<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
________________
FOR QUARTERLY PERIOD ENDED AUGUST 31, 1995 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 CORPORATE ISSUERS)
Indicate the number of shares outstanding of each on the issuer's classes
of common stock, as of the latest practicable date.
$1.00 par value, 15,959,200 shares outstanding as of AUGUST 31, 1995.
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AAR CORP. and Subsidiaries
Quarterly Report on Form 10Q
August 31, 1995
Table of Contents
Page
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
Exhibits 10
Reports on Form 8-K 10
Signature Page 11
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<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of August 31, 1995 and May 31, 1995
(000s omitted)
<TABLE>
<CAPTION>
August 31, May 31,
1995 1995
----------- ----------
(Unaudited) (Derived from
audited financial
ASSETS statements)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,557 $ 22,487
Accounts receivable, less allowances
of $2,680 and $2,400 at each date 98,143 110,420
Inventories (Note B) 147,451 151,827
Equipment on or available for
short-term lease 20,169 18,501
Deferred tax assets, deposits and other 16,951 18,397
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Total current assets 311,271 321,632
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Property, plant and equipment, net 56,279 56,596
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Other assets:
Investment in leveraged leases 31,493 31,952
Cost in excess of underlying net assets of
acquired companies 6,025 6,101
Retirement benefits, notes receivable and
other 6,294 9,533
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43,812 47,586
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$411,362 $425,814
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,473 $ 1,632
Accounts payable 37,475 51,393
Accrued liabilities 12,563 14,958
Accrued taxes on income 4,486 4,138
Accrued interest 3,487 1,019
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Total current liabilities 59,484 73,140
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Long-term debt, less current maturities 119,392 119,766
Deferred tax liabilities 30,660 30,660
Retirement benefit obligation and
deferred credits (Note D) 3,883 5,129
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153,935 155,555
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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 16,301 and 16,284
shares at each date 16,301 16,284
Capital surplus 82,336 82,132
Retained earnings 103,620 102,309
Treasury stock, 342 and 323 shares at each
date, at cost (4,026) (3,733)
Cumulative translation adjustments (Note D) 72 1,497
Minimum pension liability adjustment (Note D) (360) (1,370)
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197,943 197,119
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$411,362 $425,814
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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. and Subsidiaries
Condensed Consolidated Statements of Income
For the three months ended August 31, 1995 and 1994
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales $109,593 $ 97,191
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Costs and operating expenses:
Cost of sales 89,096 80,377
Selling, general and administrative 13,606 11,563
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102,702 91,940
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Operating income 6,891 5,251
Interest expense (2,664) (2,597)
Interest income 364 171
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Income before provision for income taxes 4,591 2,825
Provision for income taxes 1,365 820
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Net income $ 3,226 $ 2,005
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------- -------
Net income per share of common stock (Note E) $ .20 $ .13
------- -------
------- -------
Dividends paid and declared per share
of common stock $ .12 $ .12
------- -------
------- -------
Average shares outstanding 15,956 15,907
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended August 31, 1995 and 1994
(Unaudited)
(000s omitted)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
---------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,226 $ 2,005
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 2,612 2,557
Change in certain assets and liabilities:
Accounts receivable, net 11,893 (472)
Inventories, net 3,418 (10,695)
Equipment on or available for
short-term lease (1,668) 3,982
Deferred tax assets, deposits and other 710 (3,255)
Accounts payable (13,736) (3,012)
Accrued liabilities and taxes on income (1,897) (2,416)
Accrued interest 2,468 2,436
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Net cash provided from (used in)
operating activities 7,026 (8,870)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (2,151) (1,812)
Investment in leveraged leases 459 46
Notes receivable and other 3,294 115
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Net cash provided from (used in) investing activities 1,602 (1,651)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in other borrowings, net (533) 1,426
Cash dividends (1,915) (1,909)
Purchase of treasury stock (293) -
Proceeds from exercise of stock options and other 221 7
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Net cash used in financing activities (2,520) (476)
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Effect of exchange rate changes on cash (38) 122
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Increase (decrease) in cash and cash equivalents 6,070 (10,875)
Cash and cash equivalents, beginning of period 22,487 18,074
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Cash and cash equivalents, end of period $ 28,557 $ 7,199
------- -------
------- -------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<PAGE>
AAR CORP. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1995
(000s omitted)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of AAR CORP. ("the Company")and its subsidiaries after elimination of
intercompany accounts and transactions. These statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated balance
sheet as of May 31, 1995 has 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 of the
SEC. 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 condensed consolidated
financial position of AAR CORP. and its subsidiaries as of August 31, 1995 and
the condensed consolidated results of operations and cash flows for the three
months ended August 31, 1995 and 1994. 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,
1995 presentation.
NOTE B - INVENTORY
The summary of inventories is as follows:
<TABLE>
<CAPTION>
August 31, May 31,
1995 1995
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<S> <C> <C>
Raw materials and parts $ 28,271 $ 29,316
Work-in-process 11,588 11,891
Purchased aircraft, parts,
engines and components
held for sale or exchange 107,896 110,948
Finished goods 1,758 1,734
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149,513 153,889
Progress billings on long-term
contracts and programs (2,062) (2,062)
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$147,451 $151,827
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</TABLE>
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<PAGE>
AAR CORP.and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1995 (Continued)
(000s omitted)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------
1995 1994
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<S> <C> <C>
Interest paid $ 160 $ 110
Income taxes paid 1,520 1,270
Income tax refunds received - 140
</TABLE>
NOTE D - CUMULATIVE TRANSLATION AND MINIMUM PENSION LIABILITY ADJUSTMENTS
The Cumulative translation adjustments account decreased due to a net
translation loss of $1,425 for the three-month period ended August 31, 1995. The
loss resulted from a decrease 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 Company reduced the minimum
pension liability by $1,246 during the three-month period ended August 31, 1995
reported within Retirement benefit obligation in the Condensed Consolidated
Balance Sheets with a corresponding increase of $1,010 to Stockholders' equity
in accordance with the method of accounting prescribed by SFAS No. 87,
"Employers' Accounting for Pensions". The liability decreased as the result of
the market-driven increase in the discount rate used by the Company to determine
pension obligations and improved market values of the pension plan's assets.
The noncash adjustment did not affect the Company's results of operations.
NOTE E - EARNINGS PER SHARE
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.
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<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
THREE-MONTH PERIOD ENDED AUGUST 31, 1995
(as compared with the same period of the prior year)
The following table sets forth net sales for the Company's classes of similar
products and services within the Company's Aviation Services business segment:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------
1995 1994
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<S> <C> <C>
Net Sales:
Trading $53,628 $47,671
Overhaul 31,655 24,121
Manufacturing 24,310 25,399
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$109,593 $97,191
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</TABLE>
Consolidated net sales for the first quarter of the fiscal year ending May 31,
1996 (fiscal 1996) increased $12,402 or 12.8% over the same period in the prior
year. Trading sales increased $5,957 or 12.5% over the prior year as a result
of increased airframe and large component part sales. Overhaul sales increased
$7,534 or 31.2% due to increased airframe and large airframe component overhaul
services. These increased sales were partially offset by a decline in
Manufacturing sales of $1,089 or 4.3% due to the Company's disposition of
certain small manufactured product lines since the prior year.
Consolidated gross profit increased $3,683 or 21.9% over the prior year due to
increased consolidated net sales and an increase in the consolidated gross
profit margin to 18.7% compared to the prior years 17.3 % margin. Higher profit
margins were experienced across most classes of products and services primarily
due to favorable product mix and better pricing of products and services.
Consolidated operating income increased $1,640 or 31.2% over the prior year as a
result of the increased net sales and gross profit margin percentage partially
offset by higher selling, general and administrative expenses from higher
personnel costs and marketing support costs.
Consolidated net income increased $1,221 or 60.9% over the prior year due to the
increased consolidated net sales, improved consolidated gross profit margin and
increased interest income on investment of the Company's cash and cash
equivalents.
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<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except ratios)
AT AUGUST 31, 1995
(as compared with May 31, 1995)
In the three-month period ended August 31, 1995, the Company generated $7,026 of
cash from operations through increased earnings and working capital management.
The cash generated from operations was supplemented by payment of a note
receivable obtained in the previous sale of a partial residual interest of an
aircraft subject to a leveraged lease. The Company's cash and cash equivalent
position increased $6,070 at the end of the three month period after making
capital expenditures and paying dividends of $2,151, and $1,915 respectively.
The Company further strengthened its financial position during the first quarter
of fiscal 1996 by increasing cash and cash equivalents, generating additional
working capital of $3,295, eliminating short-term borrowings during the three
month period and decreasing its long-term debt to capitalization ratio to 37.6%.
The Company continues to maintain available sources of financing from $133,300
of unused available bank lines and 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 cash and cash equivalents, available sources of
financing and future income will continue to give the Company the ability to
meet its ongoing working capital requirements, make anticipated capital
expenditures, and pursue favorable business opportunities.
A summary of key financial conditions, ratios, and lines of credit follows:
<TABLE>
<CAPTION>
Description August 31, 1995 May 31, 1995
----------------------- --------------- ------------
<S> <C> <C>
Working capital $251,787 $248,492
Current ratio 5.2:1 4.4:1
Bank Credit Lines:
Borrowings outstanding $ - $ -
Available but unused lines 133,300 133,750
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133,300 $133,750
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Long-term debt less current
maturities $119,392 $119,766
Ratio of long-term debt to
capitalization 37.6% 37.8%
</TABLE>
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<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
AUGUST 31, 1995
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM
27. Financial 27.1 Financial Data Schedule for the Registrant's three-
Data month interim period ended August 31, 1995.
Schedule
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED AUGUST 31, 1995:
The Company filed no reports on Form 8-K during the three (3) months ended
August 31, 1995.
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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.
-----------------------------------
(Registrant)
Date: October 9, 1995 /s/ Timothy J. Romenesko
-------------------- -----------------------------------
Timothy J. Romenesko
Vice President, Chief Financial Officer
and Treasurer.
(Principal accounting officer and officer
duly authorized to sign on behalf of
registrant)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-Q FOR THE THREE MONTH INTERIM PERIOD ENDED
AUGUST 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 28,557
<SECURITIES> 0
<RECEIVABLES> 100,823
<ALLOWANCES> 2,680
<INVENTORY> 147,451
<CURRENT-ASSETS> 311,271
<PP&E> 130,362
<DEPRECIATION> 74,083
<TOTAL-ASSETS> 411,362
<CURRENT-LIABILITIES> 59,484
<BONDS> 119,392
<COMMON> 16,301
0
0
<OTHER-SE> 181,642
<TOTAL-LIABILITY-AND-EQUITY> 411,362
<SALES> 109,593
<TOTAL-REVENUES> 109,593
<CGS> 89,096
<TOTAL-COSTS> 102,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 280<F1>
<INTEREST-EXPENSE> 2,300<F2>
<INCOME-PRETAX> 4,591
<INCOME-TAX> 1,365
<INCOME-CONTINUING> 3,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,226
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>Provision for doubtful accounts is included in Total Costs and Expenses.
<F2>Interest expense is presented net of $364 of interest income.
</FN>
</TABLE>
