Company Quick10K Filing
AAR
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 35 $1,590
10-Q 2019-12-20 Quarter: 2019-11-30
10-Q 2019-09-26 Quarter: 2019-08-31
10-K 2019-07-18 Annual: 2019-05-31
10-Q 2019-03-20 Quarter: 2019-02-28
10-Q 2018-12-19 Quarter: 2018-11-30
10-Q 2018-09-27 Quarter: 2018-08-31
10-K 2018-07-11 Annual: 2018-05-31
10-Q 2018-03-21 Quarter: 2018-02-28
10-Q 2017-12-22 Quarter: 2017-11-30
10-Q 2017-09-20 Quarter: 2017-08-31
10-K 2017-07-12 Annual: 2017-05-31
10-Q 2017-03-22 Quarter: 2017-02-28
10-Q 2016-12-22 Quarter: 2016-11-30
10-Q 2016-09-23 Quarter: 2016-08-31
10-K 2016-07-13 Annual: 2016-05-31
10-Q 2016-03-23 Quarter: 2016-02-29
10-Q 2015-12-18 Quarter: 2015-11-30
10-Q 2015-09-25 Quarter: 2015-08-31
10-K 2015-07-15 Annual: 2015-05-31
10-Q 2015-03-31 Quarter: 2015-02-28
10-Q 2014-12-19 Quarter: 2014-11-30
10-Q 2014-09-24 Quarter: 2014-08-31
10-K 2014-07-17 Annual: 2014-05-31
10-Q 2014-03-25 Quarter: 2014-02-28
10-Q 2013-09-25 Quarter: 2013-08-31
10-K 2013-07-26 Annual: 2013-05-31
10-Q 2013-03-22 Quarter: 2013-02-28
10-Q 2012-12-21 Quarter: 2012-11-30
10-Q 2012-09-25 Quarter: 2012-08-31
10-K 2012-07-19 Annual: 2012-05-31
10-Q 2012-03-26 Quarter: 2012-02-29
10-Q 2011-12-22 Quarter: 2011-11-30
10-Q 2011-09-23 Quarter: 2011-08-31
10-K 2011-07-13 Annual: 2011-05-31
10-Q 2011-03-22 Quarter: 2011-02-28
10-Q 2010-12-21 Quarter: 2010-11-30
10-Q 2010-09-23 Quarter: 2010-08-31
10-K 2010-07-16 Annual: 2010-05-31
10-Q 2010-03-19 Quarter: 2010-02-28
8-K 2019-12-19 Earnings, Exhibits
8-K 2019-11-06 Regulation FD, Exhibits
8-K 2019-10-09 Officers, Exhibits
8-K 2019-09-25 Earnings, Exhibits
8-K 2019-09-24 Enter Agreement, Off-BS Arrangement, Shareholder Vote, Exhibits
8-K 2019-07-17 Regulation FD, Exhibits
8-K 2019-07-10 Earnings, Other Events, Exhibits
8-K 2019-06-26 Officers
8-K 2019-05-31 Officers, Exhibits
8-K 2019-03-19 Earnings, Exhibits
8-K 2019-01-03 Officers, Exhibits
8-K 2018-12-18 Earnings, Exhibits
8-K 2018-11-08 Regulation FD, Exhibits
8-K 2018-10-10 Shareholder Vote
8-K 2018-09-25 Earnings, Exhibits
8-K 2018-08-20 Regulation FD, Exhibits
8-K 2018-07-11 Regulation FD
8-K 2018-07-10 Earnings, Exhibits
8-K 2018-07-09 Amend Bylaw, Exhibits
8-K 2018-06-21 Regulation FD
8-K 2018-05-22 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2018-05-21 Regulation FD
8-K 2018-03-20 Earnings, Exhibits
8-K 2018-02-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-17 Other Events
8-K 2018-01-11 Regulation FD, Exhibits
8-K 2018-01-09 Officers, Exhibits
AIR 2019-11-30
Part I - Financial Information
Item 1 - Financial Statements
Note 1 - Basis of Presentation
Note 3 - Revenue Recognition
Note 4 - Accounts Receivable
Note 5 - Accounting for Stock-Based Compensation
Note 6 - Inventory
Note 7 - Supplemental Cash Flow Information
Note 8 - Sale of Receivables
Note 9 - Financing Arrangements
Note 10 - Leases
Note 11 - Investments in Joint Ventures
Note 12 - Earnings per Share
Note 13 - Accumulated Other Comprehensive Loss
Note 14 - Business Segment Information
Note 15 - Legal Proceedings
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Millions)
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 - Exhibits
EX-31.1 ex-31d1.htm
EX-31.2 ex-31d2.htm
EX-32.1 ex-32d1.htm
EX-32.2 ex-32d2.htm

AAR Earnings 2019-11-30

AIR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
AIR 1,590 1,683 774 2,127 340 -3 60 1,734 16% 28.8 -0%
AVAV 1,345 535 53 253 137 37 49 1,203 54% 24.4 7%
CAAP 1,040 3,845 2,623 0 0 0 0 1,040 0%
TGI 949 2,823 3,262 504 -227 26 2,348 15% 88.6 -8%
TATT 58 103 19 0 0 0 0 42 0%
SIF 17 89 51 112 8 -13 -3 19 8% -6.2 -14%
UAVS 4 6 0 0 0 -2 -2 3 39% -1.2 -43%
ERJ
PAC 39,551 17,778 0 0 0 0 -1,912 0%
OMAB 15,590 7,079 0 0 0 0 -1,456 0%

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended November 30, 2019

or

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission File No. 1-6263

AAR CORP.

(Exact name of registrant as specified in its charter)

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 DaleIllinois

    

60191

(Address of principal executive offices)

(Zip Code)

(630) 227-2000

(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

Common Stock, $1.00 par value

AIR

New York Stock Exchange

Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   No  

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).     Yes   No  

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.

Large accelerated filer 

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   No  

As of November 30, 2019 there were 34,913,642 shares of the registrant’s Common Stock, $1.00 par value per share, outstanding.

Table of Contents

AAR CORP. and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended November 30, 2019

Table of Contents

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

Part II — OTHER INFORMATION

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 6.

Exhibits

31

Exhibit Index

31

Signature Page

32

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

AAR CORP. and Subsidiaries

Condensed Consolidated Balance Sheets

As of November 30, 2019 and May 31, 2019

(In millions, except share data)

ASSETS

    

November 30, 

    

May 31, 

2019

2019

(Unaudited)  

Current assets:

Cash and cash equivalents

$

38.2

$

21.3

Restricted cash

14.5

19.8

Accounts receivable, less allowances of $17.5 and $16.0, respectively

 

208.5

 

197.8

Contract assets

62.2

59.2

Inventories

 

580.4

 

523.7

Rotable assets and equipment on or available for short-term lease

 

69.1

 

65.3

Assets of discontinued operations

27.4

29.2

Other current assets

 

71.9

 

36.2

Total current assets

 

1,072.2

 

952.5

Property, plant and equipment, net of accumulated depreciation of $240.4 and $231.8 respectively

 

134.3

 

132.8

Other assets:

Goodwill

 

116.8

 

116.2

Intangible assets, net of accumulated amortization of $17.8 and $30.3, respectively

 

12.6

 

22.2

Operating lease right-of-use assets, net

103.8

Rotable assets supporting long-term programs

 

225.6

 

216.0

Other non-current assets

 

89.6

 

77.5

 

548.4

 

431.9

$

1,754.9

$

1,517.2

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

3

Table of Contents

AAR CORP. and Subsidiaries

Condensed Consolidated Balance Sheets

As of November 30, 2019 and May 31, 2019

(In millions, except share data)

LIABILITIES AND EQUITY

    

November 30, 

    

May 31, 

2019

2019

(Unaudited)

Current liabilities:

Accounts payable

$

231.4

$

187.8

Accrued liabilities

133.2

140.5

Liabilities of discontinued operations

 

41.9

 

29.2

Total current liabilities

 

406.5

 

357.5

Long-term debt

 

196.1

 

141.7

Operating lease liabilities

84.0

Deferred revenue on long-term contracts

122.5

83.8

Other liabilities

 

24.1

 

28.3

 

426.7

 

253.8

Equity:

Preferred stock, $1.00 par value, authorized 250,000 shares; none issued

 

Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,300,786 shares at cost

 

45.3

 

45.3

Capital surplus

 

478.7

 

479.4

Retained earnings

 

725.4

 

709.8

Treasury stock, 10,387,144 and 10,512,974 shares at cost, respectively

 

(287.7)

 

(287.7)

Accumulated other comprehensive loss

 

(40.0)

 

(40.9)

Total equity

 

921.7

 

905.9

$

1,754.9

$

1,517.2

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

4

Table of Contents

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Income

For the Three and Six Months Ended November 30, 2019 and 2018

(Unaudited)

(In millions, except share data)

Three Months Ended

Six Months Ended

November 30, 

November 30, 

    

2019

    

2018

    

2019

    

2018

Sales:

Sales from products

$

293.0

$

264.8

$

568.1

$

522.1

Sales from services

 

267.9

 

228.5

 

534.3

 

437.5

 

560.9

 

493.3

 

1,102.4

 

959.6

Cost and operating expenses:

Cost of products

 

242.0

 

217.0

 

462.1

 

426.5

Cost of services

 

233.0

 

198.0

 

472.8

 

383.6

Provision for doubtful accounts

0.7

12.4

1.4

13.0

Selling, general and administrative

57.1

49.1

115.2

97.3

 

532.8

476.5

1,051.5

920.4

Operating income

 

28.1

 

16.8

 

50.9

 

39.2

Other income (expense), net

(0.2)

(0.2)

(0.4)

0.2

Interest expense

 

(1.9)

(2.5)

(4.1)

(4.6)

Interest income

0.1

 

0.1

 

0.2

 

0.6

Income from continuing operations before provision for income taxes

 

26.1

14.2

46.6

35.4

Provision for income taxes

 

6.0

 

3.0

 

9.4

 

5.3

Income from continuing operations

20.1

11.2

37.2

30.1

Loss from discontinued operations

 

(5.9)

 

(4.2)

 

(18.6)

 

(8.0)

Net income

$

14.2

$

7.0

$

18.6

$

22.1

Earnings per share - basic:

Earnings from continuing operations

$

0.58

$

0.32

$

1.07

$

0.87

Loss from discontinued operations

(0.17)

(0.12)

(0.54)

(0.23)

Earnings per share - basic

$

0.41

$

0.20

$

0.53

$

0.64

Earnings per share - diluted:

Earnings from continuing operations

$

0.57

$

0.32

$

1.06

$

0.85

Loss from discontinued operations

(0.17)

(0.12)

(0.53)

(0.23)

Earnings per share - diluted

$

0.40

$

0.20

$

0.53

$

0.62

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

5

Table of Contents

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended November 30, 2019 and 2018

(Unaudited)

(In millions)

Three Months Ended

Six Months Ended

November 30, 

November 30, 

    

2019

    

2018

    

2019

    

2018

Net income

$

14.2

$

7.0

$

18.6

$

22.1

Other comprehensive income (loss), net of tax expense (benefit):

Currency translation adjustments

0.5

(0.6)

0.4

(1.1)

Pension and other post-retirement plans:

Amortization of actuarial loss and prior service cost included in net income, net of tax of $0.1 and $0.0 for the three months ended November 30, 2019 and 2018, respectively, and $0.1 and $0.1 for the six months ended November 30, 2019 and 2018, respectively

 

0.3

 

0.2

 

0.5

 

0.5

Other comprehensive income (loss), net of tax

 

0.8

 

(0.4)

 

0.9

 

(0.6)

Comprehensive income

$

15.0

$

6.6

$

19.5

$

21.5

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

6

Table of Contents

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended November 30, 2019 and 2018

(Unaudited)

(In millions)

Six Months Ended

November 30, 

    

2019

    

2018

Cash flows used in operating activities:

Net income

$

18.6

$

22.1

Less: Loss from discontinued operations

18.6

8.0

Income from continuing operations

37.2

30.1

Adjustments to reconcile income from continuing operations to net cash used in operating activities:

Depreciation and intangible amortization

 

21.8

 

20.5

Amortization of stock-based compensation

 

7.1

 

5.2

Provision for doubtful accounts

1.4

13.0

Deferred tax provision

 

0.9

 

1.4

Changes in certain assets and liabilities:

Accounts receivable

 

(11.0)

 

(52.1)

Contract assets

(2.8)

(13.4)

Inventories

 

(56.8)

 

(52.1)

Rotable spares and equipment on or available for short-term lease

 

(3.9)

 

6.6

Rotable assets supporting long-term programs

 

(19.1)

 

(26.7)

Accounts payable

 

42.5

 

35.4

Accrued and other liabilities

 

(17.9)

 

(29.7)

Other

 

(9.6)

 

20.6

Net cash used in operating activities – continuing operations

 

(10.2)

 

(41.2)

Net cash provided from (used in) operating activities – discontinued operations

(7.7)

5.7

Net cash used in operating activities

(17.9)

(35.5)

Cash flows used in investing activities:

Property, plant and equipment expenditures

 

(10.2)

 

(8.0)

Payments for acquisitions

(2.3)

Other

 

(1.5)

 

1.3

Net cash used in investing activities – continuing operations

 

(11.7)

 

(9.0)

Net cash used in investing activities – discontinued operations

(0.4)

Net cash used in investing activities

(11.7)

(9.4)

Cash flows provided from financing activities:

Short-term borrowings, net

 

55.0

 

67.0

Repayments on long-term borrowings

(25.0)

Cash dividends

 

(5.5)

 

(5.3)

Purchase of treasury stock

(4.1)

Financing costs

(1.3)

Stock compensation activity

(3.0)

8.2

Net cash provided from financing activities – continuing operations

 

41.1

 

44.9

Net cash used in financing activities – discontinued operations

(0.7)

Net cash provided from financing activities

41.1

44.2

Effect of exchange rate changes on cash

 

0.1

 

(0.2)

Increase (Decrease) in cash and cash equivalents

 

11.6

 

(0.9)

Cash, cash equivalents, and restricted cash at beginning of period

 

41.1

 

41.6

Cash, cash equivalents, and restricted cash at end of period

$

52.7

$

40.7

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

7

Table of Contents

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Six Months Ended November 30, 2019 and 2018

(Unaudited)

(In millions)

Accumulated

Other

Common

Capital

Retained

Treasury

Comprehensive

    

Stock

    

Surplus

    

Earnings

    

Stock

    

Income (Loss)

    

Total Equity

Balance, May 31, 2019

$

45.3

$

479.4

$

709.8

$

(287.7)

$

(40.9)

$

905.9

Cumulative effect adjustment upon adoption of ASC 842 on June 1, 2019

2.5

2.5

Net income

 

 

 

4.4

4.4

Cash dividends

 

 

 

(2.9)

(2.9)

Stock option activity

 

 

0.9

 

1.8

2.7

Restricted stock activity

 

 

(4.3)

 

1.1

(3.2)

Other comprehensive income, net of tax

 

 

 

0.1

0.1

Balance, August 31, 2019

$

45.3

$

476.0

$

713.8

$

(284.8)

$

(40.8)

$

909.5

Net income

14.2

14.2

Cash dividends

(2.6)

(2.6)

Stock option activity

0.9

1.2

2.1

Restricted stock activity

1.8

1.8

Repurchase of shares

(4.1)

(4.1)

Other comprehensive income, net of tax

0.8

0.8

Balance, November 30, 2019

$

45.3

$

478.7

$

725.4

$

(287.7)

$

(40.0)

$

921.7

Balance, May 31, 2018

$

45.3

$

470.5

$

733.2

$

(280.7)

$

(32.0)

$

936.3

Cumulative effect adjustment upon adoption of ASC 606 on June 1, 2018

(20.4)

(20.4)

Net income

 

 

 

15.1

 

 

 

15.1

Cash dividends

 

 

 

(2.7)

 

 

 

(2.7)

Stock option activity

 

 

0.7

 

 

2.2

 

 

2.9

Restricted stock activity

 

 

(1.4)

 

 

(0.5)

 

 

(1.9)

Other comprehensive loss, net of tax

 

 

 

 

 

(0.2)

 

(0.2)

Balance,August 31, 2018

$

45.3

$

469.8

$

725.2

$

(279.0)

$

(32.2)

$

929.1

Net income

 

 

 

7.0

 

 

 

7.0

Cash dividends

 

 

 

(2.6)

 

 

 

(2.6)

Stock option activity

 

 

0.9

 

 

1.6

 

 

2.5

Restricted stock activity

 

 

0.1

 

 

(0.1)

 

 

Other comprehensive income, net of tax

 

 

 

 

 

(0.4)

 

(0.4)

Balance,November 30, 2018

$

45.3

$

470.8

$

729.6

$

(277.5)

$

(32.6)

$

935.6

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

8

Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(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 November 30, 2019, the Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income for the three- and six-month periods ended November 30, 2019 and 2018, the Condensed Consolidated Statements of Cash Flows for the six-month periods ended November 30, 2019 and 2018, and the Condensed Consolidated Statement of Changes in Equity for the three- and six-month periods ended November 30, 2019 and 2018. 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 practical expedients, which must be elected as a package and applied consistently to all leases. This package permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than twelve months.

Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $123.2 million and operating lease liabilities of $116.8 million on our Condensed Consolidated Balance Sheet. These amounts included operating lease ROU assets of $26.6 million and operating lease liabilities of $25.3 million related to our discontinued operations. In addition, we recognized the remaining unamortized deferred gains of $2.5 million, net of tax, associated with sale-leaseback transactions as a cumulative effect adjustment to the opening balance of retained earnings as of June 1, 2019.

The adoption of ASC 842 did not have a material impact on the Condensed Consolidated Statements of Income or Cash Flows.

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Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(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

$

29.2

$

26.6

$

55.8

Other current assets

36.2

(0.5)

35.7

Intangible assets, net

22.2

(8.5)

13.7

Operating lease ROU assets

96.6

96.6

Other non-current assets

 

77.5

 

(1.8)

 

75.7

Accrued liabilities

 

140.5

 

10.0

 

150.5

Liabilities of discontinued operations

29.2

25.3

54.5

Operating lease liabilities

 

 

77.7

 

77.7

Other liabilities

28.3

(3.1)

25.2

Retained earnings

 

709.8

 

2.5

 

712.3

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 $74.1 million during the third quarter of fiscal 2019 reflecting the expected net proceeds to be received upon the completion of the sale transactions. In fiscal 2020, we signed an agreement to sell the remaining operating contract of the COCO business and recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the disposal of the remaining COCO assets. The sale of the DoD contracts and related assets was completed in the second quarter of fiscal 2020 and we expect the sale of the remaining operating contract to be completed shortly after government approval which we expect to receive before the end of fiscal 2020.

No amounts for general corporate overhead or interest expense were allocated to discontinued operations during the periods presented. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to our continuing operations.

10

Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(Unaudited)

(Dollars in millions, except per share amounts)

Operating results for discontinued operations were comprised of the following:

Three Months Ended

Six Months Ended

November 30, 

November 30, 

    

2019

    

2018

    

2019

    

2018

Sales

$

17.3

$

22.2

$

33.9

$

42.2

Cost of sales

 

(18.8)

(25.4)

 

(38.4)

(47.7)

Asset impairment

(11.8)

Selling, general and administrative expenses

 

(5.4)

(2.3)

 

(7.2)

(4.8)

Operating loss from discontinued operations

(6.9)

(5.5)

(23.5)

(10.3)

Provision for income taxes (benefit)

(1.0)

(1.3)

(4.9)

(2.3)

Loss from discontinued operations

$

(5.9)

$

(4.2)

$

(18.6)

$

(8.0)

The carrying amounts of the major classes of assets and liabilities for our discontinued operations are as follows:

November 30, 

May 31, 

    

2019

    

2019

Accounts receivable, net

$

3.1

$

16.2

Inventory, rotable assets, and equipment

7.5

Operating lease ROU assets

22.8

Other assets

 

1.5

 

5.5

Assets of discontinued operations

$

27.4

$

29.2

Accounts payable and accrued liabilities

$

18.7

$

29.2

Operating lease liabilities

23.2

Liabilities of discontinued operations

$

41.9

$

29.2

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

Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(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. For the three-month periods ended November 30, 2019 and 2018, we recognized favorable cumulative catch-up adjustments of $1.9 million and $3.1 million, respectively. These adjustments 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.

For the six-month period ended November 30, 2019, we recognized favorable cumulative catch-up adjustments of $1.9 million. For the six-month period ended November 30, 2018, we recognized favorable and unfavorable cumulative catch-up adjustments of $3.8 million and $0.5 million, respectively. When considering these adjustments on a net basis, we recognized net favorable adjustments of $1.9 million and $3.3 million in the six-month periods ended November 30, 2019 and 2018, respectively.

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 practical expedients permitted under Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASC 606”). Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales in our Condensed Consolidated Statement of Income, and are not considered a performance obligation to our customers. Our reported sales on our Condensed Consolidated Statement of Income are net of any sales or related non-income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.

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 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.

12

Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(Unaudited)

(Dollars in millions, except per share amounts)

Net contract assets and liabilities are as follows:

    

November 30,

    

May 31,

    

2019

2019

Change 

Contract assets – current

$

62.2

$

59.2

$

3.0

Contract assets – non-current

32.0

17.0

15.0

Deferred revenue – current

(11.3)

(12.6)

1.3

Deferred revenue on long-term contracts

 

(122.5)

 

(83.8)

 

(38.7)

Net contract liabilities

$

(39.6)

$

(20.2)

$

(19.4)

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.

Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows for the three- and six-month periods ended November 30, 2019 and 2018:

    

Three Months Ended

    

Six Months Ended

November 30,

November 30,

    

2019

    

2018

    

2019

    

2018

Deferred revenue at beginning of period

$

(86.3)

$

(58.5)

$

(96.4)

$

(44.1)

Revenue deferred

 

(153.7)

 

(103.5)

 

(240.3)

 

(194.0)

Revenue recognized

 

103.3

 

76.4

 

204.3

 

156.5

Other

 

2.9

 

8.0

 

(1.4)

 

4.0

Deferred revenue at end of period

$

(133.8)

$

(77.6)

$

(133.8)

$

(77.6)

Remaining Performance Obligations

As of November 30, 2019, we had approximately $1.3 billion of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity (IDIQ) contracts. We expect that approximately 40% of this backlog will be recognized as revenue over the next 12 months with the majority of the remainder recognized over the next three years. The amount of remaining performance obligations, which is expected to be recognized as revenue beyond 12 months, primarily relates to our long-term, power-by-the-hour programs where we provide component inventory management and repair services.

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Table of Contents

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

November 30, 2019

(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 six-month periods ended November 30, 2019 and 2018 were as follows:

Three Months Ended

 

Six Months Ended

November 30,

November 30,

    

2019

    

2018

    

2019

    

2018

Aviation Services: