Exhibit 99.1
AAR CORP.
Unaudited Pro Forma Condensed Consolidated Financial Information
On February 23, 2015, AAR CORP., a Delaware corporation (the “Company”), announced that AAR International, Inc., an Illinois corporation (“AAR International”), AAR Manufacturing, Inc., an Illinois corporation (“AAR Manufacturing” and, together with AAR International, “Sellers”), TransDigm Inc., a Delaware corporation (“TransDigm”) and TransDigm Germany GmbH, a limited liability company incorporated under the law of Germany (“TransDigm Germany” and, together with TransDigm, “Buyers”), entered into a Purchase Agreement dated as of February 20, 2015 (the “Purchase Agreement”), pursuant to which, subject to the terms and conditions set forth in the Purchase Agreement, the Buyers will acquire (the “Transaction”) from the Sellers their interest in the Telair Cargo Group, which is comprised of Telair International GmbH, Nordisk Aviation Products AS and certain assets of AAR Manufacturing, and relates to the design, engineering, manufacture, marketing, sale, distribution and support of cargo-handling systems and certain other products for passenger, military and freight aircraft (collectively, the “Business”). The selling price was $725 million, subject to certain post-closing adjustments, including a working capital adjustment. The Transaction closed on March 26, 2015. Cash received by the Sellers at closing was $705 million, with the remaining consideration of $20 million placed in escrow and payable to the Sellers subject to the occurrence of certain post-closing events related to a large cargo system development program.
The unaudited pro forma condensed consolidated financial information set forth below has been derived by the application of pro forma adjustments to our historical financial statements. The unaudited pro forma condensed consolidated statements of income for the nine months ended February 28, 2015 and for the year ended May 31, 2014 reflect the Company’s results as if the Transaction and events described below had occurred on June 1, 2013, and do not reflect the gain on the Transaction. The unaudited pro forma condensed consolidated balance sheet as of February 28, 2015 gives effect to the Transaction and events described below as if they had occurred on February 28, 2015.
The unaudited pro forma condensed consolidated financial information gives effect to the following:
· The Transaction; and
· The anticipated redemption of $325 million of 7.25% Senior Notes due 2022 funded from the proceeds of the Transaction.
The unaudited pro forma condensed consolidated financial information were prepared in accordance with the regulations of the Securities and Exchange Commission (the “SEC”) and should not be considered indicative of the financial position or results of operations that would have occurred if the Transaction and events above had been consummated on the dates indicated, nor are they
indicative of the future financial position or results of operations of the Company. In accordance with SEC regulations, the unaudited pro forma consolidated financial statements reflect adjustments to the extent they are directly attributable to the Transaction, factually supportable and, for income statement purposes, are expected to have a continuing impact on the Company’s operating results.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2014 filed with the SEC on July 17, 2014 and the unaudited consolidated financial statements and notes thereto included in the Company��s Quarterly Report on Form 10-Q for the quarter and nine months ended February 28, 2015 filed with the SEC on March 31, 2015.
AAR CORP. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of February 28, 2015
(In millions)
| | As Reported | | Disposition
of Telair
Cargo Group | | Use of
Proceeds | | Pro Forma | |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 67.0 | | $ | 687.0 | (a) | $ | (370.0 | )(f) | $ | 384.0 | |
Accounts receivable, net | | 249.6 | | — | | — | | 249.6 | |
Inventories | | 451.0 | | — | | — | | 451.0 | |
Rotable spares and equipment on or available for short-term lease | | 139.9 | | — | | — | | 139.9 | |
Assets of Telair Cargo Group | | 496.9 | | (496.9 | )(b) | — | | — | |
Other current assets | | 90.5 | | — | | — | | 90.5 | |
Total current assets | | 1,494.9 | | 190.1 | | (370.0 | ) | 1,315.0 | |
Property, plant and equipment, net | | 247.4 | | — | | — | | 247.4 | |
Other assets: | | | | | | | | | |
Goodwill | | 123.6 | | — | | — | | 123.6 | |
Intangible assets, net | | 38.0 | | — | | — | | 38.0 | |
Equipment on or available for long-term lease | | 110.8 | | — | | — | | 110.8 | |
Investment in joint ventures | | 27.3 | | — | | — | | 27.3 | |
Other | | 91.8 | | — | | (6.3 | )(g) | 85.5 | |
| | 391.5 | | — | | (6.3 | ) | 385.2 | |
Total assets | | $ | 2,133.8 | | $ | 190.1 | | $ | (376.3 | ) | $ | 1,947.6 | |
| | | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Current maturities of long-term debt | | $ | 43.9 | | $ | — | | $ | — | | $ | 43.9 | |
Accounts and trade notes payable | | 164.6 | | — | | — | | 164.6 | |
Accrued liabilities | | 130.2 | | 70.0 | (c) | (15.5 | )(h) | 184.7 | |
Liabilities of Telair Cargo Group | | 52.1 | | (52.1 | )(b) | — | | — | |
Total current liabilities | | 390.8 | | 17.9 | | (15.5 | ) | 393.2 | |
Long-term debt, less current maturities | | 599.4 | | — | | (332.0 | )(i) | 267.4 | |
Deferred tax liabilities | | 139.1 | | — | | — | | 139.1 | |
Other liabilities and deferred income | | 62.7 | | — | | — | | 62.7 | |
| | 801.2 | | — | | (332.0 | ) | 469.2 | |
Equity: | | | | | | | | | |
Common stock | | 45.0 | | — | | — | | 45.0 | |
Capital surplus | | 442.2 | | — | | — | | 442.2 | |
Retained earnings | | 632.2 | | 128.2 | (d) | (28.8 | )(j) | 731.6 | |
Treasury stock | | (99.8 | ) | — | | — | | (99.8 | ) |
Accumulated other comprehensive loss | | (78.7 | ) | 44.9 | (e) | — | | (33.8 | ) |
Total AAR stockholders’ equity | | 940.9 | | 173.1 | | (28.8 | ) | 1,085.2 | |
Noncontrolling interest | | 0.9 | | (0.9 | )(e) | — | | — | |
Total equity | | 941.8 | | 172.2 | | (28.8 | ) | 1,085.2 | |
Total liabilities and equity | | $ | 2,133.8 | | $ | 190.1 | | $ | (376.3 | ) | $ | 1,947.6 | |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
AAR CORP. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Nine Months Ended February 28, 2015
(In millions, except per share data)
| | As Reported | | Pro Forma
Adjustments | | Pro Forma | |
Sales: | | | | | | | |
Sales from products | | $ | 656.9 | | $ | — | | $ | 656.9 | |
Sales from services | | 521.6 | | — | | 521.6 | |
| | 1,178.5 | | — | | 1,178.5 | |
Cost and operating expenses: | | | | | | | |
Cost of products | | 568.6 | | — | | 568.6 | |
Cost of services | | 430.2 | | — | | 430.2 | |
Selling, general and administrative | | 120.3 | | — | | 120.3 | |
| | 1,119.1 | | — | | 1,119.1 | |
Earnings from joint ventures | | 1.8 | | — | | 1.8 | |
Operating income | | 61.2 | | — | | 61.2 | |
Interest expense | | (19.4 | ) | 11.9 | (k) | (7.5 | ) |
Interest income | | 0.2 | | — | | 0.2 | |
Income from continuing operations before provision for income taxes | | 42.0 | | 11.9 | | 53.9 | |
Provision for income taxes | | 14.4 | | 4.2 | (l) | 18.6 | |
Income from continuing operations | | $ | 27.6 | | $ | 7.7 | | $ | 35.3 | |
| | | | | | | |
Per share information: | | | | | | | |
Income from continuing operations — basic | | $ | 0.70 | | | | $ | 0.90 | |
Income from continuing operations — diluted | | 0.69 | | | | 0.89 | |
| | | | | | | |
Weighted average shares outstanding — basic | | 38.7 | | | | 38.7 | |
Weighted average shares outstanding — diluted | | 39.2 | | | | 39.2 | |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Income
AAR CORP. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended May 31, 2014
(In millions, except per share data)
| | As Reported | | PSM in
Discontinued
Operations | | Disposition
of Telair
Cargo Group | | Pro Forma
Adjustments | | Pro Forma | |
Sales: | | | | | | | | | | | |
Sales from products | | $ | 1,226.3 | | $ | (64.5 | )(m) | $ | (260.5 | )(n) | $ | — | | $ | 901.3 | |
Sales from services | | 808.7 | | (0.3 | )(m) | (0.6 | )(n) | — | | 807.8 | |
| | 2,035.0 | | (64.8 | ) | (261.1 | ) | — | | 1,709.1 | |
Cost and operating expenses: | | | | | | | | | | | |
Cost of products | | 1,068.4 | | (72.9 | )(m) | (201.5 | )(n) | — | | 794.0 | |
Cost of services | | 626.4 | | (0.1 | )(m) | (0.1 | )(n) | — | | 626.2 | |
Selling, general and administrative | | 197.6 | | (4.6 | )(m) | (26.7 | )(n) | — | | 166.3 | |
| | 1,892.4 | | (77.6 | ) | (228.3 | ) | — | | 1,586.5 | |
Earnings from joint ventures | | 3.1 | | — | | (0.1 | )(n) | — | | 3.0 | |
Operating income | | 145.7 | | 12.8 | | (32.9 | ) | — | | 125.6 | |
Interest expense | | (42.0 | ) | 2.6 | (m) | 11.0 | (n) | 15.8 | (k) | (12.6 | ) |
Interest income | | 1.6 | | — | | — | | — | | 1.6 | |
Income from continuing operations before provision for income taxes | | 105.3 | | 15.4 | | (21.9 | ) | 15.8 | | 114.6 | |
Provision for income taxes | | 32.1 | | 3.5 | (m) | (4.2 | )(n) | 5.5 | (l) | 36.9 | |
Income from continuing operations | | $ | 73.2 | | $ | 11.9 | | $ | (17.7 | ) | $ | 10.3 | | $ | 77.7 | |
| | | | | | | | | | | |
Per share information: | | | | | | | | | | | |
Income from continuing operations — basic | | $ | 1.85 | | | | | | | | $ | 1.97 | |
Income from continuing operations — diluted | | 1.83 | | | | | | | | 1.94 | |
| | | | | | | | | | | |
Weighted average shares outstanding — basic | | 38.6 | | | | | | | | 38.6 | |
Weighted average shares outstanding — diluted | | 39.1 | | | | | | | | 39.1 | |
See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Income
AAR CORP. & Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(In millions)
(a) Represents gross cash proceeds from the Transaction of $705 million less estimated transaction costs of $18 million.
(b) To eliminate assets and liabilities held for sale related to Telair Cargo Group.
(c) Represents estimated income tax expense related to the Transaction gain on disposition.
(d) Represents the adjustment to retained earnings to reflect the estimated gain on the Transaction, including income tax effects.
Gross proceeds received from Buyer | | $ | 705.0 | |
Transaction expenses | | (18.0 | ) |
Net assets sold | | (444.8 | ) |
Accumulated other comprehensive loss realized | | (44.9 | ) |
Elimination of noncontrolling interest | | 0.9 | |
Estimated tax expense | | (70.0 | ) |
| | $ | 128.2 | |
(e) Represents the currency translation adjustment, minimum pension liabilities and noncontrolling interest related to the Telair Cargo Group.
(f) Represents cash paid to redeem 7.25% Senior Notes:
Redemption of 7.25% Senior Notes | | $ | 325.0 | |
Make-whole premium associated with 7.25% Senior Notes | | 45.0 | |
| | $ | 370.0 | |
(g) Represents unamortized deferred financing costs associated with the 7.25% Senior Notes.
(h) Represents estimated income tax benefit related to the redemption of the 7.25% Senior Notes at the statutory rate of 35%.
(i) Represents the redemption of $325 million of 7.25% Senior Notes including the unamortized premium of $7.0 million.
(j) Represents the adjustment to retained earnings to reflect the estimated loss on the redemption of the 7.25% Senior Notes:
Make-whole premium | | $ | 45.0 | |
Unamortized deferred financing costs | | 6.3 | |
Unamortized premium | | (7.0 | ) |
Estimated tax benefit | | (15.5 | ) |
| | $ | 28.8 | |
(k) Represents the reduction in interest expense, including amortization of deferred financing costs, from the redemption of $325 million of 7.25% Senior Notes. The make-whole premium, which is a non-recurring charge, has been excluded from the unaudited pro forma condensed consolidated statements of income for the nine months ended February 28, 2015 and for the year ended May 31, 2014.
(l) Represents the tax impact of the reduction in interest expense at the statutory rate of 35%.
(m) Adjustment to eliminate the historical sales and expenses of Precision Systems Manufacturing (“PSM”), including estimated taxes. Effective with the third quarter of fiscal 2015, PSM was reported as a discontinued operation in connection with the management’s decision to sell the business.
(n) Adjustment to eliminate the historical sales and expenses of the Telair Cargo Group, including estimated taxes.
