SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ______________ For The Quarterly Period Ended AUGUST 31, 1996 Commission file number 1-6263 AAR CORP. (Exact name of registrant as specified in its charter) DELAWARE 36-2334820 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1111 NICHOLAS BOULEVARD, ELK GROVE VILLAGE, ILLINOIS 60007 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (847) 439-3939 _______________________________________________________________________________ Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ------- ------- Indicate the number of shares outstanding of each on the issuer's classes of common stock, as of the latest practicable date. $1.00 par value, 15,962,401 shares outstanding as of AUGUST 31, 1996.
AAR CORP. and Subsidiaries Quarterly Report on Form 10-Q August 31, 1996 Table of Contents Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibits 10 Reports on Form 8-K 10 Signature Page 11 2
PART I, ITEM 1 - FINANCIAL STATEMENTS AAR CORP. and Subsidiaries Condensed Consolidated Balance Sheets As of August 31,1996 and May 31, 1996 (000s omitted) August 31, May 31, 1996 1996 ------------ -------- (Unaudited) (Derived from audited financial ASSETS statements) - ------ Current assets: Cash and cash equivalents $ 27,316 $ 33,606 Accounts receivable, less allowances of $2,240 and $2,490, respectively 114,142 107,138 Inventories 151,997 138,200 Equipment on or available for short-term lease 27,017 36,884 Deferred tax assets, deposits and other 18,436 22,184 ------- ------- Total current assets 338,908 338,012 ------- ------- Property, plant and equipment, net 66,716 54,831 ------- ------- Other assets: Investment in leveraged leases 30,601 30,905 Cost in excess of underlying net assets of acquired companies 5,791 5,842 Retirement benefits, notes receivable and other 7,629 8,256 ------- ------- 44,021 45,003 ------- ------- $449,645 $437,846 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current maturities of long-term debt $ 1,490 $ 1,474 Accounts payable 58,096 59,005 Accrued liabilities 13,654 14,356 Accrued taxes on income 5,892 4,550 ------- ------- Total current liabilities 79,132 79,385 ------- ------- Long-term debt, less current maturities 117,901 118,292 Deferred tax liabilities 30,418 30,680 Other liabilities, less discount of $1,102 9,898 - Retirement benefit obligation and deferred credits 4,854 4,854 ------- ------- 163,071 153,826 ------- ------- Stockholders' equity: Preferred stock, $1.00 par value, authorized 250 shares; none issued - - Common stock, $1.00 par value, authorized 80,000 shares; issued 16,449 and 16,404 shares, respectively 16,449 16,404 Capital surplus 84,518 83,975 Retained earnings 113,574 110,645 Treasury stock, 486 and 406 shares at cost, respectively (6,886) (5,285) Cumulative translation adjustments (213) (1,104) ------- ------- 207,442 204,635 ------- ------- $449,645 $437,846 ======= ======= The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 3
AAR CORP. and Subsidiaries Condensed Consolidated Statements of Income For the Three Months Ended August 31, 1996 and 1995 (Unaudited) (000s omitted except per share data) Three Months Ended August 31, -------------------- 1996 1995 -------- ------- Net sales $136,037 $109,593 -------- ------- Costs and operating expenses: Cost of sales 111,449 89,096 Selling, general and administrative 15,375 13,606 -------- ------- Operating income 9,213 6,891 Interest expense (2,625) (2,664) Interest income 310 364 -------- ------- Income before provision for income taxes 6,898 4,591 Provision for income taxes 2,050 1,365 -------- ------- Net income $ 4,848 $ 3,226 ======== ======= Net income per share of common stock $.30 $.20 Dividends paid and declared per share of common stock $.12 $.12 Average shares outstanding 15,965 15,956 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4
AAR CORP. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Three Months Ended August 31, 1996 and 1995 (Unaudited) (000s omitted) Three Months Ended August 31, -------------------- 1996 1995 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,848 $ 3,226 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 2,679 2,612 Change in certain assets and liabilities: Accounts receivable, net (6,826) 11,893 Inventories, net (13,481) 2,630 Equipment on or available for short-term lease 10,027 (880) Deferred tax assets, deposits and other 3,753 710 Accounts payable (986) (13,736) Accrued liabilities and taxes on income (2,140) (1,897) Other liabilities 9,898 - Accrued interest 2,470 2,468 -------- ------- Net cash provided from operating activities 10,242 7,026 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment expenditures, net (14,056) (2,151) Investment in leveraged leases 304 459 Notes receivable and other 376 3,294 -------- ------- Net cash provided from (used in) investing activities (13,376) 1,602 -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in borrowings (375) (533) Cash dividends (1,919) (1,915) Purchase of treasury stock (1,601) (293) Proceeds from exercise of stock options and other 588 221 -------- ------- Net cash (used in) financing activities (3,307) (2,520) -------- ------- Effect of exchange rate changes on cash 151 (38) -------- ------- Increase (decrease) in cash and cash equivalents (6,290) 6,070 Cash and cash equivalents, beginning of period 33,606 22,487 -------- ------- Cash and cash equivalents, end of period $27,316 $28,557 ======== ======= The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 5
AAR CORP. and Subsidiaries Notes to Condensed Consolidated Financial Statements August 31, 1996 (000s omitted) Note A - Basis of Presentation - ------------------------------ The accompanying condensed consolidated financial statements include the accounts of AAR CORP. ("the Company") and its subsidiaries after elimination of intercompany accounts and transactions. These statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The condensed consolidated balance sheet as of May 31, 1996 has been derived from audited financial statements. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of management of the Company, the condensed consolidated financial statements reflect all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the condensed consolidated financial position of AAR CORP. and its subsidiaries as of August 31, 1996 and the condensed consolidated results of operations and cash flows for the three-month periods ended August 31, 1996 and 1995. The results of operations for such interim periods are not necessarily indicative of the results for the full year. Certain prior period amounts have been reclassified to conform to the August 31, 1996 presentation. Note B - Inventory - ------------------ The summary of inventories is as follows: August 31, May 31, 1996 1996 ---------- --------- Raw materials and parts $ 34,628 $ 33,978 Work-in-process 13,834 12,179 Purchased aircraft, parts, engines and components held for sale 102,089 90,438 Finished goods 1,446 1,605 ---------- --------- $151,997 $138,200 ========== ========= During the first quarter of fiscal 1997, the Company made certain inventory purchases in which the vendors provided extended terms at no interest. Other liabilities reflect the long-term obligation under these arrangements and have been discounted at 6.5%. 6
AAR CORP. and Subsidiaries Notes to Condensed Consolidated Financial Statements August 31, 1996 (Continued) (000s omitted) Note C - Supplemental Cash Flows Information - -------------------------------------------- Supplemental information on cash flows: Three Months Ended August 31, ------------------- 1996 1995 ----- ----- Interest paid $ 120 $ 160 Income taxes paid 1,340 1,520 Income tax refunds received 120 - Note D - Cumulative Translation Adjustments - ------------------------------------------- The Cumulative translation adjustments account changed due to a net translation gain of $891 for the three-month period ended August 31, 1996. The change resulted from an increase in the value of the Company's net investment in foreign subsidiaries primarily resulting from a decrease in the value of the U.S. dollar against most European currencies. The noncash adjustment did not affect the Company's results of operations. Note E - Earnings Per Share - --------------------------- The per share data was calculated using the weighted average shares outstanding for the periods presented. Common stock equivalents consisting of employee stock options have not been included in the per share calculation as their dilutive effect is not material. 7
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AAR CORP. and Subsidiaries Results of Operations (000s omitted except percent data) Three-Month Periods Ended August 31, 1996 - ----------------------------------------- (as compared with the same period of the prior year) The following table sets forth net sales for the Company's classes of similar products and services within the Company's Aviation Services business segment: Three Months Ended August 31, ------------------ 1996 1995 -------- -------- Net Sales: Trading $ 77,667 $ 53,628 Overhaul 32,311 31,655 Manufacturing 26,059 24,310 -------- -------- $136,037 $109,593 ======== ======== Three-Month Period Ended August 31, 1996 - ---------------------------------------- (as compared with the same period of the prior year) Consolidated net sales for the first quarter of the fiscal year ending May 31, 1997 (fiscal 1997) increased $26,444 or 24.1% over the same period in the prior year. Higher consolidated net sales reflect increased demand for the Company's products and services, as well as better overall conditions in the aerospace/aviation industry. Trading sales increased $24,039 or 44.8% over the prior year as a result of increased aircraft, airframe and large component part sales, as well as sales from both well-established and newer inventory management programs. Overhaul sales increased $656 or 2.1% due primarily to increased airframe component overhaul services. Sales also increased $1,749 or 7.2% in manufacturing due primarily to higher sales of the Company's floor maintenance products. Consolidated gross profit increased $4,091 or 20.0% over the prior year period due to increased consolidated net sales, partially offset by a decline in the consolidated gross profit margin to 18.1% compared to the prior year period's margin of 18.7%. The lower consolidated gross profit margin was due primarily to the mix of inventories sold. Consolidated operating income increased $2,322 or 33.7% over the same period in the prior year and the Company's operating income margin increased to 6.8% compared to the prior year period's margin of 6.3%, as a result of increased net sales, partially offset by higher selling, general and administrative expense from higher personnel and marketing support costs. Consolidated net income increased $1,622 or 50.3% primarily as a result of the factors discussed above. 8
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AAR CORP. and Subsidiaries Financial Condition (000s omitted except percent data and ratios) At August 31, 1996 - ------------------ (as compared with May 31, 1996) In the three-month period ended August 31, 1996, the Company generated $10,242 of cash from operations. This represents a $3,216 or 45.8% increase in cash generated from operations over the prior year period. The increase was generated through increased earnings and working capital management. The Company's cash and cash equivalent position decreased $6,290 at the end of the three-month period after making capital expenditures of $14,056, paying dividends of $1,919 and purchasing stock of the Company of $1,601. The increase in capital expenditures during the three-month period over the prior year reflects the Company's acquisition of a new headquarters and operating facility for approximately $11,650. This facility, which is in the process of being refurbished, will consolidate and replace certain facilities currently operated by the Company The Company further strengthened its financial position during the first quarter of fiscal 1997 by reducing its long-term debt to capitalization ratio to 36.2%. The Company continues to maintain its available external sources of financing from $133,229 of unused available bank lines and a shelf registration on file with the Securities and Exchange Commission for $85,000 of medium or long-term debt securities, which it may issue at its discretion, subject to market conditions. The Company believes that its cash and cash equivalents and available sources of financing will continue to provide the Company the ability to meet its ongoing working capital requirements, make anticipated capital expenditures, meet contractual commitments, pay dividends and pursue favorable business opportunities. A summary of key financial conditions, ratios and lines of credit follows: Description August 31, 1996 May 31, 1996 - ----------------- ------------------ --------------- Working capital $259,776 $258,627 Current ratio 4.3:1 4.3:1 Bank Credit Lines: Borrowings outstanding $ - $ - Available but unused lines 132,229 132,977 -------- -------- Total credit lines $132,229 $132,977 ======== ======== Long-term debt less current maturities $117,901 $118,292 Ratio of long-term debt to capitalization 36.2% 36.6% 9
PART II - OTHER INFORMATION AAR CORP. and Subsidiaries August 31, 1996 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Item - ---- 27. Financial 27.1 Financial Data Schedule for the Registrant's three Data month interim period ended August 31, 1996. Schedule (b) Reports on Form 8-K for Quarter ended August 31, 1996: ------------------------------------------------------ The Company filed no reports on Form 8-K during the three (3) months ended August 31, 1996.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AAR CORP. ------------------------------ (Registrant) Date: October 8, 1996 /s/ Timothy J. Romenesko --------------- ------------------------------ Timothy J. Romenesko Vice President, Chief Financial Officer and Treasurer. (Principal accounting officer and officer duly authorized to sign on behalf of registrant) 11