<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
________________
For Quarterly Period Ended February 28, 1997 Commission file number 1-6263
------------------ --------
AAR CORP.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2334820
- -------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE AAR PLACE, 1100 N. WOOD DALE ROAD, WOOD DALE, ILLINOIS 60191
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 227-2000
--------------------------
Former Address: 1111 Nicholas Boulevard, Elk Grove Village, Illinois 60007
- -----------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----------- ----------
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each on the issuer's classes
of common stock, as of the latest practicable date.
$1.00 par value, 18,155,864 shares outstanding as of FEBRUARY 28, 1997 .
- --------- ------------ ---------------------
<PAGE>
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
February 28, 1997
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits 11
Reports on Form 8-K 11
Signature Page 12
2
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of February 28, 1997 and May 31, 1996
(000s omitted)
February 28, May 31,
1997 1996
----------- -------------
(Unaudited) (Derived from
audited financial
statements)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 53,983 $ 33,606
Accounts receivable, less allowances of
$2,200 and $2,490 respectively 131,067 107,138
Inventories 167,710 138,200
Equipment on or available for short-term
lease 32,905 36,884
Deferred tax assets, deposits and other 24,068 22,184
-------- --------
Total current assets 409,733 338,012
-------- --------
Property, plant and equipment, net 69,865 54,831
-------- --------
Other assets:
Investments in leveraged leases 28,661 30,905
Cost in excess of underlying net assets
of acquired companies 5,704 5,842
Retirement benefits, notes receivable
and other 9,889 8,256
-------- --------
44,254 45,003
-------- --------
$523,852 $437,846
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,524 $ 1,474
Accounts payable 81,242 59,005
Accrued liabilities 15,646 14,356
Accrued taxes on income 3,276 4,550
-------- --------
Total current liabilities 101,688 79,385
-------- --------
Long-term debt, less current maturities 117,126 118,292
Deferred tax liabilities 30,239 30,680
Other liabilities 5,898 -
Retirement benefit obligation and
deferred credits 4,854 4,854
-------- --------
158,117 153,826
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 250 shares, none issued - -
Common stock, $1.00 par value,
authorized 80,000 shares; issued
18,819 and 16,404 shares, respectively 18,819 16,404
Capital surplus 139,249 83,975
Retained earnings 120,785 110,645
Treasury stock, 663 and 406 shares
at cost, respectively (11,513) (5,285)
Cumulative translation adjustments (3,293) (1,104)
-------- --------
264,047 204,635
-------- --------
$523,852 $437,846
-------- --------
-------- --------
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
3
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended February 28/29, 1997 and 1996
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28/29, February 28/29,
--------------------------- -------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 154,135 $ 136,065 $ 425,847 $ 366,919
--------- --------- --------- ---------
Costs and operating expenses:
Cost of sales 125,995 113,602 348,295 301,997
Selling, general and administrative 16,829 14,154 47,235 42,051
--------- --------- --------- ---------
142,824 127,756 395,530 344,048
Operating income 11,311 8,309 30,317 22,871
Interest expense (2,952) (2,693) (8,146) (7,978)
Interest income 127 183 636 768
--------- --------- --------- ---------
Income before provision for income taxes 8,486 5,799 22,807 15,661
Provision for income taxes 2,546 1,710 6,875 4,655
--------- --------- --------- ---------
Net income $ 5,940 $ 4,089 $ 15,932 $ 11,006
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share of common stock $ .36 $ .26 $ .98 $ .69
Average common shares outstanding 16,502 15,999 16,182 15,971
Dividends paid and declared per share
of common stock $ .12 $ .12 $ .36 $ .36
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended February 28/29, 1997 and 1996
(Unaudited)
(000s omitted)
Nine Months Ended
February 28/29
---------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,932 $11,006
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 8,838 7,493
Change in certain assets and liabilities:
Accounts receivable, net (24,491) (4,791)
Inventories, net (27,507) 4,180
Equipment on or available for
short-term lease 3,626 265
Deferred tax assets, deposits and other (1,293) (4,838)
Accounts payable 22,733 (336)
Accrued liabilities and taxes on income (2,189) (1,688)
Other liabilities 5,898 -
Accrued interest 2,435 2,454
--------- ---------
Net cash provided from operating activities 3,982 13,745
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (26,243) (5,050)
Investment in leveraged leases 2,244 991
Notes receivable and other (3,125) 1,466
--------- ---------
Net cash (used in) investing activities (27,124) (2,593)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in borrowings (1,116) (1,262)
Cash dividends (5,792) (5,753)
Purchase of treasury stock (6,228) (799)
Proceeds from exercise of stock options and other 6,300 1,827
Proceeds from stock offering 50,450 -
--------- ---------
Net cash provided from (used in) financing
activities 43,614 (5,987)
--------- ---------
Effect of exchange rate changes on cash (95) 78
--------- ---------
Increase in cash and cash equivalents 20,377 5,243
Cash and cash equivalents, beginning of period 33,606 22,487
--------- ---------
Cash and cash equivalents, end of period $ 53,983 $ 27,730
--------- ---------
--------- ---------
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 28, 1997
(000s omitted)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of AAR CORP. ("the Company") and its subsidiaries after elimination of
intercompany accounts and transactions. These statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated balance
sheet as of May 31, 1996 has been derived from audited financial statements. To
prepare the financial statements in conformity with generally accepted
accounting principles, management has made a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations of the SEC. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position of AAR CORP. and its subsidiaries as of February 28, 1997 and
the condensed consolidated results of operations for the three and nine-month
periods ended February 28/29, 1997 and 1996, and the condensed consolidated cash
flows for the nine-month periods ended February 28/29, 1997 and 1996. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year. Certain prior period amounts have been
reclassified to conform to the February 28, 1997 presentation.
NOTE B - INVENTORY
The summary of inventories is as follows:
February 28, May 31,
1997 1996
------------ ----------
Raw materials and parts $ 35,522 $ 33,978
Work-in-process 14,447 12,179
Purchased aircraft, parts, engines and
components held for sale 116,024 90,438
Finished goods 1,717 1,605
--------- ---------
$ 167,710 $ 138,200
--------- ---------
--------- ---------
During the first quarter of fiscal 1997, the Company made certain inventory
purchases in which the vendors provided extended terms at no interest. Other
liabilities reflect the long-term obligation under these arrangements payable
through December 31, 1998 and have been discounted at 6.5%.
6
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 28, 1997 (Continued)
(000s omitted)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
Nine Months Ended
February 28/29,
-------------------
1997 1996
------- ------
Interest paid $5,430 $5,330
Income taxes paid 7,532 3,830
Income tax refunds received 147 80
NOTE D - CUMULATIVE TRANSLATION ADJUSTMENTS
The cumulative translation adjustments account changed due to a net translation
loss of $2,189 for the nine-month period ended February 28, 1997. The change
resulted from a decrease in the value of the Company's net investment in
foreign subsidiaries primarily resulting from an increase in the value of the
U.S. dollar against certain European currencies. The noncash adjustment did not
affect the Company's results of operations.
NOTE E - COMMON STOCK AND EARNINGS PER SHARE
During February 1997, the Company completed the sale of two million shares of
common stock, raising $50,450, which is net of expenses. The per share data was
calculated using the weighted average shares outstanding for the periods
presented. Common stock equivalents consisting of employee stock options have
not been included in the per share calculation as their dilutive effect is not
material.
NOTE F - NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 123 "Accounting for
Stock-Based Compensation" in October 1995. Under SFAS No. 123, entities may
elect to adopt the provisions of SFAS No. 123, or continue to apply the
provisions of APB No. 25 "Accounting for Stock Issued to Employees" with
additional disclosures. The Company has elected to continue to apply the
provisions of APB No. 25 "Accounting for Stock Issued to Employees", which will
result in expanded disclosures in the notes to consolidated financial statements
in the fiscal 1997 annual report to stockholders.
7
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
THREE AND NINE-MONTH PERIOD ENDED FEBRUARY 28, 1997
(as compared with the same period of the prior year)
The following table sets forth net sales for the Company's classes of similar
products and services within the Company's Aviation Services business segment:
Three Months Ended Nine Months Ended
February 28/29, February 28/29,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- -------- --------
Net Sales:
Trading $ 95,035 $ 72,694 $251,062 $183,057
Overhaul 37,409 33,136 105,502 100,115
Manufacturing 21,691 30,235 69,283 83,747
--------- -------- -------- --------
$ 154,135 $ 136,065 $425,847 $366,919
--------- -------- -------- --------
--------- -------- -------- --------
THREE-MONTH PERIOD ENDED FEBRUARY 28, 1997
(as compared with the same period of the prior year)
Consolidated net sales for the third quarter of the Company's fiscal year ending
May 31, 1997 (fiscal 1997) increased $18,070 or 13.3% over the same period in
the prior year reflecting continued strong demand for the Company's broad range
of products and services. Trading sales increased $22,341 or 30.7% over the
prior year period reflecting growth in its airframe and engine parts businesses
and increased 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. Overhaul sales increased $4,273 or 12.9%
reflecting higher demand for certain aircraft maintenance and aircraft component
repair services. Manufacturing sales were $8,544 or 28.3% below the prior year
period reflecting lower demand of its products supporting the United States
Government's rapid deployment program and lower sales of its cargo loading and
handling systems.
Consolidated gross profit increased $5,677 or 25.3% over the prior year period
due to increased consolidated net sales and an increase in the consolidated
gross profit margin to 18.3% from 16.5%. The improvement in the consolidated
gross profit margin was attributable to the mix of inventories sold.
Consolidated operating income increased $3,002 or 36.1% and the Company's
operating income margin increased to 7.3% compared to the prior year period's
margin of 6.1% as a result of increased net sales and an increase in
consolidated gross profit, partially offset by higher selling, general and
administrative expenses from higher personnel and marketing support costs.
Consolidated net income increased $1,851 or 45.3% over the prior year period due
primarily to the factors discussed above.
8
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except ratios)
NINE MONTH PERIOD ENDED FEBRUARY 28, 1997
(as compared with the same period of the prior year)
Consolidated net sales for the nine months of fiscal 1997 increased $58,928 or
16.1% over the prior year period reflecting overall increased demand for the
Company's trading and overhaul products and services. Trading sales increased
$68,005 or 37.1% over the prior year period due to increased engine, airframe
and large component part sales, and improved engine trading and leasing
business. Overhaul sales increased $5,387 or 5.4% reflecting increased demand
for aircraft maintenance services. Manufacturing sales were $14,464 or 17.3%
below the prior year period, reflecting lower demand of its products supporting
the United States Government's rapid deployment program and lower sales of its
cargo loading and handling systems.
Consolidated gross profit increased $12,630 or 19.5% over the prior year period
due to increased consolidated net sales and an increase in the consolidated
gross profit margin to 18.2% from 17.7% in the prior year period. The higher
consolidated gross profit margin was due primarily to the mix of inventories
sold during the third quarter of fiscal 1997. Consolidated operating income
increased $7,446 or 32.6% over the same nine-month period in the prior year, and
the Company's operating income margin increased to 7.1% compared to the prior
year period's margin of 6.2% as a result of increased net sales and consolidated
gross profit, partially offset by higher selling, general and administrative
expenses from higher personnel and marketing support costs.
Consolidated net income increased $4,926 or 44.8% primarily as a result of the
factors discussed above.
9
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except ratios)
AT FEBRUARY 28, 1997
(as compared with May 31, 1996)
In the nine-month period ended February 28, 1997, the Company generated
$3,982 of cash from operations compared to $13,745 in the nine-month period
ended February 29, 1996. The reduction in cash generated from operations was
due to working capital investments made as a result of growth in the
Company's trading and overhaul businesses. The Company's cash and cash
equivalent position increased $20,377 at the end of the nine-month period
reflecting the sale of two million shares of common stock during the third
quarter for $50,450 which is net of expenses, partially offset by capital
expenditures of $26,243, and dividends of $5,792. The increase over the
prior year in capital expenditures during the nine-month period reflects the
Company's acquisition and refurbishment of an operating facility for
approximately $18,500. 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 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. In the nine-month period ended February 28, 1997, the
Company acquired 256 shares of its stock for $6,229, of which 198 shares were
acquired in connection with the exercise of stock options.
At February 28, 1997, the Company's long-term debt to capitalization ratio is
30.7% 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
common stock offering. The Company continues to maintain its available external
sources of financing from $136,316 of unused available bank lines and a shelf
registration on file with the Securities and Exchange Commission under which up
to $85,000 of additional medium or long-term debt securities may be sold subject
to market conditions.
The Company believes that its cash and cash equivalents and available sources of
capital will continue to provide the Company the ability to meet its ongoing
working capital requirements, make anticipated capital expenditures, meet
contractual commitments and pay dividends.
Subsequent to the end of the third quarter, the Company completed the sale of
its hardware distribution unit, realizing in cash the Company's total investment
in this business. The decision to divest this business was a result of a review
of the unit's performance measured against the Company's long-term financial
objectives.
A summary of key financial conditions, ratios, and lines of credit follows:
Description February 28, May 31,
----------- 1997 1996
------------ -------
Working capital $308,045 $258,627
Current ratio 4.0:1 4.3:1
Bank credit lines:
Borrowings outstanding $ - $ -
Available but unused lines 136,316 132,977
-------- --------
Total credit lines $136,316 $132,977
-------- --------
-------- --------
Long-term debt less current
maturities $117,126 $118,292
Ratio of long-term debt to
capitalization 30.7% 36.6%
10
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
February 28, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM
27. Financial 27.1 Financial Data Schedule for the Registrant's
Data Schedule nine-month interim period ended
February 28, 1997.
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED FEBRUARY 28, 1997:
The Company filed no reports on Form 8-K during the three months ended
February 28, 1997.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
--------------------------------
(Registrant)
Date: April 10, 1997 /s/ Timothy J. Romenesko
---------------- --------------------------------
Timothy J. Romenesko
Vice President, Chief Financial Officer
and Treasurer.
(Principal accounting officer and
officer duly authorized to sign on
behalf of registrant)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-Q FOR THE NINE MONTH INTERIM PERIOD ENDED
FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 53,983
<SECURITIES> 0
<RECEIVABLES> 133,263
<ALLOWANCES> 2,196
<INVENTORY> 167,710
<CURRENT-ASSETS> 409,733
<PP&E> 138,999
<DEPRECIATION> 69,134
<TOTAL-ASSETS> 523,852
<CURRENT-LIABILITIES> 101,688
<BONDS> 117,126
0
0
<COMMON> 18,819
<OTHER-SE> 245,228
<TOTAL-LIABILITY-AND-EQUITY> 523,852
<SALES> 425,847
<TOTAL-REVENUES> 425,847
<CGS> 348,295
<TOTAL-COSTS> 395,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 231<F1>
<INTEREST-EXPENSE> 7,510<F2>
<INCOME-PRETAX> 22,807
<INCOME-TAX> 6,875
<INCOME-CONTINUING> 15,932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,932
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<FN>
<F1>Provision for doubtful accounts is included in Total Costs and Expenses.
<F2>Interest expense is presented net of $636 of interest income.
</FN>
</TABLE>
