<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 AUGUST 31, 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 incorporation (I.R.S. Employer
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 (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, 15,962,401 shares outstanding as of AUGUST 31, 1996.
<PAGE>
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
August 31, 1996
Table of Contents
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits 10
Reports on Form 8-K 10
Signature Page 11
2
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PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of August 31,1996 and May 31, 1996
(000s omitted)
August 31, May 31,
1996 1996
------------ --------
(Unaudited) (Derived from
audited financial
ASSETS statements)
- ------
Current assets:
Cash and cash equivalents $ 27,316 $ 33,606
Accounts receivable, less allowances
of $2,240 and $2,490, respectively 114,142 107,138
Inventories 151,997 138,200
Equipment on or available for
short-term lease 27,017 36,884
Deferred tax assets, deposits and other 18,436 22,184
------- -------
Total current assets 338,908 338,012
------- -------
Property, plant and equipment, net 66,716 54,831
------- -------
Other assets:
Investment in leveraged leases 30,601 30,905
Cost in excess of underlying net assets of
acquired companies 5,791 5,842
Retirement benefits, notes receivable and other 7,629 8,256
------- -------
44,021 45,003
------- -------
$449,645 $437,846
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,490 $ 1,474
Accounts payable 58,096 59,005
Accrued liabilities 13,654 14,356
Accrued taxes on income 5,892 4,550
------- -------
Total current liabilities 79,132 79,385
------- -------
Long-term debt, less current maturities 117,901 118,292
Deferred tax liabilities 30,418 30,680
Other liabilities, less discount of $1,102 9,898 -
Retirement benefit obligation and deferred credits 4,854 4,854
------- -------
163,071 153,826
------- -------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized
250 shares; none issued - -
Common stock, $1.00 par value, authorized
80,000 shares; issued 16,449 and 16,404
shares, respectively 16,449 16,404
Capital surplus 84,518 83,975
Retained earnings 113,574 110,645
Treasury stock, 486 and 406 shares at
cost, respectively (6,886) (5,285)
Cumulative translation adjustments (213) (1,104)
------- -------
207,442 204,635
------- -------
$449,645 $437,846
======= =======
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
3
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AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three Months Ended August 31, 1996 and 1995
(Unaudited)
(000s omitted except per share data)
Three Months Ended
August 31,
--------------------
1996 1995
-------- -------
Net sales $136,037 $109,593
-------- -------
Costs and operating expenses:
Cost of sales 111,449 89,096
Selling, general and administrative 15,375 13,606
-------- -------
Operating income 9,213 6,891
Interest expense (2,625) (2,664)
Interest income 310 364
-------- -------
Income before provision for income taxes 6,898 4,591
Provision for income taxes 2,050 1,365
-------- -------
Net income $ 4,848 $ 3,226
======== =======
Net income per share of common stock $.30 $.20
Dividends paid and declared per share
of common stock $.12 $.12
Average shares outstanding 15,965 15,956
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 Three Months Ended August 31, 1996 and 1995
(Unaudited)
(000s omitted)
Three Months Ended
August 31,
--------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,848 $ 3,226
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 2,679 2,612
Change in certain assets and liabilities:
Accounts receivable, net (6,826) 11,893
Inventories, net (13,481) 2,630
Equipment on or available for short-term lease 10,027 (880)
Deferred tax assets, deposits and other 3,753 710
Accounts payable (986) (13,736)
Accrued liabilities and taxes on income (2,140) (1,897)
Other liabilities 9,898 -
Accrued interest 2,470 2,468
-------- -------
Net cash provided from operating activities 10,242 7,026
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (14,056) (2,151)
Investment in leveraged leases 304 459
Notes receivable and other 376 3,294
-------- -------
Net cash provided from (used in) investing activities (13,376) 1,602
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in borrowings (375) (533)
Cash dividends (1,919) (1,915)
Purchase of treasury stock (1,601) (293)
Proceeds from exercise of stock options and other 588 221
-------- -------
Net cash (used in) financing activities (3,307) (2,520)
-------- -------
Effect of exchange rate changes on cash 151 (38)
-------- -------
Increase (decrease) in cash and cash equivalents (6,290) 6,070
Cash and cash equivalents, beginning of period 33,606 22,487
-------- -------
Cash and cash equivalents, end of period $27,316 $28,557
======== =======
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
August 31, 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, 1996 has been derived from audited
financial statements. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to
such rules and regulations of the SEC. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position of AAR CORP. and its subsidiaries as of August 31, 1996
and the condensed consolidated results of operations and cash flows for the
three-month periods ended August 31, 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 August 31, 1996 presentation.
Note B - Inventory
- ------------------
The summary of inventories is as follows:
August 31, May 31,
1996 1996
---------- ---------
Raw materials and parts $ 34,628 $ 33,978
Work-in-process 13,834 12,179
Purchased aircraft, parts, engines and
components held for sale 102,089 90,438
Finished goods 1,446 1,605
---------- ---------
$151,997 $138,200
========== =========
During the first quarter of fiscal 1997, the Company made certain inventory
purchases in which the vendors provided extended terms at no interest. Other
liabilities reflect the long-term obligation under these arrangements and
have been discounted at 6.5%.
6
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AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
August 31, 1996 (Continued)
(000s omitted)
Note C - Supplemental Cash Flows Information
- --------------------------------------------
Supplemental information on cash flows:
Three Months Ended
August 31,
-------------------
1996 1995
----- -----
Interest paid $ 120 $ 160
Income taxes paid 1,340 1,520
Income tax refunds received 120 -
Note D - Cumulative Translation Adjustments
- -------------------------------------------
The Cumulative translation adjustments account changed due to a net
translation gain of $891 for the three-month period ended August 31, 1996.
The change resulted from an increase in the value of the Company's net
investment in foreign subsidiaries primarily resulting from a decrease 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-Month Periods Ended August 31, 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:
Three Months Ended
August 31,
------------------
1996 1995
-------- --------
Net Sales:
Trading $ 77,667 $ 53,628
Overhaul 32,311 31,655
Manufacturing 26,059 24,310
-------- --------
$136,037 $109,593
======== ========
Three-Month Period Ended August 31, 1996
- ----------------------------------------
(as compared with the same period of the prior year)
Consolidated net sales for the first quarter of the fiscal year ending May
31, 1997 (fiscal 1997) increased $26,444 or 24.1% over the same period in the
prior year. Higher consolidated net sales reflect increased demand for the
Company's products and services, as well as better overall conditions in the
aerospace/aviation industry. Trading sales increased $24,039 or 44.8% over
the prior year as a result of increased aircraft, airframe and large
component part sales, as well as sales from both well-established and newer
inventory management programs. Overhaul sales increased $656 or 2.1% due
primarily to increased airframe component overhaul services. Sales also
increased $1,749 or 7.2% in manufacturing due primarily to higher sales of
the Company's floor maintenance products.
Consolidated gross profit increased $4,091 or 20.0% over the prior year
period due to increased consolidated net sales, partially offset by a decline
in the consolidated gross profit margin to 18.1% compared to the prior year
period's margin of 18.7%. The lower consolidated gross profit margin was due
primarily to the mix of inventories sold. Consolidated operating income
increased $2,322 or 33.7% over the same period in the prior year and the
Company's operating income margin increased to 6.8% compared to the prior
year period's margin of 6.3%, as a result of increased net sales, partially
offset by higher selling, general and administrative expense from higher
personnel and marketing support costs.
Consolidated net income increased $1,622 or 50.3% primarily as a result of
the factors discussed above.
8
<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 August 31, 1996
- ------------------
(as compared with May 31, 1996)
In the three-month period ended August 31, 1996, the Company generated
$10,242 of cash from operations. This represents a $3,216 or 45.8% increase
in cash generated from operations over the prior year period. The increase
was generated through increased earnings and working capital management. The
Company's cash and cash equivalent position decreased $6,290 at the end of
the three-month period after making capital expenditures of $14,056, paying
dividends of $1,919 and purchasing stock of the Company of $1,601. The
increase in capital expenditures during the three-month period over the prior
year reflects the Company's acquisition of a new headquarters and operating
facility for approximately $11,650. This facility, which is in the process of
being refurbished, will consolidate and replace certain facilities currently
operated by the Company
The Company further strengthened its financial position during the first
quarter of fiscal 1997 by reducing its long-term debt to capitalization ratio
to 36.2%. The Company continues to maintain its available external sources
of financing from $133,229 of unused available bank lines and a shelf
registration on file with the Securities and Exchange Commission for $85,000
of medium or long-term debt securities, which it may issue at its discretion,
subject to market conditions.
The Company believes that its cash and cash equivalents and available sources
of financing will continue to provide the Company the ability to meet its
ongoing working capital requirements, make anticipated capital expenditures,
meet contractual commitments, pay dividends and pursue favorable business
opportunities.
A summary of key financial conditions, ratios and lines of credit follows:
Description August 31, 1996 May 31, 1996
- ----------------- ------------------ ---------------
Working capital $259,776 $258,627
Current ratio 4.3:1 4.3:1
Bank Credit Lines:
Borrowings outstanding $ - $ -
Available but unused lines 132,229 132,977
-------- --------
Total credit lines $132,229 $132,977
======== ========
Long-term debt less current
maturities $117,901 $118,292
Ratio of long-term debt to
capitalization 36.2% 36.6%
9
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
August 31, 1996
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Item
- ----
27. Financial 27.1 Financial Data Schedule for the Registrant's three
Data month interim period ended August 31, 1996.
Schedule
(b) Reports on Form 8-K for Quarter ended August 31, 1996:
------------------------------------------------------
The Company filed no reports on Form 8-K during the three (3)
months ended August 31, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
------------------------------
(Registrant)
Date: October 8, 1996 /s/ Timothy J. Romenesko
--------------- ------------------------------
Timothy J. Romenesko
Vice President, Chief Financial
Officer and Treasurer.
(Principal accounting officer and officer
duly authorized to sign on behalf of
registrant)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-Q FOR THE THREE MONTH INTERIM PERIOD ENDED AUGUST
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 27,316
<SECURITIES> 0
<RECEIVABLES> 116,379
<ALLOWANCES> 2,237
<INVENTORY> 151,997
<CURRENT-ASSETS> 338,908
<PP&E> 140,094
<DEPRECIATION> 73,378
<TOTAL-ASSETS> 449,645
<CURRENT-LIABILITIES> 79,132
<BONDS> 117,901
0
0
<COMMON> 16,449
<OTHER-SE> 190,993
<TOTAL-LIABILITY-AND-EQUITY> 449,645
<SALES> 136,037
<TOTAL-REVENUES> 136,037
<CGS> 111,449
<TOTAL-COSTS> 126,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 133<F1>
<INTEREST-EXPENSE> 2,315<F2>
<INCOME-PRETAX> 6,898
<INCOME-TAX> 2,050
<INCOME-CONTINUING> 4,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,848
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<FN>
<F1>PROVISIONS FOR DOUBTFUL ACCOUNTS IS INCLUDED IN TOTAL COSTS AND EXPENSES.
<F2>INTEREST EXPENSE IS PRESENTED NET OF $310 OF INTEREST INCOME.
</FN>
</TABLE>
