<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
For Quarterly Period Ended FEBRUARY 28, 1999 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 Identification No.)
incorporation or organization)
ONE AAR PLACE, 1100 N. WOOD DALE ROAD, WOOD DALE, ILLINOIS 60191
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 227-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
$1.00 par value, 27,442,700 shares outstanding as of FEBRUARY 28, 1999
- ------ ---------- -----------------
<PAGE>
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
February 28, 1999
Table of Contents
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statements of Comprehensive Income 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits 14
Reports on Form 8-K 14
Signature Page 15
2
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of February 28, 1999 and May 31, 1998
(000s omitted)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
------------ --------
(Unaudited) (Derived from
audited financial
statements)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,886 $ 17,222
Accounts receivable, less allowances of $5,324 and $3,157 respectively 153,161 163,359
Inventories 276,290 229,930
Equipment on or available for short-term lease 28,996 33,495
Deferred tax assets, deposits and other 27,790 24,394
---------- ----------
Total current assets 498,123 468,400
---------- ----------
Property, plant and equipment, net 99,814 82,905
---------- ----------
Other assets:
Investments in leveraged leases 33,933 36,533
Equipment on long-term leases - 24,611
Cost in excess of underlying net assets of acquired companies 40,314 26,565
Joint ventures, retirement benefits, notes receivable and other 36,034 31,545
---------- ----------
110,281 119,254
---------- ----------
$ 708,218 $ 670,559
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 394 $ 237
Accounts payable 117,002 112,980
Accrued liabilities 35,514 29,614
Accrued taxes on income 6,964 6,317
---------- ----------
Total current liabilities 159,874 149,148
---------- ----------
Long-term debt, less current maturites 181,018 177,509
Deferred tax liabilities 43,880 36,850
Retirement benefit obligation and other liabilities 3,118 6,202
---------- ----------
228,016 220,561
---------- ----------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250 shares, none issued - -
Common stock, $1.00 par value, authorized 80,000
shares; issued 28,988 and 28,832 shares, respectively 28,988 28,832
Capital surplus 143,981 140,898
Retained earnings 175,121 152,233
Treasury stock, 1,544 and 1,128 shares at cost, respectively (24,219) (16,470)
Accumulated other comprehensive income (expense):
Cumulative translation adjustments (3,543) (4,643)
---------- ----------
320,328 300,850
---------- ----------
$ 708,218 $ 670,559
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
3
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended February 28, 1999 and 1998
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
----------------------------- -------------------------
1999 1998 1999 1998
----------------------------- -------------------------
<S> <C> <C>
Net sales $227,699 $208,492 $672,395 $559,554
-------- -------- -------- --------
Costs and operating expenses:
Cost of sales 184,993 169,577 545,900 454,656
Selling, general and administrative 23,768 21,836 70,617 60,009
-------- -------- -------- --------
208,761 191,413 616,517 514,665
-------- -------- -------- --------
Operating income 18,938 17,079 55,878 44,889
Interest expense (4,591) (4,045) (13,464) (9,861)
Interest income 399 365 536 841
-------- -------- -------- --------
Income before provision for income taxes 14,746 13,399 42,950 35,869
Provision for income taxes 4,468 4,085 13,014 10,834
-------- -------- -------- --------
Net income $ 10,278 $ 9,314 $ 29,936 $ 25,035
-------- -------- -------- --------
Earnings Per Share - Basic $ .37 $ .34 $ 1.08 $ .91
Earnings Per Share - Diluted $ .37 $ .33 $ 1.07 $ .89
Weighted average common shares
outstanding - Basic 27,535 27,632 27,606 27,550
Weighted average common shares
outstanding - Diluted 27,965 28,510 28,108 28,141
Dividends paid and declared per share
of common stock $ .085 $ .085 $ .255 $ .245
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended February 28, 1999 and 1998
(Unaudited)
(000s omitted)
<TABLE>
<CAPTION>
Nine Months Ended
February 28
----------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Net income $ 29,936 $ 25,035
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 12,692 11,021
Change in certain assets and liabilities:
Accounts receivable, net 6,198 (4,358)
Inventories (50,325) (35,182)
Equipment on or available for short-term lease 8,230 (5,221)
Retirement benefit obligation, deferred taxes
and other 8,518 (7,580)
Accounts payable and other liabilities 13,740 233
Accrued liabilities and taxes on income (5,203) 5,889
-------- --------
Net cash provided from (used in) operating activities 23,786 (10,163)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (27,739) (11,098)
Acquisitions, less cash acquired (15,175) (28,148)
Proceeds from sale of business 11,685 -
Investment in equipment on long-term lease and
leveraged leases 23,489 (8,749)
Joint ventures and other (9,953) (19,144)
-------- --------
Net cash used in investing activities (17,693) (67,139)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in borrowings (144) (948)
Proceeds from debt issuance, net of costs 2,250 59,347
Cash dividends (7,048) (6,760)
Purchases of treasury stock (6,419) -
Proceeds from exercise of stock options and other (68) 3,899
-------- --------
Net cash provided from (used in) financing activities (11,429) 55,538
-------- --------
Effect of exchange rate changes on cash - 111
-------- --------
Decrease in cash and cash equivalents (5,336) (21,653)
Cash and cash equivalents, beginning of period 17,222 51,705
-------- --------
Cash and cash equivalents, end of period $ 11,886 $ 30,052
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
For the Nine Months Ended February 28, 1999 and 1998
(000s omitted)
<TABLE>
<CAPTION>
Nine Months Ended
February 28
----------------------------------
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,936 $ 25,035
Other comprehensive income (expense):
Foreign currency translation 1,100 (1,912)
-------- --------
Total Comprehensive Income $ 31,036 $ 23,123
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
6
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 28, 1999
(000s omitted)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of AAR CORP. ("the Company") and its subsidiaries after elimination
of intercompany accounts and transactions.
Turbine Engine Asset Management, L.L.C. (TEAM), a joint venture, was formed
in the fiscal year ended May 31, 1998 to distribute certain engine parts to
aviation customers worldwide. During the first quarter of fiscal year 1999,
Aviation Inventory Management Co. L.L.C. (AIMCO), a joint venture, was
formed. AIMCO offers customers an alternative to owning aircraft rotable
spares. The Company's investments in the joint ventures are being accounted
for under the equity method of accounting. During the second quarter of
fiscal 1999, the Company divested substantially all of the assets and
liabilities of its floor maintenance products manufacturing subsidiary.
Proceeds of $11.7 million received from the sale of this business
approximated the Company's net book value.
These statements have been prepared by the Company without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
The condensed consolidated balance sheet as of May 31, 1998 has been derived
from audited financial statements. To prepare the financial statements in
conformity with generally accepted accounting principles, management has made
a number of estimates and assumptions relating to the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed
or omitted pursuant to such rules and regulations of the SEC. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position of AAR CORP. and its subsidiaries as of February 28, 1999
and the condensed consolidated results of operations for the three and
nine-month periods ended February 28, 1999 and 1998, and condensed
consolidated statements of cash flows and comprehensive income for the nine
month periods ended February 28, 1999 and 1998. The results of operations for
such interim periods are not necessarily indicative of the results for the
full year.
NOTE B - INVENTORY
The summary of inventories is as follows:
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
------------ -------
<S> <C> <C>
Raw materials and parts $ 53,980 $ 46,573
Work-in-process 13,319 15,787
Purchased aircraft, parts, engines and components held for sale 208,991 166,140
Finished goods - 1,430
---------- --------
$ 276,290 $ 229,930
---------- --------
---------- --------
</TABLE>
7
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 28, 1999 (Continued)
(000s omitted)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
-----------------
1999 1998
---- ----
<S> <C> <C>
Interest paid $11,353 $6,178
Income taxes paid 3,779 3,881
Income tax refunds received 600 232
</TABLE>
NOTE D - COMMON STOCK AND EARNINGS PER SHARE OF COMMON STOCK
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is based on the weighted average number of common shares outstanding
during the period plus, when their effect is dilutive, incremental shares
consisting of shares subject to stock options. The following table provides a
reconciliation of the computations of basic and diluted earnings per share
information for the three and nine-month periods ended February 28, 1999 and
1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 February 28,
------------------ -----------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
BASIC EPS
Net income $ 10,278 $ 9,314 $ 29,936 $ 25,035
Common shares outstanding 27,535 27,632 27,606 27,550
-------- ------- -------- --------
Earnings per share - Basic $ .37 $ .34 $ 1.08 $ .91
-------- ------- -------- --------
DILUTED EPS
Net income $ 10,278 $ 9,314 $ 29,936 $ 25,035
Common shares outstanding 27,535 27,632 27,606 27,550
Additional shares due to hypothetical
exercise of stock options 430 878 502 591
-------- ------- -------- --------
27,965 28,510 28,108 28,141
-------- ------- -------- --------
Earnings per share - Diluted $ .37 $ .33 $ 1.07 $ .89
-------- ------- -------- --------
</TABLE>
8
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
THREE AND NINE-MONTH PERIOD ENDED FEBRUARY 28, 1999
(as compared with the same period of the prior year)
The Company reports its activities in one business segment: Aviation
Services. The table below sets forth consolidated net sales for the Company's
classes of similar products and services within this segment for the three
and nine month periods ended February 28, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Aircraft and Engines $111,117 $ 85,992 $299,457 $242,717
Airframe and Accessories 89,282 91,632 279,165 236,231
Manufacturing 27,300 30,868 93,773 80,606
-------- -------- -------- --------
$227,699 $208,492 $672,395 $559,554
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
THREE-MONTH PERIOD ENDED FEBRUARY 28, 1999
(as compared with the same period of the prior year)
Consolidated net sales for the third quarter of the Company's fiscal year
ending May 31, 1999 (fiscal 1999) increased $19.2 million or 9.2% over the
same period in the prior year. Aircraft and Engine sales increased $25.1
million or 29.2% over the prior year period principally due to increased
sales in the Company's engine parts trading business. Airframe and
accessories sales decreased $2.4 million or 2.6% reflecting lower airframe
parts sales, partially offset by increased sales in certain of the Company's
component overhaul services. Manufacturing sales decreased $3.6 million or
11.6% primarily due to the impact of the sale of the Company's floor
maintenance products manufacturing subsidiary in November, 1998, partially
offset by increased sales of products supporting the U.S. Government's rapid
deployment program.
Consolidated gross profit increased $3.8 million or 9.7% over the prior year
period reflecting higher consolidated net sales and a slight increase in the
consolidated gross profit margin to 18.8% from 18.7%. Consolidated operating
income increased $1.9 million or 10.9% and the consolidated operating income
margin increased to 8.3% from 8.2% as a result of increased net sales and
gross profit, partially offset by higher selling, general and administrative
expenses. Selling, general and administrative expenses were lower as a
percentage of consolidated net sales; however, total expenses increased
principally due to increased marketing support and information technology
costs, which include Year 2000 compliance costs.
Consolidated net income increased $1.0 million or 10.4% over the prior year
period due principally to the factors discussed above.
9
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except ratios)
NINE-MONTH PERIOD ENDED FEBRUARY 28, 1999
(as compared with the same period of the prior year)
Consolidated net sales for the nine-month period ended February 28, 1999
increased $112.8 million or 20.2% over the prior year period. Net sales
increased across all three classes of products and services with the
consolidated sales increase driven by increased demand in the Company's
engine parts business; higher sales in the aircraft business; higher sales in
the Company's aircraft maintenance and component repair businesses; higher
sales in the Company's manufacturing businesses reflecting increased demand
for cargo loading systems and products supporting the United States
Government's rapid deployment programs, and higher sales reflecting the
inclusion of recently acquired companies, partially offset by the impact of
the sale of the Company's floor maintenance products manufacturing subsidiary
in November, 1998.
Consolidated gross profit increased $21.6 million or 20.6% over the prior
year period due to increased consolidated net sales and a slight increase in
the consolidated gross profit margin to 18.8% from 18.7% in the prior year.
Consolidated operating income increased $11.0 million or 24.5% over the prior
year period, and the consolidated operating income margin increased to 8.3%
from 8.0% as a result of increased net sales and gross profit, partially
offset by higher selling, general and administrative expenses. Selling,
general and administrative expenses were lower as a percentage of
consolidated net sales; however, total expenses increased principally due to
the impact of companies acquired during fiscal 1998 and higher marketing
support and information technology costs. Net interest expense was $3.9
million or 43.3% higher, primarily as a result of the December, 1997 sale of
$60 million notes at 6.875%.
Consolidated net income increased $4.9 million or 19.6% principally as a
result of the factors discussed above.
10
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except ratios)
AT FEBRUARY 28, 1999
(as compared with May 31, 1998)
At February 28, 1999, the Company's liquidity and capital resources included
cash of $11.9 million and working capital of $338.2 million. At February 28,
1999, the Company's ratio of long-term debt to capitalization was 36.1%, down
from 37.1% at May 31, 1998. The Company continues to maintain its available
external sources of financing including $183.5 million of unused bank lines,
a universal shelf registration on file with the Securities and Exchange
Commission under which up to $200 million of common stock, preferred stock or
medium - or long-term debt securities may be issued or sold subject to market
conditions, and an accounts receivable securitization program where the
Company may sell an interest in a defined pool of accounts receivable.
During the nine-month period ended February 28, 1999 the Company generated
$23.8 million of cash from operations compared to using $10.2 million of cash
in operations during the nine month period ended February 28, 1998. The
increase in cash generated from operations was principally due to effective
working capital management, which included the sale of $20.0 million of
accounts receivable under the accounts receivable securitization program, and
higher net income during the nine-month period ended February 28, 1999.
During the nine-month period ended February 28, 1999, the Company's investing
activities used $17.7 million of cash, reflecting the cash received from the
divestiture of the Company's floor maintenance products manufacturing
subsidiary of $11.7 million and proceeds from the sale of equipment on
long-term lease, offset by an increase in capital expenditures related to
systems enhancements and facility expansions, as well as payments made for
the Tempco acquisition, which was acquired in October 1998 for $6.0 million ,
and a final payment of $9.2 million for the acquisition of AVSCO, which was
acquired in December 1997.
During the nine month period ended February 28, 1999, the Company's financing
activities used $11.4 million of cash reflecting the payment of cash
dividends and the purchase of $6.4 million of the Company's stock, partially
offset from the proceeds of an industrial revenue bond of $2.3 million.
The Company believes that its cash and cash equivalents and available sources
of financing will continue to provide the Company with the ability to meet
its ongoing working capital requirements, make anticipated capital
expenditures, meet contractual commitments, and pay dividends.* A summary of
key financial conditions, ratios, and lines of credit follows:
<TABLE>
<CAPTION>
DESCRIPTION FEBRUARY 28, MAY 31,
1999 1998
----------- ----------- -------
<S> <C> <C>
Working capital $ 338,249 $ 319,252
Current ratio 3.1:1 3.1:1
Bank credit lines:
Borrowings outstanding -- --
Available but unused lines 183,500 190,970
Total credit lines $ 183,500 $ 190,970
---------- ---------
Long-term debt less current maturities $ 181,018 $ 177,509
---------- ---------
Ratio of long-term debt to capitalization 36.1% 37.1%
</TABLE>
- ------------------------------
* See "Forward Looking Statements" section of this item.
11
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except ratios)
AT FEBRUARY 28, 1999 (CONTINUED)
YEAR 2000
During fiscal 1997, the Company initiated a comprehensive information
technology systems review which resulted in a formal plan to replace and
enhance certain of the Company's business application systems to meet current
operational requirements and provide for future expansion. These replacement
systems are Year 2000 compliant and include new information technology
systems in the Company's new parts distribution business, all of the
Company's manufacturing businesses and three of the Company's overhaul
businesses.
During the third quarter of fiscal 1999, the Company successfully completed
the implementation of the replacement systems in all its manufacturing
businesses. During March, 1999 the Company successfully completed the
implementation of the replacement system in its new parts distribution
business. The capital outlay associated with the successful implementation of
the replacement systems in the manufacturing and new parts distribution
businesses was $7,900, of which $6,800 was paid during the nine month period
ended February 28, 1999.
The Company has expanded and modified its plans to replace the existing
systems in its overhaul businesses to include, among other things, purchasing
new hardware, upgrading the main existing operating system and converting the
existing business application to ensure Year 2000 compliance. The Company
believes that the cost of the new hardware, the cost to upgrade the existing
operating system and ensure Year 2000 compliance for the overhaul businesses'
current systems will be approximately $1,000.* Additional enhancements, which
include the implementation of the new systems, may continue into the Year
2000, although the Company anticipates that the business applications
supporting the three overhaul operations will be Year 2000 compliant by
September 1999.* The Company is developing contingency plans for the three
overhaul businesses should the enhancements necessary to bring the current
business applications to Year 2000 compliance not be completed in a timely
fashion.
In addition to the above, the Company has conducted an extensive Year 2000
compliance review of its internal systems which are not being replaced. Based
on this study and program testing, the Company believes that the business
applications supporting the Company's trading businesses and certain other
overhaul businesses are Year 2000 compliant.* In addition, the Company
believes that its existing major financial applications are Year 2000
compliant, although the Company is in the process of upgrading its major
financial applications to the most recent version.*
In addition to the cost of the business application systems being implemented
or enhanced to meet operational requirements, the Company expects to incur
other Year 2000 compliance costs unrelated to the replacement systems
referenced above. The Company has numerous local-area networks, wide-area
networks, servers, voice mail systems and other technical support systems
(the "sub-systems"). The Company has completed an inventory of the
sub-systems, as well as the compliance status of the sub-systems and believes
that approximately 90% of the sub-systems are Year 2000 compliant. The
Company expects the remaining 10% of the sub-systems which are not Year 2000
compliant will be compliant by June 30, 1999 at a cost of less than $500.*
- -------------------------------
* See "Forward Looking Statements" section of this item.
12
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION (CONTINUED)
(000s omitted except ratios)
AT FEBRUARY 28, 1999 (CONTINUED)
YEAR 2000 (CONTINUED)
As part of its continuing review, the Company has communicated with its
material vendors, customers and suppliers regarding their Year 2000
compliance. While the Company is aggressively addressing the Year 2000 issue
internally, the compliance status of third parties with which the Company has
material relationships is presently unknown and the failure of third parties
to be compliant could potentially have an adverse effect on the Company's
operations.* The Company believes that the Year 2000 compliance failure of a
significant third party supplier or customer is the most reasonably likely
worst case scenario for a Year 2000 failure.* As compliance risks become
known for significant third parties, contingency plans will be developed
accordingly.
FORWARD-LOOKING STATEMENTS
Part I, Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains certain statements relating to future
results, which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995 and are identified by an
asterisk(*). These forward-looking statements are based on beliefs of Company
management as well as assumptions and estimates based on information
currently available to the Company, and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated, depending on a variety of factors,
including: implementation of Year 2000 compliant information technology
systems and system enhancements, integration of acquisitions, marketplace
competition, unidentified Year 2000 problems, failure of a third party
supplier, service provider or customer to be Year 2000 compliant, economic
and aviation/aerospace market stability and Company profitability. Should one
or more of these risks or uncertainties materialize adversely, or should
underlying assumptions or estimates prove incorrect, actual results may vary
materially from those described.
- -------------------------------
* See "Forward Looking Statements" section of this item.
13
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
February 28, 1999
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
ITEM
27. Financial 27.1 Financial Data Schedule for the Registrant's
Data Schedule nine-month interim period ended
February 28, 1999
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED FEBRUARY 28, 1999:
The Company filed no reports on Form 8-K during the three months ended
February 28, 1999.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
---------
(Registrant)
Date: April 14, 1999 /s/ Timothy J. Romenesko
-------------------------
Timothy J. Romenesko
Vice President and Chief Financial
Officer
(Principal accounting officer and
officer duly authorized to sign
on behalf of registrant)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS REPORT ON FORM 10 Q FOR THE NINE MONTH INTERIM PERIOD ENDED FEBRUARY
28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> FEB-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 11,886
<SECURITIES> 0
<RECEIVABLES> 158,485
<ALLOWANCES> 5,324
<INVENTORY> 276,290
<CURRENT-ASSETS> 498,123
<PP&E> 177,992
<DEPRECIATION> (78,178)
<TOTAL-ASSETS> 708,218
<CURRENT-LIABILITIES> 159,874
<BONDS> 181,018
0
0
<COMMON> 28,988
<OTHER-SE> 291,340
<TOTAL-LIABILITY-AND-EQUITY> 708,218
<SALES> 672,395
<TOTAL-REVENUES> 672,395
<CGS> 545,900
<TOTAL-COSTS> 616,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,547<F1>
<INTEREST-EXPENSE> 12,928<F2>
<INCOME-PRETAX> 42,950
<INCOME-TAX> 13,014
<INCOME-CONTINUING> 29,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,936
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.07
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS IS INCLUDED IN TOTAL COSTS AND EXPENSES
<F2>INTEREST EXPENSE IS PRESENTED NET OF $536 OF INTEREST INCOME
</FN>
</TABLE>
