the three (3) months ended
August 31, 1994.
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<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.
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(Registrant)
Date: October 13, 1994
------------------------------------------
Timothy J. Romenesko
Vice President - Controller and
Chief Accounting Officer
(Principal accounting officer and officer
duly authorized to sign on behalf of
registrant)
- 12 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH
PERIOD ENDED AUGUST 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-1-1994
<PERIOD-END> AUG-31-1994
<CASH> 7,199
<SECURITIES> 0
<RECEIVABLES> 88,961
<ALLOWANCES> 2,327
<INVENTORY> 157,206
<CURRENT-ASSETS> 307,882
<PP&E> 124,353
<DEPRECIATION> 69,497
<TOTAL-ASSETS> 410,644
<CURRENT-LIABILITIES> 66,562
<BONDS> 115,512
<COMMON> 16,216
0
0
<OTHER-SE> 173,904
<TOTAL-LIABILITY-AND-EQUITY> 410,644
<SALES> 97,191
<TOTAL-REVENUES> 97,191
<CGS> 80,377
<TOTAL-COSTS> 91,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 325<F1>
<INTEREST-EXPENSE> 2,426
<INCOME-PRETAX> 2,825
<INCOME-TAX> 820
<INCOME-CONTINUING> 2,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,005
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<FN>
<F1>Provision for doubtful accounts is included in TOTAL COSTS.
</FN>
</TABLE>
