Aar Corp 10-Q for FY2024 Q3

Aar Corp (AIR)

10-Q 2024-03-21 For: 2024-02-29

Added on April 04, 2026

About this 10-Q

Aar Corp filed this 10-Q on March 21, 2024, covering the quarter ended February 29, 2024 (FY2024 Q3).

Headline figures

Quarter ended February 29, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $567.3M; up 8.9% from $521.1M a year earlier
Net income: $14M; down 35.8% from net income of $21.8M a year earlier
Diluted EPS: $0.39; down 37.1% from $0.62 a year earlier

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Delaware		36-2334820
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



One AAR Place, 1100 N. Wood Dale Road Wood Dale, Illinois		60191
(Address of principal executive offices)		(Zip Code)


		Page
Part I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Changes in Equity	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II — OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5.	Other Information	37
Item 6.	Exhibits	38

Exhibit Index		38
Signatures		40


ASSETS

	February 29,		May 31,
	2024		2023
	(Unaudited)
Current assets:
Cash and cash equivalents	$	69.2	$	68.4
Restricted cash		14.4		13.4
Accounts receivable, less allowances of $13.9 and $13.4, respectively		257.1		241.3
Contract assets		86.5		86.9
Inventories		671.5		574.1
Rotable assets and equipment on or available for short-term lease		74.5		50.6
Assets of discontinued operations		10.8		13.5
Prepaid expenses and other current assets		56.7		49.7
Total current assets		1,240.7		1,097.9

Property, plant, and equipment, net of accumulated depreciation of $278.2 and $268.8, respectively		134.1		126.1

Other assets:
Goodwill		179.4		175.8
Intangible assets, net of accumulated amortization of $9.3 and $6.0, respectively		60.4		63.7
Operating lease right-of-use assets, net		89.5		63.7
Rotable assets supporting long-term programs		177.9		178.1
Other non-current assets		139.8		127.8
		647.0		609.1
	$	2,021.8	$	1,833.1


LIABILITIES AND EQUITY

	February 29,		May 31,
	2024		2023
	(Unaudited)
Current liabilities:
Accounts payable	$	230.3	$	158.5
Accrued liabilities		187.4		179.6
Liabilities of discontinued operations		10.5		13.4
Total current liabilities		428.2		351.5

Long-term debt		274.7		269.7
Operating lease liabilities		73.0		48.2
Deferred tax liabilities		37.0		33.6
Other liabilities		40.9		31.0
		425.6		382.5

Equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued		—		—
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,300,786 shares at cost		45.3		45.3
Capital surplus		489.3		484.5
Retained earnings		947.8		910.6
Treasury stock, 9,873,730 and 10,385,237 shares at cost, respectively		(305.7)		(317.8)
Accumulated other comprehensive loss		(8.7)		(23.5)
Total equity		1,168.0		1,099.1
	$	2,021.8	$	1,833.1


	Three Months Ended				Nine Months Ended
	February 29/28,				February 29/28,
	2024		2023		2024		2023
Sales:
Sales from products	$	329.9	$	327.6	$	987.6	$	891.4
Sales from services		237.4		193.5		674.8		545.8
		567.3		521.1		1,662.4		1,437.2
Cost and operating expenses:
Cost of products		257.5		260.5		788.8		709.3
Cost of services		199.5		166.3		558.6		465.9
		457.0		426.8		1,347.4		1,175.2
Gross profit		110.3		94.3		315.0		262.0
Provision for credit losses		0.1		1.9		0.5		1.8
Selling, general and administrative		77.0		56.7		217.4		159.6
Loss from joint ventures		(0.2)		(1.7)		(0.5)		(3.0)
Operating income		33.0		34.0		96.6		97.6
Pension settlement charge		—		—		(26.7)		—
Losses related to sale and exit of business		(1.0)		(0.4)		(2.6)		(0.5)
Other income (expense), net		(0.2)		(0.3)		(0.3)		0.4
Interest expense		(11.9)		(3.8)		(23.9)		(7.0)
Interest income		0.6		0.3		1.6		0.5
Income from continuing operations before income taxes		20.5		29.8		44.7		91.0
Income tax expense		6.5		8.0		7.5		24.4
Income from continuing operations		14.0		21.8		37.2		66.6
Income from discontinued operations, net of tax		—		—		—		0.4
Net income	$	14.0	$	21.8	$	37.2	$	67.0

Earnings per share – basic:
Earnings from continuing operations	$	0.40	$	0.63	$	1.05	$	1.90
Earnings from discontinued operations		—		—		—		0.01
Earnings per share – basic	$	0.40	$	0.63	$	1.05	$	1.91

Earnings per share – diluted:
Earnings from continuing operations	$	0.39	$	0.62	$	1.04	$	1.87
Earnings from discontinued operations		—		—		—		0.01
Earnings per share – diluted	$	0.39	$	0.62	$	1.04	$	1.88


									Accumulated
									Other
	Common		Capital		Retained		Treasury		Comprehensive
	Stock		Surplus		Earnings		Stock		Loss		Total Equity
Balance, May 31, 2023	$	45.3	$	484.5	$	910.6	$	(317.8)	$	(23.5)	$	1,099.1
Net loss		—		—		(0.6)		—		—		(0.6)
Stock option activity		—		(0.3)		—		7.0		—		6.7
Restricted stock activity		—		(2.4)		—		3.7		—		1.3
Other comprehensive income, net of tax		—		—		—		—		15.4		15.4
Balance, August 31, 2023	$	45.3	$	481.8	$	910.0	$	(307.1)	$	(8.1)	$	1,121.9
Net income		—		—		23.8		—		—		23.8
Stock option activity		—		0.9		—		6.3		—		7.2
Restricted stock activity		—		3.0		—		—		—		3.0
Other comprehensive loss, net of tax		—		—		—		—		(0.4)		(0.4)
Balance, November 30, 2023	$	45.3	$	485.7	$	933.8	$	(300.8)	$	(8.5)	$	1,155.5
Net income		—		—		14.0		—		—		14.0
Stock option activity		—		0.7		—		0.2		—		0.9
Restricted stock activity		—		2.9		—		—		—		2.9
Repurchase of shares		—		—		—		(5.1)		—		(5.1)
Other comprehensive loss, net of tax		—		—		—		—		(0.2)		(0.2)
Balance, February 29, 2024	$	45.3	$	489.3	$	947.8	$	(305.7)	$	(8.7)	$	1,168.0


Accounts receivable	$	8.8
Other assets		3.0
Intangible assets		61.7
Deferred revenue		(4.1)
Deferred tax liabilities		(15.1)
Other liabilities		(4.6)
Net assets acquired		49.7
Goodwill		63.8
Purchase price, net of cash acquired	$	113.5


Risk-free interest rate	4.1	%
Expected volatility of common stock	42.3	%
Dividend yield	0.0	%
Expected option term in years	5.1


	Currency
	Translation		Pension
	Adjustments		Plans		Total
Balance at December 1, 2023	$	(5.6)	$	(2.9)	$	(8.5)
Other comprehensive income before reclassifications		(0.2)		—		(0.2)
Total other comprehensive loss		(0.2)		—		(0.2)
Balance at February 29, 2024	$	(5.8)	$	(2.9)	$	(8.7)

Balance at December 1, 2022	$	(6.4)	$	(16.4)	$	(22.8)
Other comprehensive loss before reclassifications		0.7		—		0.7
Amounts reclassified from AOCL		—		0.1		0.1
Total other comprehensive income (loss)		0.7		0.1		0.8
Balance at February 28, 2023	$	(5.7)	$	(16.3)	$	(22.0)


	Three Months Ended February 29, 2024
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	242.3	$	2.3	$	244.6
Repair & Engineering		140.8		23.6		164.4
Integrated Solutions		165.5		0.2		165.7
Expeditionary Services		18.7		—		18.7
	$	567.3	$	26.1	$	593.4


	Three Months Ended February 28, 2023
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	227.6	$	14.0	$	241.6
Repair & Engineering		128.0		19.8		147.8
Integrated Solutions		143.5		0.1		143.6
Expeditionary Services		22.0		—		22.0
	$	521.1	$	33.9	$	555.0


	Nine Months Ended February 29, 2024
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	706.7	$	4.9	$	711.6
Repair & Engineering		423.7		65.2		488.9
Integrated Solutions		478.4		0.6		479.0
Expeditionary Services		53.6		—		53.6
	$	1,662.4	$	70.7	$	1,733.1


	Nine Months Ended February 28, 2023
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	579.8	$	17.8	$	597.6
Repair & Engineering		390.4		58.4		448.8
Integrated Solutions		398.6		0.1		398.7
Expeditionary Services		68.4		—		68.4
	$	1,437.2	$	76.3	$	1,513.5


	Three Months Ended February 29/28,								Nine Months Ended February 29/28,
	2024			2023			% Change		2024			2023			% Change
Sales:
Commercial	$	399.2		$	339.5		17.6	%	$	1,176.9		$	944.9		24.6	%
Government and defense		168.1			181.6		(7.4)	%		485.5			492.3		(1.4)	%
	$	567.3		$	521.1		8.9	%	$	1,662.4		$	1,437.2		15.7	%

Gross Profit:
Commercial	$	79.1		$	61.6		28.4	%	$	233.4		$	172.4		35.4	%
Government and defense		31.2			32.7		(4.6)	%		81.6			89.6		(8.9)	%
	$	110.3		$	94.3		17.0	%	$	315.0		$	262.0		20.2	%

Gross Profit Margin:
Commercial		19.8	%		18.1	%				19.8	%		18.2	%
Government and defense		18.6	%		18.0	%				16.8	%		18.2	%
Consolidated		19.4	%		18.1	%				18.9	%		18.2	%


	Three Months Ended				Nine Months Ended
	February 29/28,				February 29/28,
	2024		2023		2024		2023
Deferred revenue at beginning of period	$	(26.4)	$	(28.8)	$	(32.4)	$	(30.6)
Revenue deferred		(86.4)		(81.0)		(222.6)		(208.1)
Revenue recognized		85.6		73.9		228.0		194.0
Other⁽¹⁾		4.9		1.7		4.7		10.5
Deferred revenue at end of period	$	(22.3)	$	(34.2)	$	(22.3)	$	(34.2)


	February 29,		May 31,
	2024		2023
U.S. Government contracts:
Trade receivables	$	13.5	$	13.1
Unbilled receivables		12.5		18.9
		26.0		32.0
All other customers:
Trade receivables		206.5		179.7
Unbilled receivables		24.6		29.6
		231.1		209.3
	$	257.1	$	241.3


2026	103.375	%
2027	101.688	%
2028 and thereafter	100.000	%


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
12/1/2023 – 12/31/2023	80,000	$	63.39	80,000	$	52,544,833
1/1/2024 – 1/31/2024	—		—	—		52,544,833
2/1/2024 – 2/29/2024	—		—	—		52,544,833
Total	80,000	$	63.39	80,000

Exhibit No.	Description		Exhibits

2.1+	Plan of Acquisition		Purchase Agreement by and among AAR CORP., Triumph Group, Inc., Triumph Aftermarket Services Group, LLC, Triumph Group Acquisition Corp., Triumph Group Acquisition Holdings, Inc., and Trident Group Operations, Inc., dated December 21, 2023 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed December 21, 2023).

4.1	Instruments defining the rights of security holders		Base Indenture, dated as of March 1, 2024, by and between the Escrow Issuer and the Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed March 1, 2024).

4.2			Form of 6.750% Senior Note due 2029 (included in Exhibit 4.1) (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed March 1, 2024).

4.3			First Supplemental Indenture, dated as of March 1, 2024, by and among the Company, the Note Guarantors and the Trustee (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed March 1, 2024).

10.1*	Material contracts		First Amendment dated December 5, 2023 to AAR CORP. Supplemental Key Employee Retirement Plan, as Amended and Restated effective July 13, 2020.

10.2			Revolver Amendment, dated as of March 1, 2024, by and among the Company, as borrower, the lenders from time to time party thereto and Wells Fargo Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 1, 2024).

31.	Rule 13a-14(a)/15(d)-14(a) Certifications	31.1	Section 302 Certification of Chief Executive Officer of Registrant (filed herewith).

		31.2	Section 302 Certification of Chief Financial Officer of Registrant (filed herewith).

32.	Section 1350 Certifications	32.1	Section 906 Certification of Chief Executive Officer of Registrant (filed herewith).

		32.2	Section 906 Certification of Chief Financial Officer of Registrant (filed herewith).

101.	Interactive Data File	101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at February 29, 2024 and May 31, 2023, (ii) Condensed Consolidated Statements of Income for the three- and nine-months ended February 29/28, 2024 and 2023, (iii) Condensed Consolidated Statements of Comprehensive Income for the three- and nine-months ended February 29/28, 2024 and 2023, (iv) Condensed Consolidated Statements of Cash Flows for the nine-months ended February 29/28, 2024 and 2023, (v) Condensed Consolidated Statement of Changes in Equity for the three- and nine-months ended February 29/28, 2024 and 2023, and (vi) Notes to Condensed Consolidated Financial Statements.**

104.	Cover Page Interactive Data File	104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).


		AAR CORP.
		(Registrant)



Date:	March 21, 2024	/s/ SEAN M. GILLEN
		Sean M. Gillen
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

	AAR CORP.

	By:	/s/ John M. Holmes
		John M. Holmes
		Chairman, President and Chief Executive Officer

	/s/ JOHN M. HOLMES
	John M. Holmes
	Chairman, President, and Chief Executive Officer
	(Principal Executive Officer)