Aar Corp 10-Q for FY2023 Q2

Aar Corp (AIR)

10-Q 2022-12-20 For: 2022-11-30

Added on April 04, 2026

About this 10-Q

Aar Corp filed this 10-Q on December 20, 2022, covering the quarter ended November 30, 2022 (FY2023 Q2).

Headline figures

Quarter ended November 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $469.8M; up 7.6% from $436.6M a year earlier
Net income: $22.5M; up 8.2% from net income of $20.8M a year earlier
Diluted EPS: $0.64; up 10.3% from $0.58 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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

Part II — OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30

Exhibit Index		30
Signatures		31


ASSETS

	November 30,		May 31,
	2022		2022
	(Unaudited)
Current assets:
Cash and cash equivalents	$	49.0	$	53.5
Restricted cash		2.2		5.4
Accounts receivable, less allowances of $11.2 and $17.9, respectively		225.3		214.0
Contract assets		82.5		73.6
Inventories		595.0		550.5
Rotable assets and equipment on or available for short-term lease		52.3		53.6
Assets of discontinued operations		15.3		16.2
Other current assets		38.7		40.4
Total current assets		1,060.3		1,007.2

Property, plant and equipment, net of accumulated depreciation of $256.8 and $258.3 respectively		113.9		109.6

Other assets:
Goodwill and intangible assets, net		117.6		119.7
Operating lease right-of-use assets, net		67.2		73.0
Rotable assets supporting long-term programs		170.7		166.6
Other non-current assets		117.2		97.8
		472.7		457.1
	$	1,646.9	$	1,573.9


LIABILITIES AND EQUITY

	November 30,		May 31,
	2022		2022
	(Unaudited)
Current liabilities:
Accounts payable	$	156.5	$	156.4
Accrued liabilities		151.9		174.6
Liabilities of discontinued operations		15.3		17.2
Total current liabilities		323.7		348.2

Long-term debt		197.2		98.9
Operating lease liabilities		51.9		57.4
Deferred tax liabilities		19.7		20.0
Other liabilities		19.1		14.9
		287.9		191.2

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		479.0		477.5
Retained earnings		865.6		820.4
Treasury stock, 10,845,669 and 9,909,702 shares at cost, respectively		(331.8)		(289.1)
Accumulated other comprehensive loss		(22.8)		(19.6)
Total equity		1,035.3		1,034.5
	$	1,646.9	$	1,573.9


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2022		2021		2022		2021
Sales:
Sales from products	$	298.6	$	252.0	$	563.8	$	514.1
Sales from services		171.2		184.6		352.3		377.6
		469.8		436.6		916.1		891.7
Cost and operating expenses:
Cost of products		234.8		202.1		448.8		419.7
Cost of services		149.2		156.1		299.6		329.0
Provision for (Recovery of) credit losses		(0.1)		0.8		(0.1)		0.8
Selling, general and administrative		52.8		47.1		102.9		96.4
		436.7		406.1		851.2		845.9
Loss from joint ventures		(0.7)		(0.4)		(1.3)		(0.6)
Operating income		32.4		30.1		63.6		45.2
Losses related to sale and exit of business		(0.1)		(1.3)		(0.1)		(1.3)
Other income, net		0.5		0.3		0.7		1.0
Interest expense		(2.1)		(0.5)		(3.2)		(1.2)
Interest income		0.1		0.1		0.2		0.1
Income from continuing operations before provision for income taxes		30.8		28.7		61.2		43.8
Provision for income taxes		8.3		7.9		16.4		11.8
Income from continuing operations		22.5		20.8		44.8		32.0
Income from discontinued operations, net of tax		—		—		0.4		0.3
Net income	$	22.5	$	20.8	$	45.2	$	32.3

Earnings per share – basic:
Earnings from continuing operations	$	0.65	$	0.59	$	1.28	$	0.90
Income from discontinued operations		—		—		0.01		0.01
Earnings per share – basic	$	0.65	$	0.59	$	1.29	$	0.91

Earnings per share – diluted:
Earnings from continuing operations	$	0.64	$	0.58	$	1.26	$	0.89
Income from discontinued operations		—		—		0.01		0.01
Earnings per share – diluted	$	0.64	$	0.58	$	1.27	$	0.90


									Accumulated
									Other
	Common		Capital		Retained		Treasury		Comprehensive
	Stock		Surplus		Earnings		Stock		Income (Loss)		Total Equity
Balance, May 31, 2022	$	45.3	$	477.5	$	820.4	$	(289.1)	$	(19.6)	$	1,034.5
Net income		—		—		22.7		—		—		22.7
Stock option activity		—		1.0		—		1.5		—		2.5
Restricted stock activity		—		(1.7)		—		3.5		—		1.8
Repurchase of shares		—		—		—		(21.9)		—		(21.9)
Other comprehensive loss, net of tax		—		—		—		—		(3.1)		(3.1)
Balance, August 31, 2022	$	45.3	$	476.8	$	843.1	$	(306.0)	$	(22.7)	$	1,036.5
Net income		—		—		22.5		—		—		22.5
Stock option activity		—		0.2		—		2.4		—		2.6
Restricted stock activity		—		2.0		—		—		—		2.0
Repurchase of shares		—		—		—		(28.2)		—		(28.2)
Other comprehensive loss, net of tax		—		—		—		—		(0.1)		(0.1)
Balance,November 30, 2022	$	45.3	$	479.0	$	865.6	$	(331.8)	$	(22.8)	$	1,035.3


Risk-free interest rate	3.1	%
Expected volatility of common stock	42.2	%
Dividend yield	0.0	%
Expected option term in years	5.2


	Currency
	Translation		Pension
	Adjustments		Plans		Total
Balance at September 1, 2022	$	(6.1)	$	(16.6)	$	(22.7)
Other comprehensive income before reclassifications		(0.3)		—		(0.3)
Amounts reclassified from AOCL		—		0.2		0.2
Total other comprehensive income (loss)		(0.3)		0.2		(0.1)
Balance at November 30, 2022	$	(6.4)	$	(16.4)	$	(22.8)

Balance at September 1, 2021	$	3.3	$	(21.9)	$	(18.6)
Other comprehensive loss before reclassifications		(3.7)		—		(3.7)
Amounts reclassified from AOCL		(0.2)		0.3		0.1
Total other comprehensive income (loss)		(3.9)		0.3		(3.6)
Balance at November 30, 2021	$	(0.6)	$	(21.6)	$	(22.2)


	Three Months Ended November 30,						Six Months Ended November 30,
	2022		2021		% Change		2022		2021		% Change
Sales:
Aviation Services
Commercial	$	309.9	$	257.0	20.6	%	$	602.0	$	524.2	14.8	%
Government and defense		135.8		162.3	(16.3)	%		267.7		330.7	(19.1)	%
	$	445.7	$	419.3	6.3	%	$	869.7	$	854.9	1.7	%
Expeditionary Services
Commercial	$	1.9	$	0.7	171.4	%	$	3.4	$	0.8	325.0	%
Government and defense		22.2		16.6	33.7	%		43.0		36.0	19.4	%
	$	24.1	$	17.3	39.3	%	$	46.4	$	36.8	26.1	%


				Total Number
				of Shares	Approximate
				Purchased as	Dollar Value of
				Part of Publicly	Shares that May Yet Be
	Total Number	Average		Announced	Purchased
	of Shares	Price Paid per		Plans or	Under the Plans
Period	Purchased	Share		Programs ⁽¹⁾	or Programs ⁽¹⁾
9/1/2022 – 9/30/2022	160,000	$	35.69	160,000	$	80,048,629
10/1/2022 – 10/31/2022	402,161		40.45	402,161		63,783,053
11/1/2022 – 11/30/2022	141,423		43.61	141,423		57,615,950
Total	703,584	$	40.00	703,584

Exhibit No.	Description		Exhibits

10.	Material Contracts	10.1	Credit Agreement dated as of December 14, 2022 among AAR CORP., Wells Fargo, N.A., as administrative agent, and the various financial institutions party thereto (filed herewith).

		10.2*	Consulting Agreement between the Company and David P. Storch, dated September 20, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2022).

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 November 30, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at November 30, 2022 and May 31, 2022, (ii) Condensed Consolidated Statements of Income for the three- and six-months ended November 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Income for the three- and six-months ended November 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2022 and 2021, (v) Condensed Consolidated Statement of Changes in Equity for the three- and six-months ended November 30, 2022 and 2021 (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:	December 20, 2022	/s/ SEAN M. GILLEN
		Sean M. Gillen
		Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)


		Page

ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS		1

1.01	Defined Terms	1
1.02	Other Interpretive Provisions	30
1.03	Accounting Terms	31
1.04	Rounding	31
1.05	Times of Day	31
1.06	Letter of Credit Amounts	31
1.07	Interest Rates	31
1.08	Divisions	32

ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS		32

2.01	Committed Loans	32
2.02	Borrowings, Conversions and Continuations of Committed Loans	33
2.03	[Reserved]	34
2.04	Letters of Credit	34
2.05	Swing Line Loans	41
2.06	Prepayments	44
2.07	Termination or Reduction of Commitments	44
2.08	Repayment of Loans	45
2.09	Interest	45
2.10	Fees	46
2.11	Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate	46
2.12	Evidence of Debt	47
2.13	Payments Generally; Administrative Agent’s Clawback	47
2.14	Sharing of Payments by Lenders	49
2.15	[Reserved]	49
2.16	Increase in Commitments	49
2.17	Cash Collateral	51
2.18	Defaulting Lenders	52

ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY		53

3.01	Taxes	53
3.02	Illegality	56
3.03	Inability to Determine Rates	57
3.04	Increased Costs	59
3.05	Compensation for Losses	60
3.06	Mitigation Obligations; Replacement of Lenders	60
3.07	Survival	61


		Page

ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS		61

4.01	Conditions of Initial Credit Extension	61
4.02	Conditions to all Credit Extensions	62

ARTICLE V. REPRESENTATIONS AND WARRANTIES		63

5.01	Organization	63
5.02	Authorization; No Conflict	63
5.03	Validity and Binding Nature	63
5.04	Financial Condition; No Material Adverse Effect	64
5.05	Litigation and Contingent Liabilities	64
5.06	Ownership of Properties; Liens	64
5.07	Equity Ownership; Subsidiaries	64
5.08	Pension Plans	64
5.09	Investment Company Act	65
5.10	Regulation U	65
5.11	Taxes	65
5.12	Solvency; Etc.	65
5.13	Environmental Matters	66
5.14	Insurance	66
5.15	Information	66
5.16	Intellectual Property	66
5.17	No Default	67
5.18	Taxpayer Identification Number	67
5.19	Anti-Corruption Laws; Sanctions; Anti-Terrorism Laws	67
5.20	Affected Financial Institutions	67

ARTICLE VI. AFFIRMATIVE COVENANTS		67

6.01	Reports, Certificates and Other Information	67
6.02	Books, Records and Inspections	70
6.03	Maintenance of Property; Insurance	70
6.04	Compliance with Laws; Payment of Taxes and Liabilities	71
6.05	Maintenance of Existence, Etc	71
6.06	Use of Proceeds	71
6.07	Additional Guarantors	71
6.08	PATRIOT Act Compliance; Policies and Procedures	72

ARTICLE VII. NEGATIVE COVENANTS		72

7.01	Debt	72
7.02	Liens	73
7.03	Restricted Payments	75
7.04	Mergers and Consolidations	75
7.05	Sale of Assets, Etc.	76


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2022		2021		2022		2021
Deferred revenue at beginning of period	$	(33.5)	$	(33.0)	$	(30.6)	$	(31.3)
Revenue deferred		(69.6)		(72.0)		(127.1)		(122.1)
Revenue recognized		66.6		58.6		120.1		105.0
Other		7.7		3.7		8.8		5.7
Deferred revenue at end of period	$	(28.8)	$	(42.7)	$	(28.8)	$	(42.7)


	November 30,		May 31,
	2022		2022
U.S. Government contracts:
Trade receivables	$	21.6	$	31.6
Unbilled receivables		32.1		25.9
		53.7		57.5
All other customers:
Trade receivables		155.1		136.8
Unbilled receivables		16.5		19.7
		171.6		156.5
	$	225.3	$	214.0


	November 30,		May 31,
	2022		2022
Aircraft and engine parts, components and finished goods	$	520.4	$	465.9
Raw materials and parts		56.0		62.2
Work-in-process		18.6		22.4
	$	595.0	$	550.5


		Page

7.06	Acquisitions	76
7.07	[Reserved]	77
7.08	Transactions with Affiliates	77
7.09	Inconsistent Agreements	77
7.10	Business Activities	78
7.11	Investments	78
7.12	Fiscal Year	79
7.13	Financial Covenants	79

ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES		79

8.01	Events of Default	79
8.02	Remedies Upon Event of Default	81
8.03	Application of Funds	81

ARTICLE IX. ADMINISTRATIVE AGENT		82

9.01	Appointment and Authority	82
9.02	Rights as a Lender	82
9.03	Exculpatory Provisions	83
9.04	Reliance by Administrative Agent	83
9.05	Delegation of Duties	84
9.06	Resignation of Administrative Agent	84
9.07	Non-Reliance on Administrative Agent and Other Lenders	84
9.08	No Other Duties, Etc	85
9.09	Administrative Agent May File Proofs of Claim	85
9.10	Guaranty Matters	85
9.11	Syndication Agents	86
9.12	Certain ERISA Matters	86
9.13	Erroneous Payments	87

ARTICLE X. MISCELLANEOUS		89

10.01	Amendments, Etc	89
10.02	Notices; Effectiveness; Electronic Communication	90
10.03	No Waiver; Cumulative Remedies; Enforcement	92
10.04	Expenses; Indemnity; Damage Waiver	92


10.14	Governing Law; Jurisdiction; Etc.	101
10.15	Waiver of Jury Trial	102
10.16	No Advisory or Fiduciary Responsibility	102
10.17	Electronic Execution of Assignments and Certain Other Documents	103
10.18	USA PATRIOT Act	103
10.19	Acknowledgement and Consent to Bail-In of Affected Financial Institutions	104
10.20	Acknowledgement Regarding Any Supported QFCs	104


SCHEDULES

2.01	Commitments and Applicable Percentages
2.04(a)	Letter of Credit Sublimit Amounts
2.04(b)	Existing Letters of Credit
5.05	Litigation
5.07	Subsidiaries; Other Equity Investments; Equity Interests in the Borrower
7.01	Existing Debt
7.11	Investments
10.02	Administrative Agent’s Office; Certain Addresses for Notices


EXHIBITS
A	Form of Committed Loan Notice
C	Form of Swing Line Loan Notice
D	Form of Note
E	Form of Compliance Certificate
F-1	Form of Assignment and Assumption
F-2	Form of Administrative Questionnaire
G	Form of Guaranty


Applicable Rate
Pricing Level	Adjusted Total Debt to EBITDA Ratio	Commitment Fee	Adjusted Term SOFR and Letters of Credit	Base Rate
1	< 1.00:1.00	0.15%	1.125%	0.125%
2	> 1.00:1.00 but < 1.75:1.00	0.175%	1.25%	0.25%
3	> 1.75:1.00 but < 2.75:1.00	0.20%	1.50%	0.50%
4	> 2.75:1.00 but < 3.25:1.00	0.225%	1.75%	0.75%
5	> 3.25:1.00	0.25%	2.00%	1.00%

	AAR CORP.,
	as Borrower

	By:	/s/ Sean M. Gillen
	Name:	Sean M. Gillen
	Title:	Vice President and CFO

	WELLS FARGO BANK, N.A.,
	as Administrative Agent, as a Lender and as an
	L/C Issuer

	By:	/s/ Brett Rausch
	Name:	Brett Rausch
	Title:	Senior Vice President

	BANK OF AMERICA, N.A.,
	as a Lender and as an L/C Issuer

	By:	/s/ A. Quinn Richardson
	Name:	A. Quinn Richardson
	Title:	Senior Vice President

	TRUIST BANK,
	as a Lender

	By:	/s/ Christian Jacobsen
	Name:	Christian Jacobsen
	Title:	Director

	CIBC BANK USA,
	as a Lender

	By:	/s/ Natalie Fiala
	Name:	Natalie Fiala
	Title:	Officer

	PNC BANK, NATIONAL ASSOCIATION,
	as a Lender

	By:	/s/ Ana Gaytan
	Name:	Ana Gaytan
	Title:	Assistant Vice President

	ASSOCIATED BANK, NATIONAL
	ASSOCIATION,
	as a Lender

	By:	/s/ Ian Ormseth
	Name:	Ian Ormseth
	Title:	Vice President

	Revolving Commitment
Lender	Amount
Wells Fargo Bank, N.A.	$	155,000,000.00
Bank of America, N.A.	$	135,000,000.00
Truist Bank	$	125,000,000.00
CIBC Bank USA	$	125,000,000.00
PNC Bank, National Association	$	50,000,000.00
Associated Bank, National Association	$	30,000,000.00
TOTAL	$	620,000,000.00

	Letter of Credit Sublimit
Lender	Amount
Wells Fargo Bank, N.A.	$	45,000,000.00
Bank of America, N.A.	$	30,000,000.00
TOTAL	$	75,000,000.00

DATE: December 20, 2022

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