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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1994 COMMISSION FILE NUMBER 1-6263
AAR CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2334820
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1111 NICHOLAS BOULEVARD, ELK GROVE VILLAGE, ILLINOIS 60007
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (708) 439-3939
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ----------------------------------- -----------------------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
At June 30, 1994, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was approximately $218,718,000. The calculation of
such market value has been made for the purposes of this report only and should
not be considered as an admission or conclusion by the Registrant that any
person is in fact an affiliate of the Registrant.
On June 30, 1994, there were 15,906,792 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the Registrant's Annual Meeting
of Stockholders, to be held October 12, 1994, is incorporated by reference in
Part III to the extent described therein.
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TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business..................................................................................... 2
Item 2. Properties................................................................................... 3
Item 3. Legal Proceedings............................................................................ 4
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 4
Executive Officers of the Registrant......................................................... 4
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.................................................................................... 6
Item 6. Selected Financial Data...................................................................... 7
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition........................................................................ 8
Item 8. Financial Statements and Supplementary Data.................................................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 36
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 37
Item 11. Executive Compensation....................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 37
Item 13. Certain Relationships and Related Transactions............................................... 37
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K...................................... 38
39
SIGNATURES..................................................................................................
1
PART I
ITEM 1. BUSINESS
AAR CORP. and its subsidiaries are referred to herein collectively as the
"Company," unless the context indicates otherwise. The Company was organized in
1955 as the successor to a business founded in 1951 and was reincorporated in
Delaware in 1966. The Company supplies a variety of products and services for
aviation in the United States and abroad.
Certain of the Company's aviation-related activities and products are
subject to licensing, certification and other requirements imposed by the
Federal Aviation Administration and other regulatory agencies, both domestic and
foreign. The Company believes that it has all licenses and certifications that
are material to the conduct of its business.
The Company's trading activities include the purchase, sale and lease of a
wide variety of new, used and overhauled aviation products, principally aircraft
equipment such as engines, avionics, accessories, airframe and engine parts and
components. The Company also provides customized inventory supply and management
programs for certain aircraft and engine parts in support of customer
maintenance activities. The Company is also a distributor of new aviation
hardware and parts. The Company's primary sources of aviation products are
domestic and foreign airlines, independent aviation service companies and
airframe, engine and other original equipment manufacturers. The Company's
trading activities also include the purchase, sale, lease and lease financing of
new and used jet aircraft.
The Company provides a wide range of services, parts, component exchange and
other products as part of its overhaul activities. The Company overhauls,
repairs and modifies components for commercial and military aircraft, including
landing gear and engine components for most models of commercial aircraft. It
provides aircraft terminal services (fueling and aircraft storage), maintenance,
modification, special equipment installation and painting services for
commercial and business aircraft.
The Company manufactures, installs and repairs specialized aviation
products, including pallets, containers, cargo handling systems and lightweight
air logistics shelters, primarily for domestic and foreign military
organizations, airframe manufacturers, commercial airlines and others.
The Company furnishes Aviation Services directly through its own employees.
Domestic and foreign airlines, airframe, engine and other original equipment
manufacturers, aircraft leasing companies, domestic and foreign military
organizations and independent aviation support companies are the principal
customers for the Company's aviation trading activities. Principal customers of
the Company's aviation overhaul activities are commercial airlines, aircraft
leasing companies, business aircraft operators, military overhaul depots,
military contractors and original equipment manufacturers. Sales of Aviation
Services to commercial airlines are generally affected by such factors as the
number, type and average age of aircraft in service, the levels of aircraft
utilization (E.G., frequency of schedules), the number of airline operators and
the level of sales of new and used aircraft.
The Company is a leading independent supplier of Aviation Services to the
aviation aftermarket, which is highly competitive. Competition is based on
quality, ability to provide a broad range of products and services, speed of
delivery and price. During the past three years, demand for aviation aftermarket
products and services declined as airlines reduced operations and curtailed
purchases to counter the impact of the airlines' reduced traffic demand which
has not until recently showed signs of improvement. Additionally, during this
period many airlines continued experiencing financial losses, and certain
carriers ceased operations. Aggressive price competition among the airlines has
led carriers to continue to reduce costs and to defer or curtail
2
nonessential spending. The ongoing soft demand for aviation products and
services was exacerbated by increased competition due to availability of parts
removed from grounded aircraft and from entry onto the market of inventories
from liquidated airlines. Aerospace manufacturers have over the last few years
experienced reduced demand caused by cancellations of new aircraft orders and
government spending cuts reducing their parts support requirements.
The Company competes with other independent distributors and independent
support facilities, as well as with airlines and original equipment
manufacturers, including aerospace equipment manufacturers, some of which have
greater resources than the Company. In certain of its leasing and commercial jet
aircraft trading activities, the Company faces competition from financial
institutions, syndicators, commercial and specialized leasing companies and
other entities that provide financing, some of which have greater resources than
the Company. The Company believes it has maintained a satisfactory competitive
position.
In addition to its aviation-related activities, the Company manufactures
highly engineered proprietary products, including industrial floor cleaning and
materials handling equipment and nuclear shielding material. The Company sells
these products directly and through independent distributors to a wide variety
of commercial customers and domestic and foreign governments. The markets for
these products are highly competitive, based on price, quality and availability.
At May 31, 1994, backlog believed to be firm was approximately $84,550,000
compared to $77,520,000 at May 31, 1993. An additional $82,620,000 of unfunded
government options on awarded contracts also existed at May 31, 1994. Of the
1994 year-end backlog that is firm, $41,460,000 is attributable to government
contracts for products related to the U.S. Government's rapid deployment
programs. It is expected that approximately $70,523,000 of the backlog will be
shipped in fiscal 1995.
Sales to the United States government and its agencies were approximately
$77,500,000 (19.0% of total net sales), $57,600,000 (15.0% of total net sales)
and $54,000,000 (12.8% of total net sales) in fiscal 1994, 1993 and 1992,
respectively. Because such sales are subject to competitive bidding and
government funding, no assurance can be given that such sales will continue at
levels previously experienced. The majority of the Company's government
contracts are for aviation products and services used for ongoing routine
military logistic support activities; unlike weapons systems and other high
technology military requirements, these products and services are less likely to
be affected by reductions in defense spending. The Company's contracts with the
United States government and its agencies are typically firm agreements to
provide aviation products and services at a fixed price and have a term of one
year or less, frequently subject to extension for one or more additional periods
of one year at the option of the government agency. Although the Company's
government contracts are subject to termination at the election of the
government, in the event of such a termination the Company would be entitled to
recover from the government all allowable costs incurred by the Company through
the date of termination.
At May 31, 1994, the Company employed approximately 1,860 persons worldwide.
For information concerning the Company's Business Segment activities,
including classes of similar products and services, see Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition." For
information concerning export sales, see "Business Segment Information" in Note
1 of Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
Aviation trading activities are conducted from two buildings in Elk Grove
Village, Illinois, one owned by the Company, the other subject to an industrial
revenue bond mortgage until 1995. In addition to warehouse space, which is
mechanized for efficient access to the diverse inventory, these facilities
include executive offices, sales offices and a service center. Warehouse
facilities are
3
leased in Cerritos, California and Hawthorne, New York for the purpose of
aviation hardware distribution and in Hamburg, Germany and Nantgarw, United
Kingdom for the purpose of aviation part and component distribution.
Aviation overhaul facilities are located in The Netherlands near Schiphol
International Airport (owned by the Company); Garden City, New York (owned by
the Company); Frankfort, New York (subject to an industrial revenue bond lease
to the Company until 2001, at which time the Company shall purchase the facility
for a nominal consideration); Windsor, Connecticut (in a building owned by the
Company); Miami, Florida (in leased facilities near the airport); Singapore (in
leased facilities adjacent to the airport); London, England (in leased
facilities); Paris, France (in leased facilities) and Oklahoma City, Oklahoma
(in facilities leased from airport authorities). The Company's experience
indicates that lease renewal is available on reasonable terms consistent with
its business needs.
The Company's principal manufacturing activities are conducted at owned
facilities in Cadillac and Livonia, Michigan. Industrial floor cleaning
equipment is manufactured in a plant located in Aberdeen, North Carolina
(subject to an industrial revenue bond lease to the Company until October 1994,
at which time the Company shall purchase the facility for a nominal
consideration) with a sales office in Bad Hamburg, Germany.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
SUPPLEMENTAL INFORMATION:
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the Company is set forth
below:
NAME AGE PRESENT POSITION WITH THE COMPANY
- - --------------------------------------------- --- ------------------------------------------------------------
Ira A. Eichner............................... 63 Chairman of the Board and Chief Executive Officer; Director
David P. Storch.............................. 41 President and Chief Operating Officer; Director
Robert D. Johnson............................ 47 Vice President-Services and Manufacturing Group
Howard A. Pulsifer........................... 51 Vice President; General Counsel; Secretary
The term of each of the current executive officers of the Company expires on
October 12, 1994, the date of the annual meeting of the Board of Directors,
which will be held immediately after the 1994 Annual Meeting of Stockholders.
Mr. Eichner, the founder of the Company, has been Chairman of the Board of
the Company since 1973, and his directorship expires at the 1996 Annual Meeting.
Mr. Eichner has been a director and the Chief Executive Officer of the Company
since 1955. Mr. Eichner also serves as a director of United Stationers, Inc. Mr.
Eichner is Mr. Storch's father-in-law.
Mr. Storch was elected President of the Company in July, 1989. He had been a
Vice President of the Company since January, 1988. Mr. Storch joined the Company
in 1979 and had been President of a major subsidiary since June, 1984. Mr.
Storch has been a director of the Company since 1989, and his directorship
expires at the 1994 Annual Meeting. Mr. Storch is Mr. Eichner's son-in-law.
4
Mr. Johnson joined the Company as Vice President-Services and Manufacturing
Group in June, 1993. He was previously with the General Electric Company for
more than 24 years in various management positions, most recently as General
Manager of several General Electric aircraft engines service and overhaul
operations. Mr. Johnson resigned from the Company effective July 6, 1994.
Mr. Pulsifer joined the Company as General Counsel in August, 1987 and was
elected a Vice President in October, 1989 and Secretary in May, 1990. He was
previously with United Airlines, Inc. for 14 years, most recently as Senior
Counsel.
5
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange. On June 30, 1994, there were approximately 14,500
holders of the Common Stock of the Company, including participants in security
position listings.
Certain of the Company's debt agreements contain provisions restricting the
payment of dividends or repurchase of its shares. See Note 2 of Notes to
Consolidated Financial Statements included herein. Under the most restrictive of
these provisions, the Company may not pay dividends (other than stock dividends)
or acquire its capital stock if after giving effect thereto the aggregate
amounts paid on or after June 1, 1991 exceed the sum of (i) $29,300,000 plus
(ii) 50% of Consolidated Net Income of the Company after June 1, 1991. At May
31, 1994, unrestricted consolidated retained earnings available for payment of
dividends and purchase of the Company's shares totalled approximately
$10,320,000. Effective June 1, 1994 unrestricted consolidated retained earnings
increased to $15,067,000 due to the inclusion of 50% of the Consolidated Net
Income of the Company for fiscal 1994.
The table below sets forth for each quarter of the fiscal year indicated the
reported high and low sales price of the Company's Common Stock on the New York
Stock Exchange and the amount of dividends declared.
FISCAL 1994 FISCAL 1993
------------------------------- ----------------------------
PER COMMON SHARE: MARKET PRICES MARKET PRICES
- - ---------------------------- -------------------- QUARTERLY ----------------- QUARTERLY
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- - ---------------------------- --------- --------- --------- --------- ------ ---------
First..................... 14 1/8 12 5/8 $.12 13 5/8 11 7/8 $.12
Second.................... 14 1/4 12 5/8 .12 12 1/2 11 1/8 .12
Third..................... 16 5/8 13 1/2 .12 12 7/8 11 .12
Fourth.................... 17 3/8 14 3/8 .12 14 5/8 11 5/8 .12
--------- ---------
$.48 $.48
--------- ---------
--------- ---------
6
ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEAR ENDED MAY 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS:
- - ----------------------------------------------
Net sales................................... $407,754 $382,780 $422,657 $466,542 $444,875
Gross profit................................ 71,910 68,436 83,440 92,246 100,763
Operating income............................ 21,824 5,343(2) 20,730(3) 30,401(4) 46,851
Interest expense............................ 9,564 8,107 8,356 10,073 9,989
Income (loss) before provision (benefit) for
income taxes.............................. 13,684 (1,917)(2) 13,620(3) 21,351(4) 38,155
Net income.................................. 9,494 283(2) 10,020(3) 14,801(4) 25,655
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Per share data:
Net income................................ $ .60 $ .02(2) $ .63(3) $ .93(4) $ 1.60
Cash dividends............................ $ .48 $ .48 $ .48 $ .48 $ .47
Average common shares
outstanding............................. 15,904 15,855 15,895 15,952 16,053
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
FINANCIAL POSITION AT YEAR END:
- - ------------------------------------------------------------
Working capital............................. $240,009(1) $193,399 $197,246 $189,172 $184,932
Total assets................................ 417,626 365,151 395,351 379,958 388,521
Short-term debt............................. 568(1) 25,025 25,005 16,500 33,821
Long-term debt.............................. 115,729(1) 66,298 67,323 68,953 72,329
Total debt.................................. 116,297(1) 91,323 92,328 85,453 106,150
Stockholders' equity........................ 189,488 189,216 196,737 193,778 189,548
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Number of shares outstanding at end of
year...................................... 15,906 15,900 15,899 15,891 16,082
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Book value per share of common stock........ $ 11.91 $ 11.90 $ 12.37 $ 12.19 $ 11.79
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<FN>
- - ------------------------
Notes:
(1) In October 1993, the Company sold $50,000,000 of unsecured 7.25% Notes due
October 15, 2003. Proceeds were used to repay short-term bank borrowings
and utilized in the Company's operations.
(2) Fiscal 1993 includes non-cash restructuring expenses of $11,000,000 (or
$7,200,000 after-tax) primarily related to the writedown of certain
inventories to reflect the impact of market conditions (See Note 11 of
Notes to Consolidated Financial Statements) and a reduction in income tax
expense of $1,200,000 (See Note 3 of Notes to Consolidated Financial
Statements).
(3) Fiscal 1992 includes expenses of $5,800,000 (or $3,800,000 after-tax)
related to the Company's restructuring of its Oklahoma City maintenance
subsidiary (See Note 11 of Notes to Consolidated Financial Statements) and
a reduction in income tax expense of $700,000 (See Note 3 of Notes to
Consolidated Financial Statements).
(4) Fiscal 1991 includes expenses of $3,300,000 (or $2,150,000 after-tax)
primarily related to the restructuring of the Oklahoma City maintenance
subsidiary and an airline customer bankruptcy.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company reports its activities in one business segment: Aviation
Services. The table below sets forth net sales for the Company's classes of
similar products and services within this segment for each of the last three
fiscal years ended May 31.
THREE-YEAR NET SALES SUMMARY
Any comparison of net sales for the last three fiscal years should be viewed
in light of the economic weakness of the aerospace/aviation industry during much
of this period. The Company believes that industry conditions have stabilized
and in certain respects improved toward the end of this time frame. Airlines, in
general, have recently experienced increased aircraft utilization, seen growth
in revenue passenger and freight miles and posted modest operating gains. The
Company continued to aggressively pursue market opportunities, resulting in
improved revenues in fiscal 1994.
A decline in sales of aviation fasteners, due to lower demand by
aerospace/aviation manufacturers, offset what otherwise would have been an
increase in trading sales during the three year period. Further affecting the
decline in fastener sales was the Company's election not to make significant new
investments in inventory for fastener programs with uncertain return potential
in a shrinking market. During this period the Company experienced an increase in
engine and airframe parts sales.
Fiscal 1994 overhaul sales increased from the prior year in part due to an
increase in maintenance services at the Company's Oklahoma City facility.
Additionally, sales of manufactured products increased in fiscal 1994 from the
prior year due primarily to sales to the U.S. government for the rapid
deployment program.
The Company believes it is well positioned to take advantage of available
opportunities in the improving aerospace/aviation industry.
FOR THE YEAR ENDED MAY 31,
----------------------------
1994 1993 1992
-------- -------- --------
(000'S OMITTED)
Net Sales:
Trading........................................... $199,433 $202,464 $209,410
Overhaul.......................................... 112,100 102,382 115,250
Manufacturing..................................... 96,221 77,934 97,997
-------- -------- --------
$407,754 $382,780 $422,657
-------- -------- --------
-------- -------- --------
FISCAL 1994 COMPARED WITH FISCAL 1993
The Company's operating results improved in fiscal 1994 despite the highly
competitive and economically weak aerospace/aviation market. Consolidated net
sales for fiscal 1994 increased $24,974,000 or 6.5% over the prior fiscal year
primarily as a result of increased manufacturing and overhaul sales. Net income
increased $9,211,000 over the prior year, which included restructuring expenses
of $11,000,000 ($7,200,000 after tax) related to the write-down of certain
inventories. Excluding restructuring expenses, net income increased $2,011,000
or 26.9% as the result of sales increases and reduced selling, general and
administrative costs.
Manufacturing sales increased $18,287,000 or 23.5%, primarily from the sale
of products to the U.S. government. Overhaul sales increased $9,718,000 or 9.5%
due to increased demand for maintenance services at the Oklahoma City facility
and increased sales of rotable landing gear inventory. Trading sales increased
in its primary products, such as airframe and engine parts;
8
however, these gains were offset by reduced demand for aviation fasteners and
the Company's decision not to enter into fastener programs requiring significant
inventory investment with uncertain returns. These factors resulted in an
overall decline in trading sales of $3,031,000 or 1.5%.
Consolidated gross profit increased $3,474,000 or 5.1% over the prior year
primarily due to increased sales revenue. Fiscal 1994 consolidated gross profit
included $700,000 from a reduction in the interest rate on a nonrecourse
leveraged lease obligation negotiated by the Company, and $1,300,000 from
leveraged lease repricing required to adjust for tax rate differentials. The
consolidated gross profit margin was slightly lower than the prior year, down
from 17.9% to 17.6%. Trading and manufacturing margins improved year over year
while overhaul margins declined. The overhaul margin decline was due to
increased price competition resulting from maintenance overcapacity in the
industry and airlines using lower-cost serviceable replacement components in
preference to overhaul services.
Consolidated operating income increased $16,481,000 over the prior year.
Without the fiscal 1993 restructuring expenses of $11,000,000, operating income
increased $5,481,000 or 33.5% due primarily to the increased sales and a
reduction of $2,007,000 in selling, general and administrative costs. The
Company maintained its effort to contain costs, reduce nonessential spending and
create operating efficiencies wherever possible.
Consolidated net income increased $9,211,000 notwithstanding increased
interest expense of $1,457,000 due to higher fixed-rate interest on debt from
the issuance of $50 million of new 7.25% long-term notes issued in October,
1993. Proceeds from this fixed-rate debt repaid $28 million of short-term bank
borrowings at lower interest rates. Higher margins on fiscal 1994 export sales
reduced the effective tax rate, which also contributed to the net income
increase.
FISCAL 1993 COMPARED WITH FISCAL 1992
Consolidated net sales for fiscal 1993 decreased $39,877,000 or 9% from the
prior fiscal year. Net income decreased $9,737,000 or 97% as the result of the
sales decrease, restructuring expenses of $11,000,000 (or $7,200,000 after tax)
and a reduction in the consolidated gross profit margin. The operating results
of each major business activity in fiscal 1993 were adversely impacted by the
continued weak economic environment, particularly in the aerospace/aviation
market.
Trading activities benefitted from increased sales of its primary products,
such as airframe and engine parts. Even with these increases, trading sales
decreased $6,946,000 or 3%, primarily due to reduced demand for aviation
fasteners. The demand for fasteners decreased due to aerospace/aviation
manufacturers' reduced requirements caused by delays and cancellations of new
aircraft orders and government budget cuts affecting certain defense
contractors. The sales of overhaul services decreased $13,986,000 or 12%,
primarily as a result of lower demand and the effect of downsizing the Oklahoma
City maintenance facility. The lower demand was caused by airlines downsizing
their active fleets and focusing on lowering maintenance costs. The resulting
maintenance overcapacity increased competition which resulted in lower prices
and a Company decision not to compete for certain overhaul work. Also, airlines
used lower-cost serviceable components, abundant in the marketplace, in
preference to overhauling certain units. Simultaneously, the Company took steps
within its overhaul activities to reduce costs. Manufacturing sales decreased
$18,945,000, or 20%; however, it should be noted that fiscal 1992 included
$11,000,000 of non-recurring product sales for the Persian Gulf conflict. Sales
for the government's rapid deployment program increased during fiscal 1993 and
the order backlog was higher at the end of fiscal 1993 as compared to the same
period in fiscal 1992. Further, sales were reduced due to the reduction and
deferral of orders for commercial and military aircraft cargo systems
9
and spare parts, and lower sales at the Company's floor maintenance equipment
unit due to a recession-induced decline in demand, intense competition and the
effect of converting to a direct distribution system in Europe.
Consolidated gross profit contribution decreased $15,004,000 or 18% from
fiscal 1992 due to a reduction in sales and a decrease in consolidated gross
profit margin from 19.7% to 17.9%. Lower production and sales levels in relation
to fixed costs at a few units, as well as increased competition, hampered the
margin; the Company's floor maintenance equipment unit was most affected
incurring a loss for the year. Following aggressive cost-reduction efforts and
an improvement in sales, operating performance significantly improved in the
third and fourth quarters. The consolidated gross profit margin benefitted from
sales of airframe and engine parts at margins consistent with the prior year and
the effect of cost reductions at the Oklahoma City maintenance facility. Cost
reductions implemented company wide during fiscal 1993 benefitted ongoing
operations.
The Company reduced selling, general and administrative expenses $4,817,000
or 8% in response to a decrease in sales and competitive market conditions. The
Company continued its focus on cost containment and improvement in operating
efficiencies in an effort to maintain its operating margins.
In February, 1993 the Company recorded noncash restructuring expenses of
$11,000,000 for the writedown of certain inventories and associated costs. The
inventories most affected were parts for older-model commercial aircraft,
certain manufactured products and material supporting original equipment
manufacturers. The writedown resulted from the Company's assessment of the
impact on inventories of then very recent changes in the aerospace/aviation
market, as well as the continued recessionary environment. The Company believes
the reduction in inventory value improved its competitive position and
facilitated sale of the inventories.
The income tax benefit of $2,200,000 reported in fiscal 1993 included an
expense reduction of $1,200,000 from the reversal of income tax liabilities. The
income tax benefit before the expense reduction was higher than that determined
using the statutory rate as the result of state income tax refunds and the
effect of tax benefits on exempt earnings from export sales. The provision for
income taxes in fiscal 1992 was lower than the amount computed using the
statutory Federal income tax rate due to tax benefits generated from export
sales and an income tax expense reduction of $700,000. The income tax expense
reductions were for income tax liabilities recorded in prior years, but no
longer required due to the conclusion by the Internal Revenue Service of its
examination of the Company's Federal income tax returns for prior years.
Fourth quarter fiscal 1993 sales decreased $8,009,000 or 7% as compared to
the same quarter of the prior year; however, net income increased $300,000.
Sales and earnings continued to be impacted by adverse market conditions. The
fourth quarter fiscal 1993 operating results improved from the third quarter
fiscal 1993 as the result of a 22% increase in consolidated sales and lower
operating costs. Fiscal 1992's fourth quarter operating results included
restructuring expenses of $5,800,000, or $3,800,000 after tax, related to the
Oklahoma City maintenance facility.
FISCAL 1992
Consolidated net sales decreased $43,885,000 or 9% primarily as a result of
a cessation of shipments of manufactured logistics support products for the
Allied Coalition in the Persian Gulf conflict and reduced sales at the Company's
Oklahoma City maintenance facility amounting to $53,000,000 in the prior year.
These reductions were partially mitigated by increases in certain trading and
overhaul activities stemming from the provisioning of transitioned aircraft,
maintenance part activities, and component overhaul activities, despite the
difficult economic environment and airline customer's curtailment of
nonessential spending.
10
Consolidated operating income decreased $9,671,000 primarily due to the
reductions in consolidated net sales described above and restructuring expenses
of $5,800,000 recorded for restructuring and reduction in size of the Company's
Oklahoma City maintenance facility. The reduction in the overhaul subsidiary
resulted from continued operating losses being experienced by an industry-wide
overcapacity for certain maintenance services, which led to facility and
workforce underutilization.
Consolidated net income decreased $4,781,000 as a result of the events
impacting consolidated net sales and the restructuring expenses previously
described. The impact of these events were moderated by interest expense savings
attributed to a decline in short-term interest rates and a lower provision for
income taxes resulting from tax benefits generated from export sales and a
reduction of previously recorded tax liabilities no longer required due to the
conclusion by the Internal Revenue Service of its examination of previous years
Federal income tax returns of the Company.
FINANCIAL CONDITION
AT MAY 31, 1994 COMPARED WITH MAY 31, 1993
In fiscal 1994, the Company's primary sources of liquidity were the proceeds
of $50,000,000 from the issuance of 7.25% unsecured ten-year notes in October,
1993 and cash provided from operations of $6,697,000. The proceeds from the
issuance of the notes were used to repay all outstanding short-term bank debt,
thus making available to the Company the full amount of its credit lines and
borrowing facilities. The balance of the note proceeds were used for working
capital requirements, primarily inventory and accounts receivable. Net cash
provided from operating activities decreased $10,109,000 in fiscal 1994 from the
prior year as a result of new inventory investments to support government
contracts and deposits made on purchases of inventory (see note 7 in Notes to
Consolidated Financial Statements) to support new inventory provisioning
contracts entered into during fiscal 1994. Cash provided in excess of these
requirements was used primarily for capital expenditures and to pay dividends.
The Company's financial condition remains solid. The Company improved its
current ratio and working capital position during the year in spite of operating
in an aerospace/aviation industry that continued to be financially troubled
although improving. The Company's improved financial condition and available
sources of financing, including its unused bank credit lines and facilities
amounting to $132,500,000, will enable the Company to meet its anticipated
working capital requirements and pursue advantageous business opportunities.
A summary of key indicators of financial condition and lines of credit
follows:
MAY 31,
------------------
DESCRIPTION 1994 1993
- - ------------------------------------------------------------ -------- --------
(000'S OMITTED)
Working capital............................................. $240,009 $193,399
Current ratio............................................... 4.5:1 3.7:1
Bank credit lines:
Borrowings outstanding.................................... $ -- $ 24,000
Available but unused lines................................ 132,500 103,700
-------- --------
Total credit lines.............................. $132,500 $127,700
-------- --------
-------- --------
Long-term debt, less current maturities..................... $115,729 $ 66,298
Ratio of long-term debt to capitalization................... 37.9% 25.9%
11
The Company has a shelf registration statement on file with the Securities
and Exchange Commission for $85,000,000 of medium or long-term debt securities,
which it may issue at its discretion and subject to market conditions.
EFFECTS OF INFLATION
The Company believes that results of operations for the periods reported
were not materially affected by inflation.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF AAR CORP.:
We have audited the accompanying consolidated balance sheets of AAR CORP.
and subsidiaries as of May 31, 1994 and 1993 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended May 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AAR CORP.
and subsidiaries as of May 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the years in the three-year period ended May
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR
INCOME TAXES, as of June 1, 1993. As discussed in Notes 1 and 6 to the
consolidated financial statements, the Company also adopted the provisions of
the Financial Accounting Standards Board's SFAS No. 106, EMPLOYERS' ACCOUNTING
FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, as of June 1, 1993.
KPMG Peat Marwick LLP
Chicago, Illinois
July 1, 1994
13
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED MAY 31,
----------------------------
1994 1993 1992
-------- -------- --------
(000'S OMITTED EXCEPT PER
SHARE DATA)
Net sales.......................................................... $407,754 $382,780 $422,657
-------- -------- --------
Costs and operating expenses:
Cost of sales.................................................... 335,844 314,344 339,217
Selling, general and administrative.............................. 50,086 52,093 56,910
Restructuring expenses (Note 11)................................. -- 11,000 5,800
-------- -------- --------
385,930 377,437 401,927
-------- -------- --------
Operating income................................................... 21,824 5,343 20,730
Interest expense (Note 2).......................................... (9,564) (8,107) (8,356)
Interest income (Note 3)........................................... 1,424 847 1,246
-------- -------- --------
Income (loss) before provision (benefit) for income taxes.......... 13,684 (1,917) 13,620
Provision (benefit) for income taxes (Notes 1 and 3)............... 4,200 (2,200) 3,600
-------- -------- --------
Income before cumulative effects of changes in
accounting principles............................................ 9,484 283 10,020
Cumulative effects of changes in accounting
principles:
Income taxes................................................. 900 -- --
Postretirement health care benefits, net of tax.............. (890) -- --
-------- -------- --------
Net income......................................................... $ 9,494 $ 283 $ 10,020
-------- -------- --------
-------- -------- --------
Net income per share of common stock (Note 5):
Income before cumulative effects of changes in accounting
principles..................................................... $ .60 $ .02 $ .63
Cumulative effects of changes in accounting
principles:
Income taxes................................................. .06 -- --
Postretirement health care benefits, net of tax.............. (.06) -- --
-------- -------- --------
Net income......................................................... $ .60 $ .02 $ .63
-------- -------- --------
-------- -------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
14
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
($000'S OMITTED)
MAY 31,
------------------
1994 1993
-------- --------
Current assets:
Cash and cash equivalents (Note 1)................................................ $ 18,074 $ 2,255
Accounts receivable, less allowances of $2,000
at each date (Note 13).......................................................... 85,947 68,849
Inventories (Notes 1 and 13)...................................................... 146,039 139,432
Equipment on or available for short-term lease (Note 1)........................... 28,881 33,104
Prepaid income taxes, deposits and other (Notes 1, 3 and 7)....................... 28,782 21,396
-------- --------
Total current assets.................................................... 307,723 265,036
-------- --------
Property, plant and equipment, at cost (Notes 1 and 9):
Land.............................................................................. 3,088 3,088
Buildings and improvements........................................................ 34,477 33,910
Equipment, furniture and fixtures................................................. 84,536 81,587
-------- --------
122,101 118,585
Accumulated depreciation (Note 10)................................................ (67,318) (62,533)
-------- --------
54,783 56,052
-------- --------
Other assets:
Investment in leveraged leases (Notes 1 and 12)................................... 32,618 30,210
Cost in excess of underlying net assets
of acquired companies (Note 1).................................................. 6,313 6,571
Prepaid income taxes, retirement benefits, notes receivable and other (Notes 3, 6
and 12)......................................................................... 16,189 7,282
-------- --------
55,120 44,063
-------- --------
$417,626 $365,151
-------- --------
-------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(000'S OMITTED)
MAY 31,
------------------
1994 1993
-------- --------
Current liabilities:
Bank loans and current maturities of long-term debt (Note 2)...................... $ 568 $ 25,025
Accounts payable.................................................................. 49,599 32,525
Accrued liabilities............................................................... 13,312 11,693
Accrued taxes on income (Notes 1 and 3)........................................... 4,235 2,394
-------- --------
Total current liabilities............................................... 67,714 71,637
-------- --------
Long-term debt, less current maturities (Note 2).................................... 115,729 66,298
Deferred income taxes (Notes 1, 3 and 12)........................................... 39,000 38,000
Retirement benefit obligation and other deferred credits (Note 6)................... 5,695 --
-------- --------
160,424 104,298
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250 shares; none issued.............. -- --
Common stock, $1.00 par value, authorized 80,000 shares; issued 16,215 and 16,205
shares at respective dates (Note 4)............................................. 16,215 16,205
Capital surplus................................................................... 81,296 81,172
Retained earnings (Note 2)........................................................ 99,496 97,637
Treasury stock, 309 and 304 shares at respective dates, at cost (Note 4).......... (3,556) (3,490)
Cumulative translation adjustments (Note 1)....................................... (2,963) (2,308)
Minimum pension liability (Note 6)................................................ (1,000) --
-------- --------
189,488 189,216
-------- --------
$417,626 $365,151
-------- --------
-------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MAY 31, 1994
COMMON STOCK TREASURY STOCK INVESTMENT CUMULATIVE
----------------- --------------- CAPITAL RETAINED VALUATION TRANSLATION
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS ALLOWANCE ADJUSTMENTS
------- -------- ---- --------- -------- ---------- ---------- -----------
(NOTE 4) (NOTE 4) (NOTE 2) (NOTE 1)
(000'S OMITTED)
Balance, May 31, 1991........................ 16,097 $16,097 206 $ (2,326) $80,194 $ 102,579 $ (664) $ (2,102)
Net income................................. -- -- -- -- -- 10,020 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,631) -- --
Adjustment for net translation loss........ -- -- -- -- -- -- -- (192)
Stock awards and employee stock
purchases................................ 8 8 -- -- 90 -- -- --
Reclassification of allowance.............. -- -- -- -- -- -- 664 --
------- -------- ---- --------- -------- ---------- ---------- -----------
Balance, May 31, 1992........................ 16,105 $16,105 206 $ (2,326) $80,284 $ 104,968 $ -- $ (2,294)
Net income................................. -- -- -- -- -- 283 -- --
Cash dividends ($.48 per share)............ -- -- -- -- -- (7,614) -- --
Treasury stock purchased................... -- -- 98 (1,164) -- -- -- --
Adjustment for net translation loss........ -- -- -- -- -- -- -- (14)
Exercise of stock options, stock awards and
employee stock purchases................. 100 100 -- -- 888 -- -- --
------- -------- ---- --------- -------- ---------- ---------- -----------
Balance, May 31, 1993........................ 16,205 $16,205 304 $ (3,490) $81,172 $ 97,637 $ -- $ (2,308)
Net income................................. -- -- -- -- -- 9,494 -- --
Cash dividends ($.48 per
share)................................... -- -- -- -- -- (7,635) -- --
Treasury stock purchased................... -- -- 5 (66) -- -- -- --
Exercise of stock options
and stock awards......................... 10 10 -- -- 124 -- -- --
Adjustment for net translation
loss..................................... -- -- -- -- -- -- -- (655)
Minimum pension liability.................. -- -- -- -- -- -- -- --
------- -------- ---- --------- -------- ---------- ---------- -----------
Balance, May 31, 1994........................ 16,215 $16,215 309 $ (3,556) $81,296 $ 99,496 $-- $ (2,963)
------- -------- ---- --------- -------- ---------- ---------- -----------
------- -------- ---- --------- -------- ---------- ---------- -----------
MINIMUM
PENSION
LIABILITY
ADJUSTMENTS
-----------
(NOTE 6)
Balance, May 31, 1991........................ $ --
Net income................................. --
Cash dividends ($.48 per share)............ --
Adjustment for net translation loss........ --
Stock awards and employee stock
purchases................................ --
Reclassification of allowance.............. --
-----------
Balance, May 31, 1992........................ $ --
Net income................................. --
Cash dividends ($.48 per share)............ --
Treasury stock purchased................... --
Adjustment for net translation loss........ --
Exercise of stock options, stock awards and
employee stock purchases................. --
-----------
Balance, May 31, 1993........................ $ --
Net income................................. --
Cash dividends ($.48 per
share)................................... --
Treasury stock purchased................... --
Exercise of stock options
and stock awards......................... --
Adjustment for net translation
loss..................................... --
Minimum pension liability.................. (1,000)
-----------
Balance, May 31, 1994........................ $ (1,000)
-----------
-----------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
AAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MAY 31,
----------------------------
1994 1993 1992
-------- -------- --------
(000'S OMITTED)
Cash flows from operating activities:
Net income............................................................... $ 9,494 $ 283 $ 10,020
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation and amortization........................................ 9,928 10,883 11,628
Restructuring expenses............................................... -- 11,000 5,800
Cumulative effect of changes in accounting principles:
Income tax benefit................................................. (900) -- --
Postretirement health care benefits expense........................ 890 -- --
Leveraged lease repricing............................................ (2,017) -- --
Change in certain assets and liabilities:
Accounts receivable................................................ (17,295) 20,910 (620)
Inventories........................................................ (6,841) (9,171) (6,432)
Equipment on or available for short-term lease..................... 4,223 2,273 (11,376)
Prepaid income taxes, deposits and other........................... (10,968) (435) (2,225)
Accounts payable................................................... 17,081 (10,876) 8,194
Accrued liabilities and taxes on income............................ 3,077 (7,061) (7,175)
Deferred income taxes and other deferred credits................... 25 (1,000) 1,000
-------- -------- --------
Net cash provided from operating activities............................ 6,697 16,806 8,814
-------- -------- --------
Cash flows from investing activities:
Property, plant and equipment expenditures, net.......................... (5,984) (8,918) (7,968)
Investment in leveraged leases........................................... (391) 589 805
Proceeds from sale of marketable securities.............................. -- 1,593 --
Notes receivable and other, net.......................................... (1,820) (1,281) (425)
-------- -------- --------
Net cash used in investing activities.................................. (8,195) (8,017) (7,588)
-------- -------- --------
Cash flows from financing activities:
Gross proceeds from issuance of long-term notes payable.................. 50,000 -- --
Repayment of bank loans with proceeds from issuance of long-term notes
payable................................................................ (28,200) -- --
Change in other borrowings, net.......................................... 3,174 (1,005) 6,873
Cash dividends........................................................... (7,635) (7,614) (7,631)
Purchases of treasury stock.............................................. (66) (1,164) --
Proceeds from exercise of stock options, employee stock purchases and
other.................................................................. 134 988 98
-------- -------- --------
Net cash provided from (used in) financing activities.................. 17,407 (8,795) (660)
-------- -------- --------
Effect of exchange rate changes on cash.................................... (90) 11 131
-------- -------- --------
Increase in cash and cash equivalents...................................... 15,819 5 697
Cash and cash equivalents, beginning of year............................... 2,255 2,250 1,553
-------- -------- --------
Cash and cash equivalents, end of year..................................... $ 18,074 $ 2,255 $ 2,250
-------- -------- --------
-------- -------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of intercompany accounts and
transactions.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products and performance of services. Sales and related cost of sales on
long-term contracts are recognized as units are delivered, determined by the
percentage of completion method based on the relationship of costs incurred to
date to estimated total costs under the respective contracts. Lease revenue is
recognized as earned.
ACCOUNTING CHANGES
Effective June 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes." Prior
years' results were not restated. The cumulative effect of the accounting change
was a tax benefit of $900,000 ($.06 per share) recorded in the three month
period ended August 31, 1993. The adoption of SFAS No. 109 changes the Company's
method of accounting for income taxes from the deferred method of Accounting
Principles Board Opinion ("APB") No. 11 to the asset and liability method of
accounting. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using statutory tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates will be recognized in the consolidated results of operations for the
period in which the changes occurred. Pursuant to the deferred method under APB
No. 11, which was applied in 1993 and prior years, deferred income taxes are
recognized for income and expense items that are reported in different years for
financial reporting and income tax purposes using the tax rate applicable for
the year of calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
Effective June 1, 1993, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions." Prior years'
results were not restated. SFAS No. 106 requires that the projected future cost
of nonpension postretirement benefits be recognized as an expense as employees
render services instead of when claims are incurred, as the Company had done in
the past. Upon adoption, the Company elected, as permitted under SFAS No. 106,
to record a one-time transition obligation of $1,350,000 ($890,000 after tax or
$.06 per share) which represents that portion of future retiree benefit costs
related to service already rendered by both active and retired employees up to
the date of adoption. The initial accumulated postretirement benefit obligation
of $1,350,000 primarily represented health and life insurance benefits for
certain current employees and retirees.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents. At May 31, 1994 cash equivalents of
approximately $5,717,000 held by the Company represent investments in funds
holding high-quality commercial paper, Eurodollars and U.S. government
agency-issued securities. The carrying amount of cash equivalents approximates
fair value at May 31, 1994.
19
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
MARKETABLE SECURITIES
The Company recorded net proceeds of $1,593,000 in fiscal 1993 from the sale
of marketable securities and included a $57,000 net loss in the consolidated
results of operations. Marketable securities were carried at the lower of
aggregate cost or market value.
FOREIGN CURRENCY
Gains and losses on foreign currency translation and foreign exchange
contracts are determined in accordance with the method of accounting prescribed
by SFAS No. 52. All balance sheet accounts of foreign subsidiaries are
translated at year-end exchange rates. Revenues and expenses are translated at
average exchange rates during the year. Translation adjustments are excluded
from the results of operations and are recorded in Stockholders' equity as
Cumulative translation adjustments.
The Company from time to time uses forward exchange contracts or options to
hedge its loss exposure from the translation of foreign subsidiaries results of
operations from functional currencies into United States dollars. Forward
exchange contracts or options losses are included in results of operations in
the period the loss is determinable. Gains are recorded when realized upon
contract settlement. At May 31, 1994 there were no forward exchange contracts or
options outstanding. Foreign subsidiaries incur transaction gains and losses
upon settlement of obligations in currencies other than their functional
currency. The aggregate net transaction gains (losses), including those related
to forward exchange contracts, reported in results of operations were $(32,000),
$(578,000) and $25,000 for fiscal 1994, 1993 and 1992, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF MARKET OR CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of market or credit risk consist principally of forward exchange contracts or
options and trade receivables. The forward exchange contracts discussed above
subject the Company to market risk from exchange rate movements. Accordingly,
the Company recognizes losses in the period such losses are determinable. While
the Company's trade receivables are diverse based on the number of entities and
geographic locations, the majority are concentrated in the aerospace/aviation
industry. The Company performs evaluations of customers' financial condition
prior to extending credit privileges and performs on-going credit evaluations of
payment experience, current financial condition, and risk analysis. The Company
typically requires collateral in the form of security interest in assets,
letters of credit, or obligation guarantees from financial institutions for
transactions other than normal trade terms.
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash,
accounts receivable, short-term borrowing, accounts payable and accrued
liabilities are reflected in the financial statements at fair value because of
the short-term maturity of these instruments. Marketable securities are recorded
in the financial statements at current market values. Non-current notes
receivable and long-term debt bearing a variable interest rate are reflected in
the financial statements at fair value. Those bearing a fixed interest rate have
fair values based on estimates using discounted future cash flows at an assumed
discount rate for borrowing currently prevailing in the marketplace for similar
instruments.
20
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
INVENTORIES
Inventories are priced at the lower of cost or market. Cost is determined by
either the specific identification or first-in, first-out method. Inventoried
costs relating to long-term contracts and programs are stated at the actual
production costs, including factory burden and initial tooling, incurred to
date, reduced by amounts identified with revenue recognized on units delivered.
The costs attributed to units delivered under long-term contracts and programs
are based on the estimated average cost of all units scheduled to be produced.
Progress billings under government contracts are based on an allowable
percentage of the cost of material received and labor and factory burden
incurred.
The following is a summary of inventories at:
MAY 31,
------------------------------
1994 1993 1992
-------- -------- --------
(000'S OMITTED)
Raw materials and parts............................. $ 25,349 $ 21,355 $ 29,069
Work-in-process..................................... 11,974 11,117 12,139
Purchased aircraft parts, engines and components
held for sale or exchange.......................... 106,529 105,200 95,459
Finished goods...................................... 2,189 1,785 1,549
-------- -------- --------
146,041 139,457 138,216
Progress billings on long-term contracts and
programs.......................................... (2) (25) (214)
-------- -------- --------
$146,039 $139,432 $138,002
-------- -------- --------
-------- -------- --------
EQUIPMENT UNDER OPERATING LEASES
Lease revenue is recognized as earned. The cost of the asset under lease is
original purchase price plus overhaul costs. Depreciation of the cost is based
on the straight-line method over the lease term. Maintenance costs are expensed
as incurred. The assets are available for sale at the end of each lease term.
The balance sheet classification is based on the lease term. Leases with a fixed
term under twelve months are considered short-term and all others are classified
as long-term.
Equipment on short-term lease consists of aircraft engines and parts on or
available for lease to satisfy immediate short-term customer requirements. The
leases are renewable with fixed terms, which generally vary from one to six
months.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight-line method over useful lives of
10-40 years for buildings and improvements and 3-10 years for equipment,
furniture and fixtures. Leasehold improvements are amortized over the estimated
useful life or the term of the applicable lease.
21
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Repairs and maintenance expenditures are expensed as incurred. Upon sale or
disposal, cost and accumulated depreciation are removed from the accounts and
related gains and losses included in results of operations.
LEVERAGED LEASES
The Company acts as an equity participant in leveraged lease transactions.
The equipment cost in excess of equity contribution is furnished by third party
financing in the form of secured debt. Under the lease agreements, the third
parties have no recourse against the Company for non-payment of the obligations.
The third party debt is collateralized by the lessees' rental obligations and
the leased equipment. The Company has ownership rights to the leased assets and
is entitled to the investment tax credits, and benefits of tax deductions for
depreciation on the leased assets and for interest on the secured debt
financing.
COST IN EXCESS OF UNDERLYING NET ASSETS OF ACQUIRED COMPANIES
The cost in excess of underlying net assets of companies acquired is being
amortized over a period of forty years. Amortization was $240,000, $240,000 and
$228,000 in fiscal 1994, 1993 and 1992, respectively. Accumulated amortization
is $2,950,000, $2,710,000 and $2,470,000 at May 31, 1994, 1993 and 1992,
respectively.
INCOME TAXES
Income taxes are determined in accordance with the method of accounting
prescribed by SFAS No. 109.
Federal income taxes are not provided on the undistributed earnings of
certain foreign subsidiaries (approximately $14,600,000 and $13,300,000 at May
31, 1994 and 1993, respectively), as it is the Company's intention to reinvest a
portion of these earnings indefinitely in the foreign operations. From time to
time, as the earnings are treated as taxable in the United States, the related
tax expense would be offset substantially by foreign tax credits. Foreign income
taxes are provided at the local statutory rates and reflect estimated taxes
payable.
The benefits of investment tax credits are recognized for book purposes
under the deferral method of accounting for leveraged leases. The investment tax
credits are recognized in the year earned for income tax purposes.
STATEMENTS OF CASH FLOWS
Supplemental information on cash flows follows.
FOR THE YEAR ENDED MAY 31,
----------------------------
1994 1993 1992
------ ------ ------
(000'S OMITTED)
Interest paid............................................... $8,800 $8,100 $8,600
Income taxes paid........................................... 3,300 5,400 6,300
Income tax refunds and interest received.................... 500 5,100 5,600
BUSINESS SEGMENT INFORMATION
The Company operates primarily in the aerospace/aviation industry and
reports its activities in one business segment, Aviation Services.
22
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Export sales from the Company's United States operations to unaffiliated
customers, the majority located in Europe, Middle East, Asia, Canada and South
America (including sales through foreign sales offices of domestic
subsidiaries), were approximately $112,275,000 (27.5% of total net sales),
$110,597,000 (28.9% of total net sales) and $127,228,000 (30.1% of total net
sales) in fiscal 1994, 1993 and 1992, respectively.
Sales to the United States government and its agencies were approximately
$77,500,000 (19.0% of total net sales), $57,600,000 (15.0% of total net sales)
and $54,000,000 (12.8% of total net sales) in fiscal 1994, 1993 and 1992,
respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal 1993 and 1992
financial statements to conform to the fiscal 1994 presentation.
2. FINANCING ARRANGEMENTS
Bank loans and commercial paper consisted of:
MAY 31,
---------------------------
1994 1993 1992
------- ------- -------
(000'S OMITTED)
Unsecured bank loans.................................... $ -- $24,000 $13,000
Commercial paper........................................ -- -- 11,000
Current maturities of long-term debt.................... 568 1,025 1,005
------- ------- -------
$ 568 $25,025 $25,005
------- ------- -------
------- ------- -------
Short-term borrowing activity was as follows:
FOR THE YEAR ENDED MAY 31,
-----------------------------
1994 1993 1992
------- ------- -------
(000'S OMITTED)
Maximum amount borrowed.................................. $33,500 $51,900 $45,800
Average daily borrowings................................. 12,300 39,100 29,300
Average interest rate during the year (computed based on
the prevailing interest rate during the period the
short-term debt was outstanding)....................... 3.7% 4.4% 6.0%
------- ------- -------
------- ------- -------
At May 31, 1994, aggregate unsecured bank credit lines were $132,500,000. Of
this amount, $66,000,000 was available under credit lines with domestic banks,
$60,000,000 was available under revolving credit and term loan agreements with
domestic banks and $6,500,000 was available under credit agreements with foreign
banks. All domestic and foreign credit lines were unused at May 31, 1994. There
are no compensating balance requirements in connection with domestic or foreign
lines of credit. Borrowings under domestic bank lines bear interest at or below
the corporate base rate. Commercial paper is supported by all available domestic
bank lines.
The Company may borrow a maximum of $60,000,000 ($30,000,000 available
through October 15, 1996 and an additional $30,000,000 available through April
15, 1996) under revolving credit and term loan agreements with domestic banks.
Revolving credit borrowings may, at the
23
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. FINANCING ARRANGEMENTS -- (CONTINUED)
Company's option, be converted to term loans payable in equal quarterly
installments over five years. Interest is based on corporate base rate or quoted
Eurodollar or multicurrency rates during the revolving credit period, and 1/2%
over corporate base rate or quoted Eurodollar rate thereafter. There were no
borrowings under these agreements outstanding at May 31, 1994. There are no
compensating balance requirements on any of the committed lines but the Company
is required to pay a commitment fee. There are no restrictions on the withdrawal
or use of these funds.
Long-term debt was as follows:
MAY 31,
-----------------
1994 1993
------- -------
(000'S OMITTED)
Notes payable due November 1, 2001 with interest of 9.5% payable
semi-annually on May 1 and November 1.......................... $65,000 $65,000
Notes payable due October 15, 2003 with interest
of 7.25% payable semi-annually on April 15 and October 15..... 50,000 --
Industrial revenue bonds due in installments to 2002 with
weighted average interest of approximately 5.93% at May 31,
1994 (secured by trust indentures on property, plant and
equipment).................................................... 1,297 2,323
------- -------
116,297 67,323
Current maturities.............................................. (568) (1,025)
------- -------
$115,729 $66,298
------- -------
------- -------
The Company is subject to a number of covenants under the revolving credit
and term loan agreements, including restrictions which relate to the payment of
cash dividends, maintenance of minimum net working capital and tangible net
worth levels, sales of assets, additional financing, purchase of the Company's
shares and other matters. The Company is in compliance with all restrictive
financial provisions of the agreements. At May 31, 1994, unrestricted
consolidated retained earnings available for payment of dividends and purchase
of the Company's shares was approximately $10,320,000. Effective June 1, 1994
unrestricted consolidated retained earnings increased to $15,067,000 due to the
inclusion of 50% of the consolidated net income of the Company for fiscal 1994.
The aggregate amount of long-term debt maturing during each of the next five
fiscal years is $568,000 in 1995, $347,000 in 1996, $124,000 in 1997, $57,000 in
1998, $57,000 in 1999.
The Company's long-term debt was estimated to have a fair value of
approximately $109,703,000 at May 31, 1994.
3. INCOME TAXES
The Company adopted SFAS No. 109 "Accounting for Income Taxes" effective
June 1, 1993. The prior periods were not restated. The effects of this
accounting change are discussed in note 1 of Notes to Consolidated Financial
Statements. The following disclosures are in accordance with SFAS No. 109
"Accounting for Income Taxes" which requires the asset and liability method of
accounting upon adoption.
24
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES -- (CONTINUED)
The provision (benefit) for income taxes included the following components:
FOR THE YEAR ENDED MAY 31,
-----------------------------
1994 1993 1992
------- ------- -------
(000'S OMITTED)
Current
Federal.......................................... $ 100 $ (640) $ 4,460
Foreign.......................................... 530 670 940
State, net of refunds............................ 470 -- 900
------- ------- -------
1,100 30 6,300
------- ------- -------
Deferred
Federal.......................................... $ 2,850 $(2,050) $(2,480)
Foreign.......................................... -- -- --
State............................................ 250 (180) (220)
------- ------- -------
3,100 (2,230) (2,700)
------- ------- -------
$ 4,200 $(2,200) $ 3,600
------- ------- -------
------- ------- -------
The deferred tax provisions for the fiscal years 1994, 1993 and 1992 result
primarily from differences between book and tax income arising from depreciation
and leveraged leases. Refundable income taxes included within Prepaid income
taxes, deposits and other, principally represent refunds of Federal income taxes
resulting from additional tax benefits generated from export sales and foreign
tax credits carried back against prior years. Interest income relating to
refundable income taxes was $576,000, $390,000 and $910,000 for fiscal 1994,
1993 and 1992, respectively.
The balance of deferred tax liabilities and assets arises from the
differences in the timing of the recognition for transactions between book and
income tax purposes and consists of the following components:
MAY 31,
1994
-------
(000'S
OMITTED)
Deferred tax liabilities:
Depreciation............................................................. $9,710
Leveraged leases......................................................... 28,560
Other.................................................................... 730
-------
Total deferred tax liabilities....................................... $39,000
-------
-------
Deferred tax assets-current:
Inventory costs.......................................................... $7,800
Employee benefits........................................................ 900
Doubtful account allowance............................................... 780
Other.................................................................... 50
-------
Total deferred tax assets-current.................................... 9,530
-------
Deferred tax assets-noncurrent:
Postretirement benefits.................................................. 1,050
Restructuring expenses................................................... 960
Alternative minimum tax credits.......................................... 4,540
Other.................................................................... 60
-------
Total deferred tax assets-noncurrent................................. 6,610
-------
Total deferred tax assets............................................ $16,140
-------
-------
25
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES -- (CONTINUED)
The Company has determined, more likely than not, that a valuation allowance
is not required, based upon the Company's history of prior operating earnings,
its expectations for continued future earnings and the scheduled reversal of
deferred tax liabilities, primarily related to leveraged leases, which exceed
the amount of the deferred tax assets.
The provision for income taxes differs from the amount computed by applying
the United States statutory Federal income tax rate of 34.0% for fiscal 1994,
1993 and 1992 for the following reasons:
FOR THE YEAR ENDED MAY 31,
--------------------------
1994 1993 1992
------- ------- ------
(000'S OMITTED)
Provision (benefit) for income taxes at the Federal statutory rate... $4,660 $ (650) $4,630
Tax benefits on exempt earnings from export sales.................. (930) (770) (860)
State income taxes, net of Federal benefit and refunds............. 250 -- 600
Amortization of goodwill........................................... 100 120 120
Reduction of income tax liabilities................................ -- (1,200) (700)
Differences between foreign tax rates and the U.S. Federal
statutory rate................................................... 80 250 160
Other, net......................................................... 40 50 (350)
------- ------- ------
Provision (benefit) for income taxes as reported..................... $4,200 $(2,200) $3,600
------- ------- ------
------- ------- ------
Effective income tax rate............................................ 30.7% (114.8)% 26.4%
------- ------- ------
------- ------- ------
The provision for income taxes was reduced by $1,200,000 and $700,000 in
fiscal 1993 and 1992, respectively, due to the reversal of tax liabilities
previously recorded but no longer required as the result of the resolution of
issues arising from the Internal Revenue Service's examination of the Federal
income tax returns for the fiscal years 1979 through 1989. The years are now
closed to assessments, therefore certain tax accruals previously provided are no
longer required.
The fiscal 1993 income tax benefit before the reversal of tax liabilities on
consolidated pre-tax income was higher than the statutory rate primarily as the
result of state income tax refunds received and the effect of tax benefits on
exempt earnings from export sales. Pretax income from foreign subsidiaries was
approximately $1,300,000, $1,200,000 and $2,300,000 at May 31, 1994, 1993 and
1992, respectively. Total foreign income taxes provided were in excess of total
local statutory rates in fiscal 1994, 1993 and 1992 due to net operating losses
of certain subsidiaries not deductible for tax purposes.
26
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMON STOCK AND STOCK OPTION PLANS
A summary of changes in stock options granted to officers, key employees and
non-employee directors under stock option plans for the three years ended May
31, 1994 follows.
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ----------------
Outstanding, May 31, 1991 (127,250 exercisable).............................. 445,890 $10.00 to $35.13
Granted.................................................................. 156,950 12.75 to 13.63
Exercised................................................................ -- --
Surrendered/expired/cancelled............................................ (19,600) 10.00 to 35.13
---------
Outstanding, May 31, 1992 (214,618 exercisable).............................. 583,240 $10.00 to $35.13
Granted.................................................................. 224,200 11.38 to 12.88
Exercised................................................................ (8,800) 10.00
Surrendered/expired/cancelled............................................ (154,385) 10.00 to 35.13
---------
Outstanding, May 31, 1993 (184,436 exercisable).............................. 644,255 $10.00 to $35.13
Granted.................................................................. 161,400 13.25 to 15.00
Exercised................................................................ (2,805) 10.00 to 13.63
Surrendered/expired/cancelled............................................ (71,400) 10.00 to 17.88
---------
Outstanding, May 31, 1994 (236,284 exercisable).............................. 731,450 $10.00 to $35.13
---------
---------
The options are granted at prices equal to the closing market price on the
date of grant, become exercisable at such times as may be specified by the Board
of Directors or as otherwise provided by the applicable stock option plan, and
expire five to ten years from date of grant. Upon exercise of stock options, the
excess of the proceeds over par value, or cost in the case of treasury stock, is
credited to Capital surplus in the Consolidated Balance Sheets.
The AAR CORP. Stock Benefit Plan also provides for the grant of restricted
stock awards. Restrictions are released at the end of applicable restricted
periods. The number of shares and the restricted period, which varies from two
to ten years, are determined by the Compensation Committee of the Board of
Directors. The market value of the award on the date of grant is recorded as a
deferred expense, common stock and capital surplus. The deferred expense is
included in results of operations over the restricted term. The expense relating
to outstanding restricted stock awards was $538,000, $610,000 and $640,000 in
fiscal 1994, 1993 and 1992, respectively.
The AAR CORP. Employee Stock Purchase Plan is open to all employees of the
Company (other than officers, directors or participants in other option plans of
the Company) having six months of service. The plan permits employees to
purchase common stock in periodic offerings at the lesser of the fair market
value on date of offering and 85% of the fair market value on the date of
exercise. A participating employee pays for shares by payroll deduction over a
two-year period. Upon completion of the purchase, the excess of the proceeds
over the par value (or cost in the case of treasury stock) is credited to
capital surplus.
27
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMON STOCK AND STOCK OPTION PLANS -- (CONTINUED)
The number of options and awards outstanding and available for grant or
issuance for each of the Company's stock plans is as follows:
MAY 31, 1994
----------------------------------------
OUTSTANDING AVAILABLE TOTAL
------------- ----------- ------------
Stock Benefit Plan (Officers, Directors and key employees)... 769,788 261,577 1,031,365
Employee Stock Purchase Plan................................. -- 132,880 132,880
Pursuant to a shareholder rights plan adopted in 1987 and amended in 1989,
each outstanding share of the Company's Common Stock carries with it a Right to
purchase one additional share at a price of $85 (subject to anti-dilution
adjustments). The Rights become exercisable (and separate from the shares) when
certain specified events occur, including the acquisition of 20% or more of the
common stock by a person or group (an "Acquiring Person") or the commencement of
a tender or exchange offer for 30% or more of the Common Stock.
In the event that an Acquiring Person acquires 20% or more of the Common
Stock, or if the Company is the surviving corporation in a merger involving an
Acquiring Person, or if the Acquiring Person engages in certain types of
self-dealing transactions, each Right entitles the holder to purchase for $85
(or the then current exercise price) shares of the Company's Common Stock having
a market value of $170 (or two times the exercise price), subject to certain
exceptions. Similarly, if the Company is acquired in a merger or other business
combination or 50% or more of its assets or earning power is sold, each Right
entitles the holder to purchase at the then current exercise price that number
of shares of Common Stock of the surviving corporation having a market value of
two times the exercise price. The Rights, which do not entitle the holder
thereof to vote or to receive dividends, expire on August 6, 1997 and may be
redeemed by the Company for $.01 per Right under certain circumstances.
On September 21, 1990, the Board of Directors authorized the Company to
purchase up to 1,000,000 shares of the Company's Common Stock on the open market
or through privately negotiated transactions. As of May 31, 1994 the Company had
purchased 308,927 shares of Common Stock on the open market under this program
at an average price of $11.51 per share.
5. NET INCOME PER SHARE OF COMMON STOCK
Primary net income per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. Shares granted as restricted stock awards under The
AAR CORP. Stock Benefit Plan are considered outstanding from the date of grant.
Common Stock equivalents consist of the average number of shares issuable upon
the exercise of all dilutive employee stock options, less the common shares
which could have been purchased, at the average market price during each
quarter, with the assumed proceeds from the exercise of the options.
6. EMPLOYEE BENEFIT PLANS
The Company has defined contribution or defined benefit plans covering
substantially all full-time domestic employees and certain employees in the
Netherlands.
28
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
DEFINED BENEFIT PLANS
The pension plans for domestic salaried employees have benefit formulas
based primarily on years of service and compensation. The pension benefit for
hourly employees is generally based on a fixed amount per year of service. The
Company follows the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," for all domestic operations.
The Company's funding policy for domestic plans is to contribute annually,
at a minimum, an amount which is deductible for Federal income tax purposes and
that is sufficient to meet actuarially computed pension benefits. Contributions
are intended to provide for benefits attributed to service to date and for
benefits expected to be earned in the future. The assets of the pension plans
are invested primarily in mutual funds, common stocks, investment grade bonds
and United States government obligations.
Certain international subsidiaries also have pension plans. In most cases,
the plans are defined benefit in nature. Assets of the plans are comprised of
insurance contracts. Benefit formulas are similar to those used by U.S. plans.
It is the policy of these subsidiaries to fund at least the minimum amounts
required by local law and regulation. Effective June 1, 1993, all non-domestic
pension plans have adopted the provisions of SFAS No. 87.
The following table sets forth the plans' funded status and the amount
recognized in the Company's Consolidated Balance Sheets. The plans are grouped
according to the portion of the accumulated benefit obligation funded as
follows:
MAY 31, JUNE 1,
MAY 31, 1994 1993 1993
------------------------ ----------- -----------
BENEFITS ASSETS BENEFITS ASSETS
EXCEED EXCEED EXCEED EXCEED
ASSETS BENEFITS ASSETS BENEFITS
----------- ----------- ----------- -----------
(000'S OMITTED)
Actuarial present value of benefit obligation:
Vested benefit obligation................................ $ (21,500) $ (4,160) $ (19,725) $ (4,890)
Nonvested benefit obligation............................. (955) (15) (1,110) --
----------- ----------- ----------- -----------
Accumulated benefit obligation............................... (22,455) (4,175) (20,835) (4,890)
Effect of projected salary increases on the benefit
obligation................................................. (1,865) (1,120) (2,125) (450)
----------- ----------- ----------- -----------
Projected benefit obligation................................. (24,320) (5,295) (22,960) (5,340)
Plans' assets at fair value.................................. 20,030 4,420 18,825 5,090
----------- ----------- ----------- -----------
Plans' assets under projected benefit obligation............. (4,290) (875) (4,135) (250)
Unrecognized net loss........................................ 3,920 915 3,665 --
Unrecognized prior service cost.............................. 930 -- 1,020 --
Unrecognized transition obligation........................... 785 225 850 250
----------- ----------- ----------- -----------
Prepaid pension costs in the Consolidated Balance
Sheets................................................. $ 1,345 $ 265 $ 1,400 $ 0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The projected benefit obligation for domestic plans is determined using an
assumed weighted average discount rate of 8.0% for fiscal 1994 and 1993,
respectively and an assumed average increase of 4.6% in compensation. The
expected long-term rate of return on assets is 10.0% for fiscal 1994 and 1993.
Unrecognized net loss, prior service cost and transition obligation are
amortized on a straight line basis over the estimated average future service
period.
29
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The projected benefit obligation for non-domestic plans are determined using
an assumed weighted average discount rate of 7.0% for fiscal 1994 and an assumed
average compensation increase of 2.0% for the first 5 years and 4.0%,
thereafter. The expected long-term rate of return on assets is 6.5% for fiscal
1994.
The provisions of SFAS No. 87 "Employers' Accounting for Pensions" require
recognition in the balance sheet of an additional minimum liability, equity and
related intangible assets for pension plans with accumulated benefits in excess
of plan assets. At May 31, 1994 the Company has a minimum pension liability of
$3,400,000 reported within Retirement benefit obligation in the Consolidated
Balance Sheet with $1,000,000 charged to Stockholders' equity in accordance with
the provisions of SFAS No. 87.
Pension expense charged to results of operations includes the following
components:
FOR THE YEAR ENDED MAY 31,
---------------------------
1994 1993 1992
------- ------- -------
(000'S OMITTED)
Service costs for benefits earned during fiscal year...... $ 1,305 $ 800 $ 800
Interest cost on projected benefit obligation............. 2,265 1,670 1,610
Actual investment return on plan assets................... (1,400) (1,850) (1,410)
Net amortization and deferral............................. (480) 290 190
------- ------- -------
Pension expense for Company plans..................... 1,690 910 1,190
Pension expense for the multi-employer plan........... 10 40 50
------- ------- -------
Total pension expense............................. $ 1,700 $ 950 $ 1,240
------- ------- -------
------- ------- -------
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a profit sharing plan which is intended to
qualify as a 401(k) plan under the Internal Revenue Code. Under the plan,
employees may contribute up to 15% of their pretax compensation, subject to
applicable regulatory limits. The Company may make matching contributions up to
6% of compensation. Participants vest immediately in Company contributions.
Expense charged to results of operations was $800,000, $430,000 and $860,000 in
fiscal 1994, 1993 and 1992, respectively.
LONG TERM PERFORMANCE INCENTIVE PLAN
The long term performance incentive plan is administered by the Compensation
Committee of the Board of Directors. The plan provides for incentive awards to
certain key employees designated by the Compensation Committee based on the long
term performance of the Company. No awards were earned under the Plan in fiscal
1994, 1993 nor 1992, therefore, no expense was charged to results of operations.
SUPPLEMENTAL RETIREMENT BENEFIT PLANS
Supplemental Retirement agreements provide benefits to certain current and
former key employees. During fiscal 1993 and 1992, $260,000 and $570,000 were
deposited into trust funds for payment of these benefits. The amounts are being
amortized over the remaining terms of employment. Expense charged to results of
operations was $470,000, $570,000 and $460,000 in fiscal 1994, 1993 and 1992,
respectively. The unamortized amount of $880,000 at May 31, 1994 is
30
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
reported with Prepaid income taxes, retirement benefits, notes receivable and
other in the Consolidated Balance Sheets. At May 31, 1994, the trust fund assets
were adequate to provide for the estimated retirement benefits.
BOARD OF DIRECTORS' RETIREMENT PLAN
The Company adopted a Directors' Retirement Plan for its outside directors
in April, 1992. The Plan provides for a benefit to outside directors upon
retirement on or after age 65 provided they have completed at least five years
of service as a director. Benefits are payable as a quarterly annuity in an
amount equal to 25% of the annual retainer fee payable by the Company to active
outside directors. Payment of benefits commences upon retirement and continues
for a period equal to the total number of years of the retired director's
service as a director to a maximum of ten years, or death, whichever occurs
first. The Directors' Retirement Plan is unfunded, with costs and obligations
recognized in accordance with SFAS No. 87. Expense charged to results of
operations was $75,000 and $120,000 in fiscal 1994 and 1993, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health and life insurance benefits for certain eligible
employees and retirees under a variety of plans. Generally these benefits are
contributory, with retiree contributions adjusted annually. The postretirement
plans are unfunded and the Company has the right to modify or terminate any of
these plans in the future, in certain cases subject to union bargaining
agreements.
Effective June 1, 1993, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Prior to fiscal
year 1994, the Company recognized retiree health and life insurance expense when
benefits were paid. Prior years' results were not restated. Upon adoption, the
Company elected to record a one-time transition obligation of $1,350,000
($890,000 after tax) which represents that portion of future retiree benefit
costs related to service already rendered by both active and retired employees
up to the date of adoption.
Net periodic postretirement benefit cost for fiscal 1994 included the
following components:
Service cost............................................ $ 30,000
Interest cost........................................... 98,000
---------
$ 128,000
---------
---------
31
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The funded status of the plans at May 31, 1994 were as follows:
Accumulated postretirement benefit obligation:
Current retirees.................................... $ 906,000
Current employees -- fully eligible................. 129,000
Current employees -- not fully eligible............. 315,000
-----------
1,350,000
Plans' assets at fair value........................... --
-----------
Accumulated postretirement benefit obligation in
excess of plans' assets.............................. 1,350,000
Unrecognized prior service cost, transition obligation
and net loss/(gain).................................. --
-----------
Accrued postretirement benefit cost in the
consolidated balance sheet........................... $ 1,350,000
-----------
-----------
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 8.0%. The assumed rate of future increases in health care
costs was 10.0% in fiscal 1994, declining to 6.0% by the year 2004 and remaining
at that rate thereafter. A one percent increase in the assumed health care cost
trend rate would increase the accumulated postretirement obligation by
approximately $100,000 as of May 31, 1994 and would not result in a significant
change to the annual postretirement benefit expense.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under agreements that expire at
various dates through 2011. Rental expense under these leases was $4,840,000,
$5,320,000 and $4,850,000 in fiscal 1994, 1993 and 1992, respectively.
Future minimum payments under leases with initial or remaining terms of one
year or more at May 31, 1994 were $4,820,000 for fiscal 1995, $3,490,000 for
fiscal 1996, $3,310,000 for fiscal 1997, $2,850,000 for fiscal 1998 and
$10,310,000 for fiscal 1999 and thereafter.
The Company regularly places deposits with suppliers on short-term
commitments to purchase inventory. These conditional contractual commitments are
made in the ordinary course of business. At May 31, 1994 the Company had
$10,700,000 of deposits outstanding with suppliers.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial condition.
32
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SELECTED QUARTERLY DATA (UNAUDITED)
The unaudited selected quarterly data for fiscal years ended May 31, 1994
and 1993 are as follows.
FISCAL 1994
NET INCOME
QUARTER NET SALES GROSS PROFIT NET INCOME PER SHARE
- - ------------------------------- --------- ------------ ---------- ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
First.......................... $ 98,306 $ 18,044 $ 2,492 $ .16
Second......................... 93,185 16,624 2,378 .15
Third.......................... 96,199 17,680 2,212 .14
Fourth......................... 120,064 19,562 2,412 .15
--------- ------------ ---------- -----
$ 407,754 $ 71,910 $ 9,494 $ .60
--------- ------------ ---------- -----
--------- ------------ ---------- -----
FISCAL 1993
NET INCOME
NET GROSS NET INCOME (LOSS)
QUARTER SALES PROFIT (LOSS) PER SHARE
- - ------------------------------- -------- ----------- ---------- ------------
(000'S OMITTED EXCEPT PER SHARE DATA)
First.......................... $ 98,072 $19,101 $ 3,103 $ .20
Second......................... 101,930 17,317 1,575 .10
Third.......................... 82,337 14,745 (5,705) (.36)
Fourth......................... 100,441 17,273 1,310 .08
-------- ----------- ---------- ------
$382,780 $68,436 $ 283 $ .02
-------- ----------- ---------- ------
-------- ----------- ---------- ------
In the third quarter of fiscal 1993, the Company recorded noncash
restructuring expenses of $11,000,000 (or $7,200,000 after-tax) primarily
related to the writedown of certain inventories to reflect the impact of market
conditions (See Note 11) and a reduction in income tax expense of $1,200,000
(See Note 3).
9. PROPERTY, PLANT AND EQUIPMENT
EQUIPMENT,
BUILDINGS FURNITURE
AND AND
LAND IMPROVEMENTS FIXTURES TOTAL
------ ------------ ---------- --------
(000'S OMITTED)
Balance, May 31, 1991.................................... $2,374 $29,586 $72,242 $104,202
Additions, at cost..................................... 714 1,945 5,559 8,218
Retirements or sales................................... -- -- (432) (432)
Restructuring allowance (See Note 11).................. -- (750) (1,650) (2,400)
Translation adjustments................................ -- 371 541 912
------ ------------ ---------- --------
Balance, May 31, 1992.................................... 3,088 31,152 76,260 110,500
Additions, at cost..................................... -- 2,932 6,021 8,953
Retirements or sales................................... -- (131) (607) (738)
Translation adjustments................................ -- (43) (87) (130)
------ ------------ ---------- --------
Balance, May 31, 1993.................................... 3,088 33,910 81,587 118,585
Additions, at cost..................................... -- 749 5,664 6,413
Retirements or sales................................... -- (21) (2,434) (2,455)
Translation adjustments................................ -- (161) (281) (442)
------ ------------ ---------- --------
Balance, May 31, 1994.................................... $3,088 $34,477 $84,536 $122,101
------ ------------ ---------- --------
------ ------------ ---------- --------
33
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
EQUIPMENT,
BUILDINGS & FURNITURE
IMPROVEMENTS & FIXTURES TOTAL
------------ ---------- -------
(000'S OMITTED)
Balance, May 31, 1991................................................ $ 9,750 $38,529 $48,279
Depreciation and amortization expense.............................. 1,347 6,586 7,933
Retirements or sales............................................... -- (182) (182)
Translation adjustments............................................ 155 351 506
------------ ---------- -------
Balance, May 31, 1992................................................ 11,252 45,284 56,536
Depreciation and amortization expense.............................. 1,448 5,220 6,668
Retirements or sales............................................... (131) (572) (703)
Translation adjustments............................................ 5 27 32
------------ ---------- -------
Balance, May 31, 1993................................................ 12,574 49,959 62,533
Depreciation and amortization expense.............................. 1,219 5,823 7,042
Retirements or sales............................................... (139) (1,887) (2,026)
Translation adjustments............................................ (69) (162) (231)
------------ ---------- -------
Balance, May 31, 1994................................................ $13,585 $53,733 $67,318
------------ ---------- -------
------------ ---------- -------
11. RESTRUCTURING EXPENSES
The Company recorded noncash restructuring expenses of $11,000,000 for the
writedown of certain inventories and associated costs in fiscal 1993. The
inventories most affected were parts for older-model commercial aircraft,
certain manufactured products as well as material supporting original equipment
manufacturers. The writedown resulted from the Company's assessment of the
impact on inventories of the changes in the aviation/aerospace market and the
recessionary economic environment. The noncash restructuring expenses that
established inventory realization reserves (see note 13 in Notes to Consolidated
Financial Statements) had a remaining balance of approximately $4,488,000 at May
31, 1994. As the inventory for which the realization reserves were established
is disposed of, the realization reserve balance is to be correspondingly
reduced.
The Company recorded expenses of $5,800,000 in fiscal 1992 relating to the
restructuring of its Oklahoma City maintenance facility. The expenses included
the excess of net book over estimated recoverable value of idle leasehold
improvements and equipment, excess inventory and uncollectible accounts
receivable, as well as related personnel termination costs and other facility
reduction expenses. These expenses had been fully realized as of May 31, 1994.
12. AIRCRAFT LEASING ACTIVITIES
The Company is an owner participant in four leveraged lease agreements
entered into between March 1986 and May 1988. These agreements cover four narrow
body commercial aircraft and spare parts. The transactions involve aircraft
currently operated by major carriers. The remaining terms of the leases range
from 7 to 10 years. The Company's equity investment in these aircraft represents
approximately one third of the aggregate equipment cost. The remaining portion
of the equipment cost is financed by third-party nonrecourse debt.
The Company has ownership rights to the equipment subject to the right of
the lessees to exercise certain purchase, renewal and termination options. For
Federal income tax purposes, the Company receives investment tax credits and has
the benefit of tax deductions for depreciation on the aggregate equipment cost
and interest on the nonrecourse debt. During the early years of
34
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. AIRCRAFT LEASING ACTIVITIES -- (CONTINUED)
the lease Federal income tax deductions exceeded the lease rental income,
allowing excess deductions to be applied against the Company's other income. In
the later years of the lease, rental income exceeds the deductions and taxes
will be recorded in accordance with SFAS No. 109. Further, deferred taxes were
provided net of the Company's Alternative Minimum Tax (AMT) position. In fiscal
1994, the Company's Investment in leveraged leases was repriced approximately
$2,000,000 for the impact of an interest rate reduction on nonrecourse long-term
debt secured by aircraft under leveraged lease, the tax rate change under the
Omnibus Budget Reconciliation Act of 1993 and the Company's AMT position in
accordance with SFAS No. 13 "Accounting for Leases."
In August 1990, the Company sold a partial residual interest in a Boeing
737-300 aircraft currently subject to a leveraged lease. The lease term expires
in March 2001. The principal portion of the proceeds from this sale were
received in the form of a $2,000,000 note and are included with Prepaid income
taxes, retirement benefits, notes receivable and other on the Consolidated
Balance Sheets. This note has an interest rate of 9.9%. The note and accrued
interest of $3,600,000 are due in March 2001. The carrying amount of the note
receivable approximates its fair value at May 31, 1994.
The condensed operating results and balance sheet financial information for
aircraft leasing activities were as follows:
FOR THE YEAR ENDED MAY
31,
-------------------------
1994 1993 1992
------- ------- -------
(000'S OMITTED)
Operating Results:
Revenues................................................... $ 2,195 $ 1,390 $ 2,740
Net income (loss).......................................... 1,132 (22) (11)
Balance Sheet:
Total assets............................................... 39,700 37,800 41,190
Stockholder's equity....................................... 24,349 23,217 23,239
The Company's net investment in leveraged leases is composed of the
following elements:
FOR THE YEAR ENDED
MAY 31,
------------------
1994 1993
-------- --------
(000'S OMITTED)
Rentals receivable (net of principal and interest on the
nonrecourse debt)........................................... $ 16,258 $ 15,510
Estimated residual value of leased assets.................... 23,950 23,950
Unearned and deferred income................................. (7,590) (9,250)
-------- --------
Investment in leveraged leases............................. 32,618 30,210
Deferred taxes, net of AMT in fiscal 1993.................... (28,560) (28,310)
-------- --------
Net investment in leveraged leases......................... $ 4,058 $ 1,900
-------- --------
-------- --------
Pretax income from leveraged leases was $1,955,000, $334,000 and $529,000 in
fiscal 1994, 1993 and 1992, respectively. The tax effect of pretax income from
leveraged leases was $823,000, $125,000 and $199,000 in fiscal 1994, 1993 and
1992, respectively.
35
AAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. ALLOWANCES AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE YEAR ENDED MAY
31,
-----------------------
1994 1993 1992
------ ------ -------
(000'S OMITTED)
Balance, beginning of year............................................... $2,000 $2,000 $ 2,000
Provision charged to operations........................................ 600 400 1,600
Deductions for accounts written off, net of recoveries................. (600) (400) (1,600)
------ ------ -------
Balance, end of year..................................................... $2,000 $2,000 $ 2,000
------ ------ -------
------ ------ -------
INVENTORY REALIZATION RESERVES
FOR THE YEAR ENDED MAY 31,
--------------------------
1994 1993 1992
-------- ------- -------
(000'S OMITTED)
Balance, beginning of year........................................... $ 14,000 $ 6,000 $ 4,700
Provision charged to operations.................................... 3,104 12,300 3,300
Inventory written off and loss from disposal, net of recoveries.... (8,188) (4,300) (2,000)
-------- ------- -------
Balance, end of year................................................. $ 8,916 $14,000 $ 6,000
-------- ------- -------
-------- ------- -------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the Directors of the Company
is incorporated by reference to the information contained under the caption
"Nominees and Continuing Directors" in the Company's definitive proxy statement
for the 1994 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A.
The information required by this item regarding the Executive Officers of
the Company appears under the caption "Executive Officers of the Registrant" in
Part I above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item regarding the compliance with Section
16(a) of the Securities Exchange Act of 1934 ("Exchange Act") is incorporated by
reference to the information contained under the caption "Compliance with
Section 16(a) of The Exchange Act" in the Company's definitive proxy statement
for the 1994 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information contained under the captions "Executive Compensation and Other
Information" (but excluding the following sections thereof, "Compensation
Committee's Report on Executive Compensation" and "Stockholder Return
Performance Graphs"); "Employment and Other Agreements" and "Director's
Compensation", in the Company's definitive proxy statement for the 1994 Annual
Meeting of Stockholders' to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information contained under the caption "Security Ownership of Management and
Others" in the Company's definitive proxy statement for the 1994 Annual Meeting
of Stockholders' to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1994 Annual
Meeting of Stockholders' to be filed pursuant to Regulation 14A.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants, KPMG Peat Marwick LLP........................................... 13
Financial Statements -- AAR CORP. and Subsidiaries:
Consolidated statements of income for the three years ended May 31, 1994................................ 14
Consolidated balance sheets as of May 31, 1994 and 1993................................................. 15-16
Consolidated statements of stockholders' equity for the three years ended May 31, 1994.................. 17
Consolidated statements of cash flows for the three years ended May 31, 1994............................ 18
Notes to consolidated financial statements.............................................................. 19-36
Selected quarterly data (unaudited) for the years ended May 31, 1994 and 1993 (Note 8 to Consolidated
Financial Statements).................................................................................. 33
No financial data schedules are required to be filed.
EXHIBITS
The Exhibits filed as a part of this report are set forth on the Exhibit
Index contained elsewhere herein. Each of the material contracts identified as
Exhibits 10.1 through 10.5 is a management contract or compensatory arrangement.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three month period ended
May 31, 1994.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AAR CORP.
(Registrant)
Date: August 24, 1994
By: /s/ IRA A. EICHNER
-----------------------------------
Ira A. Eichner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------------------------------- ------------------------- ----------------
/s/ IRA A. EICHNER CHAIRMAN OF THE BOARD AND
- - --------------------------------- CHIEF EXECUTIVE OFFICER;
Ira A. Eichner DIRECTOR (PRINCIPAL
EXECUTIVE OFFICER)
(PRINCIPAL FINANCIAL
OFFICER)
/s/ DAVID P. STORCH PRESIDENT AND CHIEF
- - --------------------------------- OPERATING OFFICER;
David P. Storch DIRECTOR
/s/ TIMOTHY J. ROMENESKO VICE PRESIDENT-CONTROLLER
- - --------------------------------- (PRINCIPAL ACCOUNTING
Timothy J. Romenesko OFFICER)
/s/ A. ROBERT ABBOUD DIRECTOR
- - ---------------------------------
A. Robert Abboud
/s/ EDGAR D. JANNOTTA DIRECTOR August 24, 1994
- - ---------------------------------
Edgar D. Jannotta
/s/ ROBERT D. JUDSON DIRECTOR
- - ---------------------------------
Robert D. Judson
/s/ ERWIN E. SCHULZE DIRECTOR
- - ---------------------------------
Erwin E. Schulze
/s/ JOEL D. SPUNGIN DIRECTOR
- - ---------------------------------
Joel D. Spungin
/s/ LEE B. STERN DIRECTOR
- - ---------------------------------
Lee B. Stern
/s/ RICHARD D. TABERY DIRECTOR
- - ---------------------------------
Richard D. Tabery
39
EXHIBIT INDEX
INDEX EXHIBITS
- - ------------------------------------ --------------------------------------------------------------------
3. Articles of Incorporation 3.1 Restated Certificate of Incorporation;1 Amendments thereto dated
and By-Laws November 3, 19872 and October 19, 1988.2
3.2 By-Laws, as amended.2 Amendment thereto dated April 12, 1994 (filed
herewith)
4. Instruments defining the 4.1 Restated Certificate of Incorporation and Amendments (see Exhibit
rights of security holders 3.1).
4.2 By-Laws, as amended (filed herewith).
4.3 Credit Agreement dated June 1, 1993 between the Registrant and
Continental Bank N.A.11 and amendment thereto dated May 16, 1994
(filed herewith).
4.4 Rights Agreement between the Registrant and the First National Bank
of Chicago;1 Amendment thereto dated July 18, 1989.2
4.5 Indenture dated October 15, 1989 between the Registrant and
Continental Bank, National Association, as Trustee, relating to debt
securities;5 First Supplemental Indenture thereto dated August 26,
1991.6
4.6 Officer's certificates dated October 24, 198910 and October 12,
1993.10
4.7 Credit Agreement dated October 15, 1991 between the Registrant and
The First National Bank of Chicago, as Agent7 and amendment thereto
dated March 31, 1994 (filed herewith).
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
is not filing certain documents. The Registrant agrees to furnish a
copy of each such document upon the request of the Commission.
10. Material Contracts 10.1 AAR CORP. Stock Benefit Plan.11
10.2 Death Benefit Agreement dated August 24, 1984 between the Registrant
and Ira A. Eichner;8 Amendment thereto dated August 12, 1988.4
10.3 Further Restated and Amended Employment Agreement dated August 1,
1985 between the Registrant and Ira A. Eichner;3 Amendment thereto
dated August 12, 1988.4
10.4 Trust Agreement dated August 12, 1988 between the Registrant and Ira
A. Eichner4 and amendment thereto dated February 4, 1994 (filed
herewith).
10.5 AAR CORP. Directors' Retirement Plan, dated April 14, 1992.9
INDEX EXHIBITS
- - ------------------------------------ --------------------------------------------------------------------
21. Subsidiaries of 21.1 Subsidiaries of AAR CORP. (filed herewith).
the Registrant
23. Consents of experts 23.1 Consent of Independent Public Accountants -- KPMG Peat Marwick
and counsel (filed herewith).
- - ------------------------
Notes:
1 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1987.
2 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1989.
3 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1986.
4 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1988.
5 Incorporated by reference to Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended November 30, 1989.
6 Incorporated by reference to Exhibits to Registrant's Registration Statement
on Form S-3 filed August 27, 1991.
7 Incorporated by reference to Exhibits to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1991.
8 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1985.
9 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992.
10 Incorporated by reference to Exhibits to the Registrant's Current Reports on
Form 8-K dated October 24, 1989 and October 12, 1993.
11 Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993.