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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995 COMMISSION FILE NUMBER 1-6263
AAR CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2334820
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------- -----------------------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
At July 31, 1995, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was approximately $256,681,136. The calculation of
such market value has been made for the purposes of this report only and should
not be considered as an admission or conclusion by the Registrant that any
person is in fact an affiliate of the Registrant.
On July 31, 1995, there were 15,961,480 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the Registrant's Annual Meeting
of Stockholders, to be held October 11, 1995, is incorporated by reference in
Part III to the extent described therein.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
Item 1. Business..................................................................................... 2
Item 2. Properties................................................................................... 4
Item 3. Legal Proceedings............................................................................ 4
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 4
Executive Officers of the Registrant......................................................... 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.................................................................................... 6
Item 6. Selected Financial Data...................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................... 8
Item 8. Financial Statements and Supplementary Data.................................................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 36
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 37
Item 11. Executive Compensation....................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 37
Item 13. Certain Relationships and Related Transactions............................................... 37
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K...................................... 38
SIGNATURES.................................................................................................. 39
</TABLE>
1
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PART I
ITEM 1. BUSINESS
AAR CORP. and its subsidiaries are referred to herein collectively as the
"Company," unless the context indicates otherwise. The Company was organized in
1955 as the successor to a business founded in 1951 and was reincorporated in
Delaware in 1966. The Company supplies a variety of products and services for
aviation in the United States and abroad.
Certain of the Company's aviation-related activities and products are
subject to licensing, certification and other requirements imposed by the
Federal Aviation Administration and other regulatory agencies, both domestic and
foreign. The Company believes that it has all licenses and certifications that
are material to the conduct of its business.
The Company's trading activities include the purchase, sale and lease of a
wide variety of new, used and overhauled aviation products, principally aircraft
equipment such as engines, avionics, accessories, airframe and engine parts and
components. The Company also provides customized inventory supply and management
programs for certain aircraft and engine parts in support of customer
maintenance activities. The Company is also a distributor of new aviation
hardware and parts. The Company's primary sources of aviation products are
domestic and foreign airlines, independent aviation service companies and
airframe, engine and other original equipment manufacturers. The Company's
trading activities also include the purchase, sale, lease and lease financing of
new and used jet aircraft.
The Company provides a wide range of services, parts, component exchange and
other products as part of its overhaul activities. The Company overhauls,
repairs and modifies components for commercial and military aircraft, including
landing gear and engine components for most models of commercial aircraft. It
provides aircraft terminal services (fueling and aircraft storage), maintenance,
modification, special equipment installation and painting services for
commercial and business aircraft.
The Company manufactures, installs and repairs specialized aviation
products, including pallets, containers, cargo handling systems and lightweight
air logistics shelters, primarily for domestic and foreign military
organizations, airframe manufacturers, commercial airlines and others.
The Company furnishes Aviation Services directly through its own employees.
Domestic and foreign airlines, airframe, engine and other original equipment
manufacturers, aircraft leasing companies, domestic and foreign military
organizations and independent aviation support companies are the principal
customers for the Company's aviation trading activities. Principal customers of
the Company's aviation overhaul activities are commercial airlines, aircraft
leasing companies, business aircraft operators, military overhaul depots,
military contractors and original equipment manufacturers. Sales of Aviation
Services to commercial airlines are generally affected by such factors as the
number, type and average age of aircraft in service, the levels of aircraft
utilization (E.G., frequency of schedules), the number of airline operators and
the level of sales of new and used aircraft.
The Company is a leading independent supplier of Aviation Services to the
aviation aftermarket, which is highly competitive. Competition is based on
quality, ability to provide a broad range of products and services, speed of
delivery and price. During the past three years, the demand for aviation
aftermarket products and services improved, particularly in the latter half of
this period. At the beginning of this three-year period, airlines experienced
significant financial losses from reduced traffic demands and increased costs.
As a result, airlines curtailed purchases and reduced or, in some cases, ceased
operations, leading to a decline in demand for aviation
2
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aftermarket products and services during the early 1990s. This decline in demand
was exacerbated by the availability of parts from grounded aircraft, excess
airline inventories and material from airlines that ceased operations.
Demand improved during the last half of this period as airlines, generally,
experienced increased revenue passenger and freight miles, increased aircraft
fleet utilization, and in many cases, returned to operating profitability.
During this period of improvement, start-up airlines emerged in niche-markets,
began to record operating earnings and, in some instances, are expanding
operations. The improvement in the operating results of many airlines stem from
increased traffic demands, internal cost controls and from outsourcing certain
support activities to third party providers. Additionally, the supply of surplus
aircraft and parts inventories that increased during the industry downturn, have
begun to be absorbed at a faster rate due to increased utilization of aircraft
fleets by airlines and conversion of aircraft to alternative uses.
Aerospace and defense manufacturers also experienced lower demand during
this three year period due to reduced and cancelled orders for new aircraft.
While this reduced demand still exists, increases in orders for new aircraft are
expected over the next few years. Also during this period, government budget
cuts resulted in a downsizing of the United States military. While this
downsizing adversely effected the aerospace/aviation industry, the military
continues to require products to support ongoing rapid deployment requirements
and services previously performed within the military.
The Company competes with other independent distributors and independent
support facilities, as well as with airlines and original equipment
manufacturers, including aerospace equipment manufacturers, some of which have
greater resources than the Company. In certain of its leasing and commercial jet
aircraft trading activities, the Company faces competition from financial
institutions, syndicators, commercial and specialized leasing companies and
other entities that provide financing, some of which have greater resources than
the Company. The Company believes it has maintained a satisfactory competitive
position.
In addition to its aviation-related activities, the Company manufactures
highly engineered proprietary products, including industrial floor cleaning and
material handling equipment and nuclear shielding material. The Company sells
these products directly and through independent distributors to a wide variety
of commercial customers and domestic and foreign governments. The markets for
these products are highly competitive, based on price, quality and availability.
At May 31, 1995, backlog believed to be firm was approximately $79,407,000
compared to $84,550,000 at May 31, 1994. An additional $85,076,000 of unfunded
government options on awarded contracts also existed at May 31, 1995. Of the
1995 year-end backlog that is firm, $23,460,000 is attributable to government
contracts for products related to the U.S. Government's rapid deployment
programs. It is expected that approximately $68,188,000 of the backlog will be
shipped in fiscal 1996.
Sales to the United States government, its agencies, and its contractors
were approximately $82,708,000 (18.3% of total net sales), $77,500,000 (19.0% of
total net sales) and $57,600,000 (15.0% of total net sales) in fiscal 1995, 1994
and 1993, respectively. Because such sales are subject to competitive bidding
and government funding, no assurance can be given that such sales will continue
at levels previously experienced. The majority of the Company's government
contracts are for aviation products and services used for ongoing routine
military logistic support activities; unlike weapons systems and other high
technology military requirements, these products and services are less likely to
be affected by reductions in defense spending. The Company's contracts with the
United States government and its agencies are typically firm agreements to
provide aviation products and services at a fixed price and have a term of one
year or less, frequently subject to extension for one or more additional periods
of one year at the option of the government agency. Although the Company's
government contracts are subject to termination at
3
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the election of the government, in the event of such a termination the Company
would be entitled to recover from the government all allowable costs incurred by
the Company through the date of termination.
At May 31, 1995, the Company employed approximately 1,940 persons worldwide.
For information concerning the Company's Business Segment activities,
including classes of similar products and services, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations." For
information concerning export sales, see "Business Segment Information" in Note
1 of Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
Aviation trading activities are conducted from three buildings in Elk Grove
Village, Illinois, one owned by the Company, another subject to an industrial
revenue bond mortgage until June 1, 1995 and the third is leased. In addition to
warehouse space, which is mechanized for efficient access to the diverse
inventory, these facilities include executive offices, sales offices and a
service center. Warehouse facilities are leased in Cerritos, California and
Hawthorne, New York for the purpose of aviation hardware distribution and in
Hamburg, Germany and Nantgarw, United Kingdom for the purpose of aviation part
and component distribution.
Aviation overhaul facilities are located in The Netherlands near Schiphol
International Airport (in a building owned by the Company); Garden City, New
York (in a building owned by the Company); Frankfort, New York (subject to an
industrial revenue bond lease to the Company until 2001, at which time the
Company shall purchase the facility for a nominal consideration); Windsor,
Connecticut (in a building owned by the Company); Miami, Florida (in leased
facilities near the airport); Singapore (in leased facilities near the airport);
London, England (in leased facilities); Paris, France (in leased facilities) and
Oklahoma City, Oklahoma (in facilities leased from airport authorities). The
Company's experience indicates that lease renewal is available on reasonable
terms consistent with its business needs.
The Company's principal manufacturing activities are conducted at owned
facilities in Port Jervis, New York, and Cadillac and Livonia, Michigan.
Industrial floor cleaning equipment is manufactured in a plant located in
Aberdeen, North Carolina (subject to an industrial revenue bond lease to the
Company until October 1994, following which the Company shall purchase the
facility for a nominal consideration).
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
4
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SUPPLEMENTAL INFORMATION:
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the Company is set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Ira A. Eichner............................... 64 Chairman of the Board and Chief Executive Officer; Director
David P. Storch.............................. 42 President and Chief Operating Officer; Director
Philip C. Slapke............................. 42 Vice President-Engine Group
Howard A. Pulsifer........................... 52 Vice President; General Counsel; Secretary
Timothy J. Romenesko......................... 38 Vice President-Controller; Chief Financial Officer;
Treasurer
</TABLE>
The term of each of the current executive officers of the Company expires on
October 11, 1995, the date of the annual meeting of the Board of Directors,
which will be held immediately after the 1995 Annual Meeting of Stockholders.
Mr. Eichner, the founder of the Company, has been Chairman of the Board of
the Company since 1973, and his directorship expires at the 1996 Annual Meeting.
Mr. Eichner has been a director and the Chief Executive Officer of the Company
since 1955. Mr. Eichner is Mr. Storch's father-in-law.
Mr. Storch was elected President of the Company in July, 1989. He had been a
Vice President of the Company since January, 1988. Mr. Storch joined the Company
in 1979 and had been President of a major subsidiary since June, 1984. Mr.
Storch has been a director of the Company since 1989, and his directorship
expires at the 1997 Annual Meeting. Mr. Storch is Mr. Eichner's son-in-law.
Mr. Slapke was elected Vice President of the Company in July 1994. He is
also President of a major subsidiary, a position he has held since July, 1989.
He has been with the Company in various positions since 1982.
Mr. Pulsifer joined the Company as General Counsel in August, 1987 and was
elected a Vice President in October, 1989 and Secretary in May, 1990. He was
previously with United Airlines, Inc. for 14 years, most recently as Senior
Counsel.
Mr. Romenesko has served as Controller of the Company since 1991. He was
elected Vice President in January, 1994 and Chief Financial Officer and
Treasurer in December, 1994. He has been with the Company in various positions
since 1981.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange. On June 30, 1995, there were approximately 12,000
holders of the Common Stock of the Company, including participants in security
position listings.
Certain of the Company's debt agreements contain provisions restricting the
payment of dividends or repurchase of its shares. See Note 2 of Notes to
Consolidated Financial Statements included herein. Under the most restrictive of
these provisions, the Company may not pay dividends (other than stock dividends)
or acquire its capital stock if after giving effect thereto the aggregate
amounts paid on or after June 1, 1995 exceed the sum of (i) $20,000,000 plus
(ii) 50% of Consolidated Net Income of the Company after June 1, 1994. At May
31, 1995, unrestricted consolidated retained earnings available for payment of
dividends and purchase of the Company's shares totalled approximately
$20,000,000. Effective June 1, 1995 unrestricted consolidated retained earnings
increased to $25,232,000 due to inclusion of 50% of Consolidated Net Income of
the Company for fiscal 1995.
The table below sets forth for each quarter of the fiscal year indicated the
reported high and low sales price of the Company's Common Stock on the New York
Stock Exchange and the amount of dividends declared.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
--------------------------- ---------------------------
PER COMMON SHARE: MARKET PRICES MARKET PRICES
- ------------------------- -------------- QUARTERLY -------------- QUARTERLY
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------------------------- ----- ----- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
First.................. 151/8 133/8 $ .12 141/8 125/8 $ .12
Second................. 131/2 12 .12 141/4 125/8 .12
Third.................. 141/8 121/2 .12 165/8 131/2 .12
Fourth................. 151/4 121/8 .12 173/8 143/8 .12
--------- ---------
$ .48 $ .48
--------- ---------
--------- ---------
</TABLE>
6
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(000'S OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
- ----------------------------------------------
Net sales................................... $451,395 $407,754 $382,780 $422,657 $466,542
Gross profit................................ 77,871 71,910 68,436 83,440 92,246
Operating income............................ 24,438 21,824 5,343(2) 20,730(4) 30,401(5)
Interest expense............................ 10,900 9,564 8,107 8,356 10,073
Income (loss) before provision (benefit) for
income taxes.............................. 14,713 13,684 (1,917)(3) 13,620(4) 21,351(5)
Net income.................................. 10,463 9,494 283(3) 10,020(4) 14,801(5)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Per share data:
Net income................................ $ .66 $ .60 $ .02(3) $ .63(4) $ .93(5)
Cash dividends............................ $ .48 $ .48 $ .48 $ .48 $ .48
Average common shares
outstanding............................. 15,932 15,904 15,855 15,895 15,952
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FINANCIAL POSITION AT YEAR END:
- ---------------------------------------------------------
Working capital............................. $248,492 $240,009(2) $193,399 $197,246 $189,172
Total assets................................ 425,814 411,016(1) 365,151 395,351 379,958
Short-term debt............................. 1,632 568(2) 25,025 25,005 16,500
Long-term debt.............................. 119,766 115,729(2) 66,298 67,323 68,953
Total debt.................................. 121,398 116,297(2) 91,323 92,328 85,453
Stockholders' equity........................ 197,119 189,488 189,216 196,737 193,778
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of shares outstanding at end of
year...................................... 15,962 15,906 15,900 15,899 15,891
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Book value per share of common stock........ $ 12.35 $ 11.91 $ 11.90 $ 12.37 $ 12.19
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<FN>
- ------------------------
Notes:
(1) Reflects reclassification of $6,610,000 of noncurrent tax assets against
noncurrent deferred tax liabilities to conform to the fiscal 1995
presentation.
(2) In October, 1993, the Company sold $50,000,000 of unsecured 7.25% Notes due
October 15, 2003. Proceeds were used to repay short-term bank borrowings
and utilized in the Company's operations.
(3) Fiscal 1993 includes non-cash restructuring expenses of $11,000,000 (or
$7,200,000 after-tax) primarily related to the writedown of certain
inventories to reflect the impact of market conditions (See Note 11 of
Notes to Consolidated Financial Statements) and a reduction in income tax
expense of $1,200,000 (See Note 3 of Notes to Consolidated Financial State-
ments).
(4) Fiscal 1992 includes expenses of $5,800,000 (or $3,800,000 after-tax)
related to the Company's restructuring of its Oklahoma City maintenance
subsidiary and a reduction in income tax expense of $700,000.
(5) Fiscal 1991 includes expenses of $3,300,000 (or $2,150,000 after-tax)
primarily related to the restructuring of the Oklahoma City maintenance
subsidiary and an airline customer bankruptcy.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reports its activities in one business segment: Aviation
Services. The table below sets forth net sales for the Company's classes of
similar products and services within this segment for each of the last three
fiscal years ended May 31.
THREE-YEAR NET SALES SUMMARY
The comparison of net sales of the Company over the last three fiscal years
covers a period of improving general economic conditions, and improving
conditions in the aerospace/aviation industry. Airlines continue to strive to
improve their financial condition which was weakened due to an extended period
of operating losses during the early 1990s. Airlines are now experiencing
increased aircraft fleet utilization and increased revenue passenger and freight
miles, which are contributing to improved operating earnings. Airlines'
operating earnings are also being positively affected by their aggressive steps
to control costs through restructuring operations, exiting unprofitable routes,
and by outsourcing certain support activities to third party providers. Start-up
airlines emerged in niche-markets during this period and began to record
operating earnings and, in some instances, are expanding operations. Supplies of
surplus aircraft and parts inventories that increased during the industry
downturn, are now being absorbed at a faster rate due to increased aircraft
utilization and conversion of aircraft to alternate uses, such as cargo
capabilities. In fiscal 1995 and 1994, the Company's revenues benefitted from
aggressive pursuit of market opportunities in the improving aerospace/aviation
industry. The Company's trading sales of airframe and large component parts
increased as did sales from inventory management programs and inventory
provisioning for start-up airlines. Sales of certain airframe and component
overhaul services, as well as manufactured commercial cargo systems, also
improved in fiscal 1995.
Aerospace/aviation manufacturers and certain defense contractors experienced
delays and cancellations of new aircraft orders and other manufactured aviation
products during this period. This decreased demand resulted in a decline in
Company sales of aviation fasteners for the first two years of the period. These
sales have now stabilized and aerospace/aviation manufacturers are projecting
increases in new aircraft orders over the next few years which should provide
increased aviation fastener demand. Also, government budget cuts resulted in a
downsizing of the United States military. While this downsizing adversely
affected the aerospace/aviation industry generally, the military continues to
require products to support ongoing rapid deployment requirements and services
previously performed within the military. The Company's response to these
changed requirements has resulted in increased sales of manufactured products.
The Company's sales of overhaul services also benefitted from government
outsourcing of certain activities previously performed within the military.
The difficult general economic conditions during the early part of this
three year period also adversely affected the Company's nonaviation related
businesses. As the general business environment improved the Company
aggressively pursued availing business opportunities in response to changing
customer needs, which resulted in increased sales of the Company's floor
maintenance products and overhaul services on industrial gas turbines during the
latter part of fiscal 1994 and during fiscal 1995.
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The Company believes that its established market position, its ability to
respond to changes in the industry and its diverse customer base coupled with
continued improvement in the aerospace/aviation industry, positions the Company
to take advantage of opportunities in improving markets.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Net Sales:
Trading...................................................... $ 236,723 $ 208,561 $ 211,956
Overhaul..................................................... 108,737 102,972 92,890
Manufacturing................................................ 105,935 96,221 77,934
----------- ----------- -----------
$ 451,395 $ 407,754 $ 382,780
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
FISCAL 1995 COMPARED WITH FISCAL 1994
The Company's operating results continued to improve in fiscal 1995 building
on improvements in the prior year. Consolidated net sales for fiscal 1995
increased $43,641,000 or 10.7% over the prior fiscal year, primarily due to
increased sales of major products within each of the classes of similar products
and services. Operating income increased $2,614,000 or 11.9% over the prior year
due to increased consolidated net sales partially offset by a slightly lower
consolidated gross profit margin and increased total selling, general and
administrative costs. Net income increased $969,000 or 10.2% primarily due to
increased consolidated net sales partially offset by the factors described above
and increased interest expense on additional borrowings and higher interest
rates, primarily resulting from the sale of $50 million of 10 year, 7 1/4% notes
in October 1993.
Trading sales increased $28,162,000 or 13.5% primarily as a result of
increased sales of airframe and large component parts as well as sales resulting
from inventory management programs and inventory provisioning of start-up
airlines. Overhaul sales increased $5,765,000 or 5.6% primarily as a result of
increased airframe and airframe component overhaul services partially offset by
reduced sales of large component overhaul services. Manufacturing sales
increased $9,714,000 or 10.1% primarily due to the sale of manufactured
commercial cargo systems, products and product repairs supporting the United
States governments' rapid deployment program and floor maintenance products.
Consolidated gross profit increased $5,961,000 or 8.3% over the prior fiscal
year due to increased consolidated net sales, although the consolidated gross
profit margin of 17.3% was lower than the prior year's 17.6% gross profit
margin. However, the prior fiscal year included $700,000 from a reduction in the
interest rate on a nonrecourse leveraged lease obligation and $1,300,000 from
leveraged lease repricing required to adjust for tax rate differentials. The
margin on manufactured products and principal trading products increased year
over year. Overhaul margins declined over the prior year primarily as a result
of changes in the mix of labor and parts provided in overhaul services and
highly competitive pricing on overhaul business.
Consolidated operating income increased $2,614,000 or 11.9% over the prior
year due to increased consolidated net sales partially offset by the
consolidated margin decline described above and increased selling, general and
administrative costs which declined as a percentage of net sales.
Consolidated net income increased $969,000 or 10.2% over the prior year due
to the increased consolidated net sales partially offset by the factors
described above and increased interest expense.
9
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FISCAL 1994 COMPARED WITH FISCAL 1993
The Company's operating results improved in fiscal 1994 despite the highly
competitive and economically weak aerospace/aviation market. Consolidated net
sales for fiscal 1994 increased $24,974,000 or 6.5% over the prior fiscal year
primarily as a result of increased manufacturing and overhaul sales. Net income
increased $9,211,000 over the prior year, which included restructuring expenses
of $11,000,000 ($7,200,000 after tax) related to the write-down of certain
inventories. Excluding restructuring expenses, net income increased $2,011,000
or 26.9% as the result of sales increases and reduced selling, general and
administrative costs.
Manufacturing sales increased $18,287,000 or 23.5%, primarily from the sale
of products to the U.S. government. Overhaul sales increased $10,082,000 or
10.9% due to increased demand for maintenance services at the Oklahoma City
facility and increased sales of rotable landing gear inventory. Trading sales
increased in its primary products, such as airframe and engine parts; however,
these gains were offset by reduced demand for aviation fasteners and the
Company's decision not to enter into fastener programs requiring significant
inventory investment with uncertain returns. These factors resulted in an
overall decline in trading sales of $3,395,000 or 1.6%.
Consolidated gross profit increased $3,474,000 or 5.1% over the prior year
primarily due to increased sales revenue. Fiscal 1994 consolidated gross profit
included $700,000 from a reduction in the interest rate on a nonrecourse
leveraged lease obligation negotiated by the Company, and $1,300,000 from
leveraged lease repricing required to adjust for tax rate differentials. The
consolidated gross profit margin was slightly lower than the prior year, down
from 17.9% to 17.6%. Trading and manufacturing margins improved year over year
while overhaul margins declined. The overhaul margin decline was due to
increased price competition resulting from maintenance overcapacity in the
industry and airlines using lower-cost serviceable replacement components in
preference to overhaul services.
Consolidated operating income increased $16,481,000 over the prior year.
Without the fiscal 1993 restructuring expenses of $11,000,000, operating income
increased $5,481,000 or 33.5% due primarily to the increased sales and a
reduction of $2,007,000 in selling, general and administrative costs. The
Company maintained its effort to contain costs, reduce nonessential spending and
create operating efficiencies wherever possible.
Consolidated net income increased $9,211,000 notwithstanding increased
interest expense of $1,457,000 due to higher fixed-rate interest on debt from
the issuance of $50 million of new 7.25% long-term notes issued in October,
1993. Proceeds from this fixed-rate debt repaid $28 million of short-term bank
borrowings at lower interest rates. Higher margins on fiscal 1994 export sales
reduced the effective tax rate, which also contributed to the net income
increase.
FISCAL 1993
Consolidated net sales for fiscal 1993 decreased $39,877,000 or 9% from the
prior fiscal year. Net income decreased $9,737,000 or 97% as the result of the
sales decrease, restructuring expenses of $11,000,000 (or $7,200,000 after tax)
and a reduction in the consolidated gross profit margin. The operating results
of each major business activity in fiscal 1993 were adversely affected by the
continued weak economic environment, particularly in the aerospace/aviation
market.
Trading activities benefitted from increased sales of its primary products,
such as airframe and engine parts. Even with these increases, trading sales
decreased $6,946,000 or 3%, primarily due to reduced demand for aviation
fasteners. The sales of overhaul services decreased $13,986,000 or 12%,
primarily as a result of lower demand and the effect of downsizing the Oklahoma
City maintenance facility. The lower demand was caused by airlines downsizing
their active fleets, focusing on lowering maintenance costs, maintenance
overcapacity in the industry
10
<PAGE>
and airlines using lower-cost serviceable components, abundant in the
marketplace, in preference to overhauling certain units. Manufacturing sales
decreased $18,945,000, or 20%; however, it should be noted that fiscal 1992
included $11,000,000 of non-recurring product sales for the Persian Gulf
conflict. Sales for the government's rapid deployment program increased during
fiscal 1993 and the order backlog was higher at the end of fiscal 1993 as
compared to the same period in fiscal 1992. Further, sales were reduced due to
the reduction and deferral of orders for commercial and military aircraft cargo
systems and spare parts, and lower sales at the Company's floor maintenance
equipment unit due to a recession-induced decline in demand, intense competition
and the effect of converting to a direct distribution system in Europe.
Consolidated gross profit decreased $15,004,000 or 18% from the prior fiscal
year due to a reduction in sales and a decrease in consolidated gross profit
margin from 19.7% to 17.9%. Lower production and sales levels in relation to
fixed costs at a few units, as well as increased competition, hampered the
margin. The Company reduced selling, general and administrative expenses
$4,817,000 or 8% in response to a decrease in sales and competitive market
conditions. The Company continued its focus on cost containment and improvement
in operating efficiencies in an effort to maintain its operating margins.
In February, 1993 the Company recorded noncash restructuring expenses of
$11,000,000 for the writedown of certain inventories and associated costs. The
inventories most affected were parts for older-model commercial aircraft,
certain manufactured products and material supporting original equipment
manufacturers. The writedown resulted from the Company's assessment of the
impact on inventories of then very recent changes in the aerospace/aviation
market, as well as the continued recessionary environment.
The income tax benefit of $2,200,000 reported in fiscal 1993 included an
expense reduction of $1,200,000 from the reversal of income tax liabilities. The
income tax benefit before the expense reduction was higher than that determined
using the statutory rate as the result of state income tax refunds and the
effect of tax benefits on exempt earnings from export sales. The income tax
expense reduction was for income tax liabilities recorded in prior years, but no
longer required due to the conclusion by the Internal Revenue Service of its
examination of the Company's Federal income tax returns for prior years.
FINANCIAL CONDITION
AT MAY 31, 1995 COMPARED WITH MAY 31, 1994
In fiscal 1995 the Company generated $15,255,000 of cash from operations,
primarily in the last half of the fiscal year, through increased earnings and
effective working capital management. The Company also issued $6,186,000 of
long-term debt bearing an interest rate of 5% in conjunction with the purchase
of inventory to support long-term inventory management programs. The overall
cash and cash equivalents position of the Company increased $4,413,000 to
$22,487,000 at fiscal year end. The increase in cash and cash equivalents was
accomplished while making $9,073,000 of capital improvements, paying $7,650,000
in dividends and carrying increased trade accounts receivable of $23,375,000
stemming from record sales in the last quarter of the fiscal year.
The Company's financial position continued to improve in fiscal 1995.
Working capital increased $8,483,000, average short-term borrowings were
reduced, and the ratio of long-term debt to capitalization improved to 37.8%.
The Company believes that its improved financial condition, along with available
sources of financing, including its unused bank credit lines and facilities
amounting to $133,750,000, will enable the Company to meet its anticipated
working capital requirements and pursue advantageous business opportunities.
11
<PAGE>
A summary of key indicators of financial condition and lines of credit
follows:
<TABLE>
<CAPTION>
MAY 31,
------------------
DESCRIPTION 1995 1994
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
(000'S OMITTED)
Working capital............................................. $248,492 $240,009
Current ratio............................................... 4.4:1 4.5:1
Bank credit lines:
Borrowings outstanding.................................... $ -- $ --
Available but unused lines................................ 133,750 132,500
-------- --------
Total credit lines.............................. $133,750 $132,500
-------- --------
-------- --------
Long-term debt, less current maturities..................... $119,766 $115,729
Ratio of long-term debt to capitalization................... 37.8% 37.9%
</TABLE>
The Company has a shelf registration statement on file with the Securities
and Exchange Commission for $85,000,000 of medium or long-term debt securities,
which it may issue at its discretion and subject to market conditions.
EFFECTS OF INFLATION
The Company believes that results of operations for the periods reported
were not materially affected by inflation.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF AAR CORP.:
We have audited the accompanying consolidated balance sheets of AAR CORP.
and subsidiaries as of May 31, 1995 and 1994 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended May 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AAR CORP.
and subsidiaries as of May 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the years in the three-year period ended May
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES,
as of June 1, 1993. As discussed in Notes 1 and 6 to the consolidated financial
statements, the Company also adopted the provisions of the Financial Accounting
Standards Board's SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS, as of June 1, 1993.
KPMG Peat Marwick LLP
Chicago, Illinois
June 30, 1995
13
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1995 1994 1993
-------- -------- --------
(000'S OMITTED EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net sales.......................................................... $451,395 $407,754 $382,780
-------- -------- --------
Costs and operating expenses:
Cost of sales.................................................... 373,524 335,844 314,344
Selling, general and administrative.............................. 53,433 50,086 52,093
Restructuring expenses (Note 11)................................. -- -- 11,000
-------- -------- --------
426,957 385,930 377,437
-------- -------- --------
Operating income................................................... 24,438 21,824 5,343
Interest expense (Note 2).......................................... (10,900) (9,564) (8,107)
Interest income (Note 3)........................................... 1,175 1,424 847
-------- -------- --------
Income (loss) before provision (benefit) for income taxes.......... 14,713 13,684 (1,917)
Provision (benefit) for income taxes (Notes 1 and 3)............... 4,250 4,200 (2,200)
-------- -------- --------
Income before cumulative effects of changes in
accounting principles............................................ 10,463 9,484 283
Cumulative effects of changes in accounting
principles (Note 1):
Income taxes................................................. -- 900 --
Postretirement health care benefits, net of tax.............. -- (890) --
-------- -------- --------
Net income......................................................... $ 10,463 $ 9,494 $ 283
-------- -------- --------
-------- -------- --------
Net income per share of common stock (Note 5):
Income before cumulative effects of changes in accounting
principles..................................................... $ .66 $ .60 $ .02
Cumulative effects of changes in accounting
principles:
Income taxes................................................. -- .06 --
Postretirement health care benefits, net of tax.............. -- (.06) --
-------- -------- --------
Net income......................................................... $ .66 $ .60 $ .02
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
($000'S OMITTED)
<TABLE>
<CAPTION>
MAY 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)................................................ $ 22,487 $ 18,074
Accounts receivable, less allowances of $2,400 and $2,000, respectively (Note
11)............................................................................. 110,420 85,947
Inventories (Notes 1 and 11)...................................................... 151,827 146,039
Equipment on or available for short-term lease (Note 1)........................... 18,501 28,881
Deferred tax assets, deposits and other (Notes 1, 3 and 7)........................ 18,397 28,782
-------- --------
Total current assets.................................................... 321,632 307,723
-------- --------
Property, plant and equipment, at cost (Note 1):
Land.............................................................................. 3,101 3,088
Buildings and improvements........................................................ 36,227 34,477
Equipment, furniture and fixtures................................................. 88,872 84,536
-------- --------
128,200 122,101
Accumulated depreciation.......................................................... (71,604) (67,318)
-------- --------
56,596 54,783
-------- --------
Other assets:
Investment in leveraged leases (Notes 1 and 10)................................... 31,952 32,618
Cost in excess of underlying net assets
of acquired companies (Note 1).................................................. 6,101 6,313
Retirement benefits, notes receivable and other
(Notes 3, 6 and 10)............................................................. 9,533 9,579
-------- --------
47,586 48,510
-------- --------
$425,814 $411,016
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
MAY 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (Note 2)..................................... $ 1,632 $ 568
Accounts payable.................................................................. 51,393 49,599
Accrued liabilities............................................................... 15,977 13,312
Accrued taxes on income (Notes 1 and 3)........................................... 4,138 4,235
-------- --------
Total current liabilities............................................... 73,140 67,714
-------- --------
Long-term debt, less current maturities (Note 2).................................... 119,766 115,729
Deferred tax liabilities (Notes 1, 3 and 10)........................................ 30,660 32,390
Retirement benefit obligation and deferred credits (Note 6)......................... 5,129 5,695
-------- --------
155,555 153,814
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250 shares; none issued.............. -- --
Common stock, $1.00 par value, authorized 80,000 shares; issued 16,284 and 16,215
shares at respective dates (Note 4)............................................. 16,284 16,215
Capital surplus................................................................... 82,132 81,296
Retained earnings (Note 2)........................................................ 102,309 99,496
Treasury stock, 323 and 309 shares at respective dates, at cost (Note 4).......... (3,733) (3,556)
Cumulative translation adjustments (Note 1)....................................... 1,497 (2,963)
Minimum pension liability (Note 6)................................................ (1,370) (1,000)
-------- --------
197,119 189,488
-------- --------
$425,814 $411,016
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK TREASURY STOCK CUMULATIVE PENSION
----------------- --------------- CAPITAL RETAINED TRANSLATION LIABILITY
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS ADJUSTMENTS ADJUSTMENTS
------- -------- ---- --------- -------- ---------- ----------- -----------
(NOTE 4) (NOTE 4) (NOTE 2) (NOTE 1) (NOTE 6)
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1992........................ 16,105 $16,105 206 $ (2,326) $80,284 $ 104,968 $ (2,294) $ --
Net income................................. -- -- -- -- -- 283 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,614) -- --
Treasury stock purchased................... -- -- 98 (1,164) -- -- -- --
Adjustment for net translation loss........ -- -- -- -- -- -- (14) --
Exercise of stock options, stock awards and
employee stock purchases................. 100 100 -- -- 888 -- -- --
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1993........................ 16,205 $16,205 304 $ (3,490) $81,172 $ 97,637 $ (2,308) $ --
Net income................................. -- -- -- -- -- 9,494 -- --
Cash dividends ($.48 per
share)................................... -- -- -- -- -- (7,635) -- --
Treasury stock purchased................... -- -- 5 (66) -- -- -- --
Exercise of stock options
and stock awards......................... 10 10 -- -- 124 -- -- --
Adjustment for net translation
loss..................................... -- -- -- -- -- -- (655) --
Minimum pension liability.................. -- -- -- -- -- -- -- (1,000)
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1994........................ 16,215 $16,215 309 $ (3,556) $81,296 $ 99,496 $ (2,963) $ (1,000)
Net income................................. -- -- -- -- -- 10,463 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,650) -- --
Treasury stock purchased................... -- -- 14 (177) -- -- -- --
Exercise of stock options and stock
awards................................... 69 69 -- -- 836 -- -- --
Adjustment for net translation gain........ -- -- -- -- -- -- 4,460 --
Minimum pension liability.................. -- -- -- -- -- -- -- (370)
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1995........................ 16,284 $16,284 323 $ (3,733) $82,132 $ 102,309 $ 1,497 $ (1,370)
------- -------- ---- --------- -------- ---------- ----------- -----------
------- -------- ---- --------- -------- ---------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1995 1994 1993
-------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 10,463 $ 9,494 $ 283
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation and amortization........................................ 10,328 9,928 10,883
Restructuring expenses............................................... -- -- 11,000
Cumulative effect of changes in accounting principles:
Income tax benefit................................................. -- (900) --
Postretirement health care benefits expense........................ -- 890 --
Leveraged lease repricing............................................ -- (2,017) --
Change in certain assets and liabilities:
Accounts receivable................................................ (23,375) (17,295) 20,910
Inventories........................................................ (3,253) (6,841) (9,171)
Equipment on or available for short-term lease..................... 10,380 4,223 2,273
Deferred tax assets, deposits and other............................ 9,790 (10,968) (435)
Accounts payable................................................... 1,208 17,081 (10,876)
Accrued liabilities and taxes on income............................ 2,375 3,077 (7,061)
Deferred tax liabilities and other deferred credits................ (2,661) 25 (1,000)
-------- -------- --------
Net cash provided from operating activities............................ 15,255 6,697 16,806
-------- -------- --------
Cash flows from investing activities:
Property, plant and equipment expenditures, net.......................... (9,073) (5,984) (8,918)
Investment in leveraged leases........................................... 666 (391) 589
Proceeds from sale of marketable securities.............................. -- -- 1,593
Notes receivable and other, net.......................................... (939) (1,820) (1,281)
-------- -------- --------
Net cash used in investing activities.................................. (9,346) (8,195) (8,017)
-------- -------- --------
Cash flows from financing activities:
Gross proceeds from issuance of long-term notes payable.................. 6,186 50,000 --
Repayment of bank loans with proceeds from issuance of long-term notes
payable................................................................ -- (28,200) --
Change in other borrowings, net.......................................... (1,085) 3,174 (1,005)
Cash dividends........................................................... (7,650) (7,635) (7,614)
Purchases of treasury stock.............................................. (177) (66) (1,164)
Proceeds from exercise of stock options, employee stock purchases and
other.................................................................. 905 134 988
-------- -------- --------
Net cash provided from (used in) financing activities.................. (1,821) 17,407 (8,795)
-------- -------- --------
Effect of exchange rate changes on cash.................................... 325 (90) 11
-------- -------- --------
Increase in cash and cash equivalents...................................... 4,413 15,819 5
Cash and cash equivalents, beginning of year............................... 18,074 2,255 2,250
-------- -------- --------
Cash and cash equivalents, end of year..................................... $ 22,487 $ 18,074 $ 2,255
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of intercompany accounts and
transactions.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products and performance of services. Sales and related cost of sales on
long-term contracts are recognized as units are delivered, determined by the
percentage of completion method based on the relationship of costs incurred to
date to estimated total costs under the respective contracts. Lease revenue is
recognized as earned.
ACCOUNTING CHANGES
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 $900,000 ($.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 of Accounting Principles
Board Opinion ("APB") No. 11 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 on
deferred tax assets and liabilities of a change in tax rates will be recognized
in the consolidated results of operations for the period in which the changes
occurred. Pursuant to the deferred method under APB No. 11, which was applied in
1993 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting and
income tax purposes using the tax rate applicable for the year of calculation.
Under the deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
Effective June 1, 1993 the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions." Prior years'
results were not restated. SFAS No. 106 requires that the projected future cost
of nonpension postretirement benefits be recognized as an expense as employees
render services instead of when claims are incurred, as the Company had done in
the past. Upon adoption, the Company elected, as permitted under SFAS No. 106,
to record a one-time transition obligation of $1,350,000 ($890,000 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. The initial accumulated postretirement benefit obligation
of $1,350,000 primarily represented health and life insurance benefits for
certain current employees and retirees.
In fiscal 1995 the Company adopted SFAS No. 112 "Employers' Accounting for
Postemployment Benefits." Prior years' results were not restated. This standard
requires an accrual method of recognizing the costs of providing postemployment
benefits relating to employee severance, disability, health and life insurance.
Since the Company either does not provide such benefits or accounted for those
benefits provided on an accrual basis, the cumulative after-tax charge of
accruing the cost of benefits under this statement was not significant to the
results of operations in fiscal 1995.
19
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents. At May 31, 1995 and 1994 cash equivalents
of approximately $19,129,000 and $5,717,000, respectively held by the Company
represent investments in funds holding high-quality commercial paper,
Eurodollars and U.S. government agency-issued securities. The carrying amount of
cash equivalents approximates fair value at May 31, 1995 and 1994, respectively.
MARKETABLE SECURITIES
The Company recorded net proceeds of $1,593,000 in fiscal 1993 from the sale
of marketable securities and included a $57,000 net loss determined on the basis
of specific identification in the consolidated results of operations. Marketable
securities were carried at the lower of aggregate cost or market value.
FOREIGN CURRENCY
Gains and losses on foreign currency translation and foreign exchange
contracts are determined in accordance with the method of accounting prescribed
by SFAS No. 52. All balance sheet accounts of foreign and certain domestic
subsidiaries transacting business in currencies other than the Company's
functional currency are translated at year-end exchange rates. Revenues and
expenses are translated at average exchange rates during the year. Translation
adjustments are excluded from the results of operations and are recorded in
Stockholders' equity as Cumulative translation adjustments.
The Company from time to time uses forward exchange contracts or options to
hedge its loss exposure from the translation of foreign subsidiaries results of
operations from functional currencies into United States dollars. Forward
exchange contracts or options losses are included in results of operations in
the period the loss is determinable. Gains are recorded when realized upon
contract settlement. At May 31, 1995 and during fiscal 1995 there were no
forward exchange contracts or options outstanding. Foreign and certain domestic
subsidiaries incur transaction gains and losses upon settlement of obligations
in currencies other than their functional currency. The aggregate net
transaction gains (losses), including those related to forward exchange
contracts, reported in results of operations were $45,000, $(32,000), and
$(578,000) for fiscal 1995, 1994 and 1993, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF MARKET OR CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of market or credit risk consist principally of forward exchange contracts or
options and trade receivables. The forward exchange contracts discussed above
subject the Company to market risk from exchange rate movements. Accordingly,
the Company recognizes losses in the period such losses are determinable. While
the Company's trade receivables are diverse based on the number of entities and
geographic locations, the majority are concentrated in the aerospace/aviation
industry. The Company performs evaluations of customers' financial condition
prior to extending credit privileges and performs on-going credit evaluations of
payment experience, current financial condition, and risk analysis. The Company
typically requires collateral in the form of security interest in assets,
letters of credit, or obligation guarantees from financial institutions for
transactions other than normal trade terms.
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash and
cash equivalents, accounts receivable,
20
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
short-term borrowing, accounts payable and accrued liabilities are reflected in
the financial statements at fair value because of the short-term maturity of
these instruments. Non-current notes receivable and long-term debt bearing a
variable interest rate are reflected in the financial statements at fair value.
Those bearing a fixed interest rate have fair values based on estimates using
discounted future cash flows at an assumed discount rate for borrowing currently
prevailing in the marketplace for similar instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
INVENTORIES
Inventories are priced at the lower of cost or market. Cost is determined by
either the specific identification, average cost, or first-in, first-out method.
Inventoried costs relating to long-term contracts and programs are stated at the
actual production costs, including factory burden and initial tooling, incurred
to date, reduced by amounts identified with revenue recognized on units
delivered. The costs attributed to units delivered under long-term contracts and
programs are based on the estimated average cost of all units scheduled to be
produced. Progress billings under government contracts are based on an allowable
percentage of the cost of material received and labor and factory burden
incurred.
The following is a summary of inventories at:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(000'S OMITTED)
Raw materials and parts............................. $ 29,316 $ 25,349 $ 21,355
Work-in-process..................................... 11,891 11,974 11,117
Purchased aircraft parts, engines and components
held for sale or exchange.......................... 110,948 106,529 105,200
Finished goods...................................... 1,734 2,189 1,785
-------- -------- --------
153,889 146,041 139,457
Progress billings on long-term contracts and
programs.......................................... (2,062) (2) (25)
-------- -------- --------
$151,827 $146,039 $139,432
-------- -------- --------
-------- -------- --------
</TABLE>
EQUIPMENT UNDER OPERATING LEASES
Lease revenue is recognized as earned. The cost of the asset under lease is
original purchase price plus overhaul costs. Depreciation of the cost is
computed on a straight-line method over the estimated service life of the
equipment. Maintenance costs are expensed as incurred. The assets are available
for sale at the end of each lease term. The balance sheet classification is
based on the lease term. Leases with a fixed term under twelve months are
considered short-term and all others are classified as long-term.
Equipment on short-term lease consists of aircraft engines and parts on or
available for lease to satisfy immediate short-term customer requirements. The
leases are renewable with fixed terms, which generally vary from one to six
months.
21
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight-line method over useful lives of
10-40 years for buildings and improvements and 3-10 years for equipment,
furniture and fixtures. Leasehold improvements are amortized over the estimated
useful life or the term of the applicable lease.
Repairs and maintenance expenditures are expensed as incurred. Upon sale or
disposal, cost and accumulated depreciation are removed from the accounts and
related gains and losses included in results of operations.
LEVERAGED LEASES
The Company acts as an equity participant in leveraged lease transactions.
The equipment cost in excess of equity contribution is furnished by third party
financing in the form of secured debt. Under the lease agreements, the third
parties have no recourse against the Company for non-payment of the obligations.
The third party debt is collateralized by the lessees' rental obligations and
the leased equipment. The Company has ownership rights to the leased assets and
is entitled to the investment tax credits, and benefits of tax deductions for
depreciation on the leased assets and for interest on the secured debt
financing.
COST IN EXCESS OF UNDERLYING NET ASSETS OF ACQUIRED COMPANIES
The cost in excess of underlying net assets of companies acquired is being
amortized over a period of forty years. Amortization was $230,000, $240,000 and
$240,000 in fiscal 1995, 1994 and 1993, respectively. Accumulated amortization
is $3,155,000, $2,950,000 and $2,710,000 at May 31, 1995, 1994 and 1993,
respectively.
INCOME TAXES
Income taxes are determined in accordance with the method of accounting
prescribed by SFAS No. 109.
Federal income taxes are not provided on the undistributed earnings of
certain foreign subsidiaries (approximately $15,200,000 and $14,600,000 at May
31, 1995 and 1994, respectively), as it is the Company's intention to reinvest a
portion of these earnings indefinitely in the foreign operations. From time to
time, as the earnings are treated as taxable in the United States, the related
tax expense would be offset substantially by foreign tax credits. Foreign income
taxes are provided at the local statutory rates and reflect estimated taxes
payable.
The benefits of investment tax credits are recognized for book purposes
under the deferral method of accounting for leveraged leases. The investment tax
credits are recognized in the year earned for income tax purposes.
STATEMENTS OF CASH FLOWS
Supplemental information on cash flows follows.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1995 1994 1993
------ ------ ------
(000'S OMITTED)
<S> <C> <C> <C>
Interest paid............................................. $10,700 $8,800 $8,100
Income taxes paid......................................... 3,900 3,300 5,400
Income tax refunds and interest received.................. 330 500 5,100
</TABLE>
22
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
BUSINESS SEGMENT INFORMATION
The Company operates primarily in the aerospace/aviation industry and
reports its activities in one business segment, Aviation Services.
Export sales from the Company's United States operations to unaffiliated
customers, the majority located in Europe, Middle East, Asia, Canada, Mexico and
South America (including sales through foreign sales offices of domestic
subsidiaries), were approximately $144,056,000 (31.9% of total net sales),
$112,275,000 (27.5% of total net sales), and $110,597,000 (28.9% of total net
sales) in fiscal 1995, 1994 and 1993, respectively.
Sales to the United States government, its agencies and its contractors were
approximately $82,708,000 (18.3% of total net sales), $77,500,000 (19.0% of
total net sales), and $57,600,000 (15.0% of total net sales) in fiscal 1995,
1994 and 1993, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal 1994 (in particular,
noncurrent tax assets of $6.6 million against noncurrent deferred tax
liabilities) and 1993 financial statements to conform to the fiscal 1995
presentation.
2. FINANCING ARRANGEMENTS
Bank loans consisted of:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1995 1994 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Unsecured bank loans.................................... $ -- $ -- $24,000
Current maturities of long-term debt.................... 1,632 568 1,025
------- ------- -------
$ 1,632 $ 568 $25,025
------- ------- -------
------- ------- -------
</TABLE>
Short-term borrowing activity was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------
1995 1994 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Maximum amount borrowed.................................. $21,200 $33,500 $51,900
Average daily borrowings................................. 7,553 12,300 39,100
Average interest rate during the year.................... 6.2% 3.7% 4.4%
------- ------- -------
------- ------- -------
</TABLE>
At May 31, 1995, aggregate unsecured bank credit lines were $133,750,000. Of
this amount, $66,000,000 was available under credit lines with domestic banks,
$60,000,000 was available under revolving credit and term loan agreements with
domestic banks and $7,750,000 was available under credit agreements with foreign
banks. All domestic and foreign credit lines were unused at May 31, 1995. There
are no compensating balance requirements in connection with domestic or foreign
lines of credit. Borrowings under domestic bank lines bear interest at or below
the corporate base rate.
The Company may borrow a maximum of $60,000,000 ($30,000,000 available
through October 15, 1996 and an additional $30,000,000 available through April
15, 1996) under revolving credit and term loan agreements with domestic banks.
Revolving credit borrowings may, at the Company's option, be converted to term
loans payable in equal quarterly installments over five
23
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. FINANCING ARRANGEMENTS -- (CONTINUED)
years. Interest is based on corporate base rate or quoted Eurodollar or
multicurrency rates during the revolving credit period, and 1/2% over corporate
base rate or quoted Eurodollar rate thereafter. There were no borrowings under
these agreements outstanding at May 31, 1995. There are no compensating balance
requirements on any of the committed lines but the Company is required to pay a
commitment fee. There are no restrictions on the withdrawal or use of these
funds.
Long-term debt was as follows:
<TABLE>
<CAPTION>
MAY 31,
-------------------
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Notes payable due November 1, 2001 with interest of 9.5%
payable semi-annually on May 1 and November 1................. $ 65,000 $ 65,000
Notes payable due October 15, 2003 with interest
of 7.25% payable semi-annually on April 15 and October 15.... 50,000 50,000
Installment note due June, 1999, bearing interest at 5% per
annum, compounded monthly, payable in equal monthly payments
of principal and interest.................................... 5,669 --
Industrial revenue bonds due in installments to 2002 with
weighted average interest of approximately 5.93% at May 31,
1995 (secured by trust indentures on property, plant and
equipment)................................................... 729 1,297
-------- --------
121,398 116,297
Current maturities............................................. (1,632) (568)
-------- --------
$119,766 $115,729
-------- --------
-------- --------
</TABLE>
The Company is subject to a number of covenants under the revolving credit
and term loan agreements, including restrictions which relate to the payment of
cash dividends, maintenance of minimum net working capital and tangible net
worth levels, sales of assets, additional financing, purchase of the Company's
shares and other matters. The Company is in compliance with all restrictive
financial provisions of the agreements. At May 31, 1995, unrestricted
consolidated retained earnings available for payment of dividends and purchase
of the Company's shares was approximately $20,000,000. Effective June 1, 1995,
unrestricted consolidated retained earnings increased to $25,232,000 due to
inclusion of 50% of the consolidated net income of the Company for fiscal 1995.
The aggregate amount of long-term debt maturing during each of the next five
fiscal years is $1,632,000 in 1996, $1,474,000 in 1997, $1,474,000 in 1998,
$1,545,000 in 1999 and $184,000 in 2000.
The Company's long-term debt was estimated to have a fair value of
approximately $118,778,000 at May 31, 1995.
24
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES
The provision (benefit) for income taxes included the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------
1995 1994 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Current
Federal.......................................... $ 2,255 $ 100 $ (640)
Foreign.......................................... 625 530 670
State, net of refunds............................ 780 470 --
------- ------- -------
3,660 1,100 30
------- ------- -------
Deferred 590 3,100 (2,230)
------- ------- -------
$ 4,250 $ 4,200 $(2,200)
------- ------- -------
------- ------- -------
</TABLE>
The deferred tax provisions or benefit for the fiscal years 1995, 1994 and
1993 result primarily from differences between book and tax income arising from
depreciation and leveraged leases. Refundable income taxes included within
Deferred tax assets, deposits and other, principally represent refunds of
Federal income taxes resulting from additional tax benefits generated from
export sales and foreign tax credits carried back to prior years. Interest
income relating to refundable income taxes was $371,000, $576,000 and $390,000
for fiscal 1995, 1994 and 1993, respectively.
25
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES -- (CONTINUED)
The balance of deferred tax liabilities and assets arises from the
differences in the timing of the recognition for transactions between book and
income tax purposes and consists of the following components:
<TABLE>
<CAPTION>
MAY 31,
-------------------
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Deferred tax liabilities:
Depreciation....................................................... $ 8,500 $ 9,710
Leveraged leases................................................... 27,590 28,560
Other.............................................................. 910 730
-------- --------
Total deferred tax liabilities................................. $ 37,000 $ 39,000
-------- --------
-------- --------
Deferred tax assets-current:
Inventory costs.................................................... $ 5,680 $ 7,800
Employee benefits.................................................. 420 900
Doubtful account allowance......................................... 800 780
Other.............................................................. 310 50
-------- --------
Total deferred tax assets-current.............................. 7,210 9,530
-------- --------
Deferred tax assets-noncurrent:
Postretirement benefits............................................ 1,120 1,050
Restructuring expenses............................................. 640 960
Alternative minimum tax credits.................................... 4,580 4,540
Other.............................................................. -- 60
-------- --------
Total deferred tax assets-noncurrent........................... 6,340 6,610
-------- --------
Total deferred tax assets...................................... $ 13,550 $ 16,140
-------- --------
-------- --------
</TABLE>
The Company has determined, more likely than not, that a valuation allowance
is not required, based upon the Company's history of prior operating earnings,
its expectations for continued future earnings and the scheduled reversal of
deferred tax liabilities, primarily related to leveraged leases, which exceed
the amount of the deferred tax assets.
26
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the United States statutory Federal income tax rate of 34% for fiscal 1995, 1994
and 1993 for the following reasons:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1995 1994 1993
------- ------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Provision (benefit) for income taxes at the Federal statutory
rate.............................................................. $ 5,000 $ 4,660 $ (650)
Tax benefits on exempt earnings from export sales................ (1,350) (930) (770)
State income taxes, net of Federal benefit and refunds........... 330 250 --
Amortization of goodwill......................................... 90 100 120
Reduction of income tax liabilities.............................. -- -- (1,200)
Differences between foreign tax rates and the U.S. Federal
statutory rate................................................. 330 80 250
Other, net....................................................... (150) 40 50
------- ------- --------
Provision (benefit) for income taxes as reported................... $ 4,250 $ 4,200 $(2,200)
------- ------- --------
------- ------- --------
Effective income tax rate.......................................... 28.9% 30.7% (114.8)%
------- ------- --------
------- ------- --------
</TABLE>
The provision for income taxes was reduced by $1,200,000 in fiscal 1993 due
to the reversal of tax liabilities previously recorded but no longer required as
the result of the resolution of issues arising from the Internal Revenue
Service's examination of the Federal income tax returns for the fiscal years
1979 through 1989. The years are now closed to assessments, therefore certain
tax accruals previously provided are no longer required. The fiscal 1993 income
tax benefit before the reversal of tax liabilities on consolidated pre-tax
income was higher than the statutory rate primarily as the result of state
income tax refunds received and the effect of tax benefits on exempt earnings
from export sales.
Pretax income from foreign subsidiaries was approximately $600,000,
$1,300,000 and $1,200,000 at May 31, 1995, 1994 and 1993, respectively. Total
foreign income taxes provided were in excess of total local statutory rates in
fiscal 1995, 1994 and 1993 due to net operating losses of certain subsidiaries
not deductible for tax purposes.
27
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMON STOCK AND STOCK OPTION PLANS
A summary of changes in stock options granted to officers, key employees and
non-employee directors under stock option plans for the three years ended May
31, 1995 follows.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding, May 31, 1992 (214,618 exercisable).............................. 583,240 $10.00 to $35.13
Granted.................................................................. 224,200 11.38 to 12.88
Exercised................................................................ (8,800) 10.00
Surrendered/expired/cancelled............................................ (154,385) 10.00 to 35.13
---------
Outstanding, May 31, 1993 (184,436 exercisable).............................. 644,255 $10.00 to $35.13
Granted.................................................................. 161,400 13.25 to 15.00
Exercised................................................................ (2,805) 10.00 to 13.63
Surrendered/expired/cancelled............................................ (71,400) 10.00 to 17.88
---------
Outstanding, May 31, 1994 (236,284 exercisable).............................. 731,450 $10.00 to $35.13
---------
Granted.................................................................. 250,000 12.63 to 13.75
Exercised................................................................ (10,985) 10.00 to 12.13
Surrendered/expired/cancelled............................................ (37,905) 10.00 to 24.88
---------
Outstanding, May 31, 1995 (362,132 exercisable).............................. 932,560 $10.00 to $35.13
---------
---------
</TABLE>
The options are granted at prices equal to the closing market price on the
date of grant, become exercisable at such times as may be specified by the Board
of Directors or as otherwise provided by the applicable stock option plan, and
expire five to ten years from date of grant. Upon exercise of stock options, the
excess of the proceeds over par value, or cost in the case of treasury stock, is
credited to Capital surplus in the Consolidated Balance Sheets.
The AAR CORP. Stock Benefit Plan also provides for the grant of restricted
stock awards. Restrictions are released at the end of applicable restricted
periods. The number of shares and the restricted period, which varies from two
to ten years, are determined by the Compensation Committee of the Board of
Directors. The market value of the award on the date of grant is recorded as a
deferred expense, common stock and capital surplus. The deferred expense is
included in results of operations over the restricted term. The expense relating
to outstanding restricted stock awards was $266,000, $538,000 and $610,000 in
fiscal 1995, 1994 and 1993, respectively.
The AAR CORP. Employee Stock Purchase Plan is open to all employees of the
Company (other than officers, directors or participants in other stock option
plans of the Company) with six months of service. The plan permits employees to
purchase common stock in periodic offerings at the lesser of the fair market
value on date of offering or 85% of the fair market value on the date of
exercise. A participating employee pays for shares by payroll deduction over a
two-year period. Upon completion of the purchase, the excess of the proceeds
over the par value (or cost in the case of treasury stock) is credited to
capital surplus.
28
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
The number of options and awards outstanding and available for grant or
issuance for each of the Company's stock plans is as follows:
<TABLE>
<CAPTION>
MAY 31, 1995
----------------------------------------
OUTSTANDING AVAILABLE TOTAL
------------- ----------- ------------
<S> <C> <C> <C>
Stock Benefit Plan (Officers, Directors and key employees)... 1,015,951 277,620 1,293,571
Employee Stock Purchase Plan................................. 17,757 115,123 132,880
</TABLE>
Pursuant to a shareholder rights plan adopted in 1987 and amended in 1989,
each outstanding share of the Company's Common Stock carries with it a Right to
purchase one additional share at a price of $85 (subject to anti-dilution
adjustments). The Rights become exercisable (and separate from the shares) when
certain specified events occur, including the acquisition of 20% or more of the
common stock by a person or group (an "Acquiring Person") or the commencement of
a tender or exchange offer for 30% or more of the Common Stock.
In the event that an Acquiring Person acquires 20% or more of the Common
Stock, or if the Company is the surviving corporation in a merger involving an
Acquiring Person, or if the Acquiring Person engages in certain types of
self-dealing transactions, each Right entitles the holder to purchase for $85
(or the then current exercise price) shares of the Company's Common Stock having
a market value of $170 (or two times the exercise price), subject to certain
exceptions. Similarly, if the Company is acquired in a merger or other business
combination or 50% or more of its assets or earning power is sold, each Right
entitles the holder to purchase at the then current exercise price that number
of shares of Common Stock of the surviving corporation having a market value of
two times the exercise price. The Rights, which do not entitle the holder
thereof to vote or to receive dividends, expire on August 6, 1997 and may be
redeemed by the Company for $.01 per Right under certain circumstances.
On September 21, 1990, the Board of Directors authorized the Company to
purchase up to 1,000,000 shares of the Company's Common Stock on the open market
or through privately negotiated transactions. As of May 31, 1995 the Company had
purchased 322,721 shares of Common Stock on the open market under this program
at an average price of $11.57 per share.
5. NET INCOME PER SHARE OF COMMON STOCK
Primary net income per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. Shares granted as restricted stock awards under The
AAR CORP. Stock Benefit Plan are considered outstanding from the date of grant.
Common Stock equivalents consist of the average number of shares issuable upon
the exercise of all dilutive employee stock options, less the common shares
which could have been purchased, at the average market price during each
quarter, with the assumed proceeds from the exercise of the options.
6. EMPLOYEE BENEFIT PLANS
The Company has defined contribution or defined benefit plans covering
substantially all full-time domestic employees and certain employees in the
Netherlands.
29
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
DEFINED BENEFIT PLANS
The pension plans for domestic salaried employees have benefit formulas
based primarily on years of service and compensation. The pension benefit for
hourly employees is generally based on a fixed amount per year of service. The
Company follows the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," for all domestic operations.
The Company's funding policy for domestic plans is to contribute annually,
at a minimum, an amount which is deductible for Federal income tax purposes and
that is sufficient to meet actuarially computed pension benefits. Contributions
are intended to provide for benefits attributed to service to date and for
benefits expected to be earned in the future. The assets of the pension plans
are invested primarily in mutual funds, common stocks, investment grade bonds
and United States government obligations.
Certain foreign operations of domestic subsidiaries also have pension plans.
In most cases, the plans are defined benefit in nature. Assets of the plans are
comprised of insurance contracts. Benefit formulas are similar to those used by
domestic plans. It is the policy of these subsidiaries to fund at least the
minimum amounts required by local law and regulation. Effective June 1, 1993,
all non-domestic pension plans have adopted the provisions of SFAS No. 87.
The following table sets forth the plans' funded status and the amount
recognized in the Company's Consolidated Balance Sheets. The plans are grouped
according to the portion of the accumulated benefit obligation funded as
follows:
<TABLE>
<CAPTION>
MAY 31, 1995 MAY 31, 1994
------------------ ------------------
BENEFITS ASSETS BENEFITS ASSETS
EXCEED EXCEED EXCEED EXCEED
ASSETS BENEFITS ASSETS BENEFITS
-------- -------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested benefit obligation................ $(22,080) $ (5,135) $(21,500) $ (4,160)
Nonvested benefit obligation............. (740) (20) (955) (15)
-------- -------- -------- --------
Accumulated benefit obligation............... (22,820) (5,155) (22,455) (4,175)
Effect of projected salary increases on the
benefit obligation......................... (1,735) (1,385) (1,865) (1,120)
-------- -------- -------- --------
Projected benefit obligation................. (24,555) (6,540) (24,320) (5,295)
Plans' assets at fair value.................. 20,805 6,425 20,030 4,420
-------- -------- -------- --------
Plans' assets under projected benefit
obligation................................. (3,750) (115) (4,290) (875)
Unrecognized net loss........................ 2,225 670 3,920 915
Unrecognized prior service cost.............. 1,320 -- 930 --
Unrecognized transition obligation........... 710 245 785 225
-------- -------- -------- --------
Prepaid pension costs in the Consolidated
Balance Sheets......................... $ 505 $ 800 $ 1,345 $ 265
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The projected benefit obligation for domestic plans is determined using an
assumed weighted average discount rate of 8.5% and 8.0% for fiscal 1995 and
1994, respectively, and an assumed average compensation increase of 3.0% in the
first two years and 5% thereafter. The expected
30
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
long-term rate of return on assets is 10.0% for fiscal 1995 and 1994.
Unrecognized net loss, prior service cost and transition obligation are
amortized on a straight line basis over the estimated average future service
period.
The projected benefit obligation for non-domestic plans are determined using
an assumed weighted average discount rate of 7.5% and 7.0% for fiscal 1995 and
1994, respectively, and an assumed average compensation increase of 2.0% for the
first 5 years and 4.0%, thereafter. The expected long-term rate of return on
assets is 6.5% for fiscal 1995 and 1994.
The provisions of SFAS No. 87 "Employers' Accounting for Pensions" require
recognition in the balance sheet of an additional minimum liability, equity and
related intangible assets for pension plans with accumulated benefits in excess
of plan assets. At May 31, 1995 the Company has a minimum pension liability of
$3,765,000 reported within Retirement benefit obligation in the Consolidated
Balance Sheet with $1,370,000 charged to Stockholders' equity in accordance with
the provisions of SFAS No. 87.
Pension expense charged to results of operations includes the following
components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------
1995 1994 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Service costs for benefits earned during fiscal year...... $ 1,255 $ 1,305 $ 800
Interest cost on projected benefit obligation............. 2,440 2,265 1,670
Actual investment return on plan assets................... (2,225) (1,400) (1,850)
Net amortization and deferral............................. 60 (480) 290
------- ------- -------
Pension expense for Company plans..................... 1,530 1,690 910
Pension expense for the multi-employer plan........... -- 10 40
------- ------- -------
Total pension expense............................. $ 1,530 $ 1,700 $ 950
------- ------- -------
------- ------- -------
</TABLE>
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a profit sharing plan which is intended to
qualify as a 401(k) plan under the Internal Revenue Code. Under the plan,
employees may contribute up to 15% of their pretax compensation, subject to
applicable regulatory limits. The Company may make matching contributions up to
6% of compensation. Participants vest immediately in Company contributions.
Expense charged to results of operations was $830,000, $800,000 and $430,000 in
fiscal 1995, 1994 and 1993, respectively.
LONG TERM PERFORMANCE INCENTIVE PLAN
The long term performance incentive plan is administered by the Compensation
Committee of the Board of Directors. The plan provides for incentive awards to
certain key employees designated by the Compensation Committee based on the long
term performance of the Company. No awards were earned under this Plan in fiscal
1995, 1994 nor 1993, therefore, no expense was charged to results of operations.
31
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
DIRECTOR, EXECUTIVE AND KEY EMPLOYEE RETIREMENT BENEFIT AND PROFIT SHARING
PLANS
The Company provides its outside directors with benefits upon retirement on
or after age 65 provided they have completed at least five years of service as a
director. Benefits are payable as a quarterly annuity in an amount equal to 25%
of the annual retainer fee payable by the Company to active outside directors.
Payment of benefits commences upon retirement and continues for a period equal
to the total number of years of the retired director's service as a director to
a maximum of ten years, or death, whichever occurs first. The Company also
provides supplemental retirement and profit sharing benefits for current and
former executives and key employees to supplement benefits provided by the
Company's other benefit plans. The plans are not fully funded and may require
funding in the event of a change in control of the Company as determined by the
Company's Board of Directors. Expense charged to results of operations for these
plans was $585,000, $545,000 and $690,000 in fiscal 1995, 1994 and 1993,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health and life insurance benefits for certain eligible
employees and retirees under a variety of plans. Generally these benefits are
contributory, with retiree contributions adjusted annually. The postretirement
plans are unfunded and the Company has the right to modify or terminate any of
these plans in the future, in certain cases subject to union bargaining
agreements.
Effective June 1, 1993 the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Prior to fiscal
year 1994, the Company recognized retiree health and life insurance expense when
benefits were paid. Prior years' results were not restated. Upon adoption, the
Company elected to record a one-time transition obligation of $1,350,000
($890,000 after tax) 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. In fiscal 1995 the Company completed termination of
postretirement healthcare and life insurance benefits attributable to future
services of collective bargaining and other domestic employees. The Company
recognized an after-tax gain of $250,000 from the reduction in the accumulated
post retirement benefit obligation related to this termination of benefits.
Net periodic postretirement benefit cost for the years ended May 31, 1995
and 1994 included the following components:
<TABLE>
<CAPTION>
1995 1994
----- ---------
(000S OMITTED)
<S> <C> <C>
Service cost.................................................... $ 4 $ 30
Interest cost................................................... 70 98
--- ---------
$ 74 $ 128
--- ---------
--- ---------
</TABLE>
32
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The funded status of the plans at May 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(000S OMITTED)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees........................................... $ 716 $ 906
Current employees -- fully eligible........................ 101 129
Current employees -- not fully eligible.................... -- 315
--------- ---------
817 1,350
Plans' assets at fair value.................................. -- --
--------- ---------
Accumulated postretirement benefit obligation in excess of
plans' assets............................................... 817 1,350
Unrecognized prior service cost, transition obligation and
net (loss)/gain............................................. 156 --
--------- ---------
Accrued postretirement benefit cost in the consolidated
balance sheet............................................... $ 973 $ 1,350
--------- ---------
--------- ---------
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 8.5% and 8.0% at May 31, 1995 and 1994, respectively.
The assumed rate of future increases in health care costs was 10.7% in fiscal
1995 and 1994, 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 obligation by approximately
$22,000 as of May 31, 1995 and would not result in a significant change to the
annual postretirement benefit expense.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements that
expire at various dates through 2011. Rental expense under these leases was
$6,545,000, $4,840,000 and $5,320,000 in fiscal 1995, 1994 and 1993,
respectively.
Future minimum payments under leases with initial or remaining terms of one
year or more at May 31, 1995 were $5,414,000 for fiscal 1996, $4,020,000 for
fiscal 1997, $3,800,000 for fiscal 1998, $3,343,000 for fiscal 1999 and
$4,713,000 for fiscal 2000 and thereafter.
The Company regularly places deposits with suppliers on short-term
commitments to purchase inventory. These conditional contractual commitments are
made in the ordinary course of business. At May 31, 1995 and 1994 the Company
had $2,264,000 and $10,700,000, respectively, of deposits outstanding with
suppliers.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial condition.
33
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SELECTED QUARTERLY DATA (UNAUDITED)
The unaudited selected quarterly data for fiscal years ended May 31, 1995
and 1994 are as follows.
FISCAL 1995
<TABLE>
<CAPTION>
NET INCOME
QUARTER NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------------------------- --------- ------------ ---------- ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
First.......................... $ 97,191 $ 16,814 $ 2,005 $ .13
Second......................... 99,384 17,997 2,067 .13
Third.......................... 125,232 20,437 2,876 .18
Fourth......................... 129,588 22,623 3,515 .22
--------- ------------ ---------- -----
$ 451,395 $ 77,871 $10,463 $ .66
--------- ------------ ---------- -----
--------- ------------ ---------- -----
</TABLE>
FISCAL 1994
<TABLE>
<CAPTION>
NET GROSS NET INCOME
QUARTER SALES PROFIT NET INCOME PER SHARE
- ------------------------------- -------- ----------- ---------- ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
First.......................... $ 98,306 $18,044 $ 2,492 $ .16
Second......................... 93,185 16,624 2,378 .15
Third.......................... 96,199 17,680 2,212 .14
Fourth......................... 120,064 19,562 2,412 .15
-------- ----------- ---------- -----
$407,754 $71,910 $ 9,494 $ .60
-------- ----------- ---------- -----
-------- ----------- ---------- -----
</TABLE>
9. RESTRUCTURING EXPENSES
The Company recorded noncash restructuring expenses of $11,000,000 for the
writedown of certain inventories and associated costs in fiscal 1993. The
inventories most affected were parts for older-model commercial aircraft,
certain manufactured products as well as material supporting original equipment
manufacturers. The writedown resulted from the Company's assessment of the
impact on inventories of the changes in the aerospace/aviation market and the
recessionary economic environment. The noncash restructuring expenses that
established inventory realization reserves (see note 11 in Notes to Consolidated
Financial Statements) had a remaining balance of approximately $979,000 at May
31, 1995. As the inventory for which the realization reserves were established
is disposed of, the realization reserve balance is to be correspondingly
reduced.
10. AIRCRAFT LEASING ACTIVITIES
The Company is an owner participant in four leveraged lease agreements
entered into between March 1986 and May 1988. These agreements cover four narrow
body commercial aircraft and spare parts. The transactions involve aircraft
currently operated by major carriers. The remaining terms of the leases range
from 6 to 9 years. The Company's equity investment in these aircraft represents
approximately one third of the aggregate equipment cost. The remaining portion
of the equipment cost is financed by third-party nonrecourse debt.
The Company has ownership rights to the equipment subject to the right of
the lessees to exercise certain purchase, renewal and termination options. For
Federal income tax purposes, the Company receives investment tax credits and has
the benefit of tax deductions for depreciation on the aggregate equipment cost
and interest on the nonrecourse debt. During the early years of
34
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. AIRCRAFT LEASING ACTIVITIES -- (CONTINUED)
the lease Federal income tax deductions exceeded the lease rental income. In the
later years of the lease, rental income will exceed the deductions. In fiscal
1994, the Company's Investment in leveraged leases was repriced approximately
$2,000,000 for the impact of an interest rate reduction on nonrecourse long-term
debt secured by aircraft under leveraged lease, the tax rate change under the
Omnibus Budget Reconciliation Act of 1993 and the Company's AMT position in
accordance with SFAS No. 13 "Accounting for Leases."
In August 1990, the Company sold a partial residual interest in a Boeing
737-300 aircraft currently subject to a leveraged lease. The lease term expires
in March 2001. The principal portion of the proceeds from this sale were
received in the form of a $2,000,000 note and are included with Prepaid income
taxes, retirement benefits, notes receivable and other on the Consolidated
Balance Sheets. This note has an interest rate of 9.9%. The note and accrued
interest of $3,600,000 are due in March 2001. The carrying amount of the note
receivable approximates its fair value at May 31, 1995.
The condensed operating results and balance sheet financial information for
aircraft leasing activities were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY
31,
-------------------------
1995 1994 1993
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Operating Results:
Revenues................................................... $ 0 $ 2,195 $ 1,390
Net income (loss).......................................... (126) 1,132 (22)
Balance Sheet:
Total assets............................................... 37,500 39,700 37,800
Stockholder's equity....................................... 24,223 24,349 23,217
</TABLE>
The Company's net investment in leveraged leases is composed of the
following elements:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MAY 31,
------------------
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Rentals receivable (net of principal and interest on the
nonrecourse debt)........................................... $ 15,592 $ 16,258
Estimated residual value of leased assets.................... 23,950 23,950
Unearned and deferred income................................. (7,590) (7,590)
-------- --------
Investment in leveraged leases............................. 31,952 32,618
Deferred taxes............................................... (27,590) (28,560)
-------- --------
Net investment in leveraged leases......................... $ 4,362 $ 4,058
-------- --------
-------- --------
</TABLE>
Pretax income from leveraged leases was $0, $1,955,000 and $334,000 in
fiscal 1995, 1994 and 1993, respectively. The tax effect from leveraged leases
was $0, $823,000 and $125,000 in fiscal 1995, 1994 and 1993, respectively.
35
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. ALLOWANCES AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------
1995 1994 1993
------ ------ -------
(000'S OMITTED)
<S> <C> <C> <C>
Balance, beginning of year............................................... $2,000 $2,000 $ 2,000
Provision charged to operations........................................ 895 600 400
Deductions for accounts written off, net of recoveries................. (495) (600) (400)
------ ------ -------
Balance, end of year..................................................... $2,400 $2,000 $ 2,000
------ ------ -------
------ ------ -------
</TABLE>
INVENTORY REALIZATION RESERVES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------
1995 1994 1993
-------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Balance, beginning of year............................................... $ 8,916 $14,000 $ 6,000
Provision charged to operations........................................ 2,909 3,104 12,300
Inventory written off and loss from disposal, net of recoveries........ (5,496) (8,188) (4,300)
-------- ------- -------
Balance, end of year..................................................... $ 6,329 $ 8,916 $14,000
-------- ------- -------
-------- ------- -------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the Directors of the Company
is incorporated by reference to the information contained under the caption
"Nominees and Continuing Directors" in the Company's definitive proxy statement
for the 1995 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A.
The information required by this item regarding the Executive Officers of
the Company appears under the caption "Executive Officers of the Registrant" in
Part I above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item regarding the compliance with Section
16(a) of the Securities Exchange Act of 1934 ("Exchange Act") is incorporated by
reference to the information contained under the caption "Compliance with
Section 16(a) of The Exchange Act" in the Company's definitive proxy statement
for the 1995 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information contained under the captions "Executive Compensation and Other
Information" (but excluding the following sections thereof, "Compensation
Committee's Report on Executive Compensation" and "Stockholder Return
Performance Graphs"); "Employment and Other Agreements" and "Directors
Compensation", in the Company's definitive proxy statement for the 1995 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information contained under the caption "Security Ownership of Management and
Others" in the Company's definitive proxy statement for the 1995 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1995 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Independent Auditors' Report, KPMG Peat Marwick LLP......... 13
Financial Statements -- AAR CORP. and Subsidiaries:
Consolidated statements of income for the three years
ended May 31, 1995....................................... 14
Consolidated balance sheets as of May 31, 1995 and 1994... 15-16
Consolidated statements of stockholders' equity for the
three years ended May 31, 1995........................... 17
Consolidated statements of cash flows for the three years
ended May 31, 1995....................................... 18
Notes to consolidated financial statements................ 19-36
Selected quarterly data (unaudited) for the years ended
May 31, 1995 and 1994 (Note 8 to Consolidated Financial
Statements).............................................. 34
Financial data schedule for the twelve month period ended May 31,
1995..............................................See exhibit index
</TABLE>
EXHIBITS
The Exhibits filed as a part of this report are set forth in the Exhibit
Index contained elsewhere herein. Each of the material contracts identified as
Exhibits 10.1 through 10.10 is a management contract or compensatory plan or
arrangement.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three month period ended
May 31, 1995.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: August 11, 1995
By: /s/ IRA A. EICHNER
-----------------------------------
Ira A. Eichner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------- ------------------------- ----------------
/s/ IRA A. EICHNER CHAIRMAN OF THE BOARD AND
- --------------------------------- CHIEF EXECUTIVE OFFICER;
Ira A. Eichner DIRECTOR (PRINCIPAL
EXECUTIVE OFFICER)
/s/ DAVID P. STORCH PRESIDENT AND CHIEF
- --------------------------------- OPERATING OFFICER;
David P. Storch DIRECTOR
/s/ TIMOTHY J. ROMENESKO VICE
- --------------------------------- PRESIDENT-CONTROLLER,
Timothy J. Romenesko CHIEF FINANCIAL OFFICER
AND TREASURER (PRINCIPAL
FINANCIAL AND ACCOUNTING
OFFICER)
/s/ A. ROBERT ABBOUD DIRECTOR
- ---------------------------------
A. Robert Abboud
/s/ HOWARD B. BERNICK DIRECTOR
- ---------------------------------
Howard B. Bernick
/s/ EDGAR D. JANNOTTA DIRECTOR August 11, 1995
- ---------------------------------
Edgar D. Jannotta
/s/ ROBERT D. JUDSON DIRECTOR
- ---------------------------------
Robert D. Judson
/s/ ERWIN E. SCHULZE DIRECTOR
- ---------------------------------
Erwin E. Schulze
/s/ JOEL D. SPUNGIN DIRECTOR
- ---------------------------------
Joel D. Spungin
/s/ LEE B. STERN DIRECTOR
- ---------------------------------
Lee B. Stern
/s/ RICHARD D. TABERY DIRECTOR
- ---------------------------------
Richard D. Tabery
39
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
INDEX EXHIBITS
- ------------------------------------ -------------------------------------------------------------------
<S> <C> <C>
3. Articles of Incorporation 3.1 Restated Certificate of Incorporation;(1) Amendments thereto dated
and By-Laws November 3, 1987(2) and October 19, 1988.(2)
3.2 By-Laws, as amended.(2) Amendment thereto dated April 12, 1994
(filed herewith)
4. Instruments defining the 4.1 Restated Certificate of Incorporation and Amendments (see Exhibit
rights of security holders 3.1).
4.2 By-Laws, as amended (filed herewith).
4.3 Credit Agreement dated June 1, 1993 between the Registrant and
Continental Bank N.A. (now known as Bank of America, Illinois)(11),
amendment thereto dated May 16, 1994(12) and second amendment
thereto dated May 19, 1995 (filed herewith).
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. (now known as Bank of America, Illinois), as
Trustee, relating to debt securities;(5) First Supplemental
Indenture thereto dated August 26, 1991.(6)
4.6 Officer's certificates relating to debt securities dated October
24, 1989(10) and October 12, 1993.(10)
4.7 Credit Agreement dated October 15, 1991 between the Registrant and
The First National Bank of Chicago, as Agent(7), amendment thereto
dated March 31, 1994(12) and second amendment thereto dated May 31,
1995 (filed herewith).
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant is not filing certain documents. The Registrant agrees
to furnish a copy of each such document upon the request of the
Commission.
10. Material Contracts 10.1 AAR CORP. Stock Benefit Plan.(11)
10.2 Death Benefit Agreement dated August 24, 1984 between the
Registrant and Ira A. Eichner;(8) Amendment thereto dated August
12, 1988.(4)
10.3 Further Restated and Amended Employment Agreement dated August 1,
1985 between the Registrant and Ira A. Eichner;(3) Amendment
thereto dated August 12, 1988.(4)
10.4 Trust Agreement dated August 12, 1988 between the Registrant and
Ira A. Eichner(4) and amendment thereto dated February 4, 1994.(12)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX EXHIBITS
- ------------------------------------ -------------------------------------------------------------------
<S> <C> <C>
10.5 AAR CORP. Directors' Retirement Plan, dated April 14, 1992.(9)
10.6 AAR CORP. Supplemental Key Employee Retirement Plan, dated July 13,
1994.(13)
10.7 Employment agreement dated June 1, 1994 between the Registrant and
David P. Storch. (filed herewith)
10.8 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Philip C. Slapke (filed herewith).
10.9 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Howard A. Pulsifer (filed herewith).
10.10 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Timothy J. Romenesko (filed herewith).
21. Subsidiaries of 21.1 Subsidiaries of AAR CORP. (filed herewith).
the Registrant
23. Consents of experts 23.1 Consent of KPMG Peat Marwick LLP (filed herewith).
and counsel
27. Financial Data 27.1 Financial Data Schedule for the Registrants' fiscal year ended May
Schedules 31, 1995.
</TABLE>
- ------------------------
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 Annual Report on
Form 10-K for the fiscal year ended May 31, 1986.
(4) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1988.
(5) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended November 30, 1989.
(6) Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form S-3 filed August 27, 1991.
(7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1991.
(8) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1985.
(9) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992.
(10) Incorporated by reference to Exhibits to the Registrant's Current Reports
on Form 8-K dated October 24, 1989 and October 12, 1993.
<PAGE>
(11) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993.
(12) Incorporated by reference to Exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended May 31, 1994.
(13) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1994.
<PAGE>
EXHIBIT 4.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of May 19, 1995 (this
"AMENDMENT"), amends the Credit Agreement, dated as of June 1, 1993 (as
previously amended by the First Amendment dated May 16, 1994, the "CREDIT
AGREEMENT"), among AAR Corp., (the "BORROWER"), the various financial
institutions parties thereto (collectively, the "LENDERS") and Bank of America
Illinois (formerly known as Continental Bank N.A.), as agent (the "AGENT") for
the Lenders. Terms defined in the Credit Agreement are, unless otherwise defined
herein or the context otherwise requires, used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement, which
provides for the Lenders to extend certain credit facilities to the Borrower
from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENT. Effective as of May 19, 1995, Section 6.10 of the
Credit Agreement shall be amended to state as follows:
"6.10. RESTRICTED PAYMENTS. The Borrower will not, nor will it permit
any Subsidiary to, declare or make any Restricted Payments, which together
with all Restricted Payments made on or after May 31, 1995 would exceed an
amount equal to the sum of (i) $20,000,000 plus (ii) 50% of Consolidated Net
Income for the period commencing June 1, 1994 and extending to and including
the last day of the fiscal year of the Borrower immediately preceding the
date on which such Restricted Payment was made, said period to be taken as
one accounting period, except that:
(a) The Borrower may declare and pay dividends payable solely in
stock of the Borrower of the same class as that on which such dividend is
paid.
(b) The Borrower may purchase, redeem or otherwise acquire or retire
any class of its stock out of the proceeds of, or in exchange for, a
substantially concurrent issue and sale of the same class of such stock
in addition to that now issued and outstanding.
(c) Any Subsidiary may declare and pay dividends to the Borrower."
SECTION 2 CONDITIONS PRECEDENT. This Amendment shall become effective when
duly executed bythe Borrower, the Agent and the Required Lenders.
SECTION 3 REPRESENTATIVES AND WARRANTIES. To induce the Lenders and the
Agent to enter into this Amendment, the Borrower hereby reaffirms, as of the
date hereof, its representations and warranties contained in Article V of the
Credit Agreement.
SECTION 4 MISCELLANEOUS.
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. This Amendment shall be deemed
to be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, shall remain in full force and effect and is hereby ratified, approved
and confirmed in each and every respect. After the effectiveness of this
Amendment in accordance with its terms, all references to the Credit Agreement
in any other document, instrument, agreement or writing shall be deemed to refer
to the Credit Agreement as amended hereby.
<PAGE>
SECTION 4.2 PAYMENT OF COSTS AND EXPENSES. The Borrower agrees to pay on
demand all expenses of the Agent (including the fees and expenses of counsel to
the Agent (including the allocated cost of internal counsel) in connection with
the negotiation, preparation, execution and delivery of this Amendment.
SECTION 4.3 EXECUTION IN COUNTERPARTS. This Amendment may be executed by
the parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
agreement.
SECTION 4.4 GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
SECTION 4.5 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
AAR Corp.
By /s/ Timothy J. Romenesko
--------------------------------------
Title: Vice President
--------------------------------------
BANK OF AMERICA ILLINOIS,
individually and as Agent
By /s/ Arthur N. Traver
--------------------------------------
Title: Vice President
--------------------------------------
<PAGE>
EXHIBIT 4.7
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of May 31, 1995 (this "Amendment") to the Credit
Agreement dated as of October 15, 1991, as amended by Amendment No. 1 dated as
of March 31, 1994 (the "Credit Agreement") among AAR CORP., a Delaware
corporation, the lenders listed on the signature pages of this Amendment and The
First National Bank of Chicago, as agent for such lenders.
The parties hereto wish to amend the Credit Agreement in certain respects
and accordingly hereby agree as follows:
1. DEFINITIONS. Unless the context otherwise requires, all terms used
herein which are defined in the Credit Agreement shall have the meanings
assigned to them therein.
2. AMENDMENT. Effective upon the satisfaction of the conditions precedent
set forth in Section 4 of this Amendment, Section 6.10 of the Credit Agreement
shall be amended and restated in its entirety as follows:
"6.10. RESTRICTED PAYMENTS. The Borrower will not, nor will it permit
any Subsidiary to, make any Restricted Payments, which, together with all
Restricted Payments made on or after June 1, 1995, would exceed an amount
equal to the sum of (i) $25,000,000 plus (ii) 50% of Consolidated Net Income
for the period commencing June 1, 1995 and extending to and including the
last day of the fiscal year of the Borrower immediately preceding the date
on which such Restricted Payment was made, said period to be taken as one
accounting period, except that:
(a) The Borrower may declare and pay dividends payable solely in
stock of the Borrower of the same class as that on which such dividend is
paid.
(b) The Borrower may purchase, redeem or otherwise acquire or retire
any class of its stock out of the proceeds of, or in exchange for, a
substantially concurrent issue and sale of the same class of such stock
in addition to that now issued and outstanding.
(c) Any Subsidiary may declare and pay dividends to the Borrower."
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby confirms, reaffirms
and restates as of the date hereof the representations and warranties set forth
in Article V of the Credit Agreement, provided that such representations and
warranties shall be and hereby are amended as follows: each reference therein to
"this Agreement", including, without limitation, such a reference included in
the term "Loan Documents", shall be deemed to be a collective reference to the
Credit Agreement, this Amendment and the Credit Agreement as amended by this
Amendment. A Default under and as defined in the Credit Agreement as amended by
this Amendment shall be deemed to have occurred if any representation or
warranty made pursuant to the foregoing sentence of this Section 3 shall be
materially false as of the date on which made.
4. CONDITIONS PRECEDENT. This Amendment and the amendment to the Credit
Agreement provided for herein shall become effective as of the date hereof when
this Amendment shall have been duly executed and delivered by the Agent and the
Borrower on one counterpart and Lenders constituting the Required Lenders shall
have signed a counterpart or counterparts hereof and notified the Agent by telex
or telephone that such action has been taken and that such executed counterpart
or counterparts will be mailed or otherwise delivered to the Agent.
5. EFFECT ON THE EXISTING AGREEMENT. Except as expressly amended hereby,
all of the representations, warranties, terms, covenants and conditions of the
Credit Agreement and the other Loan Documents (a) shall remain unaltered, (b)
shall continue to be, and shall remain, in full force and effect in accordance
with their respective terms, and (c) are hereby ratified and confirmed in all
respects. Upon the effectiveness of this Amendment, all references in the Credit
<PAGE>
Agreement (including references in the Credit Agreement as amended by this
Amendment) to "this Agreement" (and all indirect references such as "hereby",
"herein", "hereof" and "hereunder") shall be deemed to be references to the
Credit Agreement as amended by this Amendment.
6. EXPENSES. The Borrower shall reimburse the Agent for any and all
reasonable costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Agent, which attorneys may
be employees of the Agent) paid or incurred by the Agent in connection with the
preparation, review, execution and delivery of this Amendment.
7. ENTIRE AGREEMENT. This Amendment, the Credit Agreement as amended by
this Amendment and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersede any and all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO A NATIONAL BANKING ASSOCIATION
LOCATED IN THE STATE OF ILLINOIS.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
AAR Corp.
By /s/ Timothy J. Romenesko
----------------------------------------
Title: Vice President
-------------------------------------------------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By /s/ Karen Kizer
----------------------------------------
Title: Senior Vice President
-------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") made and entered into as of the 1st
day of June, 1994, by and between AAR CORP., a Delaware corporation ("Company"),
and DAVID P. STORCH ("Employee").
WHEREAS, the Company currently employs Employee as President and Chief
Operating Officer; and
WHEREAS, Employee is currently an elected director of the Company; and
WHEREAS, the Company and Employee desire to enter into an employment
agreement continuing such employment pursuant to mutually acceptable terms.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee hereby
accepts employment by the Company, upon the terms and subject to the conditions
hereinafter set forth.
2. TERM. The term of this Agreement shall commence as of the date hereof
and, unless earlier terminated as hereinafter provided, shall end on May 31,
1997, subject to extension as follows:
On each day after May 31, 1994, while the Employee continues in
employment hereunder, the term of employment shall automatically be
extended for an additional one-day period so that on any day from and
after June 1, 1994, while the Employee continues in employment hereunder,
the term of employment shall expire three years thereafter until
terminated pursuant to the terms hereof.
3. DUTIES.
(a) Employee shall have the title, duties and responsibilities of President
and Chief Operating Officer and such other duties and responsibilities as may
from time to time be assigned that are consistent with such duties and
responsibilities and shall report to the Chairman and Chief Executive Officer of
the Company.
(b) Employee agrees to do and perform all such acts and duties faithfully
and diligently and to furnish such services as the Chairman and Chief Executive
Officer may from time to time direct, and do and perform all acts in the
ordinary course of business of the Company (within such limits as the Company
may prescribe) necessary and conducive to the best interest of the Company.
(c) Employee agrees to devote his full time, energy and skill to the
business of the Company and to the promotion of the best interests of the
Company and the performance of his duties as President and Chief Operating
Officer of the Company; provided that the Employee shall not (to the extent not
inconsistent with paragraphs 3(d) and 10(b) below) be prevented from (a) serving
as a director of any corporation consented to in advance by resolution of the
Board of Directors of the Company, (b) engaging in charitable, religious, civic
or other non-profit community activities, or (c) investing his personal assets
in such form or manner as will not require any substantial services on his part
in the operation or affairs of the business in which such investments are made
which would detract from or interfere or cause a conflict of interest with
performance of his duties hereunder.
(d) Employee agrees to observe policies and procedures of the Company in
effect from time to time applicable to employees of the Company including,
without limitation, policies with respect to employee loyalty and prohibited
conflicts of interest.
<PAGE>
4. COMPENSATION. The Company shall pay to Employee, for all services to be
performed by Employee an annual base salary ("Base Salary") at the rate of Three
Hundred Thirty-Two Thousand Dollars ($332,000.00) per fiscal year, or such
greater amount as may be authorized by the Board of Directors of the Company, in
its sole discretion upon annual review during the term of employment, payable in
periodic installments in accordance with the Company's payroll practice in
effect from time to time and prorated for any portion of a fiscal year
(Company's fiscal year currently being the period from June 1 of each year
through May 31 of the following year).
5. INCENTIVE BONUS PAYMENTS. In addition to the Base Salary described
above, Employee will continue to participate in and receive payments under such
incentive bonus programs as the Company, in its sole discretion, may authorize
from time to time for Employee and other executive officers of the Company;
provided, however, Employee will be entitled to the following during the term of
this Employment Agreement:
(a) ANNUAL DISCRETIONARY INCENTIVE BONUS OPPORTUNITY.
Employee will have an annual incentive bonus opportunity of up to
100% of base salary, subject to annual financial targets approved by the
Compensation Committee of the Board of Directors, and allocated 25% for
asset management and 75% for operating performance. Performance will be
measured against annual financial targets approved by the Compensation
Committee of the Board of Directors. Any bonus granted under this
subprovision in an amount equal to 80% or less of base salary shall be
paid in cash and the balance shall be paid in restricted stock awards
subject to the Company's qualified Stock Benefit Plan (valued at NYSE
closing price on date of grant). Thirty-three and one third percent
(33 1/3%) of each such restricted stock award shall vest on the
successive anniversary dates of the respective award over a three year
period based solely on the passage of time without reference to continued
employment with the Company.
The cash portion of the incentive bonus payable under this
subprovision 5(a) will be paid no later than the 15th of July following
the end of the fiscal year; the restricted stock awards shall have a
grant date of July 15 each year.
(b) INCENTIVE STOCK BONUS AWARDS.
(1) RESTRICTED STOCK.
The Company will grant Employee restricted stock awards (i)
subject to the terms of the Company's qualified Stock Benefit Plan
and Employee's continued employment with the Company on the vesting
date, and (ii) subject to the discretion of the Compensation
Committee to establish reasonable performance criteria applicable to
such grants on or before each award grant date, as follows:
<TABLE>
<CAPTION>
GRANT DATE NUMBER OF SHARES
- -------------------- ---------------------
<S> <C>
October 1, 1994 8,250
October 1, 1995 9,075
October 1, 1996 9,983
</TABLE>
Thereafter, the Compensation Committee of the Board of Directors will
consider Employee for additional restricted stock awards on an ad hoc
basis in its sole discretion.
Twenty percent (20%) of each such restricted stock award shall be
scheduled to vest on the successive grant date anniversary of the
respective award over a five
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<PAGE>
year period. Their terms and conditions shall be consistent with
restricted stock awards made to other executive officers of the
Company or, if none are made, those most recently heretofore made to
Employee.
(2) STOCK OPTION GRANTS.
The Company will grant Employee stock options for 60,000 shares
of Company Common Stock subject to the terms of the AAR CORP. Stock
Benefit Plan in fiscal 1995 at such time as it makes stock option
grants to other key employees under the Plan. Thereafter, the
Compensation Committee of the Board of Directors will consider
Employee for additional stock option grants annually during the term
hereof commensurate with his position and duties as President and
Chief Operating Officer in their sole discretion at such time as it
considers annual stock option grants for other key employees. All
such grants shall vest 20%/year over a five year period and have a
life of 10 years from date of grant. Other terms and conditions shall
be consistent with grants made to other executive officers of the
Company at the time of grant.
6. VACATION AND FRINGE BENEFITS. Employee will accrue vacation in
accordance with the Company's policy in effect from time to time for other
executive officers; provided that no decrease in vacation benefits from those
available on the date hereof shall be applicable to Employee during the term
hereof. Employee shall be entitled to participate, according to eligibility
provisions of each, in such medical, life and disability insurance programs,
profit sharing plans, retirement plans and in other fringe benefit plans as may
be in effect from time to time during the term hereof and available to other
executive officers of the Company.
7. CLUB DUES AND BUSINESS EXPENSES. During the term hereof, Employee will
be entitled to reimbursement for normal travel and business expenses in
accordance with applicable Company policy, and will be reimbursed membership
dues in the Green Acres Country Club, the Standard Club and such professional
clubs/organizations that are appropriate and conducive to the performance of his
duties.
8. PROFESSIONAL FEES. The Company will reimburse Employee for professional
financial planning and income tax preparation assistance expenses actually
incurred in an amount not to exceed $5,000/year during the term hereof.
9. TERMINATION.
(a) The Company may terminate this Agreement at any time for Cause. Any such
termination will be by majority action of the Board of Directors (with
Employee's vote disregarded) taken at a regular or specially called meeting of
the Board, after a minimum 10 day notice thereof to Employee, with termination
of this Agreement listed as an agenda item. Employee will be given a reasonable
opportunity to be heard at such meeting with counsel present if Employee
desires.
The term "Cause" shall be limited to a good faith finding by resolution of
the Board of Directors setting forth the particulars thereof, of (i) any
material breach by Employee of any statutory or common law duty of loyalty, or
(ii) any material breach of this Agreement which, if curable, is not cured
within ten (10) days of notice thereof to Employee. Such resolution shall be
final and binding upon the Employee.
Upon termination for Cause, no further compensation or benefits shall accrue
or be payable to Employee hereunder except for any compensation, bonus or other
benefits which have accrued to Employee prior to the date of any such
termination.
(b) The Company may terminate this Agreement at any time prior to a Change
in Control of the Company as defined in Section 12(c) below for unsatisfactory
performance by Employee of his
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<PAGE>
duties and responsibilities hereunder (including but not limited to failure to
meet financial goals as may be approved by the Compensation Committee), provided
that the Company has given Employee (i) written notice setting forth the
particulars of his performance deficiencies and (ii) six months opportunity to
correct them to the satisfaction of the Company. Any termination under this
section 9(b) shall be by resolution of the Board of Directors of the Company,
which shall be final and binding upon Employee. In the event of termination
pursuant to this section 9(b), the Company will pay to Employee, monthly for 24
months, an amount (subject to applicable withholding) equal to Employee's
regular monthly base salary at time of termination; provided, however, all such
payment obligations shall terminate immediately upon any breach by Employee of
paragraph 10 of this Agreement. Upon termination pursuant to this section 9(b),
no further compensation or benefits shall accrue or be payable to Employee under
this Agreement except for (i) the salary continuation payments provided for
above, and (ii) any compensation bonus or other benefits which have accrued to
Employee prior to the date of any such termination.
(c) The Company or the Employee may terminate this Agreement at any time
because of the Disability of Employee. "Disability" shall mean a physical or
mental condition which has prevented Employee from substantially performing his
duties under this Agreement for a period of 180 days and which is expected to
continue to render Employee unable to substantially perform his duties for the
remaining term of this Agreement on a full-time basis. The Company will make
reasonable accommodation for any handicap of Employee as may be required by
applicable law.
In the event of termination by the Company for Disability, a good faith
determination of the existence of a Disability shall be made by resolution of
the Board of Directors of the Company, in its sole discretion, setting forth the
particulars of the Disability which shall be final and binding upon the
Employee. The Company may require the submission of such medical evidence as to
the condition of the Employee as it may deem necessary in order to arrive at its
determination of the occurrence of a Disability. Employee will be provided with
reasonable opportunity to present additional medical evidence as to the medical
condition of Employee for consideration prior to the Board making its
determination of the occurrence of a Disability.
Upon termination of this Agreement for Disability, Employee will continue to
be eligible to participate in the Company's medical, dental and life insurance
programs available to executive officers in accordance with their terms
applicable to employees for a period of 3 years from the date of such
termination of this Agreement.
(d) This Agreement shall automatically terminate upon the death of Employee
during the term. In such event, death benefits payable under any of the
Company's benefit plans in which Employee was a participant at the time of his
death shall be payable in accordance with the terms of such plans.
(e) Employee may terminate this Agreement upon 30 days written notice if any
person other than Employee is selected by the Board of Directors to succeed the
present Chief Executive Officer upon his retirement, resignation or other
departure from that office. In the event of termination by Employee for such
reason, the Company will pay to Employee, monthly for 24 months, an amount
(subject to applicable withholding) equal to Employee's regular monthly base
salary at time of termination plus an amount equal to 1/12th of the most recent
fiscal year cash bonus paid to Employee; provided all such payment obligations
shall terminate immediately upon any breach by Employee of paragraph 10 of this
Agreement. Upon termination of this Agreement by Employee pursuant to this
paragraph, no further compensation or benefits shall
4
<PAGE>
accrue or be payable to Employee under this Agreement except for (i) the salary
continuation payments provided for above, and (ii) any compensation, bonus or
other benefits which have accrued to Employee prior to the date of any such
termination.
10. CONFIDENTIAL INFORMATION AND RESTRICTION OF COMPETITION.
(a) Employee acknowledges that the trade secrets, confidential information,
secret processes and know-how developed and acquired by the Company and other
subsidiaries of the Company (together the "Affiliated Companies") are among
their most valuable assets and that the value of such information may be
destroyed by unauthorized disclosure. All such trade secrets, confidential
information, secret processes and know-how imparted to or learned by Employee in
the course of his employment with respect to the business of the Affiliated
Companies (whether acquired before or after the date hereof) will be deemed to
be confidential and will not be used or disclosed by Employee, except to the
extent necessary to perform his duties and, in no event, disclosed to anyone
outside the employ of the Affiliated Companies and their authorized consultants
and advisors, unless either such information is or has been made generally
available to the public or express written authorization to use or disclose such
information has been given by the Company. If Employee ceases to be employed by
the Company for any reason, he shall not take with him any documents or other
papers containing or reflecting trade secrets, confidential information, secret
processes or know-how. Employee acknowledges that his employment hereunder will
place him in a position of utmost confidence and that he will have access to
confidential information concerning the operation of the business of the
Affiliated Companies, including, but not limited to, manufacturing methods,
developments, secret processes, know-how, costs, prices and pricing methods,
sources of supply and customer names and relations. All such information is in
the nature of a trade secret and is the exclusive property of the Affiliated
Companies and shall be deemed confidential information for the purposes of this
paragraph.
(b) Employee agrees that during the term hereof and for a period of two (2)
years after voluntary termination of employment hereunder by Employee or
termination of employment hereunder by Company pursuant to section 9 above, he
shall not, without the express written consent of the Company, either alone or
as a consultant to, or partner, employee, officer, director, or stockholder of
any organization, entity or business, (i) engage in direct or indirect
competition with the Company or any Affiliated Company within 100 miles of any
location within the United States of America or any other country where the
Company or any Affiliated Company does business from time to time during the
term hereof; (ii) solicit in connection with any activity which is competitive
with any of the businesses of the Company or any Affiliated Company, any
customers or suppliers of the Company or any Affiliated Company; (iii) solicit
for employment any sales, marketing or management employee of Company or any
Affiliated Company or induce or attempt to induce any customer or supplier of
the Company or any Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness of this
covenant not to compete and non-solicitation and the reasonableness thereof,
including but not limited to the geographic area and duration of time which are
a part hereof. This covenant not to compete may be enforced with respect to any
geographic area in which the Company or any Affiliated Company does business
during the term hereof. Nothing herein shall prohibit Employee from being the
legal or equitable holder of not more than 5% of the outstanding capital stock
of any publicly held corporation which may be in direct or indirect competition
with the Company or any Affiliated Company.
(c) If at any time, any clause or portion of this Section 10 shall be deemed
invalid or unenforceable by the laws of the jurisdiction in which it is to be
enforced by reason of being vague or unreasonable as to duration, geographic
scope, nature of activities restricted, or for any other
5
<PAGE>
reason, this provision shall be considered divisible as to such portions and the
foregoing restrictions shall become and be immediately amended to include only
such duration, scope or restriction and such event as shall be deemed reasonable
and enforceable by the court or other body having jurisdiction to enforce this
Agreement; and the parties hereto agree that the restrictions, as so amended,
shall be valid and binding as though the invalid or unenforceable portion had
not been involved herein.
(d) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of this Section 10 and in recognition thereof,
the Company shall be entitled to an injunction or other decree of specific
performance with respect to any violation thereof (without any bond or other
security being required) in addition to other available legal and equitable
remedies.
(e) This Section 10 shall survive any termination of this Agreement and any
termination of Employee's employment.
11. CHANGES IN BUSINESS. The Company, acting through its Board of
Directors, will at all times have complete control over the Company's business.
Without limiting the generality of the foregoing, the Company may at any time or
times change or discontinue any or all of its present or future operations, may
close or move any one or more of its divisions or offices, may undertake any new
servicing or sales operation, may sell any one or more of its divisions or
offices to any company not controlled, directly or indirectly, by the Company or
may take any and all other steps which its Board of Directors, in its exclusive
judgment, shall deem desirable, and Employee shall have no claim or recourse by
reason of such action. Provided, however, no such action shall result in the
reduction of Employee's Base Salary hereunder; provided, further that if the
Company discontinues operations, a discretionary bonus may or may not be
granted, however, Employee will be entitled to a pro-rata share of any
non-discretionary incentive bonus through the date of discontinuance. Said
pro-rata bonus will be calculated by the Chief Financial Officer of the Company
whose determination will be final.
12. CHANGE IN CONTROL.
(a) In the event of a Change in Control of the Company and (i) the Company
terminates this Agreement for other than Cause or Disability, or (ii) Employee
terminates this Agreement for Good Reason by written notice to the Company
setting forth the particulars thereof after having given the Company notice and
opportunity to be heard with respect thereto,
(1) the Company shall promptly pay to Employee, in a lump sum, a cash
payment in an amount equal to three times Employee's average total
compensation (base salary plus cash bonus) for the last two fiscal years or
such lesser amount as Employee may elect to take, subject to applicable
withholding, and
(2) Employee shall continue to be covered by and receive the benefits,
in accordance with their terms, of all of the Company's medical, dental and
life insurance plans, for three years thereafter but at no less than the
levels he was receiving immediately prior to the Change in Control.
(3) Employee shall receive an additional retirement benefit, over and
above that which Employee would normally be entitled to under the Company's
retirement plans applicable to Employee, equal to the actuarial equivalent
of the additional amount that Employee would have earned under such
retirement plans or programs had he accumulated three additional continuous
years of service. Such amount shall be paid to the executive in a cash lump
sum payment at his normal retirement age. Employee may also elect to receive
such payment at
6
<PAGE>
his early retirement age, as provided for in the retirement plans, with a
corresponding actuarial reduction in the amount of such payment based upon
the earlier date of such payment.
(b) The amounts paid to the Employee under this Change in Control provision
applicable to Employee shall be considered severance pay in consideration of
past services Employee has rendered to the Company and in consideration of
Employee's continued service from the date hereof to entitlement to those
payments.
(c) For purposes of this provision
(i) "Change in Control" means the earliest of:
(1) the occurrence of any "Distribution Date", as such term is
defined in Section 3 of the Rights Agreement between the Company and The
First National Bank of Chicago, dated July 21, 1987, as amended;
(2) the effective time of a merger or consolidation of the Company
with one or more other corporations as a result of which the holders of
the outstanding common stock, $1.00 par value, of the Company immediately
prior to such merger or consolidation (other than those who are
affiliates of any such other corporation, as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934)
hold less than 70% of the voting stock of the surviving or resulting
corporation or its parent;
(3) the effective time of a transfer of substantially all of the
assets of the Company other than to an entity of which the Company owns
at least 70% of the voting stock; or
(4) the election to the Board during any 3 year period, without the
recommendation or approval of the incumbent Board, of the lesser of (A)
three directors or (B) directors constituting a majority of the number of
directors of the Company then in office; or
(5) the occurrence of any arrangement or understanding relating to
the Company which would give rise to a filing requirement with the
Securities and Exchange Commission pursuant to Rule 14f-1 of the Exchange
Act Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those enjoyed by
Employee immediately prior to the Change in Control; or
(2) a good faith determination by Employee that as the result of a
Change in Control and a material change in employment circumstances
thereafter, he is unable to carry out his duties and responsibilities
contemplated by this Agreement in a manner consistent with the practices,
standards, values or philosophy of the Company immediately prior to the
Change in Control; or
(3) a material breach of this Agreement by the Company; or
(4) a relocation of the primary place of employment of at least 100
miles.
(d) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under this
provision.
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<PAGE>
13. NOTICES. Any notice or other instrument or thing required or permitted
to be given, served or delivered to any of the parties hereto shall be delivered
personally or deposited in the United States mail, with proper postage prepaid,
telegram, teletype, cable or facsimile transmission to the addresses listed
below:
(a) If to the Company, to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: Chairman and Chief Executive Officer
With a copy to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: General Counsel
(b) If to Employee, to:
David P. Storch
908 Elm Place
Glencoe, IL 60022
or to such other address as either party may from time to time designate by
notice to the other. Each notice shall be effective when such notice and any
required copy are delivered to the applicable address.
14. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Employee, and any attempted
unpermitted assignment shall be null and void and without further effect;
provided, however, that, upon the sale or transfer of all or substantially all
of the assets of the Company, or upon the merger by the Company into or the
combination with another corporation or other business entity, or upon the
liquidation or dissolution of the Company, this Agreement will inure to the
benefit of and be binding upon the person, firm or corporation purchasing such
assets, or the corporation surviving such merger or consolidation, or the
shareholder effecting such liquidation or dissolution, as the case may be. After
any such transaction, the term Company in this Agreement shall refer to the
entity which conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of the estate
and beneficiaries of Employee and upon and to the benefit of the permitted
successors and assigns of the parties hereto.
(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit under him by
virtue of this Employment Agreement, that this Employment Agreement and all
rights, interests and benefits hereunder shall not be assigned, transferred,
pledged or hypothecated in any way by the Employee or by any beneficiary, heir,
executor, administrator or other person claiming under the Employee by virtue of
this Employment Agreement and shall not be subject to execution, attachment or
similar process. Any attempted assigned, transfer, pledge or hypothecation or
any other disposition of this Agreement or of such rights, interests and
benefits contrary to the foregoing provisions or the levy or any execution,
attachment or similar process thereon shall be null and void and without further
effect.
8
<PAGE>
15. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term, clause
or provision herein contained.
16. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the rule of
construction that the ambiguities of the contract shall be resolved against the
party which caused the contract to be drafted shall have no application in the
construction or interpretation of this Agreement or any clause or provision
hereof.
17. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all prior
agreements, arrangements and communications, whether oral or written, pertaining
to the subject matter hereof, including, but not limited to, all prior
compensation arrangements between the Company and the Employee concerning
compensation and benefits. This Agreement shall not be modified or amended
except by the mutual written agreement of the Company and Employee.
18. WAIVER. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and an authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois without regard to its conflicts of law
principles.
20. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and which shall constitute but one and
the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the
day and year first above written.
Employer:
Compensation Committee
AAR CORP. Board of Directors
By: /s/ Erwin E. Schulze
-----------------------------------
Erwin E. Schulze,
CHAIRMAN
AAR CORP.
By: /s/ Ira A. Eichner
-----------------------------------
Ira A. Eichner
CHAIRMAN & CHIEF EXECUTIVE OFFICER
Employee:
/s/ David P. Storch
-----------------------------------
David P. Storch
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<PAGE>
EXHIBIT 10.8
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Severance and Change in Control Agreement ("Agreement") made and
entered into as of the 24th day of February, 1995, by and between AAR CORP., a
Delaware corporation ("Company"), and Philip C. Slapke ("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in
the capacity of Vice President-Trading Group; and
WHEREAS, Employee desires the Company to pay Employee certain severance
payments upon a Change in Control of AAR CORP. and upon termination of
employment prior to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under
certain circumstances if Employee agrees to confidentiality, non-compete and
certain other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth
and other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform assigned
duties and responsibilities in the ordinary course of his employment and the
business of the Company (within such limits as the Company may from time to
time prescribe), professionally, faithfully and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the promotion
of the best interests of the Company; provided that Employee shall not (to
the extent not inconsistent with Section 4 below) be prevented from (a)
serving as a director of any corporation consented to in advance in writing
by the Company, (b) engaging in charitable, religious, civic or other
non-profit community activities, or (c) investing his personal assets in
such form or manner as will not require any substantial services on his part
in the operation or affairs of the business in which such investments are
made or which would detract from or interfere or cause a conflict of
interest with performance of his duties hereunder.
(c) observe all policies and procedures of the Company in effect from
time to time applicable to employees of the Company including, without
limitation, policies with respect to employee loyalty and prohibited
conflicts of interest.
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential information,
secret processes and know-how developed and acquired by AAR CORP. and its
affiliates or subsidiaries (together the "Affiliated Companies") are among their
most valuable assets and that the value of such information may be destroyed by
unauthorized disclosure. All such trade secrets, confidential information,
secret processes and know-how imparted to or learned by Employee in the course
of his employment with respect to the business of the Affiliated Companies
(whether acquired before or after the date hereof) will be deemed to be
confidential and will not be used or disclosed by Employee, except to the extent
necessary to perform his duties and, in no event, disclosed to anyone outside
the employ of the Affiliated Companies and their authorized consultants and
advisors, unless (i) such information is or has been made generally available to
the public, (ii) disclosure of such information is required by law in the
opinion of Employee's counsel (provided that written notice thereof is given to
Company as soon as possible but not less than 24 hours prior to such
disclosure), or (iii) express written authorization to use or disclose such
<PAGE>
information has been given by the Company. If Employee ceases to be employed by
the Company for any reason, he shall not take with him any electronically stored
data, documents or other papers containing or reflecting trade secrets,
confidential information, secret processes, know-how, or computer software
programs. Employee acknowledges that his employment hereunder will place him in
a position of utmost confidence and that he will have access to confidential
information concerning the operation of the business of the Affiliated
Companies, including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices and
pricing methods, sources of supply and customer names and relations. All such
information is in the nature of a trade secret and is the sole and exclusive
property of the Affiliated Companies and shall be deemed confidential
information for the purposes of this paragraph.
(b) Employee hereby assigns to the Company all rights that Employee may have
as author, designer, inventor or otherwise as creator of any written or graphic
material, design, invention, improvement, or any other idea or thing whatever
that Employee may write, draw, design, conceive, perfect, or reduce to practice
during employment with the Company or within 120 days after termination of such
employment, whether done during or outside of normal work hours, and whether
done alone or in conjunction with others ("Intellectual Property"), provided,
however, that Employee reserves all rights in anything done or developed
entirely by Employee on Employee's own personal time and without the use of any
Company equipment, supplies, facilities or information, or the participation of
any other Company employee, unless it relates to the Company's business or
reasonably anticipated business, or grows out of any work performed by Employee
for the Company. Employee will promptly disclose all such Intellectual Property
developed by Employee to the Company, and fully cooperate at the Company's
request and expense in any efforts by the Company or its assignees to secure
protection for such Intellectual Property by way of domestic or foreign patent,
copyright, trademark or service mark registration or otherwise, including
executing specific assignments or such other documents or taking such further
action as may be considered necessary to vest title in Company or its assignees
and obtain patents or copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with the
Company and for one (1) year thereafter so long as the Company makes the
severance payments to Employee pursuant to subsections 4(b) or 4(c) below, he
shall not, without the express written consent of the Company, either alone or
as a consultant to, or partner, employee, officer, director, or stockholder of
any organization, entity or business, (i) take or convert for Employee's
personal gain or benefit or for the benefit of any third party, any business
opportunities which may be of interest to the Company or any Affiliated Company
which Employee becomes aware of during the term of his employment; (ii) engage
in direct or indirect competition with the Company or any Affiliated Company
within 100 miles of any location within the United States of America or any
other country where the Company or any Affiliated Company does business from
time to time during the term hereof; (iii) solicit in connection with any
activity which is competitive with any of the businesses of the Company or any
Affiliated Company, any customers of the Company or any Affiliated Company; (iv)
solicit for employment any sales, marketing or management employee of Company or
any Affiliated Company or induce or attempt to induce any customer or supplier
of the Company or any Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness of the
foregoing covenants not to compete and non-solicitation, including but not
limited to the geographic area and duration of time which are a part hereof, and
further, that the restrictions stated in this Section 4 are reasonably necessary
for the protection of Employer's legitimate proprietary interests. This covenant
not to compete may be enforced with respect to any geographic area in which the
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Company or any Affiliated Company does business during the term hereof. Nothing
herein shall prohibit Employee from being the legal or equitable holder, solely
for investment purposes, of less than 5% of the capital stock of any publicly
held corporation which may be in direct or indirect competition with the Company
or any Affiliated Company.
(b) Upon termination of Employee's employment by the Company prior to a
Change in Control (as defined in 6(b)(i) below) for any reason other than Cause
(as defined in 6(b)(iv) below), the Company will pay Employee severance each
month for 12 months ("Severance Period"), in an amount (subject to applicable
withholding) equal to 1/12 of Employee's base salary; and, further, the Company
will pay Employee a PIP bonus award in accordance with and subject to the terms
and conditions of Employee's PIP in a lump sum at the time any such PIP bonuses
are payable under the PIP or at such time as the Severance Period is complete,
whichever is later (with interest at prime rate plus one percentage point from
the earlier of such dates), for any PIP bonuses earned (1) in the completed
fiscal year preceeding termination but not due and payable prior to termination,
and (2) prorata for the period prior to termination of emloyment in any partial
PIP fiscal year based on Employee's performance against Employee's PIP during
such partial period; provided, however, that (i) all such monthly payment
obligations shall terminate immediately upon Employee obtaining full time
employment in a comparable position in terms of salary level, and (ii) all such
payment obligations shall terminate or lapse immediately upon any breach by
Employee of Section 3 or 4(a) of this Agreement or if Employee shall commence
any action or proceeding in any court or before any regulatory agency arising
out of or in connection with termination of his employment.
(c) If Employee terminates his employment or Employee's employment is
terminated by the Company for Cause (as defined below), the Company may elect
(but is not required to), by written notice thereof to Employee, within five (5)
days of any such termination of Employee's employment with the Company prior to
a Change in Control (as defined below), to pay Employee severance as provided in
and subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control Agreement
effective immediately upon notice thereof in writing to Company at any time
while still employed within a sixty (60) calendar day period immediately
following the effective date of any reduction by Company in (i) Employee's level
of responsibility or position from that held by Employee as Vice
President-Trading Group on the effective date of this Agreement, or (ii)
Employee's level of compensation, including retirement benefits in effect
immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be deemed
invalid or unenforceable by the laws of the jurisdiction in which it is to be
enforced by reason of being vague or unreasonable as to duration, geographic
scope, nature of activities restricted, or for any other reason, this provision
shall be considered divisible as to such portions and the foregoing restrictions
set forth in 4(a) shall become and be immediately amended to include only such
duration, scope or restriction and such event as shall be deemed reasonable and
enforceable by the court or other body having jurisdiction to enforce this
Agreement; and the parties hereto agree that the restrictions, as so amended,
shall be valid and binding as though the invalid or unenforceable portion had
not been involved herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a) above, and in
recognition thereof, the Company shall be entitled to an injunction or other
decree of specific performance with respect to any violation thereof (without
any bond or other security being required) in addition to other available legal
and equitable remedies.
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5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising, Employee
shall, upon request by Company:
(1) immediately return to the Company all correspondence, documents,
business calendars/diaries, or other property belonging to the Company which
is in his possession,
(2) immediately resign from any office Employee holds with the Company
or any Affiliated Company; and
(3) cooperate fully and in good faith with the Company in the resolution
of all matters Employee worked on or was involved in during Employee's
employment with the Company. Employee's cooperation will include reasonable
consultation by telephone. Further, in connection therewith, Employee will,
at Company's request upon reasonable advance notice and subject to
Employee's availability, make himself available to Company in person at
Company's premises, for testimony in court, or elsewhere; provided, however,
that in such event, Company shall reimburse all Employee's reasonable
expenses and pay Employee a reasonable per diem or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs and (ii) the
Company terminates Employee's employment for other than Cause or Disability, or
Employee terminates Employee's employment for Good Reason by written notice to
the Company setting forth the particulars thereof after having given the Company
notice and opportunity to be heard with respect thereto, and (iii) neither
incumbent in the positions of Chief Executive Officer or Chief Operating Officer
of the Company on the effective date hereof are Chief Executive Officer of the
Company at the time of such termination of employment,
(1) the Company shall promptly pay to Employee, in a lump sum, a cash
payment in an amount equal to three times Employee's average total
compensation (base salary plus cash bonus) for the last two fiscal years or
such lesser amount as Employee may elect to take, subject to applicable
withholding. Employee may agree to take payments of any amounts on a
schedule of his own choosing provided that such schedule shall be completed
no later than three years from the occurrence of the last triggering event.
(2) Employee shall continue to be covered by and receive the benefits,
in accordance with their terms, of all of the Company's medical, dental and
life insurance plans, for three years thereafter but at no less than the
levels he was receiving immediately prior to the Change in Control.
(3) Employee shall receive an additional retirement benefit, over and
above that which Employee would normally be entitled to under the Company's
retirement plans applicable to Employee, equal to the actuarial equivalent
of the additional amount that Employee would have earned under such
retirement plans or programs had he accumulated three additional continuous
years of service. Such amount shall be paid to the executive in a cash lump
sum payment at his normal retirement age. Employee may also elect to receive
such payment at his early retirement age, as provided for in the retirement
plans, with a corresponding actuarial reduction in the amount of such
payment based upon the earlier date of such payment.
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(b) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
(1) the occurrence of any "Distribution Date", as such term is
defined in Section 3 of the Rights Agreement between the Company and The
First National Bank of Chicago, dated July 21, 1987, as amended;
(2) the effective time of a merger or consolidation of the Company
with one or more other corporations as a result of which the holders of
the outstanding common stock, $1.00 par value, of the Company immediately
prior to such merger or consolidation (other than those who are
affiliates of any such other corporation, as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934)
hold less than 70% of the voting stock of the surviving or resulting
corporation or its parent;
(3) the effective time of a transfer of substantially all of the
assets of the Company other than to an entity of which the Company owns
at least 70% of the voting stock; or
(4) the election to the Board during any 3 year period, without the
recommendation or approval of the incumbent Board, of the lesser of (A)
three directors or (B) directors constituting a majority of the number of
directors of the Company then in office; or
(5) the occurrence of any arrangement or understanding relating to
the Company which would give rise to a filing requirement with the
Securities and Exchange Commission pursuant to Rule 14f-1 of the Exchange
Act Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those enjoyed by
Employee immediately prior to the Change in Control occurring at any time
during the immediate two year period after the Change in Control; or
(2) a good faith determination by Employee that as the result of a
Change in Control and a material change in employment circumstances at
any time during the immediate two year period after the Change in
Control, he is unable to carry out his assigned duties and
responsibilities in a manner consistent with the practices, standards,
values or philosophy of the Company immediately prior to the Change in
Control; or
(3) a relocation of the primary place of employment of at least 100
miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented Employee from
substantially performing his assigned duties for a period of 180
consecutive days and which is expected to continue to render Employee
unable to substantially perform his duties on a full-time basis and
otherwise meets the benefit eligibility requirements of the Company's
Long Term Disability Welfare Benefit Plan. The Company will make
reasonable accommodation for any handicap of Employee as may be required
by applicable law.
In the event of termination by the Company for Disability after a
Change in Control, a good faith determination of the existence of a
Disability shall be made by resolution of the Compensation Committee of
the Board of Directors of the Company, in
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its sole discretion, setting forth the particulars of the Disability
which shall be final and binding upon the Employee. The Company may
require the submission of such medical evidence as to the condition of
the Employee as it may deem necessary in order to arrive at its
determination of the occurrence of a Disability, and Employee will
cooperate in providing any such information. Employee will be provided
with reasonable opportunity to present additional medical evidence as to
the medical condition of Employee for consideration prior to the Board
making its determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability after a
Change in Control, Employee will receive Disability payments pursuant to
the Company's short and long term Disability welfare benefit plans then
in effect according to the terms of such plans and continue to be
eligible to participate in the Company's medical, dental and life
insurance programs then in effect and available to officers of the
Company in accordance with their terms for a period of 3 years from the
date of such termination of this Agreement.
(iv) "Cause" means:
(1) any material breach by Employee of any statutory or common law
duty of loyalty, or
(2) any material breach of this Agreement which, if curable, is not
cured within ten (10) days of notice thereof to Employee; provided,
however, termination of employment for unsatisfactory performance
(including failure to meet financial goals) shall not constitute
termination for Cause.
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board of Directors of AAR
CORP. setting forth the particulars thereof. Any such action shall be
taken at a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to
Employee, with termination of Employee's employment with the Company for
Cause listed as an agenda item. Employee will be given a reasonable
opportunity to be heard at such meeting with counsel present if Employee
desires. Any such resolution shall be final and binding.
Upon termination of employment by Company for Cause, no further
compensation or benefits shall accrue or be payable to Employee by
Company except for any compensation, bonus or other benefits which have
accrued to Employee prior to the date of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or for no
reason.
(c) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under this
Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of
Directors, will at all times have complete control over the Company's business
and retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any time or
times change or discontinue any or all of its present or future operations or
Plans (subject to their terms), may close or move any one or more of its
divisions or offices, may undertake any new servicing or sales operation, may
sell any one or more of its divisions or offices to any company not controlled,
directly or indirectly, by the Company or may take any and all other steps which
its Board of Directors, in its exclusive judgment, shall deem
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desirable, and Employee shall have no claim or recourse against the Company, its
officers, directors or employees, by reason of such action except for
enforcement of the provisions of Section 4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for any
compensation, bonus or other benefits which accrued to Employee prior to the
date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services Employee has
rendered to the Company and in consideration of Employee's continued service
from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted
to be given, served or delivered to any of the parties hereto shall be delivered
personally or deposited in the United States mail, with proper postage prepaid,
telegram, teletype, cable or facsimile transmission to the addresses listed
below:
(a) If to the Company, to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: Chairman and Chief Executive Officer
With a copy to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: General Counsel
(b) If to Employee, to:
Philip C. Slapke
10 Walnut Lane
S. Barrington, IL 60010
or to such other address as either party may from time to time designate by
notice to the other. Each notice shall be effective when such notice and any
required copy are delivered to the applicable address.
10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Employee, and any attempted
unpermitted assignment shall be null and void and without further effect;
provided, however, that, upon the sale or transfer of all or substantially all
of the assets of the Company, or upon the merger by the Company into or the
combination with another corporation or other business entity, or upon the
liquidation or dissolution of the Company, this Agreement will inure to the
benefit of and be binding upon the person, firm or corporation purchasing such
assets, or the corporation surviving such merger or consolidation, or the
shareholder effecting such liquidation or dissolution, as the case may be. After
any such transaction, the term Company in this Agreement shall refer to the
entity which conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of the estate
and beneficiaries of Employee and upon and to the benefit of the permitted
successors and assigns of the parties hereto.
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(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit under him by
virtue of this Agreement, that this Agreement and all rights, interests and
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way by the Employee or by any beneficiary, heir, executor, administrator
or other person claiming under the Employee by virtue of this Agreement and
shall not be subject to execution, attachment or similar process. Any attempted
assigned, transfer, pledge or hypothecation or any other disposition of this
Agreement or of such rights, interests and benefits contrary to the foregoing
provisions or the levy or any execution, attachment or similar process thereon
shall be null and void and without further effect.
11. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term, clause
or provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the rule of
construction that the ambiguities of the contract shall be resolved against the
party which caused the contract to be drafted shall have no application in the
construction or interpretation of this Agreement or any clause or provision
hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all prior
agreements, arrangements and communications, whether oral or written, pertaining
to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
15. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and which shall constitute but one and
the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the
day and year first above written.
Employer:
AAR CORP.
By: /s/ David P. Storch
--------------------------------------
Title: President
--------------------------------------
Employee:
/s/ Philip C. Slapke
-----------------------------------
Philip C. Slapke
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EXHIBIT 10.9
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Severance and Change in Control Agreement ("Agreement") made and
entered into as of the 24th day of February, 1995, by and between AAR CORP., a
Delaware corporation ("Company"), and Howard A. Pulsifer ("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in
the capacity of Vice President, General Counsel and Secretary; and
WHEREAS, Employee desires the Company to pay Employee certain severance
payments upon a Change in Control of AAR CORP. and upon termination of
employment prior to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under
certain circumstances if Employee agrees to confidentiality, non-compete and
certain other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth
and other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform assigned
duties and responsibilities in the ordinary course of his employment and the
business of the Company (within such limits as the Company may from time to
time prescribe), professionally, faithfully and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the promotion
of the best interests of the Company; provided that Employee shall not (to
the extent not inconsistent with Section 4 below) be prevented from (a)
serving as a director of any corporation consented to in advance in writing
by the Company, (b) engaging in charitable, religious, civic or other
non-profit community activities, or (c) investing his personal assets in
such form or manner as will not require any substantial services on his part
in the operation or affairs of the business in which such investments are
made or which would detract from or interfere or cause a conflict of
interest with performance of his duties hereunder.
(c) observe all policies and procedures of the Company in effect from
time to time applicable to employees of the Company including, without
limitation, policies with respect to employee loyalty and prohibited
conflicts of interest.
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential information,
secret processes and know-how developed and acquired by AAR CORP. and its
affiliates or subsidiaries (together the "Affiliated Companies") are among their
most valuable assets and that the value of such information may be destroyed by
unauthorized disclosure. All such trade secrets, confidential information,
secret processes and know-how imparted to or learned by Employee in the course
of his employment with respect to the business of the Affiliated Companies
(whether acquired before or after the date hereof) will be deemed to be
confidential and will not be used or disclosed by Employee, except to the extent
necessary to perform his duties and, in no event, disclosed to anyone outside
the employ of the Affiliated Companies and their authorized consultants and
advisors, unless (i) such information is or has been made generally available to
the public, (ii) disclosure of such information is required by law in the
opinion of Employee's counsel (provided that written notice thereof is given to
Company as soon as possible but not less than 24 hours prior to such
disclosure), or (iii) express written authorization to use or disclose such
<PAGE>
information has been given by the Company. If Employee ceases to be employed by
the Company for any reason, he shall not take with him any electronically stored
data, documents or other papers containing or reflecting trade secrets,
confidential information, secret processes, know-how, or computer software
programs. Employee acknowledges that his employment hereunder will place him in
a position of utmost confidence and that he will have access to confidential
information concerning the operation of the business of the Affiliated
Companies, including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices and
pricing methods, sources of supply and customer names and relations. All such
information is in the nature of a trade secret and is the sole and exclusive
property of the Affiliated Companies and shall be deemed confidential
information for the purposes of this paragraph.
(b) Employee hereby assigns to the Company all rights that Employee may have
as author, designer, inventor or otherwise as creator of any written or graphic
material, design, invention, improvement, or any other idea or thing whatever
that Employee may write, draw, design, conceive, perfect, or reduce to practice
during employment with the Company or within 120 days after termination of such
employment, whether done during or outside of normal work hours, and whether
done alone or in conjunction with others ("Intellectual Property"), provided,
however, that Employee reserves all rights in anything done or developed
entirely by Employee on Employee's own personal time and without the use of any
Company equipment, supplies, facilities or information, or the participation of
any other Company employee, unless it relates to the Company's business or
reasonably anticipated business, or grows out of any work performed by Employee
for the Company. Employee will promptly disclose all such Intellectual Property
developed by Employee to the Company, and fully cooperate at the Company's
request and expense in any efforts by the Company or its assignees to secure
protection for such Intellectual Property by way of domestic or foreign patent,
copyright, trademark or service mark registration or otherwise, including
executing specific assignments or such other documents or taking such further
action as may be considered necessary to vest title in Company or its assignees
and obtain patents or copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with the
Company and for one (1) year thereafter so long as the Company makes severance
payments to Employee pursuant to subsections 4(b) or 4(c) below, he shall not,
without the express written consent of the Company, either alone or as a
consultant to, or partner, employee, officer, director, or stockholder of any
organization, entity or business, (i) take or convert for Employee's personal
gain or benefit or for the benefit of any third party, any business
opportunities which may be of interest to the Company or any Affiliated Company
which Employee becomes aware of during the term of his employment; (ii) engage
in direct or indirect competition with the Company or any Affiliated Company
within 100 miles of any location within the United States of America or any
other country where the Company or any Affiliated Company does business from
time to time during the term hereof; (iii) solicit in connection with any
activity which is competitive with any of the businesses of the Company or any
Affiliated Company, any customers of the Company or any Affiliated Company; (iv)
solicit for employment any sales, marketing or management employee of Company or
any Affiliated Company or induce or attempt to induce any customer or supplier
of the Company or any Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness of the
foregoing covenants not to compete and non-solicitation, including but not
limited to the geographic area and duration of time which are a part hereof, and
further, that the restrictions stated in this Section 4 are reasonably necessary
for the protection of Employer's legitimate proprietary interests. This covenant
not to compete may be enforced with respect to any geographic area in which the
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Company or any Affiliated Company does business during the term hereof. Nothing
herein shall prohibit Employee from being the legal or equitable holder, solely
for investment purposes, of less than 5% of the capital stock of any publicly
held corporation which may be in direct or indirect competition with the Company
or any Affiliated Company.
(b) The Company will pay Employee, upon termination of Employee's employment
by the Company prior to a Change in Control (as defined in 6(b)(i) below) for
any reason other than Cause (as defined in 6(b)(iv) below), severance each month
for 12 months, in an amount (subject to applicable withholding) equal to 1/12 of
Employee's base salary; and, further, if the Company pays discretionary bonuses
to its officers for the fiscal year in which Employee's employment is
terminated, Employee will be paid a bonus in a lump sum at the time any such
bonuses are paid to other officers or at such time as the Severance Period is
complete, whichever is later (with interest at prime rate plus one percentage
point from the earlier of such dates), (1) for the completed fiscal year
preceding termination if such bonus has not been paid prior to termination, and
(2) for the fiscal year in which employment is terminated, prorata for the
period prior to termination of employment based on Employee's performance during
such period; provided, however, that (i) all such monthly payment obligations
shall terminate immediately upon Employee obtaining full time employment in a
comparable position in terms of salary level, and (ii) all such payment
obligations shall terminate or lapse immediately upon any breach by Employee of
Section 3 or 4(a) of this Agreement or if Employee shall commence any action or
proceeding in any court or before any regulatory agency arising out of or in
connection with termination of his employment.
(c) If Employee terminates his employment or Employee's employment is
terminated by the Company for Cause (as defined below), the Company may elect
(but is not required to), by written notice thereof to Employee, within five (5)
days of any such termination of Employee's employment with the Company prior to
a Change in Control (as defined below), to pay Employee severance as provided in
and subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control Agreement
effective immediately upon notice thereof in writing to Company at any time
while still employed within a sixty (60) calendar day period immediately
following the effective date of any reduction by Company in (i) Employee's level
of responsibility or position from that held by Employee as Vice President,
General Counsel and Secretary on the effective date of this Agreement, or (ii)
Employee's level of compensation, including retirement benefits in effect
immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be deemed
invalid or unenforceable by the laws of the jurisdiction in which it is to be
enforced by reason of being vague or unreasonable as to duration, geographic
scope, nature of activities restricted, or for any other reason, this provision
shall be considered divisible as to such portions and the foregoing restrictions
set forth in 4(a) shall become and be immediately amended to include only such
duration, scope or restriction and such event as shall be deemed reasonable and
enforceable by the court or other body having jurisdiction to enforce this
Agreement; and the parties hereto agree that the restrictions, as so amended,
shall be valid and binding as though the invalid or unenforceable portion had
not been involved herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a) above, and in
recognition thereof, the Company shall be entitled to an injunction or other
decree of specific performance with respect to any violation thereof (without
any bond or other security being required) in addition to other available legal
and equitable remedies.
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5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising, Employee
shall, upon request by Company:
(1) immediately return to the Company all correspondence, documents,
business calendars/diaries, or other property belonging to the Company which
is in his possession,
(2) immediately resign from any office Employee holds with the Company
or any Affiliated Company; and
(3) cooperate fully and in good faith with the Company in the resolution
of all matters Employee worked on or was involved in during Employee's
employment with the Company. Employee's cooperation will include reasonable
consultation by telephone. Further, in connection therewith, Employee will,
at Company's request upon reasonable advance notice and subject to
Employee's availability, make himself available to Company in person at
Company's premises, for testimony in court, or elsewhere; provided, however,
that in such event, Company shall reimburse all Employee's reasonable
expenses and pay Employee a reasonable per diem or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs and (ii) the
Company terminates Employee's employment for other than Cause or Disability, or
Employee terminates Employee's employment for Good Reason by written notice to
the Company setting forth the particulars thereof after having given the Company
notice and opportunity to be heard with respect thereto, and (iii) neither
incumbent in the positions of Chief Executive Officer or Chief Operating Officer
of the Company on the effective date hereof are Chief Executive Officer of the
Company at the time of such termination of employment,
(1) the Company shall promptly pay to Employee, in a lump sum, a cash
payment in an amount equal to three times Employee's average total
compensation (base salary plus cash bonus) for the last two fiscal years or
such lesser amount as Employee may elect to take, subject to applicable
withholding. Employee may agree to take payments of any amounts on a
schedule of his own choosing provided that such schedule shall be completed
no later than three years from the occurrence of the last triggering event.
(2) Employee shall continue to be covered by and receive the benefits,
in accordance with their terms, of all of the Company's medical, dental and
life insurance plans, for three years thereafter but at no less than the
levels he was receiving immediately prior to the Change in Control.
(3) Employee shall receive an additional retirement benefit, over and
above that which Employee would normally be entitled to under the Company's
retirement plans applicable to Employee, equal to the actuarial equivalent
of the additional amount that Employee would have earned under such
retirement plans or programs had he accumulated three additional continuous
years of service. Such amount shall be paid to the executive in a cash lump
sum payment at his normal retirement age. Employee may also elect to receive
such payment at his early retirement age, as provided for in the retirement
plans, with a corresponding actuarial reduction in the amount of such
payment based upon the earlier date of such payment.
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(b) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
(1) the occurrence of any "Distribution Date", as such term is
defined in Section 3 of the Rights Agreement between the Company and The
First National Bank of Chicago, dated July 21, 1987, as amended;
(2) the effective time of a merger or consolidation of the Company
with one or more other corporations as a result of which the holders of
the outstanding common stock, $1.00 par value, of the Company immediately
prior to such merger or consolidation (other than those who are
affiliates of any such other corporation, as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934)
hold less than 70% of the voting stock of the surviving or resulting
corporation or its parent;
(3) the effective time of a transfer of substantially all of the
assets of the Company other than to an entity of which the Company owns
at least 70% of the voting stock; or
(4) the election to the Board during any 3 year period, without the
recommendation or approval of the incumbent Board, of the lesser of (A)
three directors or (B) directors constituting a majority of the number of
directors of the Company then in office; or
(5) the occurrence of any arrangement or understanding relating to
the Company which would give rise to a filing requirement with the
Securities and Exchange Commission pursuant to Rule 14f-1 of the Exchange
Act Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those enjoyed by
Employee immediately prior to the Change in Control occurring at any time
during the immediate two year period after the Change in Control; or
(2) a good faith determination by Employee that as the result of a
Change in Control and a material change in employment circumstances at
any time during the immediate two year period after the Change in
Control, he is unable to carry out his assigned duties and
responsibilities in a manner consistent with the practices, standards,
values or philosophy of the Company immediately prior to the Change in
Control; or
(3) a relocation of the primary place of employment of at least 100
miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented Employee from
substantially performing his assigned duties for a period of 180
consecutive days and which is expected to continue to render Employee
unable to substantially perform his duties on a full-time basis and
otherwise meets the benefit eligibility requirements of the Company's
Long Term Disability Welfare Benefit Plan. The Company will make
reasonable accommodation for any handicap of Employee as may be required
by applicable law.
In the event of termination by the Company for Disability after a
Change in Control, a good faith determination of the existence of a
Disability shall be made by resolution of the Compensation Committee of
the Board of Directors of the Company, in
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its sole discretion, setting forth the particulars of the Disability
which shall be final and binding upon the Employee. The Company may
require the submission of such medical evidence as to the condition of
the Employee as it may deem necessary in order to arrive at its
determination of the occurrence of a Disability, and Employee will
cooperate in providing any such information. Employee will be provided
with reasonable opportunity to present additional medical evidence as to
the medical condition of Employee for consideration prior to the Board
making its determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability after a
Change in Control, Employee will receive Disability payments pursuant to
the Company's short and long term Disability welfare benefit plans then
in effect according to the terms of such plans and continue to be
eligible to participate in the Company's medical, dental and life
insurance programs then in effect and available to officers of the
Company in accordance with their terms for a period of 3 years from the
date of such termination of this Agreement.
(iv) "Cause" means:
(1) any material breach by Employee of any statutory or common law
duty of loyalty, or
(2) any material breach of this Agreement which, if curable, is not
cured within ten (10) days of notice thereof to Employee; provided,
however, termination of employment for unsatisfactory performance
(including failure to meet financial goals) shall not constitute
termination for Cause.
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board of Directors of AAR
CORP. setting forth the particulars thereof. Any such action shall be
taken at a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to
Employee, with termination of Employee's employment with the Company for
Cause listed as an agenda item. Employee will be given a reasonable
opportunity to be heard at such meeting with counsel present if Employee
desires. Any such resolution shall be final and binding.
Upon termination of employment by Company for Cause, no further
compensation or benefits shall accrue or be payable to Employee by
Company except for any compensation, bonus or other benefits which have
accrued to Employee prior to the date of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or for no
reason.
(c) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under this
Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of
Directors, will at all times have complete control over the Company's business
and retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any time or
times change or discontinue any or all of its present or future operations or
Plans (subject to their terms), may close or move any one or more of its
divisions or offices, may undertake any new servicing or sales operation, may
sell any one or more of its divisions or offices to any company not controlled,
directly or indirectly, by the Company or may take any and all other steps which
its Board of Directors, in its exclusive judgment, shall deem
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desirable, and Employee shall have no claim or recourse against the Company, its
officers, directors or employees by reason of such action except for enforcement
of the provisions of Sections 4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for any
compensation, bonus or other benefits which accrued to Employee prior to the
date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services Employee has
rendered to the Company and in consideration of Employee's continued service
from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted
to be given, served or delivered to any of the parties hereto shall be delivered
personally or deposited in the United States mail, with proper postage prepaid,
telegram, teletype, cable or facsimile transmission to the addresses listed
below:
(a) If to the Company, to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: Chairman and Chief Executive Officer
With a copy to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: General Counsel
(b) If to Employee, to:
Howard A. Pulsifer
630 Indian Way
Barrington, IL 60010
or to such other address as either party may from time to time designate by
notice to the other. Each notice shall be effective when such notice and any
required copy are delivered to the applicable address.
10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Employee, and any attempted
unpermitted assignment shall be null and void and without further effect;
provided, however, that, upon the sale or transfer of all or substantially all
of the assets of the Company, or upon the merger by the Company into or the
combination with another corporation or other business entity, or upon the
liquidation or dissolution of the Company, this Agreement will inure to the
benefit of and be binding upon the person, firm or corporation purchasing such
assets, or the corporation surviving such merger or consolidation, or the
shareholder effecting such liquidation or dissolution, as the case may be. After
any such transaction, the term Company in this Agreement shall refer to the
entity which conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of the estate
and beneficiaries of Employee and upon and to the benefit of the permitted
successors and assigns of the parties hereto.
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(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit under him by
virtue of this Agreement, that this Agreement and all rights, interests and
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way by the Employee or by any beneficiary, heir, executor, administrator
or other person claiming under the Employee by virtue of this Agreement and
shall not be subject to execution, attachment or similar process. Any attempted
assigned, transfer, pledge or hypothecation or any other disposition of this
Agreement or of such rights, interests and benefits contrary to the foregoing
provisions or the levy or any execution, attachment or similar process thereon
shall be null and void and without further effect.
11. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term, clause
or provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the rule of
construction that the ambiguities of the contract shall be resolved against the
party which caused the contract to be drafted shall have no application in the
construction or interpretation of this Agreement or any clause or provision
hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all prior
agreements, arrangements and communications, whether oral or written, pertaining
to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
15. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and which shall constitute but one and
the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the
day and year first above written.
Employer:
AAR CORP.
By: /s/ David P. Storch
--------------------------------------
Title: President
--------------------------------------
Employee:
/s/ Howard A. Pulsifer
-----------------------------------
Howard A. Pulsifer
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EXHIBIT 10.10
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Severance and Change in Control Agreement ("Agreement") made and
entered into as of the 24th day of February, 1995, by and between AAR CORP., a
Delaware corporation ("Company"), and Timothy J. Romenesko ("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in
the capacity of Vice President-Controller, Chief Financial Officer and
Treasurer; and
WHEREAS, Employee desires the Company to pay Employee certain severance
payments upon a Change in Control of AAR CORP. and upon termination of
employment prior to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under
certain circumstances if Employee agrees to confidentiality, non-compete and
certain other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth
and other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform assigned
duties and responsibilities in the ordinary course of his employment and the
business of the Company (within such limits as the Company may from time to
time prescribe), professionally, faithfully and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the promotion
of the best interests of the Company; provided that Employee shall not (to
the extent not inconsistent with Section 4 below) be prevented from (a)
serving as a director of any corporation consented to in advance in writing
by the Company, (b) engaging in charitable, religious, civic or other
non-profit community activities, or (c) investing his personal assets in
such form or manner as will not require any substantial services on his part
in the operation or affairs of the business in which such investments are
made or which would detract from or interfere or cause a conflict of
interest with performance of his duties hereunder.
(c) observe all policies and procedures of the Company in effect from
time to time applicable to employees of the Company including, without
limitation, policies with respect to employee loyalty and prohibited
conflicts of interest.
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential information,
secret processes and know-how developed and acquired by AAR CORP. and its
affiliates or subsidiaries (together the "Affiliated Companies") are among their
most valuable assets and that the value of such information may be destroyed by
unauthorized disclosure. All such trade secrets, confidential information,
secret processes and know-how imparted to or learned by Employee in the course
of his employment with respect to the business of the Affiliated Companies
(whether acquired before or after the date hereof) will be deemed to be
confidential and will not be used or disclosed by Employee, except to the extent
necessary to perform his duties and, in no event, disclosed to anyone outside
the employ of the Affiliated Companies and their authorized consultants and
advisors, unless (i) such information is or has been made generally available to
the public, (ii) disclosure of such information is required by law in the
opinion of Employee's counsel (provided that written notice thereof is given to
Company as soon as possible but not less than 24 hours prior to such
disclosure), or (iii) express written authorization to use or disclose such
<PAGE>
information has been given by the Company. If Employee ceases to be employed by
the Company for any reason, he shall not take with him any electronically stored
data, documents or other papers containing or reflecting trade secrets,
confidential information, secret processes, know-how, or computer software
programs. Employee acknowledges that his employment hereunder will place him in
a position of utmost confidence and that he will have access to confidential
information concerning the operation of the business of the Affiliated
Companies, including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices and
pricing methods, sources of supply and customer names and relations. All such
information is in the nature of a trade secret and is the sole and exclusive
property of the Affiliated Companies and shall be deemed confidential
information for the purposes of this paragraph.
(b) Employee hereby assigns to the Company all rights that Employee may have
as author, designer, inventor or otherwise as creator of any written or graphic
material, design, invention, improvement, or any other idea or thing whatever
that Employee may write, draw, design, conceive, perfect, or reduce to practice
during employment with the Company or within 120 days after termination of such
employment, whether done during or outside of normal work hours, and whether
done alone or in conjunction with others ("Intellectual Property"), provided,
however, that Employee reserves all rights in anything done or developed
entirely by Employee on Employee's own personal time and without the use of any
Company equipment, supplies, facilities or information, or the participation of
any other Company employee, unless it relates to the Company's business or
reasonably anticipated business, or grows out of any work performed by Employee
for the Company. Employee will promptly disclose all such Intellectual Property
developed by Employee to the Company, and fully cooperate at the Company's
request and expense in any efforts by the Company or its assignees to secure
protection for such Intellectual Property by way of domestic or foreign patent,
copyright, trademark or service mark registration or otherwise, including
executing specific assignments or such other documents or taking such further
action as may be considered necessary to vest title in Company or its assignees
and obtain patents or copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with the
Company and for one (1) year thereafter so long as the Company makes severance
payments to Employee pursuant to subsections 4(b) or 4(c) below, he shall not,
without the express written consent of the Company, either alone or as a
consultant to, or partner, employee, officer, director, or stockholder of any
organization, entity or business, (i) take or convert for Employee's personal
gain or benefit or for the benefit of any third party, any business
opportunities which may be of interest to the Company or any Affiliated Company
which Employee becomes aware of during the term of his employment; (ii) engage
in direct or indirect competition with the Company or any Affiliated Company
within 100 miles of any location within the United States of America or any
other country where the Company or any Affiliated Company does business from
time to time during the term hereof; (iii) solicit in connection with any
activity which is competitive with any of the businesses of the Company or any
Affiliated Company, any customers of the Company or any Affiliated Company; (iv)
solicit for employment any sales, marketing or management employee of Company or
any Affiliated Company or induce or attempt to induce any customer or supplier
of the Company or any Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness of the
foregoing covenants not to compete and non-solicitation, including but not
limited to the geographic area and duration of time which are a part hereof, and
further, that the restrictions stated in this Section 4 are reasonably necessary
for the protection of Employer's legitimate proprietary interests. This covenant
not to compete may be enforced with respect to any geographic area in which the
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Company or any Affiliated Company does business during the term hereof. Nothing
herein shall prohibit Employee from being the legal or equitable holder, solely
for investment purposes, of less than 5% of the capital stock of any publicly
held corporation which may be in direct or indirect competition with the Company
or any Affiliated Company.
(b) The Company will pay Employee, upon termination of Employee's employment
by the Company prior to a Change in Control (as defined in 6(b)(i) below) for
any reason other than Cause (as defined in 6(b)(iv) below), severance each month
for 12 months, in an amount (subject to applicable withholding) equal to 1/12 of
Employee's base salary; and, further, if the Company pays discretionary bonuses
to its officers for the fiscal year in which Employee's employment is
terminated, Employee will be paid a bonus in a lump sum at the time any such
bonuses are paid to other officers or at such time as the Severance Period is
complete, whichever is later (with interest at prime rate plus one percentage
point from the earlier of such dates), (1) for the completed fiscal year
preceding termination if such bonus has not been paid prior to termination, and
(2) for the fiscal year in which employment is terminated, prorata for the
period prior to termination of employment based on Employee's performance during
such period; provided, however, that (i) all such monthly payment obligations
shall terminate immediately upon Employee obtaining full time employment in a
comparable position in terms of salary level, and (ii) all such payment
obligations shall terminate or lapse immediately upon any breach by Employee of
Section 3 or 4(a) of this Agreement or if Employee shall commence any action or
proceeding in any court or before any regulatory agency arising out of or in
connection with termination of his employment.
(c) If Employee terminates his employment or Employee's employment is
terminated by the Company for Cause (as defined below), the Company may elect
(but is not required to), by written notice thereof to Employee, within five (5)
days of any such termination of Employee's employment with the Company prior to
a Change in Control (as defined below), to pay Employee severance as provided in
and subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control Agreement
effective immediately upon notice thereof in writing to Company at any time
while still employed within a sixty (60) calendar day period immediately
following the effective date of any reduction by Company in (i) Employee's level
of responsibility or position from that held by Employee as Vice
President-Controller, Chief Financial Officer and Treasurer on the effective
date of this Agreement, or (ii) Employee's level of compensation, including
retirement benefits in effect immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be deemed
invalid or unenforceable by the laws of the jurisdiction in which it is to be
enforced by reason of being vague or unreasonable as to duration, geographic
scope, nature of activities restricted, or for any other reason, this provision
shall be considered divisible as to such portions and the foregoing restrictions
set forth in 4(a) shall become and be immediately amended to include only such
duration, scope or restriction and such event as shall be deemed reasonable and
enforceable by the court or other body having jurisdiction to enforce this
Agreement; and the parties hereto agree that the restrictions, as so amended,
shall be valid and binding as though the invalid or unenforceable portion had
not been involved herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a) above, and in
recognition thereof, the Company shall be entitled to an injunction or other
decree of specific performance with respect to any violation thereof (without
any bond or other security being required) in addition to other available legal
and equitable remedies.
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5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising, Employee
shall, upon request by Company:
(1) immediately return to the Company all correspondence, documents,
business calendars/diaries, or other property belonging to the Company which
is in his possession,
(2) immediately resign from any office Employee holds with the Company
or any Affiliated Company; and
(3) cooperate fully and in good faith with the Company in the resolution
of all matters Employee worked on or was involved in during Employee's
employment with the Company. Employee's cooperation will include reasonable
consultation by telephone. Further, in connection therewith, Employee will,
at Company's request upon reasonable advance notice and subject to
Employee's availability, make himself available to Company in person at
Company's premises, for testimony in court, or elsewhere; provided, however,
that in such event, Company shall reimburse all Employee's reasonable
expenses and pay Employee a reasonable per diem or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs and (ii) the
Company terminates Employee's employment for other than Cause or Disability, or
Employee terminates Employee's employment for Good Reason by written notice to
the Company setting forth the particulars thereof after having given the Company
notice and opportunity to be heard with respect thereto, and (iii) neither
incumbent in the positions of Chief Executive Officer or Chief Operating Officer
of the Company on the effective date hereof are Chief Executive Officer of the
Company at the time of such termination of employment,
(1) the Company shall promptly pay to Employee, in a lump sum, a cash
payment in an amount equal to three times Employee's average total
compensation (base salary plus cash bonus) for the last two fiscal years or
such lesser amount as Employee may elect to take, subject to applicable
withholding. Employee may agree to take payments of any amounts on a
schedule of his own choosing provided that such schedule shall be completed
no later than three years from the occurrence of the last triggering event.
(2) Employee shall continue to be covered by and receive the benefits,
in accordance with their terms, of all of the Company's medical, dental and
life insurance plans, for three years thereafter but at no less than the
levels he was receiving immediately prior to the Change in Control.
(3) Employee shall receive an additional retirement benefit, over and
above that which Employee would normally be entitled to under the Company's
retirement plans applicable to Employee, equal to the actuarial equivalent
of the additional amount that Employee would have earned under such
retirement plans or programs had he accumulated three additional continuous
years of service. Such amount shall be paid to the executive in a cash lump
sum payment at his normal retirement age. Employee may also elect to receive
such payment at his early retirement age, as provided for in the retirement
plans, with a corresponding actuarial reduction in the amount of such
payment based upon the earlier date of such payment.
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(b) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
(1) the occurrence of any "Distribution Date", as such term is
defined in Section 3 of the Rights Agreement between the Company and The
First National Bank of Chicago, dated July 21, 1987, as amended;
(2) the effective time of a merger or consolidation of the Company
with one or more other corporations as a result of which the holders of
the outstanding common stock, $1.00 par value, of the Company immediately
prior to such merger or consolidation (other than those who are
affiliates of any such other corporation, as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934)
hold less than 70% of the voting stock of the surviving or resulting
corporation or its parent;
(3) the effective time of a transfer of substantially all of the
assets of the Company other than to an entity of which the Company owns
at least 70% of the voting stock; or
(4) the election to the Board during any 3 year period, without the
recommendation or approval of the incumbent Board, of the lesser of (A)
three directors or (B) directors constituting a majority of the number of
directors of the Company then in office; or
(5) the occurrence of any arrangement or understanding relating to
the Company which would give rise to a filing requirement with the
Securities and Exchange Commission pursuant to Rule 14f-1 of the Exchange
Act Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those enjoyed by
Employee immediately prior to the Change in Control occurring at any time
during the immediate two year period after the Change in Control; or
(2) a good faith determination by Employee that as the result of a
Change in Control and a material change in employment circumstances at
any time during the immediate two year period after the Change in
Control, he is unable to carry out his assigned duties and
responsibilities in a manner consistent with the practices, standards,
values or philosophy of the Company immediately prior to the Change in
Control; or
(3) a relocation of the primary place of employment of at least 100
miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented Employee from
substantially performing his assigned duties for a period of 180
consecutive days and which is expected to continue to render Employee
unable to substantially perform his duties on a full-time basis and
otherwise meets the benefit eligibility requirements of the Company's
Long Term Disability Welfare Benefit Plan. The Company will make
reasonable accommodation for any handicap of Employee as may be required
by applicable law.
In the event of termination by the Company for Disability after a
Change in Control, a good faith determination of the existence of a
Disability shall be made by resolution of the Compensation Committee of
the Board of Directors of the Company, in
5
<PAGE>
its sole discretion, setting forth the particulars of the Disability
which shall be final and binding upon the Employee. The Company may
require the submission of such medical evidence as to the condition of
the Employee as it may deem necessary in order to arrive at its
determination of the occurrence of a Disability, and Employee will
cooperate in providing any such information. Employee will be provided
with reasonable opportunity to present additional medical evidence as to
the medical condition of Employee for consideration prior to the Board
making its determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability after a
Change in Control, Employee will receive Disability payments pursuant to
the Company's short and long term Disability welfare benefit plans then
in effect according to the terms of such plans and continue to be
eligible to participate in the Company's medical, dental and life
insurance programs then in effect and available to officers of the
Company in accordance with their terms for a period of 3 years from the
date of such termination of this Agreement.
(iv) "Cause" means:
(1) any material breach by Employee of any statutory or common law
duty of loyalty, or
(2) any material breach of this Agreement which, if curable, is not
cured within ten (10) days of notice thereof to Employee; provided,
however, termination of employment for unsatisfactory performance
(including failure to meet financial goals) shall not constitute
termination for Cause.
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board of Directors of AAR
CORP. setting forth the particulars thereof. Any such action shall be
taken at a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to
Employee, with termination of Employee's employment with the Company for
Cause listed as an agenda item. Employee will be given a reasonable
opportunity to be heard at such meeting with counsel present if Employee
desires. Any such resolution shall be final and binding.
Upon termination of employment by Company for Cause, no further
compensation or benefits shall accrue or be payable to Employee by
Company except for any compensation, bonus or other benefits which have
accrued to Employee prior to the date of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or for no
reason.
(c) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under this
Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of
Directors, will at all times have complete control over the Company's business
and retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any time or
times change or discontinue any or all of its present or future operations or
Plans (subject to their terms), may close or move any one or more of its
divisions or offices, may undertake any new servicing or sales operation, may
sell any one or more of its divisions or offices to any company not controlled,
directly or indirectly, by the Company or may take any and all other steps which
its Board of Directors, in its exclusive judgment, shall deem
6
<PAGE>
desirable, and Employee shall have no claim or recourse against the Company, its
officers, directors or employees by reason of such action except for enforcement
of the provisions of Sections 4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for any
compensation, bonus or other benefits which accrued to Employee prior to the
date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services Employee has
rendered to the Company and in consideration of Employee's continued service
from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted
to be given, served or delivered to any of the parties hereto shall be delivered
personally or deposited in the United States mail, with proper postage prepaid,
telegram, teletype, cable or facsimile transmission to the addresses listed
below:
(a) If to the Company, to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: Chairman and Chief Executive Officer
With a copy to:
AAR CORP.
1111 Nicholas Boulevard
Elk Grove Village, Illinois 60007
Attention: General Counsel
(b) If to Employee, to:
Timothy J. Romenesko
1485 S. Lake Shore Drive
Barrington, IL 60010
or to such other address as either party may from time to time designate by
notice to the other. Each notice shall be effective when such notice and any
required copy are delivered to the applicable address.
10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Employee, and any attempted
unpermitted assignment shall be null and void and without further effect;
provided, however, that, upon the sale or transfer of all or substantially all
of the assets of the Company, or upon the merger by the Company into or the
combination with another corporation or other business entity, or upon the
liquidation or dissolution of the Company, this Agreement will inure to the
benefit of and be binding upon the person, firm or corporation purchasing such
assets, or the corporation surviving such merger or consolidation, or the
shareholder effecting such liquidation or dissolution, as the case may be. After
any such transaction, the term Company in this Agreement shall refer to the
entity which conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of the estate
and beneficiaries of Employee and upon and to the benefit of the permitted
successors and assigns of the parties hereto.
7
<PAGE>
(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit under him by
virtue of this Agreement, that this Agreement and all rights, interests and
benefits hereunder shall not be assigned, transferred, pledged or hypothecated
in any way by the Employee or by any beneficiary, heir, executor, administrator
or other person claiming under the Employee by virtue of this Agreement and
shall not be subject to execution, attachment or similar process. Any attempted
assigned, transfer, pledge or hypothecation or any other disposition of this
Agreement or of such rights, interests and benefits contrary to the foregoing
provisions or the levy or any execution, attachment or similar process thereon
shall be null and void and without further effect.
11. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term, clause
or provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the rule of
construction that the ambiguities of the contract shall be resolved against the
party which caused the contract to be drafted shall have no application in the
construction or interpretation of this Agreement or any clause or provision
hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all prior
agreements, arrangements and communications, whether oral or written, pertaining
to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
15. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and which shall constitute but one and
the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the
day and year first above written.
Employer:
AAR CORP.
By: /s/ David P. Storch
--------------------------------------
Title: President
--------------------------------------
Employee:
/s/ Timothy J. Romenesko
-----------------------------------
Timothy J. Romenesko
8
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AAR CORP.(1)
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
AAR Allen Airmotive, Inc......................................................................... Illinois
AAR Aviation Services, Inc.(2)................................................................... New York
AAR Aviation Trading, Inc.(3).................................................................... Illinois
AAR Financial Services Corp...................................................................... Illinois
AAR Hardware Corp.(4)............................................................................ Illinois
AAR Manufacturing, Inc.(5)....................................................................... Illinois
AAR Oklahoma, Inc.(6)............................................................................ Oklahoma
AAR PowerBoss, Inc.(7)........................................................................... Illinois
</TABLE>
- ------------------------
(1) Subsidiaries required to be listed pursuant to Regulation S-K Item
601(b)(21).
(2) Also does business under the name of AAR Engine Component Services, AAR
Landing Gear Center, AAR Technical Service Center, AAR Technical Service
Center -- Midwest and Mars Aircraft Radio.
(3) Also does business under the names AAR Aircraft Turbine Center, AAR Allen
Aircraft, AAR Defense Systems and AAR Expendables.
(4) Also does business under the name AAR Hardware.
(5) Also does business under the names AAR Advanced Structures, AAR Cadillac
Manufacturing, AAR Handling Systems, AAR Skydyne and Aeronetics. AAR
Manufacturing, Inc. was formerly known as AAR Brooks & Perkins Corp.
(6) Also does business under the names Warsaw Aircraft Parts and AAR Southern
Star.
(7) Also does business under the name AAR PowerBoss.
<PAGE>
EXHIBIT 23.1
The Board of Directors
AAR CORP:
We consent to the incorporation by reference in Registration Statement Nos.
33-19767, 33-26783, 33-38042, 33-43839, 33-58456, 33-56023, and 33-57753 on Form
S-8 and in Registration Statement Nos., 33-30222 and 33-42326 on Form S-3 of AAR
CORP. of our report dated June 30, 1995, relating to the consolidated balance
sheets of AAR CORP, and subsidiaries as of May 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended May 31, 1995, which report appears
in the May 31, 1995 annual report on Form 10-K of AAR CORP.
KPMG Peat Marwick LLP
Chicago, Illinois
August 11, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
MAY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 22,487
<SECURITIES> 0
<RECEIVABLES> 112,820
<ALLOWANCES> 2,400
<INVENTORY> 151,827
<CURRENT-ASSETS> 321,632
<PP&E> 128,200
<DEPRECIATION> 71,604
<TOTAL-ASSETS> 425,814
<CURRENT-LIABILITIES> 73,140
<BONDS> 119,766
<COMMON> 16,284
0
0
<OTHER-SE> 180,835
<TOTAL-LIABILITY-AND-EQUITY> 425,814
<SALES> 451,395
<TOTAL-REVENUES> 451,395
<CGS> 373,524
<TOTAL-COSTS> 426,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 895<F1>
<INTEREST-EXPENSE> 9,725<F2>
<INCOME-PRETAX> 14,713
<INCOME-TAX> 4,250
<INCOME-CONTINUING> 10,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,463
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<FN>
<F1>Provision for doubtful accounts is included in Total Costs and Expenses
<F2>Interest expense is presented net of $1,175 of interest income
</FN>
</TABLE>
