Document and Entity Information
Document and Entity Information | 3 Months Ended |
Aug. 31, 2016shares | |
Document and Entity Information | |
Entity Registrant Name | AAR CORP |
Entity Central Index Key | 1,750 |
Document Type | 10-Q |
Document Period End Date | Aug. 31, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --05-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 34,174,313 |
Document Fiscal Year Focus | 2,017 |
Document Fiscal Period Focus | Q1 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Millions | Aug. 31, 2016 | May 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 7.9 | $ 31.2 |
Accounts receivable, less allowances of $4.8 and $3.9, respectively | 238 | 248.3 |
Inventories | 450.9 | 452 |
Rotable spares and equipment on or available for short-term lease | 118.9 | 118.3 |
Deposits, prepaids and other | 33.7 | 31.9 |
Total current assets | 849.4 | 881.7 |
Property, plant and equipment, net of accumulated depreciation of $447.9 and $437.7, respectively | 231.4 | 238.1 |
Other assets: | ||
Goodwill | 115.5 | 117.3 |
Intangible assets, net of accumulated amortization of $26.3 and $26.5, respectively | 32.2 | 35.8 |
Equipment on or available for long-term lease | 96 | 81.1 |
Investment in joint ventures | 14.1 | 15 |
Other | 88.4 | 87 |
Total other assets | 346.2 | 336.2 |
Total assets | 1,427 | 1,456 |
Current liabilities: | ||
Current maturities of long-term debt | 7 | 12 |
Accounts and trade notes payable | 154.5 | 166.3 |
Accrued liabilities | 152.9 | 163.1 |
Total current liabilities | 314.4 | 341.4 |
Long-term debt, less current maturities | 142.8 | 136.1 |
Deferred tax liabilities | 34 | 34.3 |
Other liabilities and deferred income | 77.3 | 78.4 |
Total noncurrent liabilities | 254.1 | 248.8 |
Equity: | ||
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued | ||
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,161,322 and 44,867,703 shares at cost, respectively | 45.2 | 44.9 |
Capital surplus | 453.1 | 451.3 |
Retained earnings | 688.5 | 681.6 |
Treasury stock, 10,987,009 and 10,353,153 shares at cost, respectively | (282.7) | (267.6) |
Accumulated other comprehensive loss | (45.6) | (44.4) |
Total equity | 858.5 | 865.8 |
Total liabilities and equity | $ 1,427 | $ 1,456 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions | Aug. 31, 2016 | May 31, 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowances (in dollars) | $ 4.8 | $ 3.9 |
Property, plant and equipment, accumulated depreciation (in dollars) | 447.9 | 437.7 |
Intangible assets, accumulated amortization (in dollars) | $ 26.3 | $ 26.5 |
Preferred stock, par value (in dollars per share) | $ 1 | $ 1 |
Preferred stock, authorized shares | 250,000 | 250,000 |
Preferred stock, issued shares | 0 | 0 |
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, authorized shares | 100,000,000 | 100,000,000 |
Common stock, issued shares | 45,161,322 | 44,867,703 |
Treasury stock, shares | 10,987,009 | 10,353,153 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Sales: | ||
Sales from products | $ 213.9 | $ 212 |
Sales from services | 190.9 | 174.7 |
Total sales | 404.8 | 386.7 |
Costs and operating expenses: | ||
Cost of products | 179.5 | 178.2 |
Cost of services | 163.8 | 154.6 |
Selling, general and administrative | 44.8 | 40 |
Total costs and operating expenses | 388.1 | 372.8 |
Loss from joint ventures | (0.3) | |
Operating income | 16.7 | 13.6 |
Loss on extinguishment of debt | (0.3) | |
Interest expense | (1.3) | (2) |
Interest income | 0.1 | |
Income from continuing operations before provision for income taxes | 15.4 | 11.4 |
Provision for income taxes | 5.5 | 4 |
Income from continuing operations | 9.9 | 7.4 |
Discontinued operations: | ||
Operating loss | (0.6) | (3.7) |
Gain from contingent consideration | 27.7 | |
Provision for income taxes (benefit) | (0.2) | 8.5 |
Income (Loss) from discontinued operations | (0.4) | 15.5 |
Net income | $ 9.5 | $ 22.9 |
Earnings per share - basic: | ||
Earnings from continuing operations | $ 0.29 | $ 0.21 |
Earnings from discontinued operations | (0.01) | 0.44 |
Earnings per share - basic | 0.28 | 0.65 |
Earnings per share - diluted: | ||
Earnings from continuing operations | 0.29 | 0.21 |
Earnings from discontinued operations | (0.01) | 0.44 |
Earnings per share - diluted | $ 0.28 | $ 0.65 |
Condensed Consolidated Stateme5
Condensed Consolidated Statementsof Comprehensive Income - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Net income | $ 9.5 | $ 22.9 |
Other comprehensive income (loss), net of tax expense (benefit): | ||
Currency translation adjustments, net of tax of $0.1 and $0.1 | (1.5) | 0.2 |
Pension and other post-retirement plans: | ||
Amortization of actuarial loss and prior service cost included in net income, net of tax of $0.1 and $0.1 | 0.3 | 0.2 |
Other comprehensive income (loss), net of tax | (1.2) | 0.4 |
Comprehensive income | $ 8.3 | $ 23.3 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Currency translation adjustments, tax | $ 0.1 | $ 0.1 |
Amortization of actuarial loss and prior service cost included in net income, tax | $ 0.1 | $ 0.1 |
Condensed Consolidated Stateme7
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Cash flows used in operating activities: | ||
Net income | $ 9.5 | $ 22.9 |
Less: (Income) Loss from discontinued operations | 0.4 | (15.5) |
Income from continuing operations | 9.9 | 7.4 |
Adjustments to reconcile net income to net cash provided from (used in) operating activities: | ||
Depreciation and intangible amortization | 12.4 | 13.2 |
Amortization of stock-based compensation | 2.5 | 2 |
Amortization of overhaul costs | 4.5 | 4.7 |
Deferred tax provision (benefit) | (0.9) | (4) |
Gain on asset disposal | (2.6) | (1.1) |
Changes in certain assets and liabilities: | ||
Accounts receivable | 9.7 | (40) |
Inventories | 3 | (22.1) |
Rotable spares and equipment on or available for short-term lease | (0.7) | (0.7) |
Equipment on or available for long-term lease | (17.3) | (4.2) |
Accounts and trade notes payable | (8.4) | 8.6 |
Accrued and other liabilities | (5.8) | (24.9) |
Other, primarily program and overhaul costs | (6.8) | (3.3) |
Net cash used in operating activities - continuing operations | (0.5) | (64.4) |
Net cash provided from (used in) operating activities -discontinued operations | (0.6) | 0.7 |
Net cash used in operating activities | (1.1) | (63.7) |
Cash flows provided from (used in) investing activities: | ||
Property, plant and equipment expenditures | (9.4) | (15) |
Proceeds from asset disposals | 3 | 6.5 |
Proceeds from (Investment in) aircraft joint ventures | (0.2) | 2.5 |
Net cash used in investing activities - continuing operations | (6.6) | (6) |
Net cash provided from (used in) investing activities - discontinued operations | 27.3 | |
Net cash provided from (used in) investing activities | (6.6) | 21.3 |
Cash flows provided from (used in) financing activities: | ||
Short-term borrowings (repayments), net | 7 | 55 |
Reduction in long-term borrowings | (5) | (30.3) |
Cash dividends | (2.6) | (2.6) |
Purchase of treasury stock | (14.8) | (7.1) |
Other | 0.2 | 1.3 |
Net cash provided from (used in) financing activities - continuing operations | (15.2) | 16.3 |
Effect of exchange rate changes on cash | (0.4) | 0.1 |
Decrease in cash and cash equivalents | (23.3) | (26) |
Cash and cash equivalents, beginning of period | 31.2 | 54.7 |
Cash and cash equivalents, end of period | $ 7.9 | $ 28.7 |
Condensed Consolidated Stateme8
Condensed Consolidated Statements of Changes in Equity - 3 months ended Aug. 31, 2016 - USD ($) $ in Millions | Common Stock | Capital Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total |
Balance at May. 31, 2016 | $ 44.9 | $ 451.3 | $ 681.6 | $ (267.6) | $ (44.4) | $ 865.8 |
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 9.5 | 9.5 | ||||
Cash dividends | (2.6) | (2.6) | ||||
Stock option activity | 0.9 | 0.9 | 1.8 | |||
Restricted stock activity | 0.3 | 0.9 | (1.2) | |||
Repurchase of shares | (14.8) | (14.8) | ||||
Other comprehensive income, net of tax | (1.2) | (1.2) | ||||
Balance at Aug. 31, 2016 | $ 45.2 | $ 453.1 | $ 688.5 | $ (282.7) | $ (45.6) | $ 858.5 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Aug. 31, 2016 | |
Basis of Presentation | |
Basis of Presentation | Note 1 — Basis of Presentation AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our,” unless the context indicates otherwise. The accompanying Condensed Consolidated Financial Statements include the accounts of AAR and its subsidiaries after elimination of intercompany accounts and transactions. We have prepared these statements without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet as of May 31, 2016 has been derived from audited financial statements. To prepare the financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), 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 note disclosures, normally included in comprehensive financial statements prepared in accordance with GAAP, 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 our latest annual report on Form 10-K. In the opinion of management, 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, 2016, the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Comprehensive Income for the three month periods ended August 31, 2016 and 2015, the Condensed Consolidated Statements of Cash Flows for the three month periods ended August 31, 2016 and 2015, and the Condensed Consolidated Statement of Changes in Equity for the three month period ended August 31, 2016. The results of operations for such interim periods are not necessarily indicative of the results for the full year. New Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. This ASU will also supersede certain cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of the new standard by one year which will make the new standard effective for us beginning June 1, 2018. We are currently evaluating the impact of the adoption of this new standard on our consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets, including those classified as operating leases under the current accounting guidance. In addition, this ASU will require new qualitative and quantitative disclosures about the Company’s leasing activities. This new standard will be effective for us beginning June 1, 2019 with early adoption permitted. This ASU requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact of the adoption of this new standard on our consolidated financial statements. |
Discontinued Operations
Discontinued Operations | 3 Months Ended |
Aug. 31, 2016 | |
Discontinued Operations and Disposal Groups | |
Discontinued Operations | Note 2 — Discontinued Operations On March 26, 2015, we completed the sale of our Telair Cargo Group to TransDigm, Inc. The Telair Cargo Group was comprised of Telair International, Telair US, and Nordisk Aviation Products. Cash received at closing in the fourth quarter of fiscal 2015 before fees and expenses was $705 million. The sale also allowed for contingent consideration of up to $35 million based on the occurrence of certain post-closing events related to the A400M cargo system. We recognized a pre-tax gain on the sale (net of transaction expenses and fees) of $198.6 million in the fourth quarter of fiscal 2015. In the first quarter of fiscal 2016, we recognized a gain of $27.7 million net of expenses representing the resolution of the contingent consideration related to the A400M cargo system. During fiscal 2015, we also announced our intention to sell our Precision Systems Manufacturing (“PSM”) businesses comprised of our metal and composite machined and fabricated parts manufacturing operations. We recognized impairment charges of $57.5 million during fiscal 2015 to reduce the carrying value of the PSM business’s net assets to their expected value at the time of sale. During the first quarter of fiscal 2017, we decided to retain our composite manufacturing operations within our Expeditionary Services segment as a product line within our mobility products business. As a result, we reclassified our composite manufacturing operations into continuing operations for all periods presented. Also during the first quarter of fiscal 2017, we decided to shut down the metal machining operation which had been available for sale. The shut down of the metal machining operation was completed prior to the end of the first quarter. Telair Cargo Group and PSM’s metal machining operation are reported as discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. No amounts for general corporate overhead or interest expense were allocated to discontinued operations during the three months ended August 31, 2016 and 2015, respectively. Assets of discontinued operations of $0.9 million and $4.0 million at August 31, 2016 and May 31, 2016, respectively, were classified as Deposits, prepaids, and other on the Condensed Consolidated Balance Sheet. Liabilities of discontinued operations of $9.3 million and $12.5 million at August 31, 2016 and May 31, 2016, respectively, were classified as Accrued Liabilities on the Condensed Consolidated Balance Sheet. Operating income from discontinued operations for the three month periods ended August 31, 2016 and 2015 was comprised of the following: Three Months Ended August 31, 2016 2015 Sales $ $ Cost of sales ) ) Selling, general and administrative expenses ) ) Operating loss from discontinued operations $ ) $ ) Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to our continuing operations. |
Revenue Recognition
Revenue Recognition | 3 Months Ended |
Aug. 31, 2016 | |
Revenue Recognition | |
Revenue Recognition | Note 3 — Revenue Recognition Sales and related cost of sales for product sales are recognized upon shipment of the product to the customer. Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer. Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title. Under the majority of our expeditionary airlift services contracts, we are paid and record as revenue a fixed daily amount per aircraft for each day an aircraft is available to perform airlift services. In addition, we are paid and record as revenue an amount which is based on number of hours flown. Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer. We have adopted this accounting policy because at the time the customer-owned material is shipped back to the customer, all services related to that material are complete as our service agreements generally do not require us to provide services at customer sites. Furthermore, serviced units are typically shipped to the customer immediately upon completion of the related services. Sales and related cost of sales for certain large airframe maintenance contracts and performance-based logistics programs are recognized by the percentage of completion method, based on the relationship of costs incurred to date to the estimated total costs. Lease revenues are recognized as earned. Income from monthly or quarterly rental payments is recorded in the pertinent period according to the lease agreement. However, for leases that provide variable rents, we recognize lease income on a straight-line basis. In addition to a monthly lease rate, some engine leases require an additional rental amount based on the number of hours the engine is used in a particular month. Lease income associated with these contingent rentals is recorded in the period in which actual usage is reported to us by the lessee, which is normally the month following the actual usage. Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution, and maintenance and repair services. We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services. Since 2009, we have served as a subcontractor providing supply chain services and logistics support for the prime contractor on the KC10 Extender Contractor Logistics Support Program (“KC10 Program”). In February 2016, we submitted our final bid on the new KC10 Program contract, and in June 2016, the U.S. Air Force awarded the contract to a competitor. Due to the routine transition period of the services to the new provider, we expect to continue to provide KC10 logistics services through late fiscal 2017. Average annual revenue and gross profit recognized over the last three fiscal years for our KC10 logistics support services was $115.9 million and $7.4 million, respectively. Included in accounts receivable as of August 31, 2016 and May 31, 2016, are $26.9 million and $29.8 million, respectively, of unbilled accounts receivable related to the KC10 Program. These unbilled accounts receivable relate to costs we have incurred on parts that were requested and accepted by our customer to support the KC10 program. These costs have not been billed by us because the customer has not issued the final paperwork necessary to allow for billing. |
Accounting for Stock-Based Comp
Accounting for Stock-Based Compensation | 3 Months Ended |
Aug. 31, 2016 | |
Accounting for Stock-Based Compensation | |
Accounting for Stock-Based Compensation | Note 4 — Accounting for Stock-Based Compensation Restricted Stock In the three month period ended August 31, 2016, as part of our annual long-term stock incentive compensation, we granted 212,583 shares of performance-based restricted stock and 34,100 shares of time-based restricted stock to eligible employees. The average grant date fair value per share for these shares was $24.00. In June 2016, we also granted 50,000 shares of time-based restricted stock to members of the Board of Directors with a grant date fair value per share of $24.39. Expense charged to operations for restricted stock during the three month periods ended August 31, 2016 and 2015 was $1.3 million and $1.2 million, respectively. Stock Options In July 2016, as part of our annual long-term stock incentive compensation, we granted 678,000 stock options to eligible employees at an exercise price of $24.00 and weighted average fair value of $6.50. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Risk-free interest rate % Expected volatility of common stock % Dividend yield % Expected option term in years The total intrinsic value of stock options exercised during the three month periods ended August 31, 2016 and 2015 was $0.3 million and $0.8 million, respectively. Expense charged to operations for stock options during the three month periods ended August 31, 2016 and 2015 was $1.2 million and $0.8 million, respectively. |
Inventory
Inventory | 3 Months Ended |
Aug. 31, 2016 | |
Inventory | |
Inventory | Note 5 — Inventory The summary of inventories is as follows: August 31, May 31, 2016 2016 Raw materials and parts $ $ Work-in-process Aircraft and engine parts, components and finished goods Aircraft held for sale and related support parts $ $ We had eight aircraft held for sale comprised of five fixed-wing and three rotary-wing aircraft at August 31, 2016 and May 31, 2016. |
Supplemental Cash Flow Informat
Supplemental Cash Flow Information | 3 Months Ended |
Aug. 31, 2016 | |
Supplemental Cash Flow Information | |
Supplemental Cash Flow Information | Note 6 — Supplemental Cash Flow Information Three Months Ended August 31, 2016 2015 Interest paid $ $ Income taxes paid Income tax refunds received |
Financing Arrangements
Financing Arrangements | 3 Months Ended |
Aug. 31, 2016 | |
Financing Arrangements | |
Financing Arrangements | Note 7 — Financing Arrangements A summary of the carrying amount of our debt is as follows: August 31, May 31, 2016 2016 Revolving Credit Facility expiring March 24, 2020 with interest payable monthly $ $ Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly Note payable due March 9, 2017 with floating interest rate, payable semi-annually on June 1 and December 1 Capital lease obligations Total debt Current maturities of debt ) ) Debt issuance costs, net ) ) Long-term debt $ $ At August 31, 2016, our debt had a fair value that approximates the carrying value. These debt instruments are classified as Level 3 in the fair value hierarchy which is defined as a fair value determined based upon one or more significant unobservable inputs. We are subject to a number of covenants under our financing arrangements, including restrictions that 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 our shares and other matters. We are in compliance with all financial and other covenants under our financing arrangements as of August 31, 2016. Convertible Notes During the three-month period ended August 31, 2015, we repurchased $14.4 million of our outstanding 2.25% convertible notes due March 1, 2016 for $14.6 million cash including $0.2 million of accrued interest. We recognized a $0.3 million loss on the early extinguishment of the notes. Interest expense on our convertible notes during the three month periods ended August 31, 2016 and 2015 was $0 and $0.9 million, respectively. |
Earnings per Share
Earnings per Share | 3 Months Ended |
Aug. 31, 2016 | |
Earnings Per Share | |
Earnings Per Share | Note 8 — Earnings per Share The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of 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 and shares issuable upon vesting of restricted stock awards. In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method , our unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares. During periods of net income, the calculation of earnings per share for common stock excludes income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. A reconciliation of the computations of basic and diluted earnings per share information for the three month periods ended August 31, 2016 and 2015 is as follows: Three Months Ended August 31, 2016 2015 Basic and Diluted EPS: Income from continuing operations $ $ Less income attributable to participating shares ) ) Income from continuing operations attributable to common shareholders Income from discontinued operations attributable to common shareholders ) Net income attributable to common shareholders for earnings per share $ $ Weighted average common shares outstanding—basic Additional shares from assumed exercise of stock options Weighted average common shares outstanding—diluted Earnings per share — basic: Earnings from continuing operations $ $ Earnings (Loss) from discontinued operations ) Earnings per share — basic $ $ Earnings per share — diluted: Earnings from continuing operations $ $ Earnings (Loss) from discontinued operations ) Earnings per share — diluted $ $ At August 31, 2016 and 2015, respectively, stock options to purchase 2,041,000 shares and 148,000 shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of each of these options was greater than the average market price of the common shares during the interim periods then ended. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Loss | 3 Months Ended |
Aug. 31, 2016 | |
Accumulated Other Comprehensive Loss | |
Accumulated Other Comprehensive Loss | Note 9 — Accumulated Other Comprehensive Loss Changes in our accumulated other comprehensive loss (“AOCL”) by component for the three month periods ended August 31, 2016 and 2015 were as follows: Currency Pension Total Balance at June 1, 2016 $ ) $ ) $ ) Other comprehensive loss before reclassifications ) — ) Amounts reclassified from AOCL — Total other comprehensive income (loss) ) ) Balance at August 31, 2016 $ ) $ ) $ ) Balance at June 1, 2015 $ $ ) $ ) Reclassification within AOCL ) — Other comprehensive income before reclassifications from AOCL — Amounts reclassified from AOCL — Total other comprehensive income Balance at August 31, 2015 $ ) $ ) $ ) |
Sale of Product Line
Sale of Product Line | 3 Months Ended |
Aug. 31, 2016 | |
Sale of Product Line | |
Sale of Product Line | Note 10 — Sale of Product Line During the first quarter of fiscal 2017, we sold certain assets related to our temperature-controlled container product line to Sonoco Protective Solutions, Inc. (“Sonoco”) for $5 million. The sale price included $3 million paid at closing and $2 million in non-contingent, deferred consideration due over the next two years. We recognized a gain of $2.6 million on the sale. In conjunction with the sale, we also entered into a long-term manufacturing agreement to supply temperature-controlled containers to Sonoco over the next three years. |
Business Segment Information
Business Segment Information | 3 Months Ended |
Aug. 31, 2016 | |
Business Segment Information | |
Business Segment Information | Note 11 — Business Segment Information Consistent with how our chief operating decision making officer (Chief Executive Officer) evaluates performance and the way we are organized internally, we report our activities in two business segments: Aviation Services comprised of supply chain and maintenance, repair and overhaul (“MRO”) activities and Expeditionary Services comprised of airlift and mobility activities. The Aviation Services segment consists of businesses that provide spares and maintenance support for aircraft operated by our commercial and government/defense customers. Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets. We provide customized inventory supply chain management, performance based logistics programs, aircraft component repair management services, and aircraft modifications. The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components. We also sell and lease used commercial aircraft through joint venture arrangements. Cost of sales consists principally of the cost of product, direct labor, and overhead. The Expeditionary Services segment consists of businesses that provide products and services supporting the movement of equipment and personnel by the U.S. Department of Defense (“DoD”), foreign governments and non-governmental organizations. Sales in the Expeditionary Services segment are derived from the delivery of airlift services to mostly government and defense customers and the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force. We also provide system integration services for specialized command and control systems and composite manufacturing. Cost of sales consists principally of aircraft maintenance costs, depreciation, the cost of material to manufacture products, direct labor and overhead. The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the year ended May 31, 2016. Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments and utilizes gross profit as a primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around differences in products and services. Selected financial information for each segment is as follows: Three Months Ended August 31, 2016 2015 Net sales: Aviation Services $ $ Expeditionary Services $ $ Three Months Ended August 31, 2016 2015 Gross profit: Aviation Services $ $ Expeditionary Services $ $ The following table reconciles segment gross profit to income from continuing operations before provision for income taxes. Three Months Ended August 31, 2016 2015 Segment gross profit $ $ Selling, general and administrative ) ) Loss from joint ventures — ) Loss on extinguishment of debt — ) Interest expense ) ) Interest income — Income from continuing operations before provision for income taxes $ $ |
Legal Proceedings
Legal Proceedings | 3 Months Ended |
Aug. 31, 2016 | |
Legal Proceedings | |
Legal Proceedings | Note 12 — Legal Proceedings We are not a party to any material pending legal proceeding (including any governmental or environmental proceeding) other than routine litigation incidental to our business except for the following: DynCorp International LLC v. AAR Airlift Group, Inc. On November 5, 2015, AAR Airlift Group, Inc. (“AAR Airlift”), a wholly-owned subsidiary of AAR CORP. filed a motion to dismiss a First Amended Complaint filed by DynCorp International LLC (“DynCorp”) alleging that AAR Airlift misappropriated DynCorp’s trade secrets in connection with the submission of proposals pursuant to the solicitation issued by the Department of State Bureau of International Narcotics and Law Enforcement Affairs, Office of Aviation (“INL/A”) in support of the Global Aviation Support Services (“GASS”) program which was subsequently awarded to AAR Airlift on September 1, 2016. On January 14, 2016, the Court granted AAR Airlift’s motion to dismiss the First Amended Complaint. On February 2, 2016, DynCorp filed an appeal to the United States Court of Appeals for the Eleventh Circuit with respect to the Court’s order on the motion to dismiss and other orders issued by the Court in this case. DynCorp’s appeal is still pending. |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Discontinued Operations and Disposal Groups | |
Schedule of operating income from discontinued operations | Three Months Ended August 31, 2016 2015 Sales $ $ Cost of sales ) ) Selling, general and administrative expenses ) ) Operating loss from discontinued operations $ ) $ ) |
Accounting for Stock-Based Co22
Accounting for Stock-Based Compensation (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Accounting for Stock-Based Compensation | |
Schedule of assumptions used in the Black-Scholes option pricing model to estimate the fair value of stock option grant | Risk-free interest rate % Expected volatility of common stock % Dividend yield % Expected option term in years |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Inventory | |
Summary of inventories | August 31, May 31, 2016 2016 Raw materials and parts $ $ Work-in-process Aircraft and engine parts, components and finished goods Aircraft held for sale and related support parts $ $ |
Supplemental Cash Flow Inform24
Supplemental Cash Flow Information (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Supplemental Cash Flow Information | |
Schedule of supplemental information on cash flow | Three Months Ended August 31, 2016 2015 Interest paid $ $ Income taxes paid Income tax refunds received |
Financing Arrangements (Tables)
Financing Arrangements (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Financing Arrangements | |
Summary of carrying amount of debt | August 31, May 31, 2016 2016 Revolving Credit Facility expiring March 24, 2020 with interest payable monthly $ $ Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly Note payable due March 9, 2017 with floating interest rate, payable semi-annually on June 1 and December 1 Capital lease obligations Total debt Current maturities of debt ) ) Debt issuance costs, net ) ) Long-term debt $ $ |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Earnings Per Share | |
Reconciliation of the computations of basic and diluted earnings per share information | Three Months Ended August 31, 2016 2015 Basic and Diluted EPS: Income from continuing operations $ $ Less income attributable to participating shares ) ) Income from continuing operations attributable to common shareholders Income from discontinued operations attributable to common shareholders ) Net income attributable to common shareholders for earnings per share $ $ Weighted average common shares outstanding—basic Additional shares from assumed exercise of stock options Weighted average common shares outstanding—diluted Earnings per share — basic: Earnings from continuing operations $ $ Earnings (Loss) from discontinued operations ) Earnings per share — basic $ $ Earnings per share — diluted: Earnings from continuing operations $ $ Earnings (Loss) from discontinued operations ) Earnings per share — diluted $ $ |
Accumulated Other Comprehensi27
Accumulated Other Comprehensive Loss (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Accumulated Other Comprehensive Loss | |
Schedule of changes in accumulated other comprehensive loss ("AOCL") by component | Currency Pension Total Balance at June 1, 2016 $ ) $ ) $ ) Other comprehensive loss before reclassifications ) — ) Amounts reclassified from AOCL — Total other comprehensive income (loss) ) ) Balance at August 31, 2016 $ ) $ ) $ ) Balance at June 1, 2015 $ $ ) $ ) Reclassification within AOCL ) — Other comprehensive income before reclassifications from AOCL — Amounts reclassified from AOCL — Total other comprehensive income Balance at August 31, 2015 $ ) $ ) $ ) |
Business Segment Information (T
Business Segment Information (Tables) | 3 Months Ended |
Aug. 31, 2016 | |
Business Segment Information | |
Selected financial information for each reportable segment | Three Months Ended August 31, 2016 2015 Net sales: Aviation Services $ $ Expeditionary Services $ $ Three Months Ended August 31, 2016 2015 Gross profit: Aviation Services $ $ Expeditionary Services $ $ |
Schedule of reconciliation of segment gross profit to income from continuing operations before provision for income taxes | Three Months Ended August 31, 2016 2015 Segment gross profit $ $ Selling, general and administrative ) ) Loss from joint ventures — ) Loss on extinguishment of debt — ) Interest expense ) ) Interest income — Income from continuing operations before provision for income taxes $ $ |
Discontinued Operations (Detail
Discontinued Operations (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | ||
Aug. 31, 2016 | Aug. 31, 2015 | May 31, 2015 | May 31, 2016 | |
Operating income from discontinued operations | ||||
Operating loss from discontinued operations | $ (0.6) | $ (3.7) | ||
Telair Cargo Group and PSM | Discontinued Operations, Held-for-sale or Disposed of by Sale | ||||
Discontinued Operations | ||||
General corporate overhead | 0 | |||
Assets and liabilities held for sale related to discontinued operations | ||||
Assets of discontinued operations | 0.9 | $ 4 | ||
Liabilities of discontinued operations | 9.3 | 12.5 | ||
Operating income from discontinued operations | ||||
Sales | 0.6 | 2.5 | ||
Cost of sales | (1) | (5.3) | ||
Selling, general and administrative expenses | (0.2) | (0.9) | ||
Operating loss from discontinued operations | $ (0.6) | (3.7) | ||
Telair Cargo Group | Disposed of by sale | ||||
Discontinued Operations | ||||
Cash consideration received before fees and expenses | $ 705 | |||
Gain on sale of assets | 198.6 | |||
Telair Cargo Group | A400M | Disposed of by sale | ||||
Discontinued Operations | ||||
Gain recognized on sale of business | $ 27.7 | |||
Telair Cargo Group | A400M | Maximum | Disposed of by sale | ||||
Discontinued Operations | ||||
Contingent consideration | $ 35 | |||
Precision Systems Manufacturing | Discontinued Operations, Held-for-sale | ||||
Discontinued Operations | ||||
Recognized impairment charge | $ 57.5 |
Revenue Recognition (Details)
Revenue Recognition (Details) - USD ($) $ in Millions | 36 Months Ended | ||
May 31, 2016 | Aug. 31, 2016 | May 31, 2015 | |
KC10 logistics support services | |||
Revenue Recognition | |||
Average annual revenue recognized for KC10 logistics support services | $ 115.9 | ||
Average Annual Gross Profit Recognized On Support Services | $ 7.4 | ||
KC10 Supply Program | |||
Revenue Recognition | |||
Unbilled accounts receivable related to KC10 program | $ 26.9 | $ 29.8 |
Accounting for Stock-Based Co31
Accounting for Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | 3 Months Ended | ||
Jul. 31, 2016 | Jun. 30, 2016 | Aug. 31, 2016 | Aug. 31, 2015 | |
Stock options | ||||
Stock options, additional disclosures | ||||
Compensation expense | $ 1.2 | $ 0.8 | ||
Granted (in shares) | 678,000 | |||
Granted (in dollars per share) | $ 24 | |||
Weighted average fair value of stock options granted (in dollars per share) | $ 6.50 | |||
Total intrinsic value of stock options exercised | $ 0.3 | 0.8 | ||
Assumptions used in the Black-Scholes option pricing models to estimate the fair value of each stock option grant | ||||
Risk-free interest rate | 1.00% | |||
Expected volatility of common stock | 36.80% | |||
Dividend yield | 1.30% | |||
Expected option term in years | 4 years | |||
Restricted stock | ||||
Stock options, additional disclosures | ||||
Compensation expense | $ 1.3 | $ 1.2 | ||
Performance-based restricted stock | ||||
Stock options, additional disclosures | ||||
Granted (in shares) | 212,583 | |||
Granted (in dollars per share) | $ 24 | |||
Time-based restricted stock | ||||
Stock options, additional disclosures | ||||
Granted (in shares) | 34,100 | |||
Granted (in dollars per share) | $ 24 | |||
Time-based restricted stock | Board of Directors | ||||
Stock options, additional disclosures | ||||
Granted (in shares) | 50,000 | |||
Granted (in dollars per share) | $ 24.39 |
Inventory (Details)
Inventory (Details) $ in Millions | Aug. 31, 2016USD ($)aircraft | May 31, 2016USD ($) |
Inventory | ||
Raw materials and parts | $ 44.6 | $ 46.3 |
Work-in-process | 22.3 | 23.4 |
Aircraft and engine parts, components and finished goods | 368.3 | 366.6 |
Aircraft held for sale and related support parts | 15.7 | 15.7 |
Total inventories | $ 450.9 | $ 452 |
Inventory | ||
Number of aircrafts held for sale | aircraft | 8 | |
Fixed-wing aircraft | ||
Inventory | ||
Number of aircrafts held for sale | aircraft | 5 | |
Rotary-wing aircraft | ||
Inventory | ||
Number of aircrafts held for sale | aircraft | 3 |
Supplemental Cash Flow Inform33
Supplemental Cash Flow Information (Details) - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Supplemental Cash Flow Information | ||
Interest paid | $ 1 | $ 1.2 |
Income taxes paid | 1.5 | 23.5 |
Income tax refunds received | $ 1 | $ 1.1 |
Financing Arrangements (Details
Financing Arrangements (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Aug. 31, 2016 | Aug. 31, 2015 | May 31, 2016 | |
Financing Arrangements | |||
Total debt | $ 151.6 | $ 150.1 | |
Current maturities of debt | (7) | (12) | |
Debt issuance costs, net | (1.8) | (2) | |
Long-term debt | 142.8 | 136.1 | |
Loss on extinguishment of debt | $ 0.3 | ||
Capital lease obligations | |||
Financing Arrangements | |||
Total debt | 4.6 | 5.1 | |
Revolving Credit Facility expiring March 24, 2020 with interest payable monthly | |||
Financing Arrangements | |||
Total debt | 117 | 110 | |
Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly | |||
Financing Arrangements | |||
Total debt | 25 | 25 | |
Note payable due March 9, 2017 with floating interest rate, payable semi-annually on June 1 and December 1 | |||
Financing Arrangements | |||
Total debt | 5 | $ 10 | |
Convertible notes payable | |||
Financing Arrangements | |||
Interest expense related to convertible notes | $ 0 | 0.9 | |
Convertible notes payable due March 1, 2016 with interest at 2.25% payable semi-annually on March 1 and September 1 | |||
Financing Arrangements | |||
Amount of convertible notes repurchased | $ 14.4 | ||
Interest rate (as a percent) | 2.25% | ||
Cash paid for convertible notes repurchased | $ 14.6 | ||
Accrued interest | 0.2 | ||
Loss on extinguishment of debt | $ 0.3 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Earnings Per Share | ||
Effect to the participating securities as result of net loss | $ 0 | |
Basic and Diluted EPS: | ||
Income from continuing operations | 9.9 | $ 7.4 |
Less income attributable to participating shares | (0.1) | (0.2) |
Income from continuing operations attributable to common shareholders | 9.8 | 7.2 |
Income from discontinued operations attributable to common shareholders | (0.4) | 15.5 |
Net income attributable to common shareholders for earnings per share | $ 9.4 | $ 22.7 |
Weighted Average Shares: | ||
Weighted average common shares outstanding - basic | 33,900,000 | 34,700,000 |
Additional shares from the assumed exercise of stock options | 200,000 | 400,000 |
Weighted average common shares outstanding - diluted | 34,100,000 | 35,100,000 |
Earnings per share - basic: | ||
Earnings from continuing operations | $ 0.29 | $ 0.21 |
Earnings (Loss) from discontinued operations | (0.01) | 0.44 |
Earnings per share - basic | 0.28 | 0.65 |
Earnings per share - diluted: | ||
Earnings from continuing operations | 0.29 | 0.21 |
Earnings (Loss) from discontinued operations | (0.01) | 0.44 |
Earnings per share - diluted | $ 0.28 | $ 0.65 |
Antidilutive stock options excluded from the computation of diluted earnings per share (in shares) | 2,041,000 | 148,000 |
Accumulated Other Comprehensi36
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance | $ (44.4) | $ (40.4) |
Other comprehensive income (loss) before reclassifications from AOCL | (1.5) | 0.2 |
Amounts reclassified from AOCL | 0.3 | 0.2 |
Other comprehensive income (loss), net of tax | (1.2) | 0.4 |
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance | (45.6) | (40) |
Currency Translation Adjustments | ||
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance | (1.1) | 0.9 |
Reclassification within AOCL | (2) | |
Other comprehensive income (loss) before reclassifications from AOCL | (1.5) | 0.2 |
Other comprehensive income (loss), net of tax | (1.5) | 0.2 |
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance | (2.6) | (0.9) |
Pension Plans | ||
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax, Beginning Balance | (43.3) | (41.3) |
Reclassification within AOCL | 2 | |
Amounts reclassified from AOCL | 0.3 | 0.2 |
Other comprehensive income (loss), net of tax | 0.3 | 0.2 |
Accumulated Other Comprehensive Income (Loss), Net of Tax, Ending Balance | $ (43) | $ (39.1) |
Sale of Product Line (Details)
Sale of Product Line (Details) - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Discontinued Operations | ||
Amount received from sale of assets | $ 3 | $ 6.5 |
Temperature-controlled container product line | Disposed of by sale | ||
Discontinued Operations | ||
Sales price | 5 | |
Amount received from sale of assets | 3 | |
Non-contingent deferred consideration amount in the sales price | $ 2 | |
Non-contingent deferred consideration due over the period | 2 years | |
Gain on sale of assets | $ 2.6 |
Business Segment Information (D
Business Segment Information (Details) $ in Millions | 3 Months Ended | |
Aug. 31, 2016USD ($)segment | Aug. 31, 2015USD ($) | |
Business Segment Information | ||
Number of business segments | segment | 2 | |
Business Segment Information | ||
Sales | $ 404.8 | $ 386.7 |
Gross Profit | 61.5 | 53.9 |
Aviation Services | ||
Business Segment Information | ||
Sales | 334.6 | 315.8 |
Gross Profit | 53.4 | 49.9 |
Expeditionary Services | ||
Business Segment Information | ||
Sales | 70.2 | 70.9 |
Gross Profit | $ 8.1 | $ 4 |
Business Segment Information -
Business Segment Information - Recon of Gross Profit to Income (Details) - USD ($) $ in Millions | 3 Months Ended | |
Aug. 31, 2016 | Aug. 31, 2015 | |
Reconciliation of segment gross profit to income from continuing operations before provision for income taxes | ||
Segment gross profit | $ 61.5 | $ 53.9 |
Selling, general and administrative | (44.8) | (40) |
Loss from joint ventures | (0.3) | |
Loss on extinguishment of debt | (0.3) | |
Interest expense | (1.3) | (2) |
Interest income | 0.1 | |
Income from continuing operations before provision for income taxes | $ 15.4 | $ 11.4 |