<PAGE>
THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT AND PROSPECTIVE PURCHASERS ARE REFERRED TO
THE RELATED FINAL PROSPECTUS SUPPLEMENT FOR DEFINITIVE INFORMATION ON ANY MATTER
CONTAINED HEREIN. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
<PAGE>
Filed Pursuant to Rule 424(b)(5)
Commission File No.: 33-42326
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 4, 1997
$50,000,000
[LOGO]
__% NOTES DUE __________________, 2007
-------------
The ____% Notes due ________________, 2007 (the "Notes") are being offered
by AAR CORP., a Delaware corporation ("AAR" or the "Company"). Interest on the
Notes is payable on ________________ and ________________ of each year,
commencing ________________, 1998. The Notes will not be redeemable prior to
maturity and will not be entitled to any sinking fund. The Notes will be issued
in book-entry form in denominations of $1,000 and integral multiples thereof.
Settlement for the Notes will be made in immediately available funds. The Notes
will be in the Same-Day Funds Settlement System of The Depository Trust Company
("DTC"), and to the extent that secondary market trading in the Notes is
effected through the facilities of such depositary, such trades will be settled
in immediately available funds. See "Description of Notes."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) DISCOUNT(2) COMPANY(1) (3)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Note.................................. 100% ---% ---%
Total..................................... $50,000,000 $ ---------- $ ----------
</TABLE>
- ------------
(1) Plus accrued interest, if any, from _____________, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting estimated expenses of $__________ payable by the Company.
------------------
The Notes are offered severally by Goldman, Sachs & Co. and William Blair &
Company, L.L.C., subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery, in book-entry form only, through the facilities of
DTC in New York, New York, on or about ________________, 1997, against payment
therefor in immediately available funds.
GOLDMAN, SACHS & CO. WILLIAM BLAIR & COMPANY
------------
The date of this Prospectus Supplement is December 4, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND
THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------
USE OF PROCEEDS
The Company will use approximately $______ of net proceeds from the sale of
the Notes offered hereby to refinance short-term debt of the Company bearing
interest at an average interest rate of ___% incurred, in part, in connection
with a recent acquisition, which occurred after August 31, 1997, and the
remaining proceeds will be used for general corporate purposes, which may
include future acquisitions.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of August 31, 1997 and as adjusted to give effect to the issuance by
the Company of the Notes offered hereby and the application of the proceeds
thereof.
<TABLE>
<CAPTION>
AUGUST 31, 1997
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
(000'S OMITTED)
<S> <C> <C>
Short-term debt, including current maturities of long-term debt......................... $ 1,492 $ 1,492
----------- ------------
----------- ------------
Long-term debt, less current maturities:
Industrial revenue bonds due through 2002 (7.26%)..................................... 188 188
Installment note due June 1999 (5.00%)................................................ 1,250 1,250
Notes due November 1, 2001 (9.50%).................................................... 65,000 65,000
Notes due October 15, 2003 (7.25%).................................................... 50,000 50,000
Notes due -----------------------, 2007 (------%)..................................... -- 50,000
----------- ------------
Total long-term debt............................................................ $ 116,438 $ 166,438
----------- ------------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued.............. -- --
Common stock, $1.00 par value, authorized 80,000,000 shares; 19,017,000 issued........ $ 19,017 $ 19,017
Capital surplus....................................................................... 143,587 143,587
Retained earnings..................................................................... 130,802 130,802
Treasury stock, at cost (673,000 shares).............................................. (13,063) (13,063)
Cumulative translation adjustments.................................................... (4,678) (4,678)
----------- ------------
Total stockholders' equity...................................................... 275,665 275,665
----------- ------------
Total capitalization................................................................ $ 393,595 $ 443,595
----------- ------------
----------- ------------
</TABLE>
S-2
<PAGE>
THE COMPANY
The Company is a worldwide leader in supplying aftermarket products and
services to the global aerospace/aviation industry. It provides aircraft,
engines and engine parts; airframe and accessories products; overhaul, repair
and maintenance services and Company-manufactured products to customers in all
segments of this industry, including the world's largest commercial airlines and
air cargo operators, original equipment manufacturers, domestic and foreign
military and government agencies, aircraft leasing companies and maintenance
service providers. AAR believes that it is the only company in the aviation
aftermarket to offer this combination of capabilities.
The Company's business strategy is to maintain a leadership position in its
primary markets and to generate profitable growth by developing its product and
service offerings to leverage its competitive strengths. Key components of this
strategy include: expanding its inventory management programs; extending its
overhaul capabilities to a broader range of engine and airframe components;
increasing its Aircraft and Engine and Airframe and Accessories trading and
leasing activities; continuing its significant international presence; and
developing manufactured products to complement its current offerings.
The competitive strengths that the Company believes will allow it to realize
its objectives are as follows:
(i) BROAD ARRAY OF PRODUCTS AND SERVICES: AAR sells, leases, exchanges and
services a broad array of aircraft and engine components for virtually all
aircraft. The Company believes that this breadth of products and services gives
it a competitive advantage in winning business from new customers and affords it
an opportunity to expand its business with existing customers. This also
positions AAR to respond to its customers' desire to focus on a select group of
suppliers to control costs, increase quality and enhance timeliness of delivery.
(ii) UNIQUE COMBINATION OF TRADING AND TECHNICAL CAPABILITIES: AAR responds
to its customers' needs with inventory management programs that combine trading
expertise and technical overhaul capabilities. These programs offer a
cost-effective, value-added opportunity for the Company's customers to reduce
their operating costs and decrease their capital requirements, while providing
the Company with significant growth opportunities.
(iii) INNOVATIVE TECHNICAL PRODUCT AND SERVICE DEVELOPMENT SKILLS: the
Company believes that one of its principal strengths is its ability to provide
innovative and prompt solutions to meet individual customers' needs in many
niche markets. These innovations include the design and manufacture of
customized cargo loading systems and rapid deployment products for the U.S.
military and the development of on-site overhaul services for airline industry
customers.
(iv) DIVERSE CUSTOMER BASE: the Company serves a broad base of over 5,000
domestic and international customers representing all segments of the worldwide
aerospace/aviation industry, as well as select industrial markets. The Company
expects the long-term relationships that the Company has developed with many of
these customers to provide an excellent source of continuing and new business
opportunities.
(v) STRONG GLOBAL PRESENCE: AAR has over 30 facilities (including sales
offices) dedicated to its Aircraft and Engine, Airframe and Accessories and
Manufacturing activities in ten countries across North America, Europe and Asia.
This worldwide presence positions the Company to respond to the needs of its
customers around the world and participate in the growth of world aviation
markets.
(vi) FINANCIAL STRENGTH: management believes that the Company's financial
strength is a key advantage relative to its smaller competitors. AAR's liquidity
and access to capital positions the Company to respond quickly when
opportunities arise to acquire inventory, aircraft and engines on advantageous
terms.
S-3
<PAGE>
(vii) REPUTATION AS A RELIABLE, HIGH-QUALITY SUPPLIER: the Company has been
providing aviation products and services for 45 years and believes it has gained
a reputation as a reliable and high-quality supplier.
(viii) STRONG MANAGEMENT TEAM: the Company's strong management team includes
AAR-developed managers and personnel formerly with airlines, original equipment
manufacturers and other independent suppliers. The Company believes that this
management team has a depth of industry knowledge and experience in technical,
marketing and financial areas that permits it to develop and manage complex
programs for its airline industry customers.
The Company's principal executive offices are located at 1100 North Wood
Dale Road, Wood Dale, Illinois 60191 and the Company's telephone number is (630)
227-2000.
AIRCRAFT AND ENGINES
The Company's Aircraft and Engines activities include (i) the purchase,
sale, lease and lease financing of new and used commercial jet aircraft, (ii)
the purchase, sale and lease of a wide variety of new, overhauled and repaired
engines and engine products for the aviation aftermarket, including a broad
range of engine parts and spare engines and other engine components and
accessories and (iii) the overhaul of a wide range of engine products, repair
and maintenance services, parts and components exchange and other engine
overhaul services for its commercial and military customers. AAR has two Federal
Aviation Authority ("FAA") licensed repair stations in the U.S. to perform
engine component overhaul services. The Company's primary sources of engine
products for its Aircraft and Engine activities are domestic and foreign
airlines, independent aviation service companies, aircraft leasing companies and
engine and other original equipment manufacturers, as well as components and
parts that the Company has overhauled or repaired.
The Company also provides customized inventory supply and management
programs for engine parts and components in support of customer maintenance
activities. This allows airlines and other maintenance service providers to
obtain replacement parts and overhaul services for aircraft engine parts and
components on a just-in-time basis without having to incur the cost of
purchasing, storing and maintaining the necessary supporting inventory. The
Company developed these programs in response to the worldwide trend to outsource
inventory provisioning and management. In doing so, AAR has taken advantage of
its knowledge and expertise in spare parts provisioning and its technical skill
in overhauling and repairing those parts and related components as well as its
financial strength, quality control systems and stability within the industry.
The Company's overhaul and repair capabilities cover a broad range of
internal engine parts and components, providing support for the Company's sale,
lease and inventory management activities. The Company also provides turbine
engine overhaul and parts supply services to industrial gas and steam turbine
operators.
AIRFRAME AND ACCESSORIES
The Company's Airframe and Accessories activities consist of (i) the
purchase, sale and lease of new, overhauled and repaired airframe products for
the aviation aftermarket, including airframe parts, instruments, avionics,
hydraulic and pneumatic systems, landing gear and flight control systems and
(ii) a wide variety of airframe overhaul, repair and maintenance services, parts
and components exchange and other overhaul and maintenance services for its
commercial and military customers. The Company provides customized inventory
supply and management programs for certain airframe parts and components,
including those which the Company has overhauled and repaired, in support of
customer maintenance activities.
S-4
<PAGE>
The Company's airframe overhaul and repair capabilities include most
commercial aircraft landing gear, a wide variety of avionic, instrument,
electrical, electronic, fuel, hydraulic and pneumatic components and a broad
range of internal airframe components. AAR also operates an aircraft maintenance
facility providing maintenance, modification, special equipment installation,
painting services and aircraft terminal services for various models of
commercial, military, regional, business and general aviation aircraft. AAR's
overhaul and repair of parts and components also supports the sale, lease and
inventory management activities of the Company. AAR has seven FAA licensed
repair stations in the U.S., two in Europe and one in the Far East to perform
airframe component overhaul services.
MANUFACTURING
The Company's Manufacturing activities include (i) the manufacture and
repair of a wide array of containers, pallets and shelters in support of
military and humanitarian rapid development activities, (ii) the design,
manufacture and installation of in-plane cargo loading and handling systems for
commercial and military aircraft and helicopters, (iii) the design and
manufacture of a line of specialized protective transport cases that are used to
transport sensitive and calibrated tools and instruments, and a variety of
vacuum storage containers that protect machinery and equipment during long-term
storage, (iv) the design and manufacture of advanced composite materials for
commercial and regional jets and helicopters and (v) the design and manufacture
of a complete line of self-propelled floor sweepers and scrubbers for a variety
of industrial and commercial uses, including both ride-on and walk-behind lines,
powered by gasoline, diesel fuel or battery.
AAR makes over 35 models of containers to provide the military with better
and quicker access to tools, supplies or other items. The Company's mobile
shelters, some of which are prewired for electricity and telephone service and
include heating and air conditioning systems, are designed to be shipped in one
of the Company's containers and quickly assembled upon arrival into field
offices and temporary shelters for personnel and equipment. All of these
products are manufactured from lightweight, high-strength composite materials,
some of which incorporate AAR's proprietary technology, which meet the weight,
strength, flammability and other technical requirements of AAR's customers. AAR
uses similar materials to manufacture a variety of floor and panel products for
the aerospace/aviation and industrial markets.
The Company's cargo loading and handling systems incorporate AAR-developed
proprietary designs to increase cargo loading efficiency. Customers for the
cargo loading systems include aircraft manufacturers, such as Lockheed and
Douglas Aircraft, and cargo operators and maintenance and modification centers
that convert older wide body passenger aircraft, such as the Boeing 747, Douglas
DC-10, Airbus A300 and A310 and Lockheed L -1011, into cargo aircraft.
COMPETITION
In the highly competitive worldwide aviation aftermarket, competition is
based on quality, ability to provide a broad range of products and services,
speed of delivery and price. Competitors in the parts supply business include
original equipment manufacturers, commercial airlines and other independent
suppliers of parts and services. 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. AAR also competes with various overhaul
and repair organizations, which include the service arms of original equipment
manufacturers, the maintenance departments or divisions of large commercial
airlines (some of which also offer maintenance services to third parties) and
independent organizations. AAR's container, pallet and shelter manufacturing
activities compete with several medium-sized private companies, and its cargo
systems competitors include a number of divisions of large corporations.
Although certain of the Company's competitors have substantially greater
financial and other resources than the Company, the Company believes that it has
maintained a satisfactory competitive position through its responsiveness to
customer needs, its
S-5
<PAGE>
attention to quality and its unique combination of trading expertise, technical
capabilities and financial strength.
RECENT DEVELOPMENTS
On June 2, 1997, the Company purchased substantially all of the assets of
Cooper Aviation Industries, Inc. With revenues of approximately $45 million in
the most recent annual period, Cooper is one of the world's largest distributors
to the commercial, regional/commuter and general aviation markets of factory-new
aviation parts and accessories. As a result of the acquisition, a new division
was formed, AAR Cooper Aviation, which is currently distributing parts from 200
of the world's leading equipment manufacturers.
On October 24, 1997, the Company acquired ATR International, Inc. With
revenues of approximately $14 million in the most recent annual period, ATR
engineers and manufactures such advanced composite aviation parts and structures
as commercial jet, executive aircraft and helicopter interiors. The Company will
operate ATR under the name AAR Composites.
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and notes thereto included or
incorporated by reference in the Prospectus. The selected consolidated financial
data for the twelve months ended May 31, 1997, 1996, 1995, 1994 and 1993 are
derived from audited consolidated financial statements of the Company. The
selected consolidated financial data for the three months ended August 31, 1997
and 1996 are derived from unaudited consolidated financial statements of the
Company and include, in the opinion of management, all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly the
results of operations for such periods. The results of operations for the three
months ended August 31, 1997 are not necessarily indicative of the operating
results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, YEAR ENDED MAY 31,
-------------------- -----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(000'S OMITTED EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales......................... $ 170,906 $ 136,037 $ 589,328 $ 504,990 $ 451,395 $ 407,754 $ 382,780
Gross profit...................... 31,928 24,588 108,541 90,765 77,871 71,910 68,436
Selling, general and
administrative.................. 19,034 15,375 65,651 58,323 53,433 50,086 63,093
Operating income.................. 12,894 9,213 42,890 32,442 24,438 21,824 5,343(e)
Interest expense.................. 2,759 2,625 10,786 10,616 10,900 9,564 8,107
Income (loss) before provision
(benefit) for income taxes...... 10,454 6,898 32,975 22,782 14,713 13,684 (1,917)(e)
Provision (benefit) for income
taxes........................... 3,144 2,050 9,950 6,770 4,250 4,190 (2,200)
Net income........................ 7,310 4,848 23,025 16,012 10,463 9,494 283(e)
Ratio of earnings to
fixed-charges(a)................ 4.4:1 3.3:1 3.5:1 2.8:1 2.1:1 2.2:1 0.8:1
PER SHARE DATA
Net income........................ $ 0.40 $ 0.30 $ 1.38 $ 1.00 $ 0.66 $ 0.60 $ 0.02(e)
Cash dividends.................... $ 0.12 $ 0.12 $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48
Average common shares
outstanding..................... 18,326 15,965 16,684(b) 15,978 15,932 15,904 15,855
BALANCE SHEET DATA
Working capital................... $ 308,130 $ 259,776 $ 314,119(b) $ 258,627 $ 248,492 $ 240,009(d) $ 193,399
Total assets...................... 542,819 449,645 529,584(b) 437,846 425,814 411,016(c) 365,151
Total debt........................ 117,930 119,391 118,292 119,766 121,398 116,297(d) 91,323
Short-term debt................... 1,492 1,490 1,474 1,474 1,632 568(d) 25,025
Long-term debt.................... 116,438 117,901 116,818 118,292 119,766 115,729(d) 66,298
Stockholders' equity.............. 275,665 207,442 269,259(b) 204,635 197,119 189,488 189,216
</TABLE>
- ---------------
(a) For the purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes, adjusted for fixed charges.
Fixed charges consist of interest, whether expensed or capitalized,
amortization of debt expense and one-third of minimum rental payments under
operating leases (estimated by management to be the interest factor of such
rentals). In 1993, earnings as defined were inadequate to cover fixed
charges by $1,917.
(b) In February 1997, the Company sold two million shares of its common stock
for $50,075, net of expenses.
(c) Reflects reclassification of $6,610 of noncurrent deferred tax assets
against deferred tax liabilities to conform to the fiscal 1995 presentation.
(d) In October 1993, the Company sold $50,000 of unsecured 7.25% Notes due
October 15, 2003. Proceeds were used to repay short-term bank borrowings and
in the Company's operations.
(e) Fiscal 1993 includes noncash restructuring expenses of $11,000 ($7,200 after
tax) primarily related to the writedown of certain inventories to reflect
the impact of market conditions and a reduction in income tax expense of
$1,200.
S-7
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture, dated as of October 15, 1989,
as supplemented by the First Supplemental Indenture dated as of August 26, 1991
and the Second Supplemental Indenture dated as of _____________,1997
(collectively, the "Indenture"), between the Company and First Trust National
Association (as successor in interest to Continental Bank, National
Association), as Trustee (the "Trustee"). The forms of the Note and the
Indenture are exhibits to the registration statement on Form S-3 (including any
amendments thereto and any documents incorporated therein by reference, the
"Registration Statement") filed by the Company on August 27, 1991 (No.
33-42326). The following summaries of certain provisions of the Indenture and
the Notes (referred to in the Prospectus as the "Debt Securities") supplement,
the summaries of certain provisions of the Indenture and the Notes set forth in
the Prospectus, to which reference is hereby made, and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture and the Notes, including the definitions
therein of certain terms. Capitalized terms used but not defined herein shall
have the meanings given to them in the Notes or the Indenture, as the case may
be.
GENERAL
The Notes will be unsecured general obligations of the Company and will rank
PARI PASSU with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Indenture does not limit the
aggregate principal amount of debt securities that may be issued thereunder, and
debt securities may be issued thereunder from time to time in one or more series
up to the aggregate principal amount from time to time authorized by the Company
for each series.
The Notes are currently limited to up to $50,000,000 aggregate principal
amount. The Notes will bear interest at the rate of % per annum from the date
of issuance thereof, payable semiannually in arrears on ____________ and
____________ of each year, commencing _____________, 1998. Principal of and
interest on the Notes will be payable (and the Notes may be presented for
repayment) at the office or agency of the Company maintained for such purposes
in Chicago, Illinois. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The Notes are not subject to redemption
prior to maturity and will not be entitled to any sinking fund.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. The Company has been advised
by the Underwriters that the Underwriters presently intend to make a market in
the Notes, but they are not obligated to do so and may discontinue market making
at any time without notice. No assurance can be given as to the existence or
liquidity of a secondary market for the Notes.
DELIVERY AND FORM
The Notes initially will be represented by a single book-entry global
security ("Global Security") deposited with DTC and registered in the name of
the nominee of DTC. The Company has established a depositary arrangement with
DTC with respect to the Notes, the terms of which are summarized below. Each of
the Notes will be available for purchase in denominations of $1,000 and integral
multiples thereof. Unless and until certificated, Notes are issued under the
limited circumstances described below, no Beneficial Owner (as defined below) of
a Note shall be entitled to receive a definitive certificate representing a
Note. So long as DTC or any successor depositary (collectively, the
"Depositary") or its nominee is the registered holder (a "Holder") of the Global
Security, the Depositary, or such nominee, as the case may be, will be
considered to be the sole owner of the Notes represented thereby for all
purposes of the Indenture. Investors' interests in the Global Security will be
represented through financial institutions acting on their behalf as direct and
indirect participants in the Depositary. No Global Security may be transferred
except as a whole by a nominee of the Depositary to the Depositary or to
S-8
<PAGE>
another nominee of the Depositary, or by the Depositary or such nominee to a
successor of the Depositary or a nominee of such successor.
Except as otherwise provided below, the Beneficial Owners of the Global
Security will not be entitled to receive physical delivery of certificated Notes
and will not be considered the Holders thereof for any purpose under the
Indenture, and no Global Security shall be exchangeable or transferable.
Accordingly, each Beneficial Owner must rely on the procedures of the Depositary
and, if such Beneficial Owner is not a Participant (as defined below), on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global Security
or the Indenture. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
Such limits and laws may impair the ability to transfer beneficial interests in
the Global Security.
A Global Security will be exchangeable for certificated Notes of like tenor
and terms and of differing authorized denominations in a like aggregate
principal amount, only if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Security or the
Company becomes aware that the Depositary has ceased to be a clearing agency
registered under the Exchange Act of 1934, as amended (the "Exchange Act"), and,
in any such case, the Company shall not have appointed a successor to the
Depositary within 90 days thereafter, (ii) the Company, in its sole discretion,
determines that the Global Security shall be exchangeable for certificated Notes
or (iii) an Event of Default (or event which with the giving of notice or lapse
of time would constitute an Event of Default) shall have occurred and be
continuing with respect to the Notes under the Indenture. Upon any such
exchange, the certificated Notes shall be registered in the names of the
Beneficial Owners of the Notes represented by the Global Security, which names
shall be provided by the Depositary's relevant Participants (as identified by
the Depositary) to the Trustee.
The following is based on information furnished by DTC:
DTC will act as securities Depositary for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully registered Global Security will be issued
for the Notes, in the aggregate principal amount of such issue, and will be
deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
of DTC ("Direct Participants") include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
Purchases of Notes under DTC's system must be made by or through Direct
Participants, which will receive a credit for such Notes on DTC's records. The
ownership interest of each actual purchaser of each Note represented by a Global
Security ("Beneficial Ownership") is in turn to be recorded on the records of
Direct Participants and Indirect Participants. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmation
S-9
<PAGE>
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in a Global Security representing Notes are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners of a Global Security representing Notes will not receive
certificated Notes representing their ownership interests therein, except in the
event that use of the book-entry system for such Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing Notes
which are deposited with, or on behalf of, DTC are registered in the name of
DTC's nominee, Cede & Co. The deposit of Global Securities with, or on behalf
of, DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Global Securities representing the Notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such Notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to any Global
Security. Under its usual procedures, DTC mails an Omnibus Proxy to the Company
as soon as possible after the applicable record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the applicable record date (identified in a
listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on a Global
Security will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on such date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such Participant and not of DTC, the Trustee or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal, premium, if any, and/or interest, if any, to
DTC is the responsibility of the Company and the Trustee, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct Participants and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Notes repaid by
the Company, through its Participant, to the Trustee, and shall effect delivery
of such Notes by causing the Direct Participant to transfer the Participant's
interest in the Global Security representing such Notes, on the Depositary's
records, to the Trustee. The requirement for physical delivery of book-entry
Notes in connection with a demand for repayment will be deemed satisfied when
the ownership rights in the Global Security representing such Notes are
transferred by Direct Participants on the Depositary's records and followed by a
book-entry credit of tendered Notes to the Trustee's account.
The Depositary may discontinue providing its services as securities
Depositary with respect to the Notes at any time by giving reasonable notice to
the Company or the Trustee. Under such circumstances, in the event that a
successor securities Depositary is not obtained, certificated Notes are required
to be printed and delivered.
S-10
<PAGE>
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities Depositary). In that
event, certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Notes are represented by the Global Security,
all payments of principal and interest will be made by the Company in
immediately available funds.
The Notes will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Notes will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
S-11
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters has severally agreed to purchase, the principal amount of
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- ------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co.................................... $ ---------
William Blair & Company, L.L.C......................... ---------
-----------
Total................................................ $50,000,000
-----------
-----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes, if any are
taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of _____% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
_____% of the principal amount of the Notes to certain broker-dealers. After the
Notes are released for sale to the public, the Underwriters may from time to
time vary the offering price and other selling terms.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters presently
intend to make a market in the Notes but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Notes.
In connection with the offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Underwriters in connection with the offering. Stabilizing transactions consist
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Notes; and short positions created by the
Underwriters involve the sale by the Underwriters of a greater number of Notes
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the Notes sold in the offering may be reclaimed
by the Underwriters if such Notes are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Notes, which may be higher than the
price that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
in the over-the-counter market or otherwise.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may in the future engage in investment, commercial banking and
other transactions with (and perform related services for) the Company and
certain of its affiliates.
Edgar D. Jannotta, a Senior Director of William Blair & Company, L.L.C.,
serves as a member of the Company's Board of Directors. William Blair & Company,
L.L.C. provides financial advisory services to the Company from time to time and
receives compensation therefor.
S-12
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1997
PROSPECTUS
[LOGO]
DEBT SECURITIES
-------------
The Company may from time to time hereafter offer debt securities ("Debt
Securities") consisting of debentures, notes and/or other unsecured evidences of
indebtedness in one or more series at an aggregate initial offering price not to
exceed $85,000,000. The Debt Securities may be offered as separate series in
amounts, at prices and on terms to be determined at the time of sale. The
accompanying Prospectus Supplement sets forth with regard to the Debt Securities
in respect of which this Prospectus is being delivered the title, aggregate
principal amount, denominations (which may be in United States dollars, in any
other currency or in composite currencies), maturity, rate, if any (which may be
fixed or variable), and time of payment of any interest, any terms for
redemption at the option of the Company or the holder, any terms for sinking
fund payments, any listing on a securities exchange and the initial public
offering price and any other terms in connection with the offering and sale of
such Debt Securities.
The Company may sell Debt Securities to or through underwriters, and also
may sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co. or William Blair & Company,
L.L.C., or may be a group of underwriters represented by firms including
Goldman, Sachs & Co. or William Blair & Company, L.L.C. Goldman, Sachs & Co. or
William Blair & Company, L.L.C. may also act as agents. The accompanying
Prospectus Supplement sets forth the names of any underwriters or agents
involved in the sale of the Debt Securities in respect of which this Prospectus
is being delivered, the principal amounts, if any, to be purchased by
underwriters and the compensation, if any, of such underwriters or agents.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
This Prospectus may not be used to consummate sales of the Debt Securities
without delivery of one or more Prospectus Supplements.
GOLDMAN, SACHS & CO. WILLIAM BLAIR & COMPANY
------------
The date of this Prospectus is December 4, 1997.
<PAGE>
AVAILABLE INFORMATION
AAR CORP. (the "Company") is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048. Copies of such materials can
be obtained by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site on the World Wide Web that contains reports, proxy
statements and other information regarding issuers that file electronically with
the Commission. The address of such site is "http://www.sec.gov." Such material
may also be inspected and copied at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005. The Company's common stock is
listed on the New York Stock Exchange.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-6263) pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1997;
2. The Company's Notice of Annual Meeting and Proxy Statement dated August
28, 1997;
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997; and
4. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Debt Securities.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained herein, shall be deemed to be
modified or superseded for purposes hereof to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part hereof.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into such documents). Requests should be directed to AAR CORP., 1100 North Wood
Dale Road, Wood Dale, Illinois 60191, (630) 227-2000.
2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and notes thereto included or
incorporated by reference in the Prospectus. The selected consolidated financial
data for the twelve months ended May 31, 1997, 1996, 1995, 1994 and 1993 are
derived from audited consolidated financial statements of the Company. The
selected consolidated financial data for the three months ended August 31, 1997
and 1996 are derived from unaudited consolidated financial statements of the
Company and include, in the opinion of management, all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly the
results of operations for such periods. The results of operations for the three
months ended August 31, 1997 are not necessarily indicative of the operating
results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, YEAR ENDED MAY 31,
-------------------- -----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(000'S OMITTED EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales........................... $ 170,906 $ 136,037 $ 589,328 $ 504,990 $ 451,395 $ 407,754 $ 382,780
Gross profit........................ 31,928 24,588 108,541 90,765 77,871 71,910 68,436
Selling, general and
administrative.................... 19,034 15,375 65,651 58,323 53,433 50,086 63,093
Operating income.................... 12,894 9,213 42,890 32,442 24,438 21,824 5,343(e)
Interest expense.................... 2,759 2,625 10,786 10,616 10,900 9,564 8,107
Income (loss) before provision
(benefit) for income taxes........ 10,454 6,898 32,975 22,782 14,713 13,684 (1,917)(e)
Provision (benefit) for income
taxes............................. 3,144 2,050 9,950 6,770 4,250 4,190 (2,200)
Net income.......................... 7,310 4,848 23,025 16,012 10,463 9,494 283(e)
Ratio of earnings to
fixed-charges(a).................. 4.4:1 3.3:1 3.5:1 2.8:1 2.1:1 2.2:1 0.8:1
PER SHARE DATA
Net income.......................... $ 0.40 $ 0.30 $ 1.38 $ 1.00 $ 0.66 $ 0.60 $ 0.02(e)
Cash dividends...................... $ 0.12 $ 0.12 $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48
Average common shares
outstanding....................... 18,326 15,965 16,684(b) 15,978 15,932 15,904 15,855
BALANCE SHEET DATA
Working capital..................... $ 308,130 $ 259,776 $ 314,119(b) $ 258,627 $ 248,492 $ 240,009(d) $ 193,399
Total assets........................ 542,819 449,645 529,584(b) 437,846 425,814 411,016(c) 365,151
Total debt.......................... 117,930 119,391 118,292 119,766 121,398 116,297(d) 91,323
Short-term debt..................... 1,492 1,490 1,474 1,474 1,632 568(d) 25,025
Long-term debt...................... 116,438 117,901 116,818 118,292 119,766 115,729(d) 66,298
Stockholders' equity................ 275,665 207,442 269,259(b) 204,635 197,119 189,488 189,216
</TABLE>
- ---------------
(a) For the purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes, adjusted for fixed charges.
Fixed charges consist of interest, whether expensed or capitalized,
amortization of debt expense and one-third of minimum rental payments under
operating leases (estimated by management to be the interest factor such
rentals). In 1993, earnings as defined were inadequate to cover fixed
charges by $1,917.
(b) In February 1997, the Company sold two million shares of its common stock
for $50,075, which is net of expenses.
(c) Reflects reclassification of $6,610 of noncurrent deferred tax assets
against deferred tax liabilities to conform to the fiscal 1995 presentation.
(d) In October 1993, the Company sold $50,000 of unsecured 7.25% Notes due
October 15, 2003. Proceeds were used to repay short-term bank borrowings and
in the Company's operations.
(e) Fiscal 1993 includes noncash restructuring expenses of $11,000 ($7,200 after
tax) primarily related to the writedown of certain inventories to reflect
the impact of market conditions and a reduction in income tax expense of
$1,200.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(000'S OMITTED, EXCEPT PERCENTAGE DATA AND RATIOS)
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED AUGUST 31, 1997
The Company reports its activities in one business segment: Aviation
Services. The table below sets forth consolidated net sales for the Company's
classes of similar products and services within this segment for the three-month
periods ended August 31, 1997 and 1996. Prior period amounts have been
reclassified to conform to the current year presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Sales:
Aircraft and Engines.............................................. $ 79,781 $ 59,520
Airframe and Accessories.......................................... 70,066 48,208
Manufacturing..................................................... 21,059 28,309
----------- -----------
$ 170,906 $ 136,037
----------- -----------
----------- -----------
</TABLE>
Consolidated net sales for the first quarter of the Company's fiscal year
ending May 31, 1998 (fiscal 1998) increased $34,869 or 25.6% over the same
period in the prior year, reflecting continued strong demand for the Company's
broad range of products and services. Aircraft and Engines sales increased
$20,261 or 34.0% over the prior year period, primarily reflecting growth in its
engine parts trading and engine component repair businesses, as well as
increased sales in its engine trading and leasing business. A majority of the
sales increase in the engine parts business was in conjunction with long-term
inventory management programs. Airframe and Accessories sales increased $21,858
or 45.3%, reflecting the inclusion of results of Cooper Aviation for the entire
quarter and higher demand for certain aircraft maintenance and component repair
services, as well as higher sales in the Company's Airframe parts trading
business. Manufacturing sales were $7,250 or 25.6% below the prior year period,
reflecting lower demand for its products supporting the United States
government's rapid deployment program.
Consolidated gross profit increased $7,340 or 29.9% over the prior year
period due to increased consolidated net sales and an increase in the
consolidated gross profit margin to 18.7% from 18.1%. The improvement in the
consolidated gross profit margin was attributable to the mix of inventories
sold. Consolidated operating income increased $3,681 or 40.0% and the Company's
operating income margin increased to 7.5%, compared to the prior year period's
margin of 6.8%, as a result of increased consolidated net sales and an increase
in consolidated gross profit, partially offset by higher selling, general and
administrative expenses. Selling, general and administrative expenses were lower
as a percentage of consolidated net sales; however, total expenses increased
principally due to the inclusion of Cooper Aviation and higher marketing support
and personnel costs.
Consolidated net income increased $2,462 or 50.8% over the prior year period
due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES AT AUGUST 31, 1997
At August 31, 1997, the Company's liquidity and capital resources included
cash of $30,406 and working capital of $308,130. At August 31, 1997, the
Company's ratio of long-term debt to capitalization was 29.7%, down from 30.3%
at May 31, 1997. The Company continues to maintain its available external
4
<PAGE>
sources of financing from $135,941 of unused bank credit lines and a shelf
registration on file with the Securities and Exchange Commission under which up
to an additional $85,000 of medium- or long-term debt securities may be sold,
subject to market conditions.
During the three-month period ended August 31, 1997, the Company generated
$1,489 of cash from operations compared to $10,242 in the three-month period
ended August 31, 1996. The reduction in cash generated from operations was due
principally to working capital investments made as a result of continued growth
in the Company's Aircraft and Engines and Airframe and Accessories businesses.
During the three-month period ended August 31, 1997, the Company's investing
activities used $13,372 of cash principally due to an investment in a new
leveraged lease for $8,320 and capital expenditures of $2,678. Cash used in
financing activities during the three-month period ended August 31, 1997 was
$9,395, compared to $3,307 for the three-month period ended August 31, 1996. The
increase in cash used in financing activities was primarily the result of the
repayment of $6,942 of debt assumed in the Cooper Aviation acquisition during
the first quarter of fiscal 1998.
The Company believes that its cash and cash equivalents and available
sources of financing will continue to provide the Company with the ability to
meet its ongoing working capital requirements, make anticipated capital
expenditures, meet contractual commitments and pay dividends.
A summary of key indicators of financial condition and lines of credit
follows:
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
DESCRIPTION 1997 1997
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Working capital..................................................... $ 308,130 $ 314,119
Current ratio....................................................... 3.9:1 4.1:1
Bank credit lines:
Borrowings outstanding............................................ $ -- $ --
Available but unused lines........................................ 135,941 136,283
----------- -----------
Total credit lines.................................................. $ 135,941 $ 136,283
----------- -----------
----------- -----------
Long-term debt, less current maturities............................. $ 116,438 $ 116,818
Ratio of long-term debt to capitalization........................... 29.7% 30.3%
</TABLE>
5
<PAGE>
RESULTS OF OPERATIONS
THREE-YEAR PERIOD ENDED MAY 31, 1997
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
Aircraft and Engines................................. $ 263,074 $ 182,229 $ 171,181
Airframe and Accessories............................. 221,433 202,883 166,830
Manufacturing........................................ 104,821 119,878 113,384
----------- ----------- -----------
$ 589,328 $ 504,990 $ 451,395
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
THREE-YEAR NET SALES SUMMARY
The comparison of the Company's net sales over the last three fiscal years
covers a period of growth and expansion in the aerospace/aviation industry.
During this period, most of the world's major commercial airlines returned to
profitability from the severe industry downturn of the early 1990s. In addition,
certain start-up airlines which emerged at the beginning of the three-year
period continued to expand their fleets and routes and experience improving
financial results. In the same period, higher revenue passenger miles and higher
air freight traffic drove requirements for additional or new aircraft and
increased utilization of aircraft, leading to a greater demand for parts and
service support. In addition, aircraft operators focused on cost structure
improvements and took steps to outsource certain support operations and
consolidate vendor lists.
During the last three fiscal years, the Company's aggressive pursuit of
opportunities resulted in additional long-term programs, an increase in the
Company's customer base and a broadening of the range of products and services
provided to existing customers. Sales were higher during fiscal 1997 in all of
the Company's major Aircraft and Engines and Airframe and Accessories
businesses, as it expanded the breadth of products and services and developed
innovative programs to improve customers' competitive positions.
Prior to fiscal 1997, the Company's principal Manufacturing unit benefited
from the U.S. government's programs to reduce budgets, including base closures,
which resulted from the military requiring more products to support its rapid
deployment activities. Over the last fiscal year, the Company experienced a
reduction in demand for its manufactured pallets, containers and shelters for
the U.S. military, as usage of these products declined due to lower mobilization
of the rapid deployment forces around the world. The Company continues to pursue
opportunities available in the commercial sector for these products.
The Company believes that its established market position, its ability to
respond to changes in the industry and its diverse customer base, coupled with a
strong aerospace/aviation industry, position the Company to take advantage of
opportunities in its markets.
FISCAL 1997 COMPARED WITH FISCAL 1996
The Company's operating results showed improvement over the prior fiscal
year as it experienced higher demand for its Aircraft and Engines and Airframe
and Accessories products and services in a strong aerospace/aviation industry.
Consolidated net sales increased $84,338 or 16.7% over the prior fiscal year,
reflecting higher sales in the Company's Aircraft and Engines and Airframe and
Accessories businesses. Consolidated operating income increased $10,448 or 32.2%
over the prior year due to increased consolidated net sales and a higher
consolidated gross profit margin, partially offset by higher selling, general
and administrative costs. Net income increased $7,013 or 43.8% due to increased
consolidated net sales and gross profit margin.
6
<PAGE>
Aircraft and Engine sales increased $80,845 or 44.4% over the prior year due
to growth in its engine parts trading and engine component repair businesses and
higher sales in its engine and aircraft sales and leasing businesses. Increased
volume through the Company's long-term inventory management programs contributed
to the sales increase in the engine parts business. Airframe and Accessories
sales increased $18,550 or 9.1%, reflecting increased demand for certain
aircraft and aircraft component repair and maintenance services and higher sales
in its Airframe parts trading business. Sales in Manufacturing declined $15,057
or 12.6%, resulting from lower demand for its products supporting the U.S.
government's rapid deployment program.
Consolidated gross profit increased $17,776 or 19.6% due to increased
consolidated net sales and an increase in the consolidated gross profit margin
to 18.4% from 18.0% in the prior year. The increase in the consolidated gross
profit margin during fiscal 1997 was attributable to the favorable mix of
products and services sold on Airframe and Accessories parts and services,
partially offset by lower margins on certain Manufactured products due to lower
sales volume.
Consolidated operating income increased $10,448 or 32.2% over the prior year
as a result of the increase in consolidated net sales and the higher
consolidated gross profit margin, partially offset by higher selling, general
and administrative costs. The increase in selling, general and administrative
costs was driven by increased personnel and marketing support costs.
Consolidated net income increased $7,013 or 43.8% over the prior year as a
result of the factors discussed above.
FISCAL 1996 COMPARED WITH FISCAL 1995
The Company's operating results continued to improve in fiscal 1996 as it
took advantage of business opportunities available in the improved
aerospace/aviation marketplace and as the Company successfully implemented
certain strategic marketing initiatives. Consolidated net sales for fiscal 1996
increased $53,595 or 11.9% over the prior fiscal year due to increased sales
across all classes of similar products and services. Consolidated operating
income increased $8,004 or 32.8% over the prior year due to increased
consolidated net sales and a higher consolidated gross profit margin partially
offset by increased selling, general and administrative costs. Net income
increased $5,549 or 53.0% over the prior year primarily due to increased
consolidated net sales and gross profit margin.
Aircraft and Engines sales increased $11,048 or 6.5% over the prior year as
a result of increased sales in the engine parts trading and engine component
overhaul businesses. Airframe and Accessories sales increased $36,053 or 21.6%,
primarily as a result of airframe and large airframe component overhaul
services, supplemented by higher sales in the Airframe parts trading business.
Manufacturing sales increased $6,494 or 5.7% over the prior year primarily due
to increased sales of products and product repair services supporting rapid
deployment requirements, aircraft cargo systems and floor maintenance equipment,
partially offset by a decline from the disposition of small manufactured product
lines since the prior year.
Consolidated gross profit increased $12,894 to 16.6% over the prior fiscal
year due to increased consolidated net sales and an improved gross profit margin
of 18.0% versus the prior year's 17.3% margin. The margin on principal Aircraft
and Engines and Airframe and Accessories products and services improved over the
prior year as a result of favorable product mix and improved pricing of certain
products and services. The margin on Manufactured products declined slightly as
a result of the mix of products and product repair services supporting rapid
deployment requirements, partially offset by aircraft cargo systems and floor
maintenance equipment.
Consolidated operating income increased $8,004 or 32.8% over the prior year
as a result of increased consolidated net sales and gross profit margin,
partially offset by increased total selling,
7
<PAGE>
general and administrative costs. While selling, general and administrative
costs declined as a percentage of sales, the total costs increased over the
prior year as a result of increased personnel costs, increased marketing support
programs and costs to enhance information technology systems.
Consolidated net income increased $5,549 or 53.0% over the prior fiscal year
primarily as a result of the increased consolidated net sales and improved
consolidated gross profit margin. Net income also increased due to a reduction
in interest expense resulting from substantially lower short-term borrowings
during the current year, partially offset by a small increase in the Company's
current year effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES AT MAY 31, 1997
At May 31, 1997, the Company's liquidity and capital resources included cash
of $51,705 and working capital of $314,119. At May 31, 1997, the Company's
long-term debt to capitalization was 30.3%, compared to 36.6% at May 31, 1996.
The reduction in the long-term debt-to-capitalization ratio principally reflects
the Company's recently completed stock offering. The Company continues to
maintain its available external sources of financing from $136,283 of unused
available bank lines and a shelf registration on file with the Securities and
Exchange Commission under which up to an additional $85,000 of medium- or
long-term debt securities may be sold, subject to market conditions.
During fiscal 1997, the Company generated $9,531 of cash from operations
compared to $24,760 and $15,255 during fiscal 1996 and fiscal 1995,
respectively. The reduction in cash generated from operations during fiscal 1997
compared to the two previous fiscal years was due primarily to working capital
investments made as a result of continued growth in the Company's Aircraft and
Engines and Airframes and Accessories businesses, partially offset by increased
net income.
During fiscal 1997, the Company's investing activities consumed $31,968 of
cash and cash equivalents. Of this amount, $30,292 related to property, plant
and equipment additions, of which $20,100 reflects the Company's acquisition and
refurbishment of an operating facility. This facility allowed the Company to
consolidate and replace certain facilities previously operated by the Company
and will accommodate the growth of the Company's principal trading Aircraft and
Engines and Airframe and Accessories parts operating units. Upon the sale of the
facilities owned by the Company vacated as a result of the relocation to the new
building, the proceeds will be added to cash and cash equivalents.
During fiscal 1997, cash provided from financing activities was $40,651,
reflecting the sale of two million shares of common stock during the third
quarter for $50,075, which is net of expenses, partially offset by the payment
of cash dividends of $7,976 and the acquisition of 322 shares of its stock for
$8,080 of which 259 shares were acquired in connection with the exercise of
stock options.
The Company believes that its cash and cash equivalents and available
sources of capital will continue to provide the Company with the ability to meet
its ongoing working capital requirements, make anticipated capital expenditures,
meet contractual commitments and pay dividends.
8
<PAGE>
A summary of key indicators of financial condition and lines of credit
follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------
DESCRIPTION 1997 1996
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Working capital..................................................... $ 314,119 $ 258,627
Current ratio....................................................... 4.1:1 4.3:1
Bank credit lines:
Borrowings outstanding............................................ $ -- $ --
Available but unused lines........................................ 136,283 132,977
----------- -----------
Total credit lines.................................................. $ 136,283 132,977
----------- -----------
----------- -----------
Long-term debt, less current maturities............................. $ 116,818 $ 118,292
Ratio of long-term debt to capitalization........................... 30.3% 36.6%
</TABLE>
9
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Debt Securities") will be described
in the Prospectus Supplement relating to such Debt Securities.
The Debt Securities are to be issued under an Indenture dated as of October
15, 1989 as supplemented by the First Supplemental Indenture dated as of August
26, 1991 and the Second Supplemental Indenture dated as of
______________________, 1997 (collectively, the "Indenture"), between the
Company and First Trust National Association (as successor in interest to
Continental Bank, National Association), as Trustee (the "Trustee"). The terms
of the Note and of the Indenture have been included as an exhibit to the
Registration Statement. The following summary of certain provisions of the Debt
Securities and the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, which are incorporated by reference herein. Capitalized terms used
herein have the respective meanings set forth in the Indenture, and references
to sections are to sections of the Indenture.
As of the date of this Prospectus, the Company has outstanding $65,000,000
aggregate principal amount of its 9.50% Notes due November 1, 2001 and
$50,000,000 aggregate principal amount of its 7.25% Notes due October 15, 2003
issued under the Indenture.
GENERAL
The Indenture provides that Debt Securities may be issued thereunder,
without limit as to aggregate principal amount, in one or more series by the
Company from time to time upon satisfaction of certain conditions precedent. The
Company may, from time to time, fix the terms of such Debt Securities,
including: (i) the title of the Debt Securities; (ii) any limit upon the
aggregate principal amount of the Debt Securities; (iii) the date or dates on
which the principal of the Debt Securities is payable; (iv) the rate or rates
per annum at which the Debt Securities will bear interest, if any, the date or
dates from which such interest will accrue, the Interest Payment Dates on which
such interest will be payable and the Regular Record Date for the interest
payable on any Interest Payment Date; (v) the place or places where the
principal of and premium, if any, and interest on the Debt Securities will be
payable; (vi) the period or periods within which, the price or prices at which
and the terms and conditions upon which the Debt Securities will, pursuant to
any mandatory sinking fund provisions, or may, pursuant to any optional sinking
fund provisions, be redeemed in whole or in part by the Company; (vii) the
period or periods within which, the price or prices at which and the terms and
conditions upon which the Debt Securities may be repaid, in whole or in part, at
the option of the Holder thereof; (viii) if other than denominations of $1,000
and any integral multiple thereof, the denominations in which the Debt
Securities shall be issuable; (ix) if the Debt Securities are Original Issue
Discount Securities, the portion of principal of such Debt Securities that shall
be payable upon declaration of acceleration of the Maturity thereof; and (x) any
other terms of the Debt Securities. Reference is made to the Prospectus
Supplement for the terms of the Debt Securities being offered thereby. (Section
301)
The Debt Securities will be issued only in fully registered form without
coupons, in denominations set forth in the Prospectus Supplement. No service
charge will be made for any registration of transfer or exchange of such Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charges that may be imposed in connection therewith.
The Debt Securities will be unsecured and will rank PARI PASSU with all
other unsecured and unsubordinated indebtedness of the Company.
Any principal, premium and interest will be payable, the transfer of the
Debt Securities will be registrable, and Debt Securities will be exchangeable at
the office or agency designated for such
10
<PAGE>
purpose in the Prospectus Supplement. Under certain circumstances, payment of
interest on Debt Securities may be made at the option of the Company by check
mailed to the address of the person entitled thereto as shown on the Security
Register.
Debt Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from the principal
amount thereof. If the Debt Securities are Original Issue Discount Securities,
special federal income tax, accounting and other considerations applicable
thereto will be described in the Prospectus Supplement relating thereto.
"Original Issue Discount Security" means any Debt Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of Maturity thereof upon the occurrence of an Event
of Default and the continuation thereof.
CERTAIN DEFINITIONS
The term "Subsidiary of the Company" is defined as a corporation a majority
of the outstanding voting stock of which is owned, directly or indirectly, by
the Company and/or one or more Subsidiaries of the Company. The term "Restricted
Subsidiary" is defined as any Subsidiary of the Company except (a) a Subsidiary
which neither transacts any substantial portion of its business nor regularly
maintains any substantial portion of its fixed assets within the United States
and/or Canada, or which is engaged primarily in financing the operations of the
Company or its Subsidiaries outside the United States and Canada and (b) AAR
Financial Services Corp. and any Subsidiary of the Company created or acquired
after the date hereof the primary business of which consists of financing
operations in connection with leasing and conditional sales transactions on
behalf of the Company and the Subsidiaries of the Company, or which is otherwise
primarily engaged in the business of a finance company.
The term "Principal Property" is defined to include any single
manufacturing, production, distribution or service facility, plant or warehouse
owned or leased by the Company or any Restricted Subsidiary (excluding all
related land but including fixtures, machinery and equipment) which is located
within the United States or Canada and the gross book value (without deduction
of any depreciation reserves) of which on the date as of which the determination
is being made exceeds 1% of Consolidated Net Tangible Assets, other than any
such facility, plant or warehouse or portion thereof which, in the opinion of
the Board of Directors, is not of material importance to the total business
conducted by the Company and its Subsidiaries as an entirety. As of the date
hereof, approximately twelve of the Company's properties would be Principal
Properties. The term "Attributable Debt" is defined to mean the total net amount
of rent required to be paid during the remaining term of certain leases,
discounted at the weighted average rate per annum borne by the Debt Securities
compounded semiannually. The term "Consolidated Net Tangible Assets" is defined
as the aggregate amount of assets (less applicable reserves and other properly
deductible items) after deducting therefrom (a) all current liabilities
(excluding any thereof constituting Funded Debt by reason of their being
renewable or extendible) and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent consolidated balance sheet of the Company and its
consolidated subsidiaries and computed in accordance with generally accepted
accounting principles. (Section 101)
RESTRICTIONS ON SECURED DEBT
If the Company or any Restricted Subsidiary shall incur, issue, assume or
guarantee any Debt secured by a Mortgage on any Principal Property or by a
Mortgage on any shares of stock or Debt of any Restricted Subsidiary, the
Company will secure or cause such Restricted Subsidiary to secure the Debt
Securities, equally and ratably with (or prior to) such secured Debt, unless
after giving effect thereto the aggregate amount of all such Debt so secured,
together with all Attributable Debt in respect of sale and leaseback
transactions involving Principal Properties (see "Restrictions on Sales and
Leasebacks" below), would not exceed 10% of Consolidated Net Tangible Assets.
This restriction will not apply to, and there will be excluded from secured Debt
in any computation under such restriction, Debt secured by (a) Mortgages on
property of, or on any shares of stock or Debt of, any corporation existing at
the time
11
<PAGE>
such corporation becomes a Restricted Subsidiary, (b) Mortgages on property,
shares of stock or Debt existing at the time of acquisition thereof (including
acquisition through merger or consolidation), (c) Mortgages on property, shares
of stock or Debt hereafter acquired (or, in the case of property, constructed)
by the Company or any Restricted Subsidiary and created prior to, at the time
of, or within 120 days after acquisition (or, in the case of property, the
completion of construction and commencement of commercial operation, whichever
is later) to secure or provide for the purchase price (or, in the case of
property, construction price) thereof, (d) Mortgages in favor of the Company or
a Restricted Subsidiary, (e) Mortgages in favor of the United States or any
State thereof, or Canada or any Province thereof, or any instrumentality of any
thereof to secure progress, advance or other payments pursuant to any contract
or provision of any statute, and (f) any extension, renewal or replacement of
any Mortgage referred to in the foregoing clauses (a) through (e), inclusive.
(Section 1007)
RESTRICTIONS ON CERTAIN UNSECURED DEBT
The Debt (other than secured Debt referenced under "Restrictions on Secured
Debt" above) of all consolidated Restricted Subsidiaries may not exceed 15% of
the Consolidated Net Tangible Assets of the Company. (Section 1011)
MERGER AND CONSOLIDATION
The Company may not consolidate with or merge into any other corporation or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, or permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless (i) either the Company shall be the
continuing corporation or the successor or purchasing Person shall be a domestic
corporation and shall expressly assume the payment of the principal of and
premium, if any, and interest, if any, on the Debt Securities and the
performance of every covenant of the Indenture binding upon the Company, (ii)
immediately after such transaction no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have happened and be continuing, (iii) if, as a result of the transaction,
properties or assets of the Company would become subject to an encumbrance not
permitted by the Indenture, the Company or such successor corporation or Person
shall take steps necessary to secure the Debt Securities equally and ratably
with (or prior to) all indebtedness secured by such encumbrance and (iv) the
Company has delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel stating that such transaction complies with the Indenture. (Section 801)
RESTRICTIONS ON SALES AND LEASEBACKS
Neither the Company nor any Restricted Subsidiary may enter into any sale
and leaseback transaction involving any Principal Property, completion of
construction and commencement of commercial operation of which has occurred more
than 120 days prior thereto, unless (a) the Company or such Restricted
Subsidiary could mortgage such property pursuant to the restrictions on Secured
Debt described above in an amount equal to the Attributable Debt with respect to
the sale and leaseback transaction without equally and ratably securing the Debt
Securities or (b) the Company, within 120 days, applies to the retirement of its
Funded Debt an amount equal to the greater of (i) the net proceeds of the sale
of the Principal Property leased pursuant to such arrangement or (ii) the fair
value of the Principal Property so leased (subject to credits for certain
voluntary retirements of Funded Debt and Debt Securities). This restriction will
not apply to any sale and leaseback transaction (1) between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries or (2) involving a
lease for a period of less than three years. (Section 1008)
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of not less than 66 2/3% in
principal amount of the Outstanding Debt Securities of each series affected
thereby, provided that no such modification or amendment may,
12
<PAGE>
without the consent of the Holder of each Outstanding Security affected thereby,
(a) change the Stated Maturity of any installment of principal of, or interest
on, any Debt Security or change the redemption price; (b) reduce the principal
amount of, or the interest on, any Debt Security; (c) change the place or
currency of any payment of principal or interest on any Debt Security; (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security; (e) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required to modify or amend the Indenture; or (f) modify the foregoing
requirements or reduce to less than a majority the percentage of Outstanding
Debt Securities necessary to waive any past default. Except with respect to
certain fundamental provisions, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series may, with respect
or such series, waive past defaults under the Indenture and waive compliance by
the Company with certain provisions of the Indenture. (Sections 902, 513)
EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with respect to
any series of Debt Securities: (a) default in the payment of any interest upon
any Debt Security of that series when due, continued for 30 days; (b) default in
the payment of any principal or premium, if any, on any Debt Security of that
series when due; (c) default in the deposit of any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) default in the
performance, or breach of any other covenant or warranty of the Company
contained in the Indenture or in the Debt Securities of such series, continued
for 60 days after written notice as provided in the Indenture; (e) acceleration
of any indebtedness for money borrowed in an aggregate principal amount
exceeding $10,000,000 by the Company under the terms of the instrument under
which such indebtedness is issued or secured, if such acceleration is not
annulled, or such indebtedness is not discharged, within 10 days after written
notice as provided in the Indenture; (f) certain events in bankruptcy,
insolvency or reorganization; and (g) any other Event of Default with respect to
Debt Securities of that series. The Trustee or the Holders of 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount of all Outstanding Debt Securities of that series due and
payable immediately if any Event of Default with respect to Debt Securities of
such series shall occur and be continuing at the time of declaration. At any
time after a declaration of acceleration has been made with respect to Debt
Securities of any series but before a judgement or decree for payment of money
due has been obtained by the Trustee, the Holders of a majority in principal
amount of Outstanding Debt Securities of that series may rescind any declaration
of acceleration and its consequences, if all payments due (other than those due
as a result of acceleration) have been made and all Events of Default have been
cured or waived. Any Event of Default with respect to Debt Securities of any
series may be waived by the Holders of a majority in principal amount of all
Outstanding Debt Securities of that series, except a default (i) in the payment
of principal or premium, if any, or interest on any Debt Security of that series
or (ii) in respect of a covenant or provision which cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
such series affected. (Sections 501, 502, 513)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to Debt Securities of such series,
provided that such direction shall not be in conflict with any rule of law or
the Indenture. Before proceeding to exercise any right or power under the
Indenture at the direction of such Holders, the Trustee shall be entitled to
receive from such Holders reasonable indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
(Sections 512, 507)
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Indenture.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also may
sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co. or William Blair & Company, L.L.C.
or a group of underwriters represented by firms including Goldman, Sachs & Co.
or William Blair & Company, L.L.C. Goldman, Sachs & Co. or William Blair &
Company, L.L.C. may also act as agents.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Debt Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Debt Securities from the Company pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject. The underwriters and such other agents will not have
any responsibility in respect of the validity or performance of such contracts.
LEGAL OPINIONS
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Schiff Hardin & Waite, Chicago, Illinois. Certain attorneys at
Schiff Hardin & Waite who have performed services for the Company own
approximately 590 shares of common stock, $1.00 par value, of the Company.
Certain legal matters relating to the offering will be passed upon for the
Underwriters by Sonnenschein Nath & Rosenthal, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of May 31, 1997,
1996 and for each of the years in the three-year period ended May 31, 1997
incorporated by reference in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report incorporated by reference herein. The financial statements referred to
above are incorporated by reference herein in reliance upon such report and upon
the authority of such firm as experts in auditing and accounting.
14
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Use of Proceeds................................... S-2
Capitalization.................................... S-2
The Company....................................... S-3
Selected Consolidated Financial Data.............. S-7
Description of Notes.............................. S-8
Underwriting...................................... S-12
PROSPECTUS
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
Selected Consolidated Financial Data.............. 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 4
Description of Debt Securities.................... 10
Plan of Distribution.............................. 14
Legal Opinions.................................... 14
Experts........................................... 14
</TABLE>
$50,000,000
AAR CORP.
__% NOTES DUE _________, 2007
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[LOGO]
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GOLDMAN, SACHS & CO.
WILLIAM BLAIR & COMPANY
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