Aar Corp 10-Q for FY2020 Q3
Aar Corp (AIR)
About this 10-Q
Aar Corp filed this 10-Q on March 25, 2020, covering the quarter ended February 29, 2020 (FY2020 Q3).
Headline figures
Quarter ended February 29, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.8M
- Net income
- $2.3M
- compared with a net loss of $37.4M a year earlier
- Diluted EPS
- $0.06
- compared with -$1.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation | | (I.R.S. Employer Identification No.) |
| ||
(Address of principal executive offices) | | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| | |||
| | | | 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of February 29, 2020 there were
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
For the Quarter Ended February 29, 2020
Table of Contents
| | Page |
| ||
| ||
| 3 | |
| 5 | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) | 6 |
| 7 | |
| 8 | |
| 9 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
29 | ||
29 | ||
| | |
| ||
30 | ||
30 | ||
31 | ||
| | |
31 | ||
32 | ||
2
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of February 29, 2020 and May 31, 2019
(In millions, except share data)
ASSETS
|
| February 29, |
| May 31, | ||
| | 2020 | | 2019 | ||
| | (Unaudited) | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | | | | | | |
Accounts receivable, less allowances of $ | |
| | |
| |
Contract assets | | | | | | |
Inventories | |
| | |
| |
Rotable assets and equipment on or available for short-term lease | |
| | |
| |
Assets of discontinued operations | | | | | | |
Other current assets | |
| | |
| |
Total current assets | |
| | |
| |
| | | | | | |
Property, plant and equipment, net of accumulated depreciation of $ | |
| | |
| |
| | | | | | |
Other assets: | | | | | | |
Goodwill | |
| | |
| |
Intangible assets, net of accumulated amortization of $ | |
| | |
| |
Operating lease right-of-use assets, net | | | | | | — |
Rotable assets supporting long-term programs | |
| | |
| |
Other non-current assets | |
| | |
| |
| |
| | |
| |
| | $ | | | $ | |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
3
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of February 29, 2020 and May 31, 2019
(In millions, except share data)
LIABILITIES AND EQUITY
|
| February 29, |
| May 31, | ||
| | 2020 | | 2019 | ||
| | (Unaudited) | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | | | $ | |
Accrued liabilities | | | | | | |
Liabilities of discontinued operations | |
| | |
| |
Total current liabilities | |
| | |
| |
| | | | | | |
Long-term debt | |
| | |
| |
Operating lease liabilities | | | | | | — |
Deferred revenue on long-term programs | | | | | | |
Other liabilities | |
| | |
| |
| |
| | |
| |
| | | | | | |
Equity: | | | | | | |
Preferred stock, $ | | | |
| ||
Common stock, $ | |
| | |
| |
Capital surplus | |
| | |
| |
Retained earnings | |
| | |
| |
Treasury stock, | |
| ( | |
| ( |
Accumulated other comprehensive loss | |
| ( | |
| ( |
Total equity | |
| | |
| |
| | $ | | | $ | |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended February 29/28, 2020 and 2019
(Unaudited)
(In millions, except share data)
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Sales: | | | | | | | | | | | | |
Sales from products | | $ | | | $ | | | $ | | | $ | |
Sales from services | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Cost and operating expenses: | | | | | | | | | | | | |
Cost of products | |
| | |
| | |
| | |
| |
Cost of services | |
| | |
| | |
| | |
| |
Provision for doubtful accounts | | | | | | | | | | | | |
Selling, general and administrative | | | | | | | | | | | | |
| |
| | | | | | | | | | |
Operating income | |
| | |
| | |
| | |
| |
Other expense, net | | | ( | | | ( | | | ( | | | ( |
Interest expense | |
| ( | | | ( | | | ( | | | ( |
Interest income | | | | |
| | |
| | |
| |
Income from continuing operations before provision for income taxes | |
| | | | | | | | | | |
Provision for income taxes (benefit) | |
| | |
| ( | |
| | |
| |
Income from continuing operations | | | | | | | | | | | | |
Loss from discontinued operations | |
| ( | |
| ( | |
| ( | |
| ( |
Net income (loss) | | $ | | | $ | ( | | $ | | | $ | ( |
| | | | | | | | | | | | |
Earnings (Loss) per share - basic: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | | | $ | | | $ | | | $ | |
Loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Earnings (Loss) per share - basic | | $ | | | $ | ( | | $ | | | $ | ( |
| | | | | | | | | | | | |
Earnings (Loss) per share - diluted: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | | | $ | | | $ | | | $ | |
Loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Earnings (Loss) per share - diluted | | $ | | | $ | ( | | $ | | | $ | ( |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the Three and Nine Months Ended February 29/28, 2020 and 2019
(Unaudited)
(In millions)
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income (loss) | | $ | | | $ | ( | | $ | | | $ | ( |
Other comprehensive income (loss), net of tax expense (benefit): | | | | | | | | | | | | |
Currency translation adjustments | | | ( | | | | | | | | | ( |
Pension and other post-retirement plans: | | | | | | | | | | | | |
Amortization of actuarial loss and prior service cost included in net income, net of tax of $ | |
| | |
| | |
| | |
| |
Other comprehensive income, net of tax | |
| | |
| | |
| | |
| |
Comprehensive income (loss) | | $ | | | $ | ( | | $ | | | $ | ( |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
6
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended February 29/28, 2020 and 2019
(Unaudited)
(In millions)
| | Nine Months Ended | ||||
| | February 29/28, | ||||
|
| 2020 |
| 2019 | ||
Cash flows provided from (used in) operating activities: | | | | | | |
Net income (loss) | | $ | | | $ | ( |
Less: Loss from discontinued operations | | | ( | | | ( |
Income from continuing operations | | | | | | |
Adjustments to reconcile income from continuing operations to net cash provided from (used in) operating activities: | | | | | | |
Depreciation and intangible amortization | |
| | |
| |
Amortization of stock-based compensation | |
| | |
| |
Customer contract termination and restructuring costs | | | | | | — |
Provision for doubtful accounts | | | | | | |
Deferred tax provision | |
| | |
| ( |
Changes in certain assets and liabilities: | | | | | | |
Accounts receivable | |
| ( | |
| ( |
Contract assets | | | ( | | | ( |
Inventories | |
| ( | |
| ( |
Rotable spares and equipment on or available for short-term lease | |
| ( | |
| |
Rotable assets supporting long-term programs | |
| ( | |
| ( |
Accounts payable | |
| | |
| |
Accrued and other liabilities | |
| ( | |
| |
Deferred revenue on long-term programs | | | | | | |
Other | |
| ( | |
| ( |
Net cash provided from (used in) operating activities – continuing operations | |
| ( | |
| |
Net cash provided from (used in) operating activities – discontinued operations | | | ( | | | |
Net cash provided from (used in) operating activities | | | ( | | | |
Cash flows used in investing activities: | | | | | | |
Property, plant and equipment expenditures | |
| ( | |
| ( |
Payments for acquisitions | | | — | | | ( |
Other | |
| ( | |
| |
Net cash used in investing activities – continuing operations | |
| ( | |
| ( |
Net cash used in investing activities – discontinued operations | | | — | | | ( |
Net cash used in investing activities | | | ( | | | ( |
Cash flows provided from (used in) financing activities: | | | | | | |
Short-term borrowings, net | |
| | |
| |
Repayments on long-term borrowings | | | — | | | ( |
Cash dividends | |
| ( | |
| ( |
Purchase of treasury stock | | | ( | | | ( |
Financing costs | | | ( | | | — |
Stock compensation activity | | | | | | |
Net cash provided from (used in) financing activities – continuing operations | |
| | |
| ( |
Net cash used in financing activities – discontinued operations | | | — | | | ( |
Net cash provided from (used in) financing activities | | | | | | ( |
Effect of exchange rate changes on cash | |
| | |
| ( |
Increase in cash and cash equivalents | |
| | |
| |
Cash, cash equivalents, and restricted cash at beginning of period | |
| | |
| |
Cash, cash equivalents, and restricted cash at end of period | | $ | | | $ | |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
7
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended February 29/28, 2020 and 2019
(Unaudited)
(In millions)
| | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | Other | | | | |
| | Common | | Capital | | Retained | | Treasury | | Comprehensive | | | | |||||
|
| Stock |
| Surplus |
| Earnings |
| Stock |
| Income (Loss) |
| Total Equity | ||||||
Balance, May 31, 2019 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Cumulative effect adjustment upon adoption of ASC 842 on June 1, 2019 | | | — | | | — | | | | | | — | | | — | | | |
Net income | |
| — | |
| — | |
| | | | — | | | — | | | |
Cash dividends ($ | |
| — | |
| — | |
| ( | | | — | | | — | | | ( |
Stock option activity | |
| — | |
| | |
| — | | | | | | — | | | |
Restricted stock activity | |
| — | |
| ( | |
| — | | | | | | — | | | ( |
Other comprehensive income, net of tax | |
| — | |
| — | |
| — | | | — | | | | | | |
Balance, August 31, 2019 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Net income | | | — | | | — | | | | | | — | | | — | | | |
Cash dividends ($ | | | — | | | — | | | ( | | | — | | | — | | | ( |
Stock option activity | | | — | | | | | | — | | | | | | — | | | |
Restricted stock activity | | | — | | | | | | — | | | — | | | — | | | |
Repurchase of shares | | | — | | | — | | | — | | | ( | | | — | | | ( |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | | | | |
Balance, November 30, 2019 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Net income | | | — | | | — | | | | | | — | | | — | | | |
Cash dividends ($ | | | — | | | — | | | ( | | | — | | | — | | | ( |
Stock option activity | | | — | | | | | | — | | | | | | — | | | |
Restricted stock activity | | | — | | | | | | — | | | ( | | | — | | | |
Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | | | | |
Balance, February 29, 2020 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Balance, May 31, 2018 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Cumulative effect adjustment upon adoption of ASC 606 on June 1, 2018 | | | — | | | — | | | ( | | | — | | | — | | | ( |
Net income | |
| — | |
| — | |
| | |
| — | |
| — | |
| |
Cash dividends ($ | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Stock option activity | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Restricted stock activity | |
| — | |
| ( | |
| — | |
| ( | |
| — | |
| ( |
Other comprehensive loss, net of tax | |
| — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balance, August 31, 2018 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Net income | |
| — | |
| — | |
| | |
| — | |
| — | |
| |
Cash dividends ($ | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Stock option activity | |
| — | |
| | |
| — | |
| | |
| — | |
| |
Restricted stock activity | |
| — | |
| | |
| — | |
| ( | |
| — | |
| — |
Other comprehensive loss, net of tax | |
| — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balance, November 30, 2018 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Net loss | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Cash dividends ($ | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Stock option activity | |
| — | |
| | |
| — | |
| — | |
| — | |
| |
Restricted stock activity | |
| — | |
| | |
| — | |
| ( | |
| — | |
| |
Repurchase of shares | |
| — | |
| — | |
| — | |
| ( | |
| — | |
| ( |
Other comprehensive income, net of tax | |
| — | |
| — | |
| — | |
| — | |
| | |
| |
Balance, February 28, 2019 | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
8
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Note 1 – Basis of Presentation
AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our,” unless the context indicates otherwise. The accompanying Condensed Consolidated Financial Statements include the accounts of AAR and its subsidiaries after elimination of intercompany accounts and transactions.
We have prepared these statements without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet as of May 31, 2019 has been derived from audited financial statements. To prepare the financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), management has made a number of estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain information and note disclosures, normally included in comprehensive financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules and regulations of the SEC. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our latest annual report on Form 10-K.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the Condensed Consolidated Balance Sheet of AAR CORP. and its subsidiaries as of February 29, 2020, the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss) for the three- and nine-month periods ended February 29/28, 2020 and 2019, the Condensed Consolidated Statements of Cash Flows for the nine-month periods ended February 29/28, 2020 and 2019, and the Condensed Consolidated Statement of Changes in Equity for the three- and nine-month periods ended February 29/28, 2020 and 2019. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
New Accounting Pronouncements Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which amended the existing accounting standards for lease accounting. ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet for most lease arrangements, including those classified as operating leases. In addition, ASC 842 requires new qualitative and quantitative disclosures about our leasing activities.
We adopted ASC 842 on June 1, 2019 using the modified retrospective transition approach. Under that approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 10.
We have elected the package of
Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $
The adoption of ASC 842 did not have a material impact on the Condensed Consolidated Statements of Operations or Cash Flows.
9
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
The impact of the adoption of ASC 842 on our Condensed Consolidated Balance Sheet was as follows:
|
| As of |
| ASC 842 |
| As of | |||
| | May 31, 2019 | | Adjustments | | June 1, 2019 | |||
Assets of discontinued operations | | $ | | | $ | | | $ | |
Other current assets | | | | | | ( | | | |
Intangible assets, net | | | | | | ( | | | |
Operating lease ROU assets | | | — | | | | | | |
Other non-current assets | |
| | |
| ( | |
| |
Accrued liabilities | |
| | |
| | |
| |
Liabilities of discontinued operations | | | | | | | | | |
Operating lease liabilities | |
| — | |
| | |
| |
Other liabilities | | | | | | ( | | | |
Retained earnings | |
| | |
| | |
| |
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits the reclassification of tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the “Tax Reform Act”) to retained earnings. The FASB made the reclassification optional and we did not exercise the option to reclassify the stranded tax effects caused by the Tax Reform Act.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. This ASU also requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast of the collectability of the related financial asset. We continue to evaluate the impact of this ASU on our consolidated financial statements and expect to adopt this ASU on June 1, 2020.
Note 2 – Discontinued Operations
During the third quarter of fiscal 2018, we decided to pursue the sale of our Contractor-Owned, Contractor-Operated (“COCO”) business previously included in our Expeditionary Services segment. Due to this strategic shift, the assets, liabilities, and results of operations of our COCO business have been reported as discontinued operations for all periods presented.
During fiscal 2019, we signed an agreement to sell our U.S. Department of Defense (“DoD”) contracts and certain assets of our COCO business. In conjunction with this agreement and other expected asset sales, we recognized an impairment charge in discontinued operations of $
In fiscal 2020, we signed an agreement to sell the remaining operating contract of the COCO business and recognized an impairment charge of $
10
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Operating results for discontinued operations were comprised of the following:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Sales | | $ | | | $ | | | $ | | | $ | |
Cost of sales | |
| ( | | | ( | |
| ( | | | ( |
Asset impairments | | | — | | | ( | | | ( | | | ( |
Selling, general and administrative expenses | |
| ( | | | ( | |
| ( | | | ( |
Operating loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Provision for income taxes (benefit) | | | — | | | ( | | | ( | | | ( |
Loss from discontinued operations | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
The carrying amounts of the major classes of assets and liabilities for our discontinued operations are as follows:
| | February 29, | | May 31, | ||
|
| 2020 |
| 2019 | ||
Accounts receivable, net | | $ | | | $ | |
Inventory, rotable assets, and equipment | | | — | | | |
Operating lease ROU assets | | | | | | — |
Other assets | |
| | |
| |
Assets of discontinued operations | | $ | | | $ | |
| | | | | | |
Accounts payable and accrued liabilities | | $ | | | $ | |
Operating lease liabilities | | | | | | — |
Liabilities of discontinued operations | | $ | | | $ | |
Note 3 – Revenue Recognition
Revenue is measured based on the consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes another good or service or the good or service is highly interdependent or interrelated. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices.
The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.
11
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. The majority of our sales from products are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment. In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product. We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers.
For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs, and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results.
Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. These adjustments relate to our long-term, power-by-the-hour (“PBH”) programs where we provide component inventory management and repair services and certain long-term government programs.
For the three-month period ended February 29, 2020, we recognized favorable and unfavorable cumulative catch-up adjustments of $
For the nine-month period ended February 29, 2020, we recognized favorable and unfavorable cumulative catch-up adjustments of $
Under most of our U.S. government contracts, if the contract is terminated for convenience, we are entitled to payment for items delivered and fair compensation for work performed, the costs of settling and paying other claims, and a reasonable profit on the costs incurred or committed.
We have elected to use certain
Contract Assets and Liabilities
The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time
12
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
using the cost-to-cost model exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract assets and contract liabilities are determined on a contract-by-contract basis.
Net contract assets and liabilities are as follows:
|
| February 29, |
| May 31, |
| | | ||
| | 2020 | | 2019 | | Change | |||
Contract assets – current | | $ | | | $ | | | $ | |
Contract assets – non-current | | | | | | | | | |
Deferred revenue – current | | | ( | | | ( | | | ( |
Deferred revenue on long-term contracts | |
| ( | |
| ( | |
| ( |
Net contract liabilities | | $ | ( | | $ | ( | | $ | ( |
Contract assets – non-current is reported within Other non-current assets, and Contract liabilities – current is reported within Accrued liabilities on our Condensed Consolidated Balance Sheet. Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.
During the three-month period ended February 29, 2020, we terminated a contract with a commercial PBH customer and restructured contracts with two other PBH customers. After the restructuring, those two contracts were deemed loss contracts requiring the establishment of forward loss reserves for the total estimated costs that are in excess of the total estimated consideration over the remainder of the contracts. The impact from these actions resulted in a charge of $
Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows for the three- and nine-month periods ended February 29/28, 2020 and 2019:
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Deferred revenue at beginning of period | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Revenue deferred | |
| ( | |
| ( | |
| ( | |
| ( |
Revenue recognized | |
| | |
| | |
| | |
| |
Other | |
| ( | |
| ( | |
| ( | |
| |
Deferred revenue at end of period | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Remaining Performance Obligations
As of February 29, 2020, we had approximately $
13
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Disaggregation of Revenue
Sales across the major customer markets for each of our operating segments for the three- and nine-month periods ended February 29/28, 2020 and 2019 were as follows:
| | Three Months Ended |
| | Nine Months Ended | |||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Aviation Services: | | | | | | | | | | | | |
Commercial | | $ | | | $ | | | $ | | | $ | |
Government and defense | |
| | |
| | | | | | | |
| | $ | | | $ | | | $ | | | $ | |
Expeditionary Services: | |
|
| |
|
| | | | | | |
Commercial | | $ | | | $ | | | $ | | | $ | |
Government and defense | |
| | |
| | | | | | | |
| | $ | | | $ | | | $ | | | $ | |
Sales by geographic region for the three- and nine-month periods ended February 29/28, 2020 and 2019 were as follows:
| | Three Months Ended | | | Nine Months Ended | |||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Aviation Services: | | | | | | | | | | | | |
North America | | $ | | | $ | | | $ | | $ | | |
Europe/Africa | | | | | | | | | | | | |
Other | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | $ | | |
Expeditionary Services: | | | | | | | | | | | | |
North America | | $ | | | $ | | | $ | | | $ | |
Europe/Africa | |
| | |
| | | | | | | |
Other | |
| — | |
| | | | | | | |
| | $ | | | $ | | | $ | | | $ | |
14
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Note 4 – Accounts Receivable
Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables. While our trade receivables are diverse and represent a number of entities and geographic regions, the majority are with the U.S. government and its contractors and entities in the aviation industry. The composition of our accounts receivable is as follows:
| | February 29, | | May 31, | ||
|
| 2020 |
| 2019 | ||
U.S. Government contracts: | | | | | | |
Trade receivables | | $ | | | $ | |
Unbilled receivables | |
| | |
| |
| |
| | |
| |
All other customers: | | | | | | |
Trade receivables | |
| | |
| |
Unbilled receivables | |
| | |
| |
| |
| | |
| |
| | $ | | | $ | |
Included in the table above are past due receivables owed by former commercial program customers primarily related to our exit from customer contracts in certain geographies, including Colombia, Peru, and Poland. Our past due receivables owed by these customers was $
Note 5 – Accounting for Stock-Based Compensation
Restricted Stock
In the three-month period ended August 31, 2019, as part of our annual long-term stock incentive compensation, we granted
Expense charged to operations for restricted stock during the three-month periods ended February 29/28, 2020 and 2019 was $
Stock Options
In July 2019, as part of our annual long-term stock incentive compensation, we granted
Risk-free interest rate |
| | % |
Expected volatility of common stock | | | % |
Dividend yield | | | % |
Expected option term in years | |
|
The total intrinsic value of stock options exercised during the nine-month periods ended February 29/28, 2020 and 2019 was $
15
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
February 29/28, 2020 and 2019 was $
Note 6 – Inventory
The summary of inventories is as follows:
|
| February 29, |
| May 31, | ||
| | 2020 | | 2019 | ||
Aircraft and engine parts, components and finished goods | | $ | | | $ | |
Raw materials and parts | |
| | |
| |
Work-in-process | | | | | | |
| | $ | | | $ | |
Note 7 – Supplemental Cash Flow Information
| | Nine Months Ended | ||||
| | February 29/28, | ||||
|
| 2020 |
| 2019 | ||
Interest paid | | $ | | | $ | |
Income taxes paid | |
| | |
| |
Income tax refunds received | | | | | | — |
Note 8 – Sale of Receivables
On February 23, 2018, we entered into a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $
We have
During the nine-month period ended February 29/28, 2020 and 2019, we sold $
We recognize discounts on the sale of our receivables and other fees related to the Purchase Agreement in Other expense, net on our Condensed Consolidated Statements of Operations. We incurred discounts on the sale of our receivables of $
16
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Note 9 – Financing Arrangements
A summary of the carrying amount of our debt is as follows:
|
| February 29, |
| May 31, | ||
| | 2020 | | 2019 | ||
Revolving Credit Facility expiring September 25, 2024 with interest payable monthly | | $ | | | $ | |
Term loan due November 1, 2021 with interest payable monthly | | | | | | |
Total debt | |
| | |
| |
Debt issuance costs, net | |
| ( | |
| ( |
Long-term debt | | $ | | | $ | |
At February 29, 2020, our variable rate debt had a fair value that approximates its carrying value and is classified as Level 2 in the fair value hierarchy.
On October 18, 2017, we entered into a Credit Agreement with the Canadian Imperial Bank of Commerce, as lender (the “Credit Agreement”). The Credit Agreement provided a Canadian $
On September 25, 2019, we entered into an amendment to our Revolving Credit Facility that extended the maturity of the Revolving Credit Facility to September 25, 2024, increased the revolving credit commitment to $
Our financing arrangements also require us to comply with leverage and interest coverage ratios, maintain a minimum net working capital level, and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, payment of indebtedness, cash dividends, taxes and other obligations, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. The Revolving Credit Facility also requires our significant domestic subsidiaries, and any subsidiaries that guarantee our other indebtedness, to provide a guarantee of payment under the Revolving Credit Facility. At February 29, 2020, we were in compliance with the financial and other covenants in our financing agreements.
Note 10 – Leases
We lease facilities, offices, vehicles, and equipment. We determine at inception whether an arrangement that provides us control over the use of an asset is a lease. ROU assets and lease liabilities are recognized on the Condensed Consolidated Balance Sheet at lease commencement date based on the present value of the future minimum lease payments over the lease term. Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors. We estimate our incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.
17
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Our lease costs are allocated over the remaining lease term on a straight-line basis unless another systematic or rational basis is more representative of the pattern in which the underlying asset is expected to be used. ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.
Certain leases include options to renew or extend the terms of the lease, which are included in the determination of the ROU assets and lease liabilities when it is reasonably certain that the option will be exercised. Our leases may also include variable lease payments such as escalation clauses based on consumer price index rates, maintenance costs and utilities. Variable lease payments that depend on an index or a rate are included in the determination of ROU assets and lease liabilities using the index or rate at the lease commencement date, whereas variable lease payments that do not depend on an index or rate are recorded as lease expense in the period incurred. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
The summary of our operating lease cost is as follows:
|
| Three Months |
| Nine Months | ||
| | Ended | | Ended | ||
| | February 29, | | February 29, | ||
| | 2020 | | 2020 | ||
| | | | | | |
Operating lease cost | | $ | | $ | ||
Short-term lease cost | | | |
| ||
Variable lease cost | | | |
| ||
| | $ | | $ | ||
With the exception of a land lease for one of our airframe maintenance facilities that expires in 2108, our operating leases expire at various dates through 2039. Maturities of our operating lease payments as of February 29, 2020 are as follows:
2020 (excluding the nine months ended February 29, 2020) |
| $ | |
2021 | |
| |
2022 | |
| |
2023 | |
| |
2024 | |
| |
Thereafter | |
| |
Total undiscounted payments | |
| |
Less: Imputed interest | |
| ( |
Present value of minimum lease payments | |
| |
Less: Operating lease liabilities – current | |
| ( |
Operating lease liabilities – non-current | | $ |
The current portion of operating lease liabilities are presented within Accrued expenses on our Condensed Consolidated Balance Sheet.
18
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Prior to the adoption of ASC 842, our future minimum operating lease payments at May 31, 2019 were as follows:
2020 |
| $ | |
2021 | |
| |
2022 | |
| |
2023 | |
| |
2024 | |
| |
Thereafter | |
| |
| | $ | |
As of February 29, 2020, the weighted average remaining lease term and discount rate for our operating leases were approximately
Supplemental cash flow information related to leases for the three- and nine-month period ended February 29, 2020 was as follows:
|
| Three Months |
| Nine Months | ||
| | Ended | | Ended | ||
| | February 29, | | February 29, | ||
| | 2020 | | 2020 | ||
Cash paid for amounts included in the measurement of lease liabilities | | $ | | $ | ||
Operating lease liabilities arising from obtaining ROU assets | | | |
| ||
Note 11 – Investments in Joint Ventures
Our investments in joint ventures includes $
The investment balance as of February 29, 2020 includes $
Note 12 – Earnings per Share
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options and shares issuable upon vesting of restricted stock awards.
In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, our unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares. During periods of net income, the calculation of earnings per share for common stock excludes income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. During periods of net loss,
19
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
A reconciliation of the computations of basic and diluted earnings per share information for the three- and nine-month periods ended February 29/28, 2020 and 2019 is as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Basic and Diluted EPS: | | | | | | | | | | | | |
Income from continuing operations | | $ | | | $ | | | $ | | | $ | |
Less income attributable to participating shares | |
| — | |
| ( | |
| ( | |
| ( |
Income from continuing operations attributable to common shareholders | | | | | | | | | | | | |
Loss from discontinued operations attributable to common shareholders | | | ( | | | ( | | | ( | | | ( |
Net income attributable to common shareholders for earnings per share | | $ | | | $ | ( | | $ | | | $ | ( |
| | | | | | | | | | | | |
Weighted Average Shares: | | | | | | | | | | | | |
Weighted average common shares outstanding – basic | |
| | |
| | |
| | |
| |
Additional shares from the assumed exercise of stock options | | | | | | | | | | | | |
Weighted average common shares outstanding – diluted | | | | | | | | | | | | |
| | | | | | | | | | | | |
Earnings per share – basic: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | | | $ | | | $ | | | $ | |
Loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Earnings per share – basic | | $ | | | $ | ( | | $ | | | $ | ( |
| | | | | | | | | | | | |
Earnings per share – diluted: | | | | | | | | | | | | |
Earnings from continuing operations | | $ | | | $ | | | $ | | | $ | |
Loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Earnings per share – diluted | | $ | | | $ | ( | | $ | | | $ | ( |
The potential dilutive effect of
20
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Note 13 – Accumulated Other Comprehensive Loss
Changes in our accumulated other comprehensive loss (“AOCL”) by component for the three- and nine-month periods ended February 29/28, 2020 and 2019 were as follows:
| | Currency | | | | | | | |
| | Translation | | Pension | | | | ||
|
| Adjustments |
| Plans |
| Total | |||
Balance at December 1, 2019 | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive income before reclassifications | |
| ( | |
| — | |
| ( |
Amounts reclassified from AOCL | |
| — | |
| | |
| |
Total other comprehensive income (loss) | |
| ( | |
| | |
| |
Balance at February 29, 2020 | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | |
Balance at December 1, 2018 | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive loss before reclassifications | |
| | |
| — | |
| |
Amounts reclassified from AOCL | |
| — | |
| | |
| |
Total other comprehensive income | |
| | |
| | |
| |
Balance at February 28, 2019 | | $ | ( | | $ | ( | | $ | ( |
| | Currency | | | | | | | |
| | Translation | | Pension | | | | ||
|
| Adjustments |
| Plans |
| Total | |||
Balance at June 1, 2019 | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive income before reclassifications | | | | | | — | | | |
Amounts reclassified from AOCL | | | — | | | | | | |
Total other comprehensive income | | | | | | | | | |
Balance at February 29, 2020 | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | |
Balance at June 1, 2018 | | $ | | | $ | ( | | $ | ( |
Other comprehensive loss before reclassifications | | | ( | | | — | | | ( |
Amounts reclassified from AOCL | | | — | | | | | | |
Total other comprehensive income (loss) | | | ( | | | | | | |
Balance at February 28, 2019 | | $ | ( | | $ | ( | | $ | ( |
Note 14 – Business Segment Information
Consistent with how our chief operating decision making officer (Chief Executive Officer) evaluates performance and the way we are organized internally, we report our activities in
The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers. Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets. We provide customized inventory supply chain management, performance-based logistics programs, customer fleet management and operations, and aircraft component repair management services. The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components. Cost of sales consists principally of the cost of product, direct labor, and overhead.
21
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
The Expeditionary Services segment consists of primarily manufacturing operations with sales derived from the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force including engineering, design, and system integration services for specialized command and control systems. This segment also designs and manufactures advanced composite materials for commercial, business and military aircraft. Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead.
The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our annual Report on Form 10-K for the year ended May 31, 2019 except for our revised accounting policy for leases. On June 1, 2019, we adopted ASC 842 which amended the existing accounting standards for lease accounting. Prior periods have not been restated for ASC 842 and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 10 to the Condensed Consolidated Financial Statements.
Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the operating segments and utilizes gross profit as a primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments.
Selected financial information for each segment is as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Sales: | | | | | | | | | | | | |
Aviation Services | | $ | | | $ | | | $ | | | $ | |
Expeditionary Services | |
| | |
| | |
| | |
| |
| | $ | | | $ | | | $ | | | $ | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross profit: | | | | | | | | | | | | |
Aviation Services | | $ | | | $ | | | $ | | | $ | |
Expeditionary Services | |
| | |
| | |
| | |
| |
| | $ | | | $ | | | $ | | | $ | |
The following table reconciles segment gross profit to income from continuing operations before provision for income taxes:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | February 29/28, | | February 29/28, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross profit | | $ | | | $ | | | $ | | | $ | |
Selling, general and administrative | | | ( | |
| ( | |
| ( | |
| ( |
Provision for doubtful accounts | | | ( | | | ( | | | ( | | | ( |
Other income (expense), net | | | ( | | | ( | | | ( | | | ( |
Interest expense | | | ( | | | ( | | | ( | | | ( |
Interest income | | | | | | | | | | | | |
Income from continuing operations before provision for income taxes | | $ | | | $ | | | $ | | | $ | |
22
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
February 29, 2020
(Unaudited)
(Dollars in millions, except per share amounts)
Note 15 – Legal Proceedings
We are not a party to any material pending legal proceeding (including any governmental or environmental proceeding) other than routine litigation incidental to our business, except for the following:
Department of Justice Investigation
The U.S. Department of Justice (“DoJ”), acting through the U.S. Attorney’s Office for the Southern District of Illinois, is conducting an investigation of AAR Airlift Group, Inc. (“Airlift”), a wholly-owned subsidiary of AAR CORP., under the federal civil False Claims Act (“FCA”). The investigation relates to Airlift’s performance of several contracts awarded by the U.S. Transportation Command concerning the operations and maintenance of rotary-wing and fixed-wing aircraft in Afghanistan and Africa, as well as several U.S. Navy contracts. In June 2018, the DoJ informed Airlift that part of the investigation was precipitated by a lawsuit filed under the qui tam provisions of the FCA by a former employee of Airlift. That lawsuit remains under seal.
Airlift is cooperating with the DoJ investigation. In order to explore whether a negotiated resolution of the matter is possible, and in an effort to minimize continuing legal defense costs, Airlift has entered into settlement discussions with the DoJ. Airlift believes it has meritorious defenses and counter-arguments to the concerns raised by the DoJ; however, there is no assurance that any settlement will be achieved. If no settlement is reached, the DoJ and the qui tam plaintiff could pursue civil litigation under the FCA, which provides for the recovery of, among other amounts, treble damages and penalties.
While we believe that it is probable that we will incur a loss from this matter, we cannot yet reasonably estimate the maximum amount of potential loss, nor can we provide any assurance that the ultimate resolution of the remaining exposure for this matter will not be material.
Self-Reporting of Potential Foreign Corrupt Practices Act Violations
The Company retained outside counsel to investigate possible violations of the Company’s Code of Conduct, the U.S. Foreign Corrupt Practices Act, and other applicable laws, relating to the Company’s activities in Nepal and South Africa. Based on these investigations, we self-reported these matters to the DoJ, the U.S. Securities and Exchange Commission and the UK Serious Fraud Office. The Company is fully cooperating with the reviews by these agencies, although we are unable at this time to predict what action, if any, they may take.
23
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)
General Overview
We report our activities in two operating segments: Aviation Services comprised of supply chain and maintenance, repair, and overhaul (“MRO”) activities and Expeditionary Services comprised of manufacturing activities.
The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers. Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets. We provide customized inventory supply chain management, performance-based logistics programs, customer fleet management and operations, and aircraft component repair management services. The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components. Cost of sales consists principally of the cost of product, direct labor, and overhead.
The Expeditionary Services segment consists of primarily manufacturing operations with sales derived from the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force including engineering, design, and system integration services for specialized command and control systems. This segment also designs and manufactures advanced composite materials for commercial, business and military aircraft. Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead.
Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the operating segments and utilizes gross profit as a primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments.
The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2019 except for our revised accounting policy for leases. On June 1, 2019, we adopted ASC 842, which amended the existing accounting standards for lease accounting. Prior periods have not been restated for ASC 842 and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 10 to the Condensed Consolidated Financial Statements.
Business Trends and Outlook
Consolidated sales for the first nine months of fiscal 2020 increased $166.4 million or 11.2% over the prior year primarily due to an increase in sales of $175.5 million or 12.5% in our Aviation Services segment. While we are uncertain of the magnitude and length of any impact from the coronavirus (“COVID-19”) on the aviation industry, we expect to see continued strength in our Aviation Services segment over the long-term given its offerings of value-added services to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable. However, our results of operations are affected by the amount of commercial aircraft flying and flight hours. The current COVID-19 pandemic has decreased the amount of commercial aircraft flying and flight hours, and has created economic disruption.
We believe the impact of COVID-19 will negatively affect our revenues and results of operations. However, in the fourth quarter, we will be taking actions to reduce our fixed costs and overhead by consolidating facilities with the goal to improve our operating efficiencies. Further, in response to the impact of COVID-19, we have taken actions including reducing executive compensation, freezing new hiring, reducing or eliminating all non-essential spend, furloughs and, unfortunately, reducing our workforce. We expect the cost of these fourth quarter actions to be approximately $15 to $20 million with the payback of these actions realized within one year. We remain prepared to take additional action as warranted to respond to the evolving airline demand environment.
Our cash on hand plus unused capacities on our Revolving Credit Facility was $432 million at February 29, 2020. In addition, we had availability of $92 million under our uncommitted accounts receivable financing program at that date.
24
Results of Operations
Three Month Period Ended February 29, 2020
Sales and gross profit for our two business segments for the three- and nine-months ended February 29, 2020 and 2019 were as follows:
| | Three Months Ended February 29/28, | | Nine Months Ended February 29/28, |
| ||||||||||||
|
| 2020 |
| 2019 |
| % Change |
| 2020 |
| 2019 |
| % Change |
| ||||
Sales: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Aviation Services |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Commercial | | $ | 353.7 | | $ | 350.8 |
| 0.8 | % | $ | 1,053.8 | | $ | 983.0 |
| 7.2 | % |
Government and defense | |
| 176.6 | |
| 146.5 |
| 20.5 | % |
| 520.3 | |
| 415.6 |
| 25.2 | % |
| | $ | 530.3 | | $ | 497.3 |
| 6.6 | % | $ | 1,574.1 | | $ | 1,398.6 |
| 12.5 | % |
Expeditionary Services | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Commercial | | $ | 5.5 | | $ | 6.8 |
| (19.1) | % | $ | 17.6 | | $ | 23.3 |
| (24.5) | % |
Government and defense | |
| 17.3 | |
| 25.4 |
| (31.9) | % |
| 63.8 | |
| 67.2 |
| (5.1) | % |
| | $ | 22.8 | | $ | 32.2 |
| (29.2) | % | $ | 81.4 | | $ | 90.5 |
| (10.1) | % |
| | Three Months Ended February 29/28, | | Nine Months Ended February 29/28, |
| ||||||||||||
|
| 2020 |
| 2019 |
| % Change |
| 2020 |
| 2019 |
| % Change |
| ||||
Gross Profit (Loss): |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Aviation Services |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Commercial | | $ | 32.8 | | $ | 52.5 |
| (37.5) | % | $ | 143.1 | | $ | 141.8 |
| 0.9 | % |
Government and defense | |
| 32.4 | |
| 29.2 |
| 11.0 | % |
| 87.8 | |
| 81.9 |
| 7.2 | % |
| | $ | 65.2 | | $ | 81.7 |
| (20.2) | % | $ | 230.9 | | $ | 223.7 |
| 3.2 | % |
Expeditionary Services | |
|
| |
| |
| | |
|
| |
|
|
|
| |
Commercial | | $ | (1.3) | | $ | 1.0 |
| (230.0) | % | $ | (3.2) | | $ | 2.5 |
| (228.0) | % |
Government and defense | |
| 1.4 | |
| 2.6 |
| (46.2) | % |
| 5.1 | |
| 8.6 |
| (40.7) | % |
| | $ | 0.1 | | $ | 3.6 |
| (97.2) | % | $ | 1.9 | | $ | 11.1 |
| (82.9) | % |
Three Month Period Ended February 29, 2020
Aviation Services Segment
Sales in the Aviation Services segment increased $33.0 million or 6.6% over the prior year period due to a $30.1 million or 20.5% increase in sales to government and defense customers. The increase in sales to government and defense customers was primarily attributable to growth from new contracts recently awarded.
During the third quarter of fiscal 2020, sales in this segment to commercial customers increased $2.9 million or 0.8% over the prior year period. Sales were reduced by $9.8 million related to the impact of restructuring actions, which included the exit of one customer contract and restructuring of two other customer contracts.
Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. In the third quarter of fiscal 2020, we had net favorable cumulative catch-up adjustments of $2.5 million. In the third quarter of fiscal 2019, we recognized favorable cumulative catch-up adjustments of $0.8 million. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services and certain long-term government programs.
Cost of sales in Aviation Services increased $49.5 million or 11.9% over the prior year period primarily related to contract loss provisions and related costs of $14.9 million for the restructuring activities impacting certain contracts.
Gross profit in the Aviation Services segment decreased $16.5 million or 20.2% from the prior year period. Gross profit on sales to commercial customers decreased $19.7 million or 37.5% from the prior year period primarily due to the restructuring
25
activities discussed above. The gross profit margin on sales to commercial customers decreased to 9.3% from 15.0% primarily from the contract restructuring costs of $14.9 million.
Gross profit on sales to government and defense customers increased $3.2 million or 11.0% over the prior year primarily driven by recently awarded government contracts. Gross profit margin on sales to government and defense customers decreased to 18.3% from 19.9% as the gross profit margin on these recent contract awards is lower than our existing government and defense activity.
Expeditionary Services Segment
Sales in the Expeditionary Services segment decreased $9.4 million or 29.2% from the prior year period primarily due to the timing of contract awards.
Gross profit in the Expeditionary Services segment decreased $3.5 million or 97.2% from the prior period primarily due to operational challenges impacting profitability in the current year period. Gross profit margin decreased to 0.4% from 11.2% to primarily as a result of these operational challenges.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.3 million over the prior year period. As a percent of sales, selling, general and administrative expenses increased to 10.5% from 10.3% in the prior year period. These increases are primarily attributable to increased costs over the prior year quarter for investigation and remediation compliance costs of $1.6 million.
Income Taxes
Our effective income tax rate for continuing operations was 7.1% for the third quarter of fiscal 2020 compared to an income tax benefit in the prior year period. The current year quarter included excess tax benefits from stock options exercises of $0.6 million which favorably impacted the effective tax rate. The prior year quarter included a tax benefit of $4.7 million related to the recognition of previously unrecognized uncertain tax positions and a tax benefit of $1.8 million related to tax provision to federal income tax return filing differences.
Nine Month Period Ended February 29, 2020
Aviation Services Segment
Sales in the Aviation Services segment increased $175.5 million or 12.5% over the prior year period primarily due to a $104.7 million or 25.2% increase in sales to government and defense customers. The increase in sales to government and defense customers was primarily attributable to new contracts awarded recently, including the $118 million contract for the procurement, modification and delivery of two C-40 aircraft we received in early fiscal 2020.
During the nine-month period ended February 29, 2020, sales in this segment to commercial customers increased $70.8 million or 7.2% over the prior year period. The increase was primarily due to higher volumes in our MRO activities as our actions to attract and retain the necessary skilled labor have allowed us to capture the customer demand for these services.
Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. During the nine-month period ended February 29, 2020, we had net favorable cumulative catch-up adjustments of $4.4 million. During the nine-month period ended February 28, 2019, we recognized net favorable and unfavorable cumulative catch-up adjustments of $4.1 million. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services and certain long-term government programs.
Cost of sales in Aviation Services increased $168.3 million or 14.3% over the prior year period, which was primarily related to the higher volumes in our MRO activities partially offset by the contract restructuring charges.
26
Gross profit in the Aviation Services segment increased $7.2 million or 3.2% over the prior year period. Gross profit on sales to government and defense customers increased $5.9 million or 7.2% over the prior year primarily driven by the new government contract awards. Gross profit margin on sales to government and defense customers decreased to 16.9% from 19.7% as the gross profit margin on these recent contract awards is lower than our existing government and defense activity.
Gross profit on sales to commercial customers increased $1.3 million or 0.9% over the prior year period primarily due to the increased volume and improved profitability in our MRO activities partially offset by the contract restructuring charges across three commercial program customers. The gross profit margin on sales to commercial customers decreased to 13.6% from 14.4% primarily from the increased profitability in our MRO activities partially offset by the reduced gross profit margin in our commercial program activities.
Expeditionary Services Segment
Sales in the Expeditionary Services segment decreased $9.1 million or 10.1% from the prior year period primarily due to the timing of contract awards. Gross profit in the Expeditionary Services segment decreased $9.2 million or 82.9% from the prior period primarily due to operational challenges impacting profitability in the current year. Gross profit margin decreased to 2.3% from 12.3% primarily as a result of these operational challenges.
Provision for Doubtful Accounts
In the second quarter of fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer. The provision included impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $21.2 million or 13.9% over the prior year period. As a percent of sales, selling, general and administrative expenses increased to 10.5% from 10.2% in the prior year period. The increase as a percent of sales is primarily attributable to increased investigation and remediation compliance costs of $6.6 million.
Income Taxes
Our effective income tax rate for continuing operations was 19.4% for the nine-month period ended February 29, 2020 compared to 7.6% for the prior year period. The prior year period included a tax benefit of $4.7 million related to the recognition of previously unrecognized uncertain tax positions and a tax benefit of $1.8 million related to tax provision to federal income tax return filing differences.
Liquidity, Capital Resources and Financial Position
Our operating activities are funded and commitments met through the generation of cash from operations. In addition to operations, our current capital resources include an unsecured Revolving Credit Facility and an accounts receivable financing program. Periodically, we may also raise capital through common stock and debt financings in the public or private markets. We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms. Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, and our operating performance. Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital.
At February 29, 2020, our liquidity and capital resources included cash of $37.0 million and working capital of $672.8 million.
We maintain a Revolving Credit Facility with various financial institutions, as lenders, and Bank of America, N.A., as administrative agent for the lenders. On September 25, 2019, we entered into an amendment to our Revolving Credit Facility which extended the maturity of the Revolving Credit Facility to September 25, 2024, increased the revolving credit commitment to $600
27
million, and modified certain other provisions. Under certain circumstances, we have the ability to request, but our lenders are not required to grant, an increase to the revolving credit commitment by an aggregate amount of up to $300 million.
Borrowings under the Revolving Credit Facility bear interest at the offered Eurodollar Rate plus 87.5 to 175 basis points based on certain financial measurements if a Eurodollar Rate loan, or at the offered fluctuating Base Rate plus 0 to 75 basis points based on certain financial measurements if a Base Rate loan.
Borrowings outstanding under the Revolving Credit Facility at February 29, 2020 were $185.0 million and there were approximately $20.3 million of outstanding letters of credit, which reduced the availability of this facility to $394.7 million. There are no other terms or covenants limiting the availability of this facility. Subsequent to the end of the quarter, we elected to draw down on the Revolving Credit Facility in an amount equal to $165 million with the majority of that draw remaining in our cash accounts. We elected to borrow such amounts as a precautionary measure in light of economic and market uncertainty presented by COVID-19.
As of February 29, 2020, we also had other financing arrangements that did not limit our availability on the Revolving Credit Facility including outstanding letters of credit of $11.6 million and foreign lines of credit of $9.5 million.
We maintain a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell. The term of the Purchase Agreement runs through February 22, 2021, however, the Purchase Agreement may also be terminated earlier under certain circumstances. The term of the Purchase Agreement shall be automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.
We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognize the sold receivables from our Condensed Consolidated Balance Sheet.
At February 29, 2020, we complied with all financial and other covenants under our financing arrangements.
Cash Flows from Operating Activities
Net cash used in operating activities–continuing operations was $0.5 million in the nine-month period ended February 29, 2020 compared to cash provided of $16.4 million in the prior year period. The decrease from the prior period of $16.9 million was primarily attributable to working capital changes, including customer invoice collection timing.
Cash Flows from Investing Activities
Net cash used in investing activities–continuing operations was $20.0 million during the nine-month period ended February 29, 2020 compared to $13.3 million in the prior year period. The increase from the prior period was primarily related to higher expenditures for property and equipment in the current year period.
Cash Flows from Financing Activities
Net cash provided from financing activities–continuing operations was $52.6 million during the nine-month period ended February 29, 2020 compared to cash used of $0.4 million in the prior year period. The increase was primarily related to additional borrowings in fiscal 2020 on our Revolving Credit Facility.
Critical Accounting Policies and Significant Estimates
We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Form 10-K for a discussion of our critical accounting policies. There have been no significant changes to the application of our critical accounting policies during the third quarter of fiscal 2020.
28
Forward-Looking Statements
This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on beliefs of our management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including those factors set forth under Part II, Item 1A of this Quarterly Report on Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K for the year ended May 31, 2019. Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk includes fluctuating interest rates under our credit agreements, changes in foreign exchange rates, and credit losses on accounts receivable. See Note 1 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2019 for a discussion of accounts receivable exposure.
Foreign Currency Risk. Revenues and expenses of our foreign operations are translated at average exchange rates during the period, and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations for the quarter ended February 29, 2020.
Interest Rate Risk. Refer to the section Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended May 31, 2019. There were no significant changes during the quarter ended February 29, 2020.
Item 4 — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 29, 2020. This evaluation was carried out under the supervision and with participation of our Chief Executive Officer and our Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of February 29, 2020 due to the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended May 31, 2019.
Remediation
We have executed against the remediation plan previously disclosed in our Annual Report on Form 10-K for the year ended May 31, 2019 related to the material weakness related to our controls over inventory cycle counts. We have designed and implemented controls to ensure that all inventory stocking locations are counted within a reasonable timeframe. This remediation plan included our completion of physical counts in the first quarter of fiscal 2020 of all inventory stocking locations not previously counted in fiscal 2019. No material inventory adjustments were identified from these counts.
We continue to implement measures designed to remediate the internal control deficiencies related to information technology general controls and controls over changes to vendor data master files. These actions include additional training and expanded controls over end-user and privileged access to IT applications and files. We anticipate completing our remediation of the internal control deficiencies by the end of fiscal 2020.
29
The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Effective June 1, 2019, we adopted ASC 842, which amended the existing accounting standards for lease accounting. We have implemented certain changes to our internal controls over financial reporting to support the reporting and disclosure requirements of the new lease standard. Other than changes related to our remediation efforts and the new accounting processes, systems, and controls for lease accounting, there were no other changes in our internal control over financial reporting during fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1 – Legal Proceedings
Our Condensed Consolidated Financial Statements for the quarter ended February 29, 2020 contained in this Quarterly Report on Form 10-Q includes information on legal proceedings in Note 15 that constitute material contingencies for financial reporting purposes that could have a material adverse effect on our consolidated financial position or liquidity if they were resolved in a manner that is adverse to us. This item should be read in conjunction with Note 15 for information regarding the following material legal proceedings
There are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Note 15 to our Condensed Consolidated Financial Statements for the quarter ended February 29, 2020 contained in this Quarterly Report on Form 10-Q.
Item 1A — Risk Factors
There is no material change in the information reported under "Part I-Item 1A-Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 with the exception of the following:
The coronavirus pandemic could have a material adverse impact on the Company’s business, operating results, financial condition, and liquidity.
In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Several countries, including the United States, have taken steps to restrict air travel, and many companies have adopted policies prohibiting non-essential business travel by their employees. Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion could adversely affect travel demand or travel behavior. Moreover, if the COVID-19 pandemic results in decreased worldwide commercial activity, it could also adversely affect the demand for airline cargo services. Reduced numbers of aircraft flying or flight hours negatively impacts the demand for our services, and any prolonged reduction could materially and adversely affect our business, operating results, financial condition, and liquidity.
In addition, we source parts and components for our business from various suppliers around the world. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could have adverse ripple effects on our ability to provide aftermarket support and services. Moreover, a prolonged epidemic or pandemic, or the threat thereof, could result in worker absences, lower productivity, voluntary closure of our offices and facilities, travel restrictions for our employees and other disruptions to our business. Any of these could have a material adverse effect on our business, financial condition or results of operations.
30
Item 6 — Exhibits
The exhibits to this report are listed on the following index:
Exhibit |
| Description | | Exhibits |
|---|---|---|---|---|
| | | | |
10. | | Material Contracts | 10.1* | |
| | | | |
31. | | Rule 13a-14(a)/15(d)-14(a) Certifications | 31.1 | |
| | | | |
| | | 31.2 | |
| | | | |
32. | | Section 1350 Certifications | 32.1 | |
| | | | |
| | | 32.2 | |
| | | | |
101. | | Interactive Data File | 101 | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at February 29, 2020 and May 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three- and nine-months ended February 29/28, 2020 and 2019, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three- and nine-months ended February 29/28, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended February 29/28, 2020 and 2019, (v) Condensed Consolidated Statement of Changes in Equity for the three- and nine-months ended February 29/28, 2020 and 2019 (vi) Notes to Condensed Consolidated Financial Statements.** |
| | | | |
* | Management contract and compensatory arrangement. |
** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
31
SIGNATURES
Pursuant to the requirements 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: | March 24, 2020 | | /s/ SEAN M. GILLEN |
| | | Sean M. Gillen |
| | | Vice President and Chief Financial Officer |
| | | (Principal Financial Officer and officer duly |
| | | authorized to sign on behalf of registrant) |
| | | |
| | | |
| | | /s/ ERIC S. PACHAPA |
| | | Eric S. Pachapa |
| | | Vice President, Controller and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
32