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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1997 COMMISSION FILE NUMBER 1-6263
AAR CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2334820
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------- -----------------------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
At July 31, 1997, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was approximately $615,745,166. The calculation of
such market value has been made for the purposes of this report only and should
not be considered as an admission or conclusion by the Registrant that any
person is in fact an affiliate of the Registrant.
On July 31, 1997, there were 18,341,213 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the Registrant's Annual Meeting
of Stockholders, to be held October 8, 1997, is incorporated by reference in
Part III to the extent described therein.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Business.............................................................................. 2
Item 2. Properties............................................................................ 4
Item 3. Legal Proceedings..................................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders................................... 5
Executive Officers of the Registrant.................................................. 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............. 6
Item 6. Selected Financial Data............................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 8
Item 8. Financial Statements and Supplementary Data........................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 35
Item 11. Executive Compensation................................................................ 35
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 35
Item 13. Certain Relationships and Related Transactions........................................ 35
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..................... 36
SIGNATURES................................................................................................ 37
</TABLE>
1
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PART I
ITEM 1. BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGE AND EMPLOYEE DATA)
AAR CORP. and its subsidiaries are referred to herein collectively as the
"Company," unless the context indicates otherwise. The Company was organized in
1955 as the successor to a business founded in 1951 and was reincorporated in
Delaware in 1966. The Company is a worldwide leader in supplying aftermarket
products and services to the global aerospace/aviation industry.
Certain of the Company's aviation-related activities and products are
subject to licensing, certification and other requirements imposed by the
Federal Aviation Administration and other regulatory agencies, both domestic and
foreign. The Company believes that it has all licenses and certifications that
are material to the conduct of its business.
The Company's Trading activities include the purchase, sale and lease of a
wide variety of new, overhauled and repaired products for the aviation
aftermarket. These include a broad range of engine and aircraft parts, spare
engines, instruments, avionics, hydraulics and pneumatic systems, landing gear,
flight control systems, and other components and accessories. These products are
comprised of new and used parts and components purchased from manufacturers and
others, as well as components and parts that the Company has overhauled or
repaired. The Company also provides customized inventory supply and management
programs for certain aircraft and engine parts in support of customer
maintenance activities. The Company's primary sources of aviation products for
its Trading activities are domestic and foreign airlines, independent aviation
service companies, aircraft leasing companies, and airframe, engine and other
original equipment manufacturers. The Company's Trading activities also include
the purchase, sale, lease and lease financing of new and used jet aircraft.
During the fourth quarter of fiscal 1997, the Company sold its hardware
distribution unit. During the first quarter of fiscal 1998, the Company
purchased substantially all of the assets of Cooper Aviation Industries, Inc., a
distributor of factory-new aviation parts and accessories to the commercial,
regional/commuter and general aviation markets.
The Company's Overhaul activities include a wide range of repair and
maintenance services, parts, component exchange and other products for its
aerospace/aviation commercial and military customers. The Company's overhaul
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 engine 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 and provides overhaul and parts supply services to industrial gas and
steam turbine operators. The Company's overhaul operations support the Company's
own Trading activities by repairing and overhauling parts for sale by the
trading business, including parts needed for its inventory management program
customers.
The Company's Manufacturing activities include the manufacture and repair of
a wide array of containers, pallets and shelters in support of military and
humanitarian rapid deployment activities. The Company's Manufacturing activities
also include the design, manufacture and installation of in-plane cargo loading
and handling systems for commercial and military aircraft and helicopters, and a
line of specialized protective transport cases that are used to transport
sensitive and calibrated tools and instruments, as well as vacuum storage
containers that protect machinery and equipment during long-term storage. AAR
also designs and manufactures a complete line of self-propelled floor sweepers
and scrubbers for a variety of industrial and commercial uses, which it sells
under the PowerBoss-Registered Trademark- name.
2
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The Company furnishes aviation products and services primarily through its
own employees. Domestic and foreign airlines, regional/commuter airlines,
aviation original equipment manufacturers, aircraft leasing companies, domestic
and foreign military organizations and independent aviation support companies
are the principal customers for the Company's aviation trading activities.
Principal customers of the Company's aviation overhaul activities are commercial
airlines, aircraft leasing companies, business aircraft operators, military
overhaul depots, military contractors and original equipment manufacturers.
Sales of aviation products and services to commercial airlines are generally
affected by such factors as the number, type and average age of aircraft in
service, the levels of aircraft utilization (E.G., frequency of schedules), the
number of airline operators and the level of sales of new and used aircraft.
The Company is a leading independent supplier of aviation services to the
highly competitive worldwide aviation aftermarket. In its Trading and Overhaul
activities, 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 the 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 repair and overhaul 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 pallet, container and
shelter manufacturing activities compete with several modest-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 attention to quality and its
unique combination of trading expertise, technical capabilities and financial
strength.
At May 31, 1997 backlog believed to be firm was approximately $84,795
compared to $86,061 at May 31, 1996. An additional $45,743 of unfunded
government options on awarded contracts also existed at May 31, 1997. It is
expected that approximately $82,066 of the backlog will be shipped in fiscal
1998.
Sales to the U.S. Government, its agencies and its contractors were
approximately $82,125 (13.9% of total net sales), $92,362 (18.3% of total net
sales) and $82,708 (18.3% of total net sales) in fiscal years 1997, 1996 and
1995, respectively. Because such sales are subject to competitive bidding and
government funding, no assurance can be given that such sales will continue at
levels previously experienced. The majority of the Company's government
contracts are for aviation products and services used for ongoing routine
military logistic support activities; unlike weapons systems and other
high-technology military requirements, these products and services are less
likely to be affected by reductions in defense spending. The Company's contracts
with the U.S. Government and its agencies are typically firm agreements to
provide aviation products and services at a fixed price and have a term of one
year or less, frequently subject to extension for one or more additional periods
of one year at the option of the government agency. Although the Company's
government contracts are subject to termination at the election of the
government, in the event of such a termination the Company would be entitled to
recover from the government all allowable costs incurred by the Company through
the date of termination.
At May 31, 1997, the Company employed approximately 2,100 persons worldwide.
For information concerning the Company's Business Segment activities,
including classes of similar products and services, see Item 7, "Management's
Discussion and Analysis of Financial
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Condition and Results of Operations." For information concerning export sales,
see "Business Segment Information" in Note 9 of Notes to Consolidated Financial
Statements.
ITEM 2. PROPERTIES
Aviation trading activities are conducted from one building in Wood Dale,
Illinois. In addition to warehouse space, which is mechanized for efficient
access to the diverse inventory, the facility includes executive and sales
offices. Warehouse facilities are leased in Windsor Locks, Connecticut; Hamburg
and Hannover, Germany; Nantgarw, Wales, and Brussels, Belgium for the purpose of
aviation parts distribution.
Aviation overhaul facilities are located in The Netherlands near Schiphol
International Airport (in a building owned by the Company); Garden City, New
York (in a building owned by the Company); Frankfort, New York (subject to an
industrial revenue bond lease to the Company until 2001, at which time the
Company expects to purchase the facility for a nominal consideration); Windsor,
Connecticut (in a building owned by the Company); Miami, Florida (in leased
facilities near the airport); Singapore (in leased facilities near the airport);
London, England (in leased facilities) and Oklahoma City, Oklahoma (in
facilities leased from airport authorities). The Company's experience indicates
that lease renewal is available on reasonable terms consistent with its business
needs.
The Company's principal Manufacturing activities are conducted at owned
facilities in Port Jervis, New York; Cadillac and Livonia, Michigan; and a plant
located in Aberdeen, North Carolina (subject to an expired industrial revenue
bond lease to the Company which provided for the Company to purchase the
facility for a nominal consideration).
ITEM 3. LEGAL PROCEEDINGS
A subsidiary of the Company has negotiated a settlement resolving an
enforcement action brought on behalf of the United States Environmental
Protection Agency ("EPA") in the U.S. District Court for the Western District of
Michigan in January, 1996, alleging violations of the Clean Air Act relating to
exceeding volatile organic compound emission rates under a permit issued to the
subsidiary by the Michigan Department of Natural Resources. The EPA had
previously issued a Notice of Proposed Civil Penalty for the alleged violations
in the amount of $600,000. The subsidiary made a payment of $210,000 to the EPA
and the EPA dismissed the alleged violations without admission of wrongdoing by
the subsidiary.
Except as otherwise set forth in this Item 3, the Company is not a party to
any pending material, governmental or environmental legal proceedings other than
routine litigation incidental to its business.
4
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
SUPPLEMENTAL INFORMATION:
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the Company is set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
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<S> <C> <C>
Ira A. Eichner............................... 66 Chairman of the Board; Director
David P. Storch.............................. 44 President and Chief Executive Officer; Director
Howard A. Pulsifer........................... 54 Vice President; General Counsel; Secretary
Timothy J. Romenesko......................... 40 Vice President; Chief Financial Officer and Treasurer
Philip C. Slapke............................. 44 Vice President-Engine Group
</TABLE>
Mr. Eichner, the founder of the Company, has been Chairman of the Board of
the Company since 1973, and a director since it was founded in 1955. His
directorship expires at the 1999 Annual Meeting. Mr. Eichner was the Company's
Chief Executive Officer from 1955 until 1996, when he relinquished that
position. Mr. Eichner is Mr. Storch's father-in-law.
Mr. Storch has been President of the Company since July, 1989 and Chief
Executive Officer since October, 1996. Previously, he was Chief Operating
Officer from 1989 to 1996 and a Vice President of the Company from 1988 to 1989.
Mr. Storch joined the Company in 1979 and was President of a major subsidiary
from 1984 to 1988. Mr. Storch has been a director of the Company since 1989, and
his directorship expires at the 1997 Annual Meeting. Mr. Storch is Mr. Eichner's
son-in-law.
Mr. Pulsifer joined the Company as General Counsel in August, 1987 and has
been a Vice President since October, 1989 and Secretary since May, 1990. He was
previously with United Airlines, Inc. for 14 years, most recently as Senior
Counsel.
Mr. Romenesko has been a Vice President since January, 1994 and Chief
Financial Officer and Treasurer since December, 1994. Previously he served as
Controller of the Company from 1991 to 1995 and in various other positions since
joining the Company in 1981.
Mr. Slapke has been a Vice President of the Company since July, 1994. He is
also President of a major subsidiary, a position he has held since July, 1989.
He has been with the Company in various positions since 1982.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (IN THOUSANDS, EXCEPT PER SHARE INFORMATION, PERCENTAGE DATA
AND NUMBER OF STOCKHOLDERS)
The Company's Common Stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange. On June 30, 1997, there were approximately 9,500 holders
of the Common Stock of the Company, including participants in security position
listings.
Certain of the Company's debt agreements contain provisions restricting the
payment of dividends or repurchase of its shares. See Note 2 of Notes to
Consolidated Financial Statements included herein. Under the most restrictive of
these provisions, the Company may not pay dividends (other than stock dividends)
or acquire its capital stock if after giving effect thereto the aggregate
amounts paid on or after June 1, 1995 exceed the sum of (i) $25,000 plus (ii)
50% of Consolidated Net Income of the Company after June 1, 1995. At May 31,
1997, unrestricted consolidated retained earnings available for payment of
dividends and purchase of the Company's shares totalled approximately $15,196.
At June 1, 1997 unrestricted consolidated retained earnings increased to $26,708
due to inclusion of 50% of Consolidated Net Income of the Company for fiscal
1997.
The table below sets forth for each quarter of the fiscal year indicated the
reported high and low market prices of the Company's Common Stock on the New
York Stock Exchange and the quarterly dividends declared.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
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PER COMMON SHARE: MARKET PRICES MARKET PRICES
- ------------------------ ----------------- QUARTERLY ----------------- QUARTERLY
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------------------------ ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
First................. 21 3/4 18 3/8 $ .12 17 7/8 14 7/8 $ .12
Second................ 30 3/8 21 .12 19 16 3/4 .12
Third................. 30 1/4 24 5/8 .12 22 18 1/2 .12
Fourth................ 31 7/8 25 1/2 .12 23 5/8 19 1/2 .12
--- ---
$ .48 $ .48
--- ---
--- ---
</TABLE>
6
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ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
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Net sales...................................... $589,328 $504,990 $451,395 $407,754 $382,780
Gross profit................................... 108,541 90,765 77,871 71,910 68,436
Operating income............................... 42,890 32,442 24,438 21,824 5,343(4)
Interest expense............................... 10,786 10,616 10,900 9,564 8,107
Income (loss) before provision (benefit) for
income taxes................................. 32,975 22,782 14,713 13,684 (1,917)(4)
Net income..................................... 23,025 16,012 10,463 9,494 283(4)
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Share data:
Net income per share......................... $ 1.38 $ 1.00 $ .66 $ .60 $ .02(4)
Cash dividends per share..................... $ .48 $ .48 $ .48 $ .48 $ .48
Average common shares
outstanding................................ 16,684(1) 15,978 15,932 15,904 15,855
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FINANCIAL POSITION AT YEAR END:
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Working capital................................ $314,119(1) $258,627 $248,492 $240,009(3) $193,399
Total assets................................... 529,584(1) 437,846 425,814 411,016(2) 365,151
Short-term debt................................ 1,474 1,474 1,632 568(3) 25,025
Long-term debt................................. 116,818 118,292 119,766 115,729(3) 66,298
Total debt..................................... 118,292 119,766 121,398 116,297(3) 91,323
Stockholders' equity........................... 269,259(1) 204,635 197,119 189,488 189,216
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Number of shares outstanding at end of year.... 18,204(1) 15,998 15,961 15,906 15,900
--------- --------- --------- --------- ---------
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Book value per share of common stock........... $ 14.79 $ 12.79 $ 12.35 $ 11.91 $ 11.90
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</TABLE>
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Notes:
(1) In February 1997, the Company sold two million shares of its common stock
for $50,075, which is net of expenses.
(2) Reflects reclassification of $6,610 of noncurrent deferred tax assets
against noncurrent deferred tax liabilities to conform to the fiscal 1995
presentation.
(3) 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.
(4) 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.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
RESULTS OF OPERATIONS
The Company reports its activities in one business segment: Aviation
Services. The table below sets forth net sales for the Company's classes of
similar products and services within this segment for each of the last three
fiscal years ended May 31.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
Trading........................................................ $ 344,816 $ 259,702 $ 236,723
Overhaul....................................................... 147,853 133,587 108,737
Manufacturing.................................................. 96,659 111,701 105,935
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$ 589,328 $ 504,990 $ 451,395
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</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 Trading and Overhaul 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 in 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 force 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 trading and overhaul 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
8
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sales in the Company's Trading and Overhaul 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.
Trading sales increased $85,114 or 32.8% over the prior year due to growth
in its engine and airframe parts 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. Overhaul sales increased $14,266 or 10.7% reflecting
increased demand for certain aircraft and aircraft component repair and
maintenance services. Sales in Manufacturing declined $15,042 or 13.5% 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 trading and overhaul products 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 to 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.
Trading sales increased $22,979 or 9.7% over the prior year as a result of
increased sales of aircraft, airframe and large component parts, which included
sales from inventory management programs and inventory provisioning for air
carriers. Overhaul sales increased $24,850 or 22.9% primarily as a result of
airframe and large airframe component overhaul services, supplemented by other
airframe component overhaul services. Manufacturing sales increased $5,766 or
5.4% 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 or 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 trading
and overhaul 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.
9
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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, 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 by 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.
FISCAL 1995 COMPARED WITH FISCAL 1994
The Company's operating results continued to improve in fiscal 1995 building
on improvements in the prior year. Consolidated net sales for fiscal 1995
increased $43,641 or 10.7% over the prior fiscal year primarily due to increased
sales of major products within each of the classes of similar products and
services. Operating income increased $2,614 or 11.9% over the prior year due to
increased consolidated net sales partially offset by a slightly lower
consolidated gross profit margin and increased total selling, general and
administrative costs. Net income increased $969 or 10.2% primarily due to
increased consolidated net sales partially offset by the factors described above
and increased interest expense on additional borrowings and higher interest
rates, primarily resulting from the sale of $50,000 of 10-year, 7.25% notes in
October, 1993.
Trading sales increased $28,162 or 13.5% primarily as a result of increased
sales of airframe and large component parts as well as sales resulting from
inventory management programs and inventory provisioning of start-up airlines.
Overhaul sales increased $5,765 or 5.6% primarily as a result of increased
airframe and airframe component overhaul services partially offset by reduced
sales of large component overhaul services. Manufacturing sales increased $9,714
or 10.1% primarily due to the sale of manufactured commercial cargo systems,
products and product repairs supporting the U.S. Government's rapid deployment
program and floor maintenance products.
Consolidated gross profit increased $5,961 or 8.3% over the prior fiscal
year due to increased consolidated net sales, although the consolidated gross
profit margin of 17.3% was lower than the prior year's 17.6% gross profit
margin. However, the prior fiscal year included $700 from a reduction in the
interest rate on a nonrecourse leveraged lease obligation and $1,300 from
leveraged lease repricing required to adjust for tax rate differentials. The
margin on manufactured products and principal trading products increased year
over year. Overhaul margins declined over the prior year primarily as a result
of changes in the mix of labor and parts provided in overhaul services and
highly competitive pricing on overhaul business.
Consolidated operating income increased $2,614 or 11.9% over the prior year
due to increased consolidated net sales partially offset by the consolidated
margin decline described above and increased selling, general and administrative
costs which declined as a percentage of net sales.
Consolidated net income increased $969 or 10.2% over the prior year due to
the increased consolidated net sales partially offset by the factors described
above and increased interest expense.
10
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LIQUIDITY AND CAPITAL RESOURCES
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 Trading and Overhaul
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 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.
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>
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF AAR CORP.:
We have audited the accompanying consolidated balance sheets of AAR CORP.
and subsidiaries as of May 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended May 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AAR CORP.
and subsidiaries as of May 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended May 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
June 24, 1997
12
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1997 1996 1995
-------- -------- --------
(000S OMITTED EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net sales............................................................ $589,328 $504,990 $451,395
-------- -------- --------
Costs and operating expenses:
Cost of sales...................................................... 480,787 414,225 373,524
Selling, general and administrative................................ 65,651 58,323 53,433
-------- -------- --------
546,438 472,548 426,957
-------- -------- --------
Operating income..................................................... 42,890 32,442 24,438
Interest expense..................................................... (10,786) (10,616) (10,900)
Interest income...................................................... 871 956 1,175
-------- -------- --------
Income before provision for income taxes............................. 32,975 22,782 14,713
Provision for income taxes........................................... 9,950 6,770 4,250
-------- -------- --------
Net income........................................................... $ 23,025 $ 16,012 $ 10,463
-------- -------- --------
-------- -------- --------
Net income per share of common stock................................. $ 1.38 $ 1.00 $ .66
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
13
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
------------------
1997 1996
-------- --------
(000S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 51,705 $ 33,606
Accounts receivable................................................................ 122,944 107,138
Inventories........................................................................ 176,921 138,200
Equipment on or available for short-term lease..................................... 40,318 36,884
Deferred tax assets, deposits and other............................................ 22,212 22,184
-------- --------
Total current assets................................................................. 414,100 338,012
-------- --------
Property, plant and equipment, at cost:
Land............................................................................... 5,204 3,095
Buildings and improvements......................................................... 53,603 36,748
Equipment, furniture and fixtures.................................................. 72,622 89,647
-------- --------
131,429 129,490
Accumulated depreciation............................................................. (60,321) (74,659)
-------- --------
71,108 54,831
-------- --------
Other assets:
Investment in leveraged leases..................................................... 27,606 30,905
Cost in excess of underlying net assets of acquired companies...................... 5,653 5,842
Retirement benefits, notes receivable and other.................................... 11,117 8,256
-------- --------
44,376 45,003
-------- --------
$529,584 $437,846
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31,
------------------
1997 1996
-------- --------
(000S OMITTED)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............................................... $ 1,474 $ 1,474
Accounts payable................................................................... 77,567 59,005
Accrued liabilities................................................................ 17,647 14,356
Accrued taxes on income............................................................ 3,293 4,550
-------- --------
Total current liabilities............................................................ 99,981 79,385
-------- --------
Long-term debt, less current maturities.............................................. 116,818 118,292
Deferred tax liabilities............................................................. 32,560 30,680
Other liabilities.................................................................... 6,294 --
Retirement benefit obligation and deferred credits................................... 4,672 4,854
-------- --------
160,344 153,826
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250 shares; none issued............... -- --
Common stock, $1.00 par value, authorized 80,000 shares; issued 18,932 and 16,404,
respectively..................................................................... 18,932 16,404
Capital surplus.................................................................... 141,016 83,975
Retained earnings.................................................................. 125,694 110,645
Treasury stock, 728 and 406 shares at cost, respectively........................... (13,365) (5,285)
Cumulative translation adjustments................................................. (3,018) (1,104)
-------- --------
269,259 204,635
-------- --------
$529,584 $437,846
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK TREASURY STOCK CUMULATIVE PENSION
----------------- --------------- CAPITAL RETAINED TRANSLATION LIABILITY
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS ADJUSTMENTS ADJUSTMENTS
------- -------- ---- --------- -------- ---------- ----------- -----------
(000S OMITTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994........................ 16,215 $16,215 309 $ (3,556) $81,296 $ 99,496 $ (2,963) $ (1,000)
Net income................................. -- -- -- -- -- 10,463 -- --
Cash dividends ($.48 per share) -- -- -- -- -- (7,650) -- --
Treasury stock purchased................... -- -- 14 (177) -- -- --
Exercise of stock options and stock
awards................................... 69 69 -- -- 836 -- -- --
Adjustment for net translation gain........ -- -- -- -- -- -- 4,460 --
Minimum pension liability.................. -- -- -- -- -- -- -- (370)
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1995........................ 16,284 $16,284 323 $ (3,733) $82,132 $ 102,309 $ 1,497 $ (1,370)
Net income................................. -- -- -- -- -- 16,012 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,676) -- --
Treasury stock purchased................... -- -- 83 (1,552) -- -- -- --
Exercise of stock options and stock
awards................................... 120 120 -- -- 1,843 -- -- --
Adjustment for net translation loss........ -- -- -- -- -- -- (2,601) --
Minimum pension liability.................. -- -- -- -- -- -- -- 1,370
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1996........................ 16,404 $16,404 406 $ (5,285) $83,975 $ 110,645 $ (1,104) $ --
Net income................................. -- -- -- -- -- 23,025 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,976) -- --
Issuance of common stock................... 2,000 2,000 -- -- 48,075 -- -- --
Treasury stock purchased................... -- -- 322 (8,080) -- -- -- --
Exercise of stock options and stock
awards................................... 528 528 -- -- 8,966 -- -- --
Adjustment for net translation loss........ -- -- -- -- -- -- (1,914) --
------- -------- ---- --------- -------- ---------- ----------- -----------
Balance, May 31, 1997........................ 18,932 $18,932 728 $(13,365) $141,016 $ 125,694 $ (3,018) $ --
------- -------- ---- --------- -------- ---------- ----------- -----------
------- -------- ---- --------- -------- ---------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE>
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------
1997 1996 1995
-------- -------- --------
(000S OMITTED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 23,025 $ 16,012 $ 10,463
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation and amortization.......................................... 12,287 10,115 10,328
Change in certain assets and liabilities:
Accounts receivable.................................................. (16,333) 2,584 (23,375)
Inventories.......................................................... (35,930) (124) 2,717
Equipment on or available for short-term lease....................... (3,808) (6,247) 4,410
Deferred tax assets, deposits and other.............................. 1,734 (4,818) 9,790
Accounts payable and other liabilities............................... 25,637 7,901 1,208
Accrued liabilities and taxes on income.............................. 5,935 1,859 2,375
Deferred tax liabilities and other deferred credits.................. (3,016) (2,522) (2,661)
-------- -------- --------
Net cash provided from operating activities.............................. 9,531 24,760 15,255
-------- -------- --------
Cash flows from investing activities:
Property, plant and equipment expenditures, net............................ (30,292) (7,547) (9,073)
Investment in leveraged leases............................................. 3,299 1,047 666
Notes receivable and other................................................. (4,975) 1,872 (939)
-------- -------- --------
Net cash used in investing activities.................................... (31,968) (4,628) (9,346)
-------- -------- --------
Cash flows from financing activities:
Gross proceeds from issuance of long-term notes payable.................... -- -- 6,186
Change in borrowings....................................................... (1,474) (1,632) (1,085)
Cash dividends............................................................. (7,976) (7,676) (7,650)
Purchases of treasury stock................................................ (8,080) (1,552) (177)
Proceeds from exercise of stock options and other.......................... 8,106 1,963 905
Proceeds from common stock offering........................................ 50,075 -- --
-------- -------- --------
Net cash provided from (used in) financing activities.................... 40,651 (8,897) (1,821)
-------- -------- --------
Effect of exchange rate changes on cash...................................... (115) (116) 325
-------- -------- --------
Increase in cash and cash equivalents........................................ 18,099 11,119 4,413
Cash and cash equivalents, beginning of year................................. 33,606 22,487 18,074
-------- -------- --------
Cash and cash equivalents, end of year....................................... $ 51,705 $ 33,606 $ 22,487
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
AAR CORP. supplies a variety of products and services to the
aerospace/aviation industry in the United States and abroad. Products and
services are sold primarily to commercial, domestic and foreign airlines,
business aircraft operators, aviation original equipment manufacturers, aircraft
leasing companies, domestic and foreign military agencies and independent
aviation support companies.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of intercompany accounts and
transactions.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products and performance of services. Sales and related cost of sales on
long-term contracts are recognized as units are delivered, determined by the
percentage of completion method based on the relationship of costs incurred to
date to estimated total costs under the respective contracts. Lease revenue is
recognized as earned.
ACCOUNTING CHANGES
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of " and SFAS No. 123 "Accounting for
Stock-Based Compensation." The adoption of SFAS No. 121, which requires
companies to review for impairment of long-lived assets and certain identifiable
intangibles held or to be disposed of, did not affect the Company's results of
operations or financial condition. SFAS No. 123 allows companies the option of
adopting a fair value-based method of accounting for stock-based compensation
plans, or to continue to apply the provisions of Accounting Principles Board
Opinion ("APB") No. 25 "Accounting for Stock Issued to Employees," with expanded
disclosures. The Company has elected to continue to apply the provisons of APB
No. 25, with expanded disclosures in the notes to consolidated financial
statements.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per
Share" in February, 1997. SFAS No. 128 was issued to simplify the computation of
earnings per share (EPS) calculations and to make U.S. standards more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee. The standard replaces the presentation of
primary EPS with a presentation of basic EPS, and fully diluted EPS with diluted
EPS. The Company is required to adopt the provisions of SFAS No. 128 in its
third quarter of fiscal 1998 and will require the Company to disclose both basic
and diluted EPS information.
18
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents. At May 31, 1997 and 1996, cash
equivalents of approximately $41,619 and $25,504, respectively, held by the
Company, represent investments in funds holding high-quality commercial paper,
Eurodollars and U.S. Government agency-issued securities. The carrying amount of
cash equivalents approximates fair value at May 31, 1997 and 1996, respectively.
FOREIGN CURRENCY
Gains and losses on foreign currency translation and foreign exchange
contracts are determined in accordance with the method of accounting prescribed
by SFAS No. 52. All balance sheet accounts of foreign and certain domestic
subsidiaries transacting business in currencies other than the Company's
functional currency are translated at year-end or historical exchange rates.
Revenues and expenses are translated at average exchange rates during the year.
Translation adjustments are excluded from the results of operations and are
recorded in Stockholders' equity as Cumulative translation adjustments.
Foreign and certain domestic subsidiaries incur transaction gains and losses
upon settlement of obligations in currencies other than their functional
currency. The aggregate net transaction gains included in the results of
operations were $56, $239 and $45 for fiscal 1997, 1996 and 1995, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF MARKET OR CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of market or credit risk consist principally of trade receivables. While the
Company's trade receivables are diverse based on the number of entities and
geographic locations, the majority are concentrated in the aerospace/ aviation
industry. The Company performs evaluations of customers' financial condition
prior to extending credit privileges and performs ongoing credit evaluations of
payment experience, current financial condition and risk analysis. The Company
typically requires collateral in the form of security interest in assets,
letters of credit, obligation guarantees from financial institutions, or sells
its receivables, usually on a nonrecourse basis, for transactions other than
normal trade terms.
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires disclosure of the fair value of certain financial instruments. Cash and
cash equivalents, accounts receivable, short-term borrowings, accounts payable
and accrued liabilities are reflected in the financial statements at fair value
because of the short-term maturity of these instruments. Noncurrent notes
receivable and long-term debt bearing a variable interest rate are reflected in
the financial statements at fair value. Those bearing a fixed interest rate have
fair values based on estimates using discounted future cash flows at an assumed
discount rate for borrowings currently prevailing in the marketplace for similar
instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties
19
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
INVENTORIES
Inventories are priced at the lower of cost or market. Cost is determined by
either the specific identification, average cost or first-in, first-out method.
The following is a summary of inventories:
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Raw materials and parts..................................................... $ 36,067 $ 33,978
Work-in-process............................................................. 15,477 12,179
Purchased aircraft, parts, engines and components held for sale............. 124,212 90,438
Finished goods.............................................................. 1,165 1,605
------------ ------------
$ 176,921 $ 138,200
------------ ------------
------------ ------------
</TABLE>
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%.
EQUIPMENT UNDER OPERATING LEASES
Lease revenue is recognized as earned. The cost of the asset under lease is
original purchase price plus overhaul costs. Depreciation of the cost is
computed on a straight-line method over the estimated service life of the
equipment and maintenance costs are expensed as incurred. The balance sheet
classification is based on the lease term with fixed-term leases less than
twelve months classified as short term and all others classified as long term.
Equipment on short-term lease consists of aircraft engines and parts on or
available for lease to satisfy customers' immediate short-term requirements. The
leases are renewable with fixed terms, which generally vary from one to six
months.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight-line method over useful lives of
10-40 years for buildings and improvements and 3-10 years for equipment,
furniture and fixtures. Leasehold improvements are amortized over the estimated
useful life or the term of the applicable lease.
Repairs and maintenance expenditures are expensed as incurred. Upon sale or
disposal, cost and accumulated depreciation are removed from the accounts and
related gains and losses included in results of operations.
20
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
LEVERAGED LEASES
The Company acts as an equity participant in leveraged lease transactions.
The equipment cost in excess of equity contribution is furnished by third-party
financing in the form of secured debt. Under the lease agreements, the third
parties have no recourse against the Company for nonpayment of the obligations.
The third-party debt is collateralized by the lessees' rental obligations and
the leased equipment.
The Company has ownership rights to the leased assets and is entitled to the
investment tax credits and benefits of tax deductions for depreciation on the
leased assets and for interest on the secured debt financing.
COST IN EXCESS OF UNDERLYING NET ASSETS OF ACQUIRED COMPANIES
The cost in excess of underlying net assets of acquired companies is being
amortized over a period of forty years. Amortization was $223 in fiscal 1997 and
$230 in fiscal 1996 and 1995, respectively. Accumulated amortization is $3,608,
$3,385 and $3,155 at May 31, 1997, 1996 and 1995, respectively.
INCOME TAXES
Income taxes are determined in accordance with the method of accounting
prescribed by SFAS No. 109.
Federal income taxes were provided on the earnings of foreign subsidiaries
as the Company fully distributed these earnings. The earnings are treated as
taxable in the United States; however, the related tax expense was offset by
foreign tax credits. Foreign income taxes are provided at the local statutory
rates and reflect estimated taxes payable.
The benefits of investment tax credits are recognized for book purposes
under the deferral method of accounting for leveraged leases. The investment tax
credits are recognized in the year earned for income tax purposes.
STATEMENTS OF CASH FLOWS
Supplemental information on cash flows follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid.............................................. $ 10,500 $ 10,500 $ 10,700
Income taxes paid.......................................... 8,600 5,300 3,900
Income tax refunds and interest received................... 500 900 330
</TABLE>
USE OF ESTIMATES
Management of the Company has made estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial
21
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
2. FINANCING ARRANGEMENTS
Bank loans consisted of:
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current maturities of long-term debt.................................. $ 1,474 $ 1,474 $ 1,632
--------- --------- ---------
--------- --------- ---------
</TABLE>
Short-term borrowing activity was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------------
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Maximum amount borrowed............................................. $ 25,300 $ 4,900 $ 21,200
Average daily borrowings............................................ 3,624 437 7,553
Average interest rate during the year............................... 5.8% 5.5% 6.2%
---------- --------- ----------
---------- --------- ----------
</TABLE>
At May 31, 1997, aggregate unsecured bank credit arrangements were $136,283.
Of this amount, $70,000 was available under credit lines with domestic banks,
$60,000 was available under revolving credit and term loan agreements with
domestic banks and $6,283 was available under credit agreements with foreign
banks. All domestic and foreign credit lines were unused at May 31, 1997. There
are no compensating balance requirements in connection with domestic or foreign
lines of credit. Borrowings under domestic bank lines bear interest at or below
the corporate base rate.
The Company may borrow a maximum of $60,000 (available through August 31,
1999) under revolving credit and term loan agreements with domestic banks.
Revolving credit borrowings may, at the Company's option, be converted to term
loans payable in equal quarterly installments over five years. Interest is based
on corporate base rate or quoted Eurodollar or multicurrency rates during the
revolving credit period, and 1/2% over corporate base rate or quoted Eurodollar
rate thereafter. There were no borrowings under these agreements outstanding at
May 31, 1997. There are no compensating balance requirements on any of the
committed lines but the Company is required to pay a commitment fee. There are
no restrictions on the withdrawal or use of these funds.
22
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
2. FINANCING ARRANGEMENTS -- (CONTINUED)
Long-term debt was as follows:
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Notes payable due November 1, 2001 with interest of 9.5% payable
semi-annually on May 1 and November 1..................................... $ 65,000 $ 65,000
Notes payable due October 15, 2003 with interest of 7.25% payable
semi-annually on April 15 and October 15.................................. 50,000 50,000
Installment note due June, 1999 bearing interest at 5% per annum, compounded
monthly, payable in equal monthly payments of principal and interest...... 3,033 4,383
Industrial revenue bonds due in installments to 2002 with weighted average
interest of approximately 7.34% at May 31, 1997 (secured by trust
indentures on property, plant and equipment).............................. 259 383
------------ ------------
118,292 119,766
Current maturities.......................................................... (1,474) (1,474)
------------ ------------
$ 116,818 $ 118,292
------------ ------------
------------ ------------
</TABLE>
The Company is subject to a number of covenants under the revolving credit
and term loan agreements, including restrictions which relate to the payment of
cash dividends, maintenance of minimum net working capital and tangible net
worth levels, sales of assets, additional financing, purchase of the Company's
shares and other matters. The Company is in compliance with all restrictive
financial provisions of the agreements. At May 31, 1997, unrestricted
consolidated retained earnings available for payment of dividends and purchase
of the Company's shares was approximately $15,196. Effective June 1, 1997,
unrestricted consolidated retained earnings increased to $26,708 due to
inclusion of 50% of the consolidated net income of the Company for fiscal 1997.
The aggregate amount of long-term debt maturing during each of the next five
fiscal years is $1,474 in 1998, $1,545 in 1999, $184 in 2000, $57 in 2001 and
$65,032 in 2002. The fair value of the Company's long-term debt approximates
carrying value.
23
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
3. INCOME TAXES
The provision for income taxes included the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Current
Federal............................................................ $ 8,605 $ 4,215 $ 2,255
Foreign............................................................ 535 895 625
State, net of refunds.............................................. 890 800 780
---------- --------- ---------
$ 10,030 $ 5,910 $ 3,660
---------- --------- ---------
Deferred............................................................. (80) 860 590
---------- --------- ---------
$ 9,950 $ 6,770 $ 4,250
---------- --------- ---------
---------- --------- ---------
</TABLE>
The deferred tax provisions result primarily from differences between book
and tax income arising from depreciation and leveraged leases. Refundable income
taxes included within Deferred tax assets, deposits and other, principally
represent refunds of Federal income taxes resulting from additional tax benefits
generated from export sales and foreign tax credits carried back to prior years.
Deferred tax liabilities and assets result primarily from the differences in
the timing of the recognition for transactions between book and income tax
purposes and consist of the following components:
<TABLE>
<CAPTION>
MAY 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................................. $ 9,740 $ 7,390
Leveraged leases.............................................................. 22,230 25,060
Other......................................................................... 950 950
---------- ---------
Total deferred tax liabilities................................................ $ 32,920 $ 33,400
---------- ---------
---------- ---------
Deferred tax assets--current:
Inventory costs............................................................... $ 5,630 $ 5,080
Employee benefits............................................................. 1,320 190
Doubtful account allowance.................................................... 700 620
Other......................................................................... 680 480
---------- ---------
Total deferred tax assets--current............................................ $ 8,330 $ 6,370
---------- ---------
Deferred tax assets--noncurrent:
Postretirement benefits....................................................... $ 360 $ 560
Alternative minimum tax credits............................................... -- 2,160
---------- ---------
Total deferred tax assets--noncurrent......................................... 360 2,720
---------- ---------
Total deferred tax assets..................................................... $ 8,690 $ 9,090
---------- ---------
---------- ---------
</TABLE>
24
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
3. INCOME TAXES -- (CONTINUED)
The Company has determined, more likely than not, that a valuation allowance
is not required based upon the Company's history of prior operating earnings,
its expectations for continued future earnings and the scheduled reversal of
deferred tax liabilities, primarily related to leveraged leases, which exceed
the amount of the deferred tax assets.
The provision for income taxes differs from the amount computed by applying
the U.S. Federal statutory income tax rate of 35% for fiscal 1997 and 1996, and
34% for fiscal 1995 for the following reasons:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes at the Federal statutory rate................ $ 11,540 $ 7,970 $ 5,000
Tax benefits on exempt earnings from export sales..................... (2,000) (1,600) (1,350)
State income taxes, net of Federal benefit and refunds................ 800 520 330
Amortization of goodwill.............................................. 80 90 90
Differences between foreign tax rates and the U.S. Federal statutory
rate................................................................ (200) 100 330
Other, net............................................................ (270) (310) (150)
--------- --------- ---------
Provision for income taxes as reported.................................. $ 9,950 $ 6,770 $ 4,250
--------- --------- ---------
--------- --------- ---------
Effective income tax rate............................................... 30.2% 29.7% 28.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Pretax income from foreign subsidiaries was approximately $1,500, $2,100 and
$600 at May 31, 1997, 1996 and 1995. Foreign income taxes were provided on all
earnings from foreign subsidiaries.
4. COMMON STOCK AND STOCK OPTION PLANS
The Company has established stock option plans for officers and key
employees of the Company. Stock option awards typically expire ten years from
the date of grant or earlier upon termination of employment, become excercisable
in five equal increments on successive grant anniversary dates at the New York
Stock Exchange closing stock price on the date of grant, and are accompanied by
reload features and, for certain individuals, stock rights excercisable in the
event of a change in control of the Company.
The Company accounts for these plans under APB No. 25, under which no
compensation cost has been recognized. Proforma information regarding net income
and net income per share is required by SFAS No. 123, and has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that Statement. The fair value of each option grant, including
reloads, is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for fiscal
1997: dividend yield of 2.4%; expected volatility of 24.0%; risk-free interest
rate of 6.4%; and expected life of 3.6 years. The following weighted average
assumptions were used to value options granted in fiscal 1996: dividend yield of
3.2%; expected volatility of 25.2%; risk-free interest rate of 6.0%; and
expected life of 4.0 years. The weighted average fair value of options granted
during fiscal 1997 and 1996 was $4.57 and $3.30, respectively. Had compensation
cost for stock options awarded under the plans been determined in accordance
with
25
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
4. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
SFAS No. 123, the Company's net income and net income per share would have been
changed to the following proforma amounts:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C> <C>
Net Income: As Reported $ 23,025 $ 16,012
Proforma 22,158 15,874
Net Income Per Share: As Reported 1.38 1.00
Proforma 1.33 .99
</TABLE>
A summary of changes in stock options granted to officers, key employees and
nonemployee directors under stock option plans for the three years ended May 31,
1997 follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------- -------------------
<S> <C> <C>
Outstanding, May 31, 1994 (236 exercisable)............................... 731 $ 12.54
Granted................................................................. 250 13.68
Exercised............................................................... (11) 10.15
Surrendered/expired/cancelled........................................... (38) 13.48
-----
Outstanding, May 31, 1995 (362 exercisable)............................... 932 $ 12.85
-----
Granted................................................................. 293 17.68
Exercised............................................................... (50) 10.99
Surrendered/expired/cancelled........................................... (41) 13.37
-----
Outstanding, May 31, 1996 (496 exercisable)............................... 1,134 $ 14.17
-----
Granted................................................................. 630 23.14
Exercised............................................................... (416) 13.18
Surrendered/expired/cancelled........................................... (30) 16.79
-----
Outstanding, May 31, 1997 (443 exercisable)............................... 1,318 $ 18.72
-----
-----
</TABLE>
The following table provides additional information regarding options
outstanding as of May 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
OPTION EXERCISE OPTIONS REMAINING CONTRACTUAL OPTIONS EXERCISE PRICE OF
PRICE RANGE OUTSTANDING LIFE OF OPTIONS EXERCISABLE OPTIONS EXERCISABLE
- --------------------------------- ------------- ------------------------- -------------- -------------------
<S> <C> <C> <C> <C>
$10.00 - $16.88 478 6.3 262 $ 12.93
$17.50 - $23.63 448 8.7 37 19.44
$24.13 - $30.00 383 9.4 135 26.56
$30.38 - $35.13 9 8.0 9 32.34
------------- --------------
1,318 8.0 443 18.03
------------- --------------
------------- --------------
</TABLE>
The AAR CORP. Stock Benefit Plan also provides for the grant of restricted
stock awards. Restrictions are released at the end of applicable restricted
periods. The number of shares and the
26
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
4. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
restricted period, which varies from two to ten years, are determined by the
Compensation Committee of the Board of Directors. The market value of the award
on the date of grant is recorded as a deferred expense, Common stock and Capital
surplus. The deferred expense is included in results of operations over the
restricted term. The expense relating to outstanding restricted stock awards was
$1,054, $516 and $266 in fiscal 1997, 1996 and 1995, respectively.
The AAR CORP. Employee Stock Purchase Plan is open to employees of the
Company (other than officers, directors or participants in other stock option
plans of the Company) with six months of service. The plan permits employees to
purchase common stock in periodic offerings at the lesser of the fair market
value on date of offering or 85% of the fair market value on the date of
exercise. A participating employee pays for shares by payroll deduction over a
two-year period. Upon completion of the purchase, the excess of the proceeds
over the par value (or cost in the case of treasury stock) is credited to
Capital surplus.
The number of options and awards outstanding and available for grant or
issuance for each of the Company's stock plans is as follows:
<TABLE>
<CAPTION>
MAY 31, 1997
-----------------------------------------
OUTSTANDING AVAILABLE TOTAL
--------------- ------------- ---------
<S> <C> <C> <C>
Stock Benefit Plan (officers, directors and key employees)......... 1,517 89 1,606
Employee Stock Purchase Plan....................................... 0 121 121
</TABLE>
Pursuant to a shareholder rights plan adopted in 1987 and amended in 1989,
each outstanding share of the Company's common stock carries with it a Right to
purchase one additional share at a price of $85 (subject to antidilution
adjustments). The Rights become exercisable (and separate from the shares) when
certain specified events occur, including the acquisition of 20% or more of the
common stock by a person or group (an "Acquiring Person") or the commencement of
a tender or exchange offer for 30% or more of the common stock.
In the event that an Acquiring Person acquires 20% or more of the common
stock, or if the Company is the surviving corporation in a merger involving an
Acquiring Person, or if the Acquiring Person engages in certain types of
self-dealing transactions, each Right entitles the holder to purchase for $85
(or the then current exercise price) shares of the Company's common stock having
a market value of $170 (or two times the exercise price), subject to certain
exceptions. Similarly, if the Company is acquired in a merger or other business
combination or 50% or more of its assets or earning power is sold, each Right
entitles the holder to purchase at the then current exercise price that number
of shares of common stock of the surviving corporation having a market value of
two times the exercise price. The Rights, which do not entitle the holder
thereof to vote or to receive dividends, expire on August 6, 1997 and may be
redeemed by the Company for $.01 per Right under certain circumstances.
On September 21, 1990, the Board of Directors authorized the Company to
purchase up to 1,000 shares of the Company's common stock on the open market or
through privately negotiated transactions. As of May 31, 1997 the Company had
purchased 464 shares of its common stock on the open market under this program
at an average price of $13.89 per share.
27
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
5. COMMON STOCK AND NET INCOME PER SHARE OF COMMON STOCK
During February 1997, the Company completed the sale of two million shares
of common stock, raising $50,075, which is net of expenses.
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Shares
granted as restricted stock awards under the AAR CORP. Stock Benefit Plan are
considered outstanding from the date of grant. Common Stock equivalents
consisting of employee stock options have not been included in the per share
calculations as their dilutive effect is not material.
6. EMPLOYEE BENEFIT PLANS
The Company has defined contribution or defined benefit plans covering
substantially all full-time domestic employees and certain employees in The
Netherlands.
DEFINED BENEFIT PLANS
The pension plans for domestic, salaried employees have benefit formulas
primarily based on years of service and compensation. The pension benefit for
hourly employees is generally based on a fixed amount per year of service. The
Company follows the provisions of SFAS No. 87, "Employers' Accounting for
Pensions" for all domestic and nondomestic pension plans.
The Company's funding policy for domestic plans is to contribute annually,
at a minimum, an amount which is deductible for Federal income tax purposes and
that is sufficient to meet actuarially computed pension benefits. Contributions
are intended to provide for benefits attributed to service to date and for
benefits expected to be earned in the future. The assets of the pension plans
are invested primarily in mutual funds, common stocks, investment grade bonds
and U.S. Government obligations.
Certain foreign operations of domestic subsidiaries also have pension plans.
In most cases, the plans are defined benefit in nature. Assets of the plans are
comprised of insurance contracts. Benefit formulas are similar to those used by
domestic plans. It is the policy of these subsidiaries to fund at least the
minimum amounts required by local law and regulation.
28
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The following table sets forth the plans' funded status and the amount
recognized in the Company's Consolidated Balance Sheets.
<TABLE>
<CAPTION>
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................................... $ (32,786) $ (30,572)
Nonvested benefit obligation................................................ (1,444) (1,283)
-------------- --------------
Accumulated benefit obligation................................................ (34,230) (31,855)
Effect of projected salary increases on the benefit obligation................ (4,540) (4,071)
-------------- --------------
Projected benefit obligation.................................................. (38,770) (35,926)
Plans' assets at fair value................................................... 35,825 33,277
-------------- --------------
Projected benefit obligation in excess of plans' assets....................... (2,945) (2,649)
Unrecognized net loss......................................................... 4,409 5,340
Unrecognized prior service cost............................................... 1,241 1,391
Unrecognized transition obligation............................................ 719 833
-------------- --------------
Prepaid pension costs......................................................... $ 3,424 $ 4,915
-------------- --------------
-------------- --------------
</TABLE>
The projected benefit obligation for domestic plans is determined using an
assumed weighted average discount rate of 8.25% for fiscal 1997 and 1996,
respectively, and an assumed average compensation increase of 5.0%. The expected
long-term rate of return on assets is 10.0% for fiscal 1997 and 1996.
Unrecognized net loss, prior service cost and transition obligation are
amortized on a straight-line basis over the estimated average future service
period.
The projected benefit obligation for nondomestic plans is determined using
an assumed weighted average discount rate of 6.5% for fiscal 1997 and 1996,
respectively, and an assumed average compensation increase of 2.0% for the first
five years and 4.0% thereafter. The expected long-term rate of return on assets
is 6.5% for fiscal 1997 and 1996.
Pension expense charged to results of operations includes the following
components:
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service costs for benefits earned during fiscal year........... $ 1,455 $ 1,169 $ 1,255
Interest cost on projected benefit obligation.................. 2,785 2,587 2,440
Actual investment return on plan assets........................ (2,904) (2,618) (2,225)
Net amortization and deferral.................................. 411 224 60
--------- --------- ---------
Total pension expense.......................................... $ 1,747 $ 1,362 $ 1,530
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a profit sharing plan which is intended to
qualify as a 401(k) plan under the Internal Revenue Code. Under the plan,
employees may contribute up to 15.0% of their
29
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
pretax compensation, subject to applicable regulatory limits. The Company may
make matching contributions up to 6.0% of compensation. Participants vest
immediately in Company contributions. Expense charged to results of operations
was $930, $815 and $830 in fiscal 1997, 1996 and 1995, respectively.
DIRECTOR, EXECUTIVE AND KEY EMPLOYEE RETIREMENT BENEFIT AND PROFIT SHARING
PLANS
The Company provides its outside directors with benefits upon retirement on
or after age 65 provided they have completed at least five years of service as a
director. Benefits are paid as an annuity in an amount equal to 25.0% of the
annual retainer fee payable by the Company to active outside directors. Payment
of benefits commences upon retirement and continues for a period equal to the
total number of years of the retired director's service as a director to a
maximum of ten years, or death, whichever occurs first. The Company also
provides supplemental retirement and profit sharing benefits for current and
former executives and key employees to supplement benefits provided by the
Company's other benefit plans. The plans are not fully funded and may require
funding in the event of a change in control of the Company as determined by the
Company's Board of Directors. Expense charged to results of operations for these
plans was $970, $555 and $585 in fiscal 1997, 1996 and 1995, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health and life insurance benefits for certain eligible
employees and retirees under a variety of plans. Generally these benefits are
contributory with retiree contributions adjusted annually. The postretirement
plans are unfunded and the Company has the right to modify or terminate any of
these plans in the future, in certain cases subject to union bargaining
agreements. In fiscal 1995, the Company completed termination of postretirement
healthcare and life insurance benefits attributable to future services of
collective bargaining and other domestic employees. The Company recognized an
after-tax gain of $250 from the reduction in the accumulated postretirement
benefit obligation related to this termination of benefits.
Postretirement benefit cost for the years ended May 31, 1997, 1996 and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost................................................... $ -- $ -- $ 4
Interest cost.................................................. 85 65 70
--------- --------- ---------
$ 85 $ 65 $ 74
--------- --------- ---------
--------- --------- ---------
</TABLE>
30
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The funded status of the plans at May 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees....................................................... $ 774 $ 728
Current employees -- fully eligible.................................... 364 352
--------- ---------
1,138 1,080
Plans' assets at fair value.............................................. -- --
--------- ---------
Accumulated postretirement benefit obligation in excess of plans'
assets.................................................................. 1,138 1,080
Unrecognized prior service cost, transition obligation and net
(loss)/gain............................................................. (3) (10)
--------- ---------
Accrued postretirement benefit cost in the consolidated balance sheets... $ 1,135 $ 1,070
--------- ---------
--------- ---------
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 8.25% at May 31, 1997 and 1996, respectively. The assumed
rate of future increases in healthcare costs was 8.8% and 9.4% in fiscal 1997
and 1996 respectively, declining to 6.0% by the year 2003 and remaining at that
rate thereafter. A one percent increase in the assumed healthcare cost trend
rate would increase the accumulated postretirement benefit obligation by
approximately $27 as of May 31, 1997 and would not result in a significant
change to the annual postretirement benefit expense.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements that
expire at various dates through 2011. Rental expense under these leases was
$6,660, $6,828 and $6,545 in fiscal 1997, 1996 and 1995, respectively.
Future minimum payments under leases with initial or remaining terms of one
year or more at May 31, 1997 were $4,335 for fiscal 1998, $3,861 for fiscal
1999, $3,526 for fiscal 2000, $2,937 for fiscal 2001 and $623 for fiscal 2002
and thereafter.
The Company routinely issues letters of credit, performance bonds or credit
guarantees in the ordinary course of its business. These instruments are
typically issued in conjunction with insurance, contracts, sales of secured
accounts receivables or other business requirements. The total of these
instruments outstanding at May 31, 1997 was approximately $7,000.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial condition.
31
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
8. INVESTMENT IN LEVERAGED LEASES
From time to time, the Company acquires aircraft under lease that qualify
for leveraged lease accounting treatment. Typically, these are long-term leases
of late-model aircraft operated by major carriers where the company is an equity
participant of at least twenty percent and there is a third-party provider of
nonrecourse debt of the remaining equipment cost.
During the lease term the Company is required, in accordance with SFAS No.
13, to adjust the elements of the investment in leveraged leases to reflect
changes in important economic assumptions, such as the renegotiation of the
interest rate on the nonrecourse debt or changes in income tax rates. In
addition, the Company may sell options or other rights to the residual proceeds
over the book value at the end of the lease term.
The Company's net investment in leveraged leases is comprised of the
following elements:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MAY 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Rentals receivable (net of principal and interest on the nonrecourse
debt).................................................................... $ 11,246 $ 14,545
Estimated residual value of leased assets................................. 23,950 23,950
Unearned and deferred income.............................................. (7,590) (7,590)
-------- --------
Investment in leveraged leases.......................................... 27,606 30,905
Deferred taxes............................................................ (22,230) (25,060)
-------- --------
Net investment in leveraged leases........................................ $ 5,376 $ 5,845
-------- --------
-------- --------
</TABLE>
Pretax income from leveraged leases was $0 in fiscal 1997, 1996 and 1995,
respectively.
9. BUSINESS SEGMENT INFORMATION
The Company primarily operates in the aerospace/aviation industry and
reports its activities in one primary business segment: Aviation Services.
Export sales from the Company's U.S. operations to unaffiliated customers,
the majority located in Europe, the Middle East, Asia, Canada, Mexico and South
America (including sales through foreign sales offices of domestic
subsidiaries), were approximately $204,808 (34.8% of total net sales), $148,503
(29.4% of total net sales) and $144,056 (31.9% of total net sales) in fiscal
1997, 1996 and 1995, respectively.
Sales to the U.S. Government, its agencies and its contractors were
approximately $82,125 (13.9% of total net sales), $92,362 (18.3% of total net
sales) and $82,708 (18.3% of total net sales) in fiscal 1997, 1996 and 1995,
respectively.
32
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
10. SELECTED QUARTERLY DATA (UNAUDITED)
The unaudited selected quarterly data for fiscal years ended May 31, 1997
and 1996 are as follows:
FISCAL 1997
<TABLE>
<CAPTION>
NET INCOME
QUARTER NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------------------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
First.......................... $ 136,037 $ 24,588 $ 4,848 $ .30
Second......................... 135,675 24,824 5,144 .32
Third.......................... 154,135 28,140 5,940 .36
Fourth......................... 163,481 30,989 7,093 .39
--------- ------------ ----------
$ 589,328 $108,541 $23,025 $1.38
--------- ------------ ---------- -----
--------- ------------ ---------- -----
FISCAL 1996
<CAPTION>
NET INCOME
QUARTER NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------------------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
First.......................... $ 109,593 $ 20,497 $ 3,226 $ .20
Second......................... 121,261 21,963 3,691 .23
Third.......................... 136,065 22,463 4,089 .26
Fourth......................... 138,071 25,842 5,006 .31
--------- ------------ ---------- -----
$ 504,990 $ 90,765 $16,012 $1.00
--------- ------------ ---------- -----
--------- ------------ ---------- -----
</TABLE>
33
<PAGE>
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
11. ALLOWANCES AND RESERVES
ALLOWANCES FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Balance, beginning of year................................................ $2,490 $2,400 $ 2,000
Provision charged to operations......................................... 500 900 895
Deductions for accounts written off, net of recoveries.................. (1,025) (810) (495)
------ ------ -------
Balance, end of year...................................................... $1,965 $2,490 $ 2,400
------ ------ -------
------ ------ -------
</TABLE>
INVENTORY REALIZATION RESERVES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Balance, beginning of year................................................ $5,528 $6,329 $ 8,916
Provision charged to operations......................................... 5,230 5,325 2,909
Inventory written off and loss from disposal, net
of recoveries......................................................... (5,131) (6,126) (5,496)
------ ------ -------
Balance, end of year...................................................... $5,627 $5,528 $ 6,329
------ ------ -------
------ ------ -------
</TABLE>
The inventory valuation reserve principally represents allowances for
obsolete inventory as well as reserves to reduce the cost of certain surplus
inventory to its net realizable value. The reserve applies to inventory
supporting the Company's Trading, Overhaul and Manufacturing activities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the Directors of the Company
is incorporated by reference to the information contained under the caption
"Nominees and Continuing Directors" in the Company's definitive proxy statement
for the 1997 Annual Meeting of Stockholders.
The information required by this item regarding the Executive Officers of
the Company appears under the caption "Executive Officers of the Registrant" in
Part I above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item regarding the compliance with Section
16(a) of the Securities Exchange Act of 1934 ("Exchange Act") is incorporated by
reference to the information contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information contained under the captions "Executive Compensation and Other
Information" (but excluding the following sections thereof, "Compensation
Committee's Report on Executive Compensation" and "Stockholder Return
Performance Graphs"); "Employment and Other Agreements" and "Directors
Compensation" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information contained under the caption "Security Ownership of Management and
Others" in the Company's definitive proxy statement for the 1997 Annual Meeting
of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Independent Auditors' Report, KPMG Peat Marwick LLP......... 12
Financial Statements -- AAR CORP. and Subsidiaries:
Consolidated statements of income for the three years
ended May 31, 1997...................................... 13
Consolidated balance sheets as of May 31, 1997 and 1996... 14-15
Consolidated statements of stockholders' equity for the
three years ended May 31, 1997.......................... 16
Consolidated statements of cash flows for the three years
ended May 31, 1997...................................... 17
Notes to consolidated financial statements................ 18-34
Selected quarterly data (unaudited) for the years ended
May 31, 1997 and 1996 (Note 10 to Consolidated Financial
Statements)............................................. 33
Financial data schedule for the twelve-month period ended May 31,
1997............................................. See exhibit index
</TABLE>
EXHIBITS
The Exhibits filed as a part of this report are set forth in the Exhibit
Index contained elsewhere herein. Each of the material contracts identified as
Exhibits 10.1 through 10.10 is a management contract or compensatory plan or
arrangement.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three-month period ended
May 31, 1997.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AAR CORP.
(Registrant)
Date: August 20, 1997
By: /s/ DAVID P. STORCH
-----------------------------------
David P. Storch
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------ ----------------------------------- ---------------
/s/ IRA A. EICHNER CHAIRMAN OF THE BOARD AND
- ------------------------ DIRECTOR
Ira A. Eichner
/s/ DAVID P. STORCH PRESIDENT AND CHIEF EXECUTIVE
- ------------------------ OFFICER; DIRECTOR (PRINCIPAL
David P. Storch EXECUTIVE OFFICER)
/s/ TIMOTHY J. ROMENESKO VICE PRESIDENT,
- ------------------------ CHIEF FINANCIAL OFFICER AND
Timothy J. Romenesko TREASURER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ A. ROBERT ABBOUD DIRECTOR
- ------------------------
A. Robert Abboud
/s/ HOWARD B. BERNICK DIRECTOR
- ------------------------
Howard B. Bernick
August 20, 1997
/s/ EDGAR D. JANNOTTA DIRECTOR
- ------------------------
Edgar D. Jannotta
/s/ ROBERT D. JUDSON DIRECTOR
- ------------------------
Robert D. Judson
/s/ ERWIN E. SCHULZE DIRECTOR
- ------------------------
Erwin E. Schulze
/s/ JOEL D. SPUNGIN DIRECTOR
- ------------------------
Joel D. Spungin
/s/ LEE B. STERN DIRECTOR
- ------------------------
Lee B. Stern
/s/ RICHARD D. TABERY DIRECTOR
- ------------------------
Richard D. Tabery
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
INDEX EXHIBITS
- ---------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
3. Articles of Incorporation 3.1 Restated Certificate of Incorporation;(1) Amendments thereto dated
and By-Laws November 3, 1987(2) and October 19, 1988.(2)
3.2 By-Laws, as amended.(2) Amendment thereto dated April 12, 1994.(12)
4. Instruments defining 4.1 Restated Certificate of Incorporation and Amendments (see Exhibit
the rights of 3.1).
security holders
4.2 By-Laws, as amended.(12)
4.3 Credit Agreement dated September 9, 1996, between the Registrant and
the Bank of America, Illinois.(15)
4.4 Rights Agreement between the Registrant and the First National Bank
of Chicago;(1) Amendment thereto dated July 18, 1989.(2)
4.5 Indenture dated October 15, 1989 between the Registrant and
Continental Bank, N.A. (now known as Bank of America, Illinois), as
Trustee, relating to debt securities;(5) First Supplemental Indenture
thereto dated August 26, 1991.(6)
4.6 Officers' certificates relating to debt securities dated October 24,
1989(10) and October 12, 1993.(10)
4.7 Credit Agreement dated October 7, 1996, between the Registrant and
The First National Bank of Chicago.(15)
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
is not filing certain documents. The Registrant agrees to furnish a
copy of each such document upon the request of the Commission.
10. Material Contracts 10.1 AAR CORP. Stock Benefit Plan,(11) Amendment thereto dated July 29,
1996 and second amendment thereto dated January 2, 1997.(15)
10.2 Death Benefit Agreement dated August 24, 1984 between the Registrant
and Ira A. Eichner;(8) Amendment thereto dated August 12, 1988.(4)
10.3 Further Restated and Amended Employment Agreement dated August 1,
1985 between the Registrant and Ira A. Eichner;(3) Amendments thereto
dated August 12, 1988,(4) May 25, 1990(16) and July 13, 1994.(16)
10.4 Trust Agreement dated August 12, 1988 between the Registrant and Ira
A. Eichner(4) and amendments thereto dated May 25, 1990(16) and
February 4, 1994.(12)
10.5 AAR CORP. Directors' Retirement Plan, dated April 14, 1992.(9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX EXHIBITS
- ---------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
10.6 AAR CORP. Supplemental Key Employee Retirement Plan, dated July 13,
1994(13), amended June 1, 1995(16), January 1, 1996(16) and June 1,
1996.(16)
10.7 Employment agreement dated June 1, 1994 between the Registrant and
David P. Storch;(14) Amendment thereto dated October 9, 1996.(15)
10.8 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Philip C. Slapke.(14)
10.9 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Howard A. Pulsifer.(14)
10.10 Severance and Change in Control agreement dated February 24, 1995
between the Registrant and Timothy J. Romenesko.(14)
21. Subsidiaries of 21.1 Subsidiaries of AAR CORP. (filed herewith).
the Registrant
23. Consents of experts 23.1 Consent of KPMG Peat Marwick LLP (filed herewith).
and counsel
27. Financial Data 27.1 Financial Data Schedule for the Registrant's fiscal year ended May
Schedule 31, 1997.
</TABLE>
- ------------------------
Notes:
(1) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1987.
(2) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1989.
(3) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1986.
(4) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1988.
(5) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended November 30, 1989.
(6) Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form S-3 filed August 27, 1991.
(7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1991.
(8) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1985.
(9) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992.
(10) Incorporated by reference to Exhibits to the Registrant's Current Reports
on Form 8-K dated October 24, 1989 and October 12, 1993.
<PAGE>
(11) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993.
(12) Incorporated by reference to Exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended May 31, 1994.
(13) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1994.
(14) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995.
(15) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the fiscal year ended November 30, 1996.
(16) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1996.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AAR CORP. (1)
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
AAR Aircraft Group, Inc. (2)..................................................................... Oklahoma
AAR Allen Group, Inc. (3)........................................................................ Illinois
AAR Allen Services, Inc. (4)..................................................................... Illinois
AAR Engine Group, Inc. (5)....................................................................... Illinois
AAR Engine Services, Inc. (6).................................................................... Illinois
AAR Financial Services Corp...................................................................... Illinois
AAR International, Inc. (7)...................................................................... Illinois
AAR Manufacturing Group, Inc. (8)................................................................ Illinois
AAR PowerBoss, Inc. (9).......................................................................... Illinois
</TABLE>
- ------------------------
(1) Subsidiaries required to be listed pursuant to Regulation S-K Item
601(b)(21).
(2) Also does business under the name of AAR Oklahoma.
(3) Also does business under the names AAR Allen Aircraft, AAR Expendables and
AAR Defense Systems.
(4) Also does business under the names AAR Landing Gear Center, AAR Technical
Service Center and Mars Aircraft Radio.
(5) Also does business under the names AAR Aircraft Turbine Center and AAR
Engine Sales & Leasing.
(6) Also does business under the name AAR Engine Component Services.
(7) Also does business under the names AAR Allen Group International, AAR Engine
Group International, AAR Aircraft Group International and AAR Manufacturing
Group International.
(8) Also does business under the names AAR Advanced Structures, AAR Cadillac
Manufacturing and AAR Skydyne. AAR Manufacturing Group, Inc. was formerly
known as AAR Brooks & Perkins Corp.
(9) Also does business under the name AAR PowerBoss.
<PAGE>
EXHIBIT 23.1
The Board of Directors
AAR CORP.:
We consent to the incorporation by reference in Registration Statement Nos.
33-19767, 33-26783, 33-38042, 33-43839, 33-58456, 33-56023, 33-57753, 333-00205,
333-15327, 333-22175 and 333-26093 on Form S-8 and in Registration Statement
Nos., 33-30222, 33-42326 and 333-19715 on Form S-3 of AAR CORP. of our report
dated June 24, 1997 relating to the consolidated balance sheets of AAR CORP. and
subsidiaries as of May 31, 1997 and 1996 and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
three-year period ended May 31, 1997, which report appears in the May 31, 1997
annual report on Form 10-K of AAR CORP.
KPMG Peat Marwick LLP
Chicago, Illinois
August 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MAY 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 51,705
<SECURITIES> 0
<RECEIVABLES> 124,909
<ALLOWANCES> 1,965
<INVENTORY> 176,921
<CURRENT-ASSETS> 414,100
<PP&E> 131,429
<DEPRECIATION> 60,321
<TOTAL-ASSETS> 529,584
<CURRENT-LIABILITIES> 99,981
<BONDS> 116,818
0
0
<COMMON> 18,932
<OTHER-SE> 250,327
<TOTAL-LIABILITY-AND-EQUITY> 529,584
<SALES> 589,328
<TOTAL-REVENUES> 589,328
<CGS> 480,787
<TOTAL-COSTS> 546,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 499<F1>
<INTEREST-EXPENSE> 9,915<F2>
<INCOME-PRETAX> 32,975
<INCOME-TAX> 9,950
<INCOME-CONTINUING> 23,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,025
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
<FN>
<F1> PROVISION FOR DOUBTFUL ACCOUNTS IS INCLUDED IN TOTAL COSTS AND EXPENSES.
<F2> INTEREST EXPENSE IS PRESENTED NET OF $871 OF INTEREST INCOME.
</FN>
</TABLE>
