<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended FEBRUARY 29, 1996 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 439-3939
----------------------------
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
-------- -------
Indicate the number of shares outstanding of each on the issuer's classes of
common stock, as of the latest practicable date.
$1.00 par value, 16,025,024 shares outstanding as of FEBRUARY 29, 1996 .
- ------- ------------ --------------------
<PAGE>
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
February 29, 1996
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K
Exhibits 11
Reports on Form 8-K 11
Signature Page 12
2
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of February 29,1996 and May 31, 1995
(000s omitted)
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
----------- -----------------
(Unaudited) (Derived from
audited financial
statements)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 27,730 $ 22,487
Accounts receivable, less allowances
of $2,900 and $2,400 at each date 114,793 110,420
Inventories (Note B) 146,644 151,827
Equipment on or available for short-term lease 18,236 18,501
Deferred tax assets, deposits and other 22,449 18,397
-------- --------
Total current assets 329,852 321,632
-------- --------
Property, plant and equipment, net 54,909 56,596
-------- --------
Other assets:
Investment in leveraged leases 30,961 31,952
Cost in excess of underlying net assets of
acquired companies 5,897 6,101
Retirement benefits, notes receivable and other 7,652 9,533
-------- --------
44,510 47,586
-------- --------
$429,271 $425,814
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,505 $ 1,632
Accounts payable 50,914 51,393
Accrued liabilities 15,773 15,977
Accrued taxes on income 5,105 4,138
-------- --------
Total current liabilities 73,297 73,140
-------- --------
Long-term debt, less current maturities 118,631 119,766
Deferred tax liabilities 30,493 30,660
Retirement benefit obligation and deferred credits 3,883 5,129
-------- --------
153,007 155,555
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized
250 shares; none issued - -
Common stock, $1.00 par value, authorized 80,000
shares; issued 16,394 and 16,284 shares at each date 16,394 16,284
Capital surplus 83,849 82,132
Retained earnings 107,562 102,309
Treasury stock, 369 and 323 shares at each date, at cost (4,532) (3,733)
Cumulative translation adjustments (Note D) 54 1,497
Minimum pension liability adjustment (360) (1,370)
-------- --------
202,967 197,119
-------- --------
$429,271 $425,814
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended February 29/28, 1996 and 1995
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29/28, February 29/28,
---------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $136,065 $125,232 $366,919 $321,807
-------- -------- -------- --------
Costs and operating expenses:
Cost of sales 113,602 104,795 301,997 266,562
Selling, general and administrative 14,154 13,606 42,051 37,782
-------- -------- -------- --------
127,756 118,401 344,048 304,344
-------- -------- -------- --------
Operating income 8,309 6,831 22,871 17,463
Interest expense (2,693) (2,933) (7,978) (8,211)
Interest income 183 218 768 636
-------- -------- -------- --------
Income before provision for income taxes 5,799 4,116 15,661 9,888
Provision for income taxes 1,710 1,240 4,655 2,940
-------- -------- -------- --------
Net income $ 4,089 $ 2,876 $ 11,006 $ 6,948
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share of common stock (Note E): $.26 $.18 $.69 $.44
Dividends paid and declared per share
of common stock $.12 $.12 $.36 $.36
Average shares outstanding 15,999 15,949 15,971 15,923
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended February 29/28, 1996 and 1995
(Unaudited)
(000s omitted)
<TABLE>
<CAPTION>
Nine Months Ended
February 29/28,
-------------------------
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 11,006 $ 6,948
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 7,493 7,539
Change in certain assets and liabilities:
Accounts receivable, net (4,791) (18,667)
Inventories, net 4,180 (8,400)
Equipment on or available for short-term lease 265 1,242
Deferred tax assets, deposits and other (4,838) 4,657
Accounts payable (336) 1,520
Accrued liabilities and taxes on income (1,688) 83
Accrued interest 2,454 2,474
Retirement benefit obligations, deferred
tax liabilities and deferred credits - (610)
---------- ----------
Net cash provided from (used in) operating activities 13,745 (3,214)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (5,050) (5,480)
Investment in leveraged leases 991 544
Notes receivable and other 1,466 (1,062)
---------- ----------
Net cash used in investing activities (2,593) (5,998)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Gross proceeds from issuance of long-term notes payable - 6,186
Change in other borrowings, net (1,262) (730)
Cash dividends (5,753) (5,735)
Purchase of treasury stock (799) (116)
Proceeds from exercise of stock options and other 1,827 902
---------- ----------
Net cash provided from (used in) financing activities (5,987) 507
---------- ----------
Effect of exchange rate changes on cash 78 142
---------- ----------
Increase (decrease) in cash and cash equivalents 5,243 (8,563)
Cash and cash equivalents, beginning of period 22,487 18,074
---------- ----------
Cash and cash equivalents, end of period $ 27,730 $ 9,511
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 1996
(000s omitted)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of AAR CORP. ("the Company")and its subsidiaries after elimination of
intercompany accounts and transactions. These statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated balance
sheet as of May 31, 1995 has been derived from audited financial statements.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations of the
SEC. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position of AAR CORP. and its subsidiaries as of February 29, 1996 and
the condensed consolidated results of operations and cash flows for the three
and nine months ended February 29/28, 1996 and 1995. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year. Certain prior period amounts have been reclassified to conform to
the February 29, 1996 presentation.
NOTE B - INVENTORY
The summary of inventories is as follows:
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
--------- ---------
<S> <C> <C>
Raw materials and parts $ 30,718 $ 29,316
Work-in-process 12,419 11,891
Purchased aircraft, parts, engines and
components held for sale or exchange 101,852 110,948
Finished goods 1,655 1,734
--------- ---------
146,644 153,889
Progress billings on long-term
contracts and programs - (2,062)
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$146,644 $151,827
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
AAR CORP.and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 1996 (Continued)
(000s omitted)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
Nine Months Ended
February 29/28,
----------------------
1996 1995
--------- ---------
Interest paid $5,330 $5,590
Income taxes paid 3,830 2,760
Income tax refunds received 80 340
NOTE D - CUMULATIVE TRANSLATION ADJUSTMENTS
The Cumulative translation adjustments account decreased due to a net
translation loss of $1,443 for the nine-month period ended February 29, 1996.
The loss resulted from a decrease in the value of the Company's net investment
in foreign subsidiaries primarily resulting from an increase in the value of the
U.S. dollar against most European currencies. The noncash adjustment did not
affect the Company's results of operations.
NOTE E - EARNINGS PER SHARE
The per share data was calculated using the weighted average shares outstanding
for the periods presented. Common stock equivalents consisting of employee
stock options have not been included in the per share calculation as their
dilutive effect is not material.
7
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
THREE AND NINE-MONTH PERIODS ENDED FEBRUARY 29, 1996
(as compared with the same period of the prior year)
The following table sets forth net sales for the Company's classes of similar
products and services within the Company's Aviation Services business segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29/28, February 29/28,
---------------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales:
Trading $ 72,694 $ 71,635 $183,057 $166,061
Overhaul 33,136 27,314 100,115 77,872
Manufacturing 30,235 26,283 83,747 77,874
-------- -------- -------- --------
$136,065 $125,232 $366,919 $321,807
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
THREE-MONTH PERIOD ENDED FEBRUARY 29, 1996
(as compared with the same period of the prior year)
Consolidated net sales for the third quarter of the Company's Fiscal Year ending
May 31, 1996 ("fiscal 1996") increased $10,833 or 8.7% over the same period in
the prior year. Net sales increases occurred across all three classes of
similar products and services. Strong sales were experienced in airframe and
related component overhaul, airframe parts and components, and manufactured
products supporting rapid deployment requirements.
Consolidated gross profit increased $2,026 or 9.9% over the prior year on
increased consolidated net sales and on an improved consolidated gross profit
margin of 16.5%.versus the prior years margin of 16.3%. The consolidated gross
profit margin increase was due primarily to increased margins experienced on
trading sales. Consolidated operating profit increased $1,478 or 21.6% over the
prior year on the increased consolidated net sales and gross profit margin
partially offset by certain increases in selling, general and administrative
expenses. While total selling, general and administrative expenses decreased as
a percent of sales, total expenditures increased over the prior year as a result
of increased personnel costs and costs of enhancing information technology
systems.
Consolidated net income increased $1,213 or 42.2% over the prior year due
primarily to increased consolidated net sales and gross profit margin. Net
income also increased by a reduction in interest expense resulting from no
short-term borrowings in the current period.
8
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
NINE-MONTH PERIOD ENDED FEBRUARY 29, 1996
(as compared with the same period in the prior year)
Consolidated net sales for the first nine months of fiscal 1996 increased
$45,112 or 14% over the same period in the prior year. Net sales increases
occurred across all three classes of products and services with significant
increases experienced in the airframe and large component part sales, airframe
and large airframe component overhaul services, and sales of manufactured
products to support rapid deployment requirements and aircraft cargo systems.
Consolidated gross profit increased $9,677 or 17.5% over the prior year due to
increased consolidated net sales and an increase in the consolidated gross
profit margin to 17.7% compared with the prior years 17.2% margin. Higher
profit margins were experienced across most classes of products and services due
primarily to favorable product mix and improved pricing of products and
services. Consolidated operating income increased $5,408 or 31% over the prior
year as a result of higher consolidated net sales and an improved consolidated
gross profit margin partially offset by higher selling, general and
administrative costs. While total selling, general and administrative expenses
decreased as a percentage of net sales, total expenditures increased due to
higher personnel costs, increased marketing support programs and costs to
enhance information technology systems.
Consolidated net income increased $4,058 or 58.4% over the previous year
primarily due to increased consolidated net sales and on improved consolidated
gross profit margin. Net income also increased by a reduction in interest
expense resulting from no short-term borrowings in the current year.
9
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except percent data and ratios)
AT FEBRUARY 29, 1996
(as compared with May 31, 1995)
In the nine-month period ended February 29, 1996, the Company generated $13,745
of cash from operations through increased earnings and working capital
management. The cash generated from operations was supplemented by payment on a
note receivable obtained in the previous sale of a partial residual interest of
an aircraft subject to a leveraged lease. The Company's cash and cash
equivalents increased $5,243 during this nine-month period after taking into
consideration the payments for capital expenditures and dividends of $5,050 and
$5,753, respectively.
The Company further strengthened its financial position during this nine month
period by generating additional working capital of $8,063, eliminating short-
term borrowing during this nine month period and reducing its long-term debt to
capitalization ratio to 36.9%. The Company continues to maintain its available
external sources of financing from $133,317 of unused available bank lines and a
shelf registration on file with the Security and Exchange Commission for $85,000
of medium or long-term debt securities, which it may issue at its discretion,
subject to market conditions.
The Company believes that its cash and cash equivalents, available sources of
financing and future income will continue to provide the Company the ability to
meet its ongoing working capital requirements, make anticipated capital
expenditures, pay dividends, and pursue favorable business opportunities.
A summary of key financial conditions, ratios, and lines of credit follows:
<TABLE>
<CAPTION>
Description February 29, 1996 May 31, 1995
------------ ----------------- ------------
<S> <C> <C>
Working capital $256,555 $248,492
Current ratio 4.5:1 4.4:1
Bank Credit Lines:
Borrowings outstanding $ - $ -
Available but unused lines 133,317 133,750
-------- --------
$133,317 $133,750
-------- --------
-------- --------
Long-term debt less current
maturities $118,631 $119,766
Ratio of long-term debt to
capitalization 36.9% 37.8%
</TABLE>
10
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
February 29, 1996
Item 1. LEGAL PROCEEDINGS
A subsidiary of the Company has negotiated a settlement in principle
resolving an enforcement action brought on behalf of the United States
Environmental Protection Agency ("EPA") in the U.S. District Court for
the Western District of Michigan in January, 1996, alleging violations
of the Clean Air Act relating to exceeding volatile organic compound
emission rates under a permit issued to the subsidiary by the Michigan
Department of Natural Resources. The EPA had previously issued a
Notice of Proposed Civil Penalty for the alleged violations in the
amount of $600,000. The settlement provides for dismissal of the
alleged violations without admission of wrong doing and for the
payment of approximately $200,000 by the subsidiary.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM
27. Financial 27.1 Financial Data Schedule for the Registrant's nine-month
Data interim period ended February 29, 1996.
Schedule
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED FEBRUARY 29, 1996:
The Company filed no reports on Form 8-K during the three (3) months ended
February 29, 1996.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
-----------------------------------
(Registrant)
Date: April 9, 1996
----------------- -----------------------------------
Timothy J. Romenesko
Vice President, Chief Financial Officer
and Treasurer.
(Principal accounting officer and officer
duly authorized to sign on behalf of
registrant)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Report on Form 10 Q for the nine month interim period ended
February 29, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 27,730
<SECURITIES> 0
<RECEIVABLES> 117,693
<ALLOWANCES> 2,900
<INVENTORY> 146,644
<CURRENT-ASSETS> 329,852
<PP&E> 129,846
<DEPRECIATION> 74,937
<TOTAL-ASSETS> 429,271
<CURRENT-LIABILITIES> 73,297
<BONDS> 118,631
0
0
<COMMON> 16,394
<OTHER-SE> 186,573
<TOTAL-LIABILITY-AND-EQUITY> 429,271
<SALES> 366,919
<TOTAL-REVENUES> 366,919
<CGS> 301,997
<TOTAL-COSTS> 344,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 800<F1>
<INTEREST-EXPENSE> 7,210<F2>
<INCOME-PRETAX> 15,661
<INCOME-TAX> 4,655
<INCOME-CONTINUING> 11,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,006
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<FN>
<F1>Provisions for doubtful accounts is included in Total Costs and Expenses.
<F2>Interest expense is presented net of $768 of interest income.
</FN>
</TABLE>
