UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File No. 1-6263
AAR CORP.
(Exact name of registrant as specified in its charter)
Delaware |
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36-2334820 |
(State or other jurisdiction of incorporation
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(I.R.S. Employer Identification No.) |
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One
AAR Place, 1100 N. Wood Dale Road
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60191 |
(Address of principal executive offices) |
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(Zip Code) |
(630) 227-2000
(Registrants telephone number, including area code)
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 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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
As of December 31, 2003, there were 32,046,273 shares of the registrants Common Stock, $1.00 par value per share, outstanding.
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
For the Quarter Ended November 30, 2003
Table of Contents
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I , ITEM 1 FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of November 30, 2003 and May 31, 2003
(In thousands)
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November 30,
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May 31,
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(Unaudited) |
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(Audited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
39,198 |
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$ |
29,154 |
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Accounts receivable, less allowances of $7,696 and $8,663, respectively |
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66,769 |
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66,322 |
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Inventories |
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200,373 |
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219,894 |
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Equipment on or available for short-term lease |
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35,938 |
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40,060 |
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Deposits, prepaids and other |
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14,345 |
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13,692 |
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Deferred tax assets |
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27,142 |
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27,290 |
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Total current assets |
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383,765 |
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396,412 |
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Property, plant and equipment, net |
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83,836 |
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94,029 |
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Other assets: |
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Investments in leveraged leases |
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9,386 |
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27,394 |
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Goodwill, net |
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45,975 |
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45,951 |
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Equipment on long-term lease |
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86,029 |
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72,732 |
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Other |
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57,187 |
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50,103 |
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198,577 |
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196,180 |
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$ |
666,178 |
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$ |
686,621 |
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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 November 30, 2003 and May 31, 2003
(In thousands except per share amounts)
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November 30,
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May 31,
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(Unaudited) |
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(Audited) |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Short-term debt |
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$ |
5,940 |
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$ |
24,000 |
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Current maturities of long-term debt |
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6,374 |
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24,000 |
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Non-recourse debt |
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32,141 |
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32,527 |
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Notes payable |
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8,529 |
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11,729 |
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Accounts payable |
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54,251 |
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51,485 |
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Accrued liabilities |
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64,064 |
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59,834 |
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Accrued taxes on income |
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Total current liabilities |
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171,299 |
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203,575 |
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Long-term debt, less current maturities |
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167,499 |
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164,658 |
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Deferred tax liabilities |
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22,472 |
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22,601 |
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Retirement benefit obligation |
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799 |
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799 |
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Deferred income and other |
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9,288 |
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200,058 |
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188,058 |
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Stockholders equity: |
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Preferred stock, $1.00 par value, authorized 250 shares; none issued |
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Common stock, $1.00 par value, authorized 100,000 shares; issued 33,742 and 33,543 shares, respectively |
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33,742 |
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33,543 |
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Capital surplus |
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165,823 |
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164,651 |
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Retained earnings |
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142,192 |
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143,272 |
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Treasury stock, 1,697 and 1,692 shares at cost, respectively |
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(26,839 |
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(26,798 |
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Unearned restricted stock awards |
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(1,698 |
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(514 |
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Accumulated other comprehensive income (loss): |
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Cumulative translation adjustments |
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(2,477 |
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(3,244 |
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Minimum pension liability |
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(15,922 |
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(15,922 |
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294,821 |
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294,988 |
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$ |
666,178 |
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$ |
686,621 |
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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 Six Months Ended November 30, 2003 and 2002
(Unaudited)
(In thousands except per share amounts)
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Three Months Ended
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Six Months Ended
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2003 |
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2002 |
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2003 |
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2002 |
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Sales: |
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Sales from products and leasing |
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$ |
133,918 |
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$ |
131,389 |
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$ |
264,956 |
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$ |
261,984 |
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Sales from services |
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25,601 |
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21,662 |
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46,677 |
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42,232 |
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159,519 |
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153,051 |
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311,633 |
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304,216 |
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Costs and operating expenses: |
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Cost of products and leasing |
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113,161 |
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112,084 |
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226,164 |
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226,687 |
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Cost of services |
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21,228 |
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18,037 |
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39,223 |
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36,834 |
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Selling, general and administrative and other |
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19,502 |
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19,443 |
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39,150 |
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40,224 |
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153,891 |
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149,564 |
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304,537 |
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303,745 |
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Operating income |
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5,628 |
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3,487 |
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7,096 |
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471 |
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Interest expense |
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(4,761 |
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(4,883 |
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(9,674 |
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(9,750 |
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Interest income |
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541 |
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377 |
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916 |
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753 |
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Income (loss) before provision for income taxes |
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1,408 |
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(1,019 |
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(1,662 |
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(8,526 |
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Provision (benefit) for income taxes |
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492 |
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(356 |
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(582 |
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(2,984 |
) |
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Net income (loss) |
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$ |
916 |
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$ |
(663 |
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$ |
(1,080 |
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$ |
(5,542 |
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Income (loss) per share of common stock - basic |
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$ |
0.03 |
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$ |
(0.02 |
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$ |
(0.03 |
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$ |
(0.17 |
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Income (loss) per share of common stock - diluted |
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$ |
0.03 |
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$ |
(0.02 |
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$ |
(0.03 |
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$ |
(0.17 |
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Weighted average common shares outstanding - basic |
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31,979 |
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31,844 |
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31,915 |
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31,855 |
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Weighted average common shares outstanding - diluted |
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32,263 |
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31,844 |
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31,915 |
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31,855 |
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Dividends paid and declared per share of common stock |
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$ |
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$ |
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$ |
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$ |
0.025 |
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The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended November 30, 2003 and 2002
(Unaudited)
(In thousands)
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Six Months Ended
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2003 |
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2002 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(1,080 |
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$ |
(5,542 |
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Adjustments to reconcile net loss to net cash provided from operating activities: |
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Depreciation and amortization |
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13,167 |
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14,142 |
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Deferred taxes |
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19 |
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(2,361 |
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Changes in certain assets and liabilities: |
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Accounts and trade notes receivable |
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(3,489 |
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1,064 |
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Inventories |
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19,692 |
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1,780 |
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Equipment on or available for short-term lease |
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4,270 |
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1,424 |
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Equipment on long-term lease |
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480 |
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405 |
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Accounts and trade notes payable |
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2,732 |
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10,759 |
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Accrued liabilities and taxes on income |
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(95 |
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(14,793 |
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Other, primarily prepaids |
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(1,522 |
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2,261 |
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Net cash provided from operating activities |
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34,174 |
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9,139 |
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Cash flows from investing activities: |
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Property, plant and equipment expenditures |
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(4,382 |
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(4,883 |
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Proceeds from disposal of assets |
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27 |
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59 |
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Proceeds from sale of facilities, net |
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16,922 |
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2,969 |
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Investment in leveraged leases |
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400 |
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837 |
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Other |
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(906 |
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(57 |
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Net cash provided from (used in) investing activities |
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12,061 |
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(1,075 |
) |
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Cash flows from financing activities: |
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Proceeds from borrowings |
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13,959 |
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Reduction in borrowings |
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(49,385 |
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(2,517 |
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Financing costs |
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(827 |
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Cash dividends |
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(796 |
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Other |
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9 |
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Net cash used in financing activities |
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(36,253 |
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(3,304 |
) |
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Effect of exchange rate changes on cash |
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62 |
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28 |
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Increase in cash and cash equivalents |
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10,044 |
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4,788 |
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Cash and cash equivalents, beginning of period |
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29,154 |
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34,522 |
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Cash and cash equivalents, end of period |
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$ |
39,198 |
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$ |
39,310 |
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The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
6
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended November 30, 2003 and 2002
(Unaudited)
(In thousands)
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Three Months Ended
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Six Months Ended
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2003 |
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2002 |
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2003 |
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2002 |
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Net income (loss) |
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$ |
916 |
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$ |
(663 |
) |
$ |
(1,080 |
) |
$ |
(5,542 |
) |
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Other comprehensive income - Foreign currency translation |
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3,357 |
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313 |
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767 |
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2,271 |
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Total comprehensive income (loss) |
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$ |
4,273 |
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$ |
(350 |
) |
$ |
(313 |
) |
$ |
(3,271 |
) |
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
7
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2003
(Unaudited)
(In thousands)
Note A Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of AAR CORP. and its subsidiaries (the Company) after elimination of intercompany accounts and transactions.
These statements have been prepared by the Company 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, 2003 has been derived from audited financial statements. To prepare the financial statements in conformity with accounting principles generally accepted in the United States of America, 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 accounting principles generally accepted in the United States, 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 the Companys latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated financial statements reflect all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the condensed consolidated financial position of AAR CORP. and its subsidiaries as of November 30, 2003 and the condensed consolidated results of operations and comprehensive income for the three- and six-month periods ended November 30, 2003 and 2002, and the condensed consolidated cash flows for the six-month periods ended November 30, 2003 and 2002. The results of operations for such interim periods are not necessarily indicative of the results for the full year.
Note B Stock-Based Employee Compensation Plans
The Company accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost related to the Companys stock option plans is reflected in net income, as each option granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.
8
The following table illustrates the effect on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of Statement of Accounting Financial Standards (SFAS) No. 123 to the Companys stock option plans (in thousands, except per share amounts).
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Three
Months Ended
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Six Months
Ended
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2003 |
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2002 |
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2003 |
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2002 |
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Net income (loss) as reported |
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$ |
916 |
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$ |
(663 |
) |
$ |
(1,080 |
) |
$ |
(5,542 |
) |
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Add: Stock-based compensation expense included in net income (loss) as reported, net of tax |
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87 |
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20 |
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122 |
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65 |
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Deduct: Total compensation expense determined under fair value method for all awards, net of tax |
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(676 |
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(674 |
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(1,394 |
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(1,373 |
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Pro forma net income (loss) |
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$ |
327 |
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$ |
(1,317 |
) |
$ |
(2,352 |
) |
$ |
(6,850 |
) |
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Income (loss) per share basic: |
As reported |
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$ |
0.03 |
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$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
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Pro forma |
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$ |
0.01 |
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$ |
(0.04 |
) |
$ |
(0.07 |
) |
$ |
(0.22 |
) |
Income (loss) per share diluted: |
As reported |
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$ |
0.03 |
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$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
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Pro forma |
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$ |
0.01 |
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$ |
(0.04 |
) |
$ |
(0.07 |
) |
$ |
(0.22 |
) |
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in the first six months of 2003 and 2002:
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Six Months
Ended
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2003 |
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2002 |
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Risk-free interest rate |
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3.1 |
% |
2.5 |
% |
Expected volatility of common stock |
|
66.9 |
% |
64.0 |
% |
Dividend yield |
|
0.0 |
% |
1.6 |
% |
Expected option term in years |
|
4.0 |
|
4.0 |
|
Note C New Accounting Standards
In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 was effective immediately for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. The provisions of SFAS No. 150 have not had an effect on the consolidated financial statements because the Company has not issued financial instruments with characteristics of both liabilities and equity.
9
Note D Revenue Recognition
Sales and related cost of sales for product sales are recognized upon shipment of the product to the customer. The Companys standard terms and conditions provide that title passes to the customer when the product is shipped to the customer. Service revenues and the related cost of services are generally recognized when customer-owned material is shipped back to the customer. The Company has adopted this accounting policy because at the time the customer-owned material is shipped back to the customer, all services related to that material are complete as the Companys service agreements generally do not require it to provide services at customer sites. Furthermore, the serviced units are typically shipped to the customer immediately upon completion of the related services. Sales and related cost of sales for certain long-term manufacturing contracts and for certain large airframe maintenance contracts are recognized by the percentage of completion method, based on the relationship of costs incurred to date to estimated total costs under the respective contracts. Lease revenues are recognized as earned. Income from monthly or quarterly rental payments is recorded in the pertinent period according to the lease agreement. However, for leases that provide variable rents, the Company recognizes lease income on a straight-line basis. In addition to a monthly lease rate, some engine leases require an additional rental amount based on the number of hours the engine is used in a particular month. Lease income associated with these contingent rentals is recorded in the period in which actual usage is reported by the lessee to the Company, which is normally the month following the actual usage.
Note E Impairment Charges
The components of the fiscal 2003 and fiscal 2002 impairment charges were as follows:
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For the Year Ended May 31, |
|
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|
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2003 |
|
2002 |
|
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|
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|
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Engine and airframe parts |
|
$ |
2,360 |
|
$ |
56,000 |
|
Whole engines |
|
3,000 |
|
11,400 |
|
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Loss accruals for engine operating leases |
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|
8,500 |
|
||
|
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$ |
5,360 |
|
$ |
75,900 |
|
Prior to September 11, 2001 the Company was executing its plan to reduce its investment in support of older generation aircraft in line with the commercial airlines scheduled retirement plans for these aircraft. The events of September 11 caused a severe and sudden disruption in the commercial airline industry, which brought about a rapid acceleration of those retirement plans. System-wide capacity was reduced by approximately 20%, and many airlines cancelled or deferred new aircraft deliveries. Based on managements assessment of these and other conditions, the Company in the second quarter ended November 30, 2001, reduced the value and provided loss accruals for certain of its inventories and engine leases which support older generation aircraft by $75,900, of which $57,900 was related to the Inventory and Logistic Services segment and $18,000 was related to the Aircraft and Engine Sales and Leasing segment.
The fiscal 2002 writedown for engine and airframe parts was determined by comparing the carrying value for inventory parts that support older generation aircraft to their net realizable value. In determining net realizable value, the Company assigned estimated sales prices taking into consideration historical selling prices and demand, as well as anticipated demand. The $11,400 writedown during fiscal 2002 for whole
10
engines related to assets that are reported in the caption Equipment on or available for short-term lease and was determined by comparing the carrying value for each engine to an estimate of its undiscounted future cash flows. In those instances where there was a shortfall, the impairment was measured by comparing the carrying value to an estimate of the assets fair market value. The loss accruals for engine operating leases were determined by comparing the scheduled purchase option prices to the estimated fair value of such equipment. In those instances where the scheduled purchase option price exceeded the estimated fair value, an accrual for the estimated loss was recorded.
During the fourth quarter of fiscal 2003, the Company recorded additional impairment charges related to certain engine and airframe parts and whole engines in the amount of $5,360. The fiscal 2003 impairment charge was based upon an updated assessment of the net realizable values for certain engine and airframe parts and future undiscounted cash flows for whole engines. Of the $5,360 impairment charge recorded during fiscal 2003, $2,360 related to the Inventory and Logistic Services segment and $3,000 related to the Aircraft and Engine Sales and Leasing segment.
A summary of the carrying value of impaired inventory and engines, after giving effect to the impairment charges recorded by the Company are as follows:
|
|
November 30,
|
|
May 31,
|
|
November 30,
|
|
|||
Net impaired inventory and engines |
|
$ |
52,700 |
|
$ |
56,240 |
|
$ |
89,600 |
|
Proceeds from sales of impaired inventory and engines for the six-month period ended November 30, 2003 and the twelve-month period ended May 31, 2003 were $4,100 and $12,100, respectively.
Note F Inventory
|
|
November 30,
|
|
May 31,
|
|
||
The summary of inventories is as follows: |
|
|
|
|
|
||
Raw materials and parts |
|
$ |
47,294 |
|
$ |
45,702 |
|
Work-in-process |
|
18,929 |
|
22,604 |
|
||
Purchased aircraft, parts, engines and components held for sale |
|
134,150 |
|
151,588 |
|
||
|
|
$ |
200,373 |
|
$ |
219,894 |
|
Note G Investment in Joint Ventures
The following table provides summarized joint venture financial information at November 30, 2003 and May 31, 2003.
|
|
November 30,
|
|
May 31,
|
|
||
Total assets |
|
$ |
37,338 |
|
$ |
39,244 |
|
Total non-recourse debt |
|
34,485 |
|
36,028 |
|
||
Net assets of joint venture |
|
$ |
2,853 |
|
$ |
3,216 |
|
AAR CORP.s 50% equity interest in joint venture |
|
$ |
1,427 |
|
$ |
1,608 |
|
The aircraft in the joint venture is currently on lease scheduled to expire in April 2004. The joint venture partners are currently seeking a new lessee for the aircraft, and although lease rates for this type of aircraft have improved, the Company expects the new monthly lease rate to be less than the current monthly lease rate. If the joint venture partners are unsuccessful
11
in re-leasing the aircraft, the joint venture will return the aircraft to the lender and the Company will write-off its investment in the joint venture.
Note H Supplemental Cash Flows Information
|
|
Six Months
Ended
|
|
||||
|
|
2003 |
|
2002 |
|
||
Interest paid |
|
$ |
8,263 |
|
$ |
8,814 |
|
Income taxes paid |
|
347 |
|
3,087 |
|
||
Income tax refunds received |
|
911 |
|
325 |
|
||
Note I Common Stock and Earnings per Share of Common Stock
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.
The following table provides a reconciliation of the computations of basic and diluted earnings per share information for the three- and six-month periods ended November 30, 2003 and 2002 (in thousands, except per share amounts):
|
|
Three
Months Ended
|
|
Six Months
Ended
|
|
||||||||
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
||||
Basic: |
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
916 |
|
$ |
(663 |
) |
$ |
(1,080 |
) |
$ |
(5,542 |
) |
Weighted average common shares outstanding |
|
31,979 |
|
31,844 |
|
31,915 |
|
31,855 |
|
||||
Income (loss) per share of common stock basic |
|
$ |
0.03 |
|
$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Diluted: |
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
916 |
|
$ |
(663 |
) |
$ |
(1,080 |
) |
$ |
(5,542 |
) |
Weighted average common shares outstanding |
|
31,979 |
|
31,844 |
|
31,915 |
|
31,855 |
|
||||
Additional shares due to hypothetical exercise of stock options |
|
284 |
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding diluted |
|
32,263 |
|
31,844 |
|
31,915 |
|
31,855 |
|
||||
Income (loss) per share of common stock diluted |
|
$ |
0.03 |
|
$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.17 |
) |
For the six-month periods ending November 30, 2003 and 2002, respectively, stock options to purchase 5,650 and 4,759 shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the common shares.
12
Common stock equivalents representing options to purchase 89 and 2 shares for the six-month periods ending November 30, 2003 and 2002, respectively, were not included in the computations of diluted earnings per share because to do so would have been antidilutive due to the net loss during the respective periods.
Note J Mortgage Financing
On July 1, 2003, the Company completed an $11,000 financing secured by a mortgage on its Wood Dale, Illinois facility. The term of the financing is five years utilizing a fifteen-year amortization with a LIBOR-based interest rate of no less than 6.25%. The amount outstanding under this agreement was $10,858 at November 30, 2003.
Note K Sale-Leaseback
On October 3, 2003, the Company entered into a sale-leaseback transaction whereby the Company sold and leased back a facility located in Garden City, New York. The lease is classified as an operating lease in accordance with SFAS No. 13, Accounting for Leases. Net proceeds from the sale of the facility were $13,991 and the cost and related accumulated depreciation of the facility of $9,472 and $4,595, respectively, have been removed from the balance sheet. The gain realized of $9,114 on the sale has been deferred and is being amortized over the 20-year lease term in accordance with SFAS No. 13. The deferred gain is included in the caption Deferred income and other on the Condensed Consolidated Balance Sheet.
Note L Aviation Equipment Operating Leases
The Company from time to time leases aviation equipment (engines and aircraft) from lessors under arrangements that are classified by the Company as operating leases. The Company may also sublease the aviation equipment to a customer on a short- or long-term basis. The terms of the operating leases in which the Company is the lessee are one year with options to renew annually at the election of the Company. If the Company elects not to renew a lease or the lease term expires, the Company will purchase the equipment from the lessor at its scheduled purchase option price. The terms of the lease agreements also allow the Company to purchase the equipment at any time during a lease at its scheduled purchase option price.
In those instances in which the Company anticipates that it will purchase aviation equipment and that the scheduled purchase option price will exceed the fair value of such equipment, the Company records an accrual for loss. The scheduled purchase option values amounted to $32,763 at November 30, 2003 and $33,783 at May 31, 2003.
Note M Segment Reporting
The Company is a leading provider of value-added products and services to the global aviation/aerospace industry. The Company reports its activities in four business segments: Inventory and Logistic Services; Maintenance, Repair and Overhaul; Manufacturing; and Aircraft and Engine Sales and Leasing.
Sales in the Inventory and Logistic Services segment are derived from the sale of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and military markets, as well as the distribution of new airframe parts purchased from various original equipment manufacturers and sold to commercial and general aviation customers. Cost of sales consists
13
principally of the cost of product (primarily aircraft and engine parts) and overhead (primarily indirect labor, facility cost and insurance).
Sales in the Maintenance, Repair and Overhaul segment are derived from the repair and overhaul of a wide range of commercial and military aircraft engine and airframe parts, landing gear and components; aircraft maintenance and storage; and the repair, overhaul and sale of parts for industrial gas and steam turbine operators. Cost of sales consists principally of cost of product (primarily replacement aircraft parts), direct labor and overhead.
Sales in the Manufacturing segment are derived from the manufacture and sale of a wide array of containers, pallets and shelters used to support the U.S. Militarys tactical deployment requirements, in-plane cargo loading and handling systems for commercial and military applications and advanced composite materials and components for aerospace and industrial use. Cost of sales consists principally of the cost of product, direct labor and overhead.
Sales in the Aircraft and Engine Sales and Leasing segment are derived from the sale and lease of commercial aircraft and engines and technical and advisory services. Cost of sales consists principally of cost of product (aircraft and engines), labor and the cost of lease revenue (primarily depreciation, lease expense and insurance).
The accounting policies for the segments are the same as those for the Company. The chief decision making officer (Chief Executive Officer) of the Company evaluates performance based on the reportable segments. The expenses and assets related to corporate activities are not allocated to the segments.
Gross profit is calculated by subtracting cost of sales from sales. Selected financial information for each reportable segment is as follows:
|
|
Three
Months Ended
|
|
Six Months
Ended
|
|
||||||||
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
||||
Sales: |
|
|
|
|
|
|
|
|
|
||||
Inventory and Logistic Services |
|
$ |
69,257 |
|
$ |
65,198 |
|
$ |
130,994 |
|
$ |
126,497 |
|
Maintenance, Repair and Overhaul |
|
53,000 |
|
52,388 |
|
106,425 |
|
99,314 |
|
||||
Manufacturing |
|
31,796 |
|
29,316 |
|
56,966 |
|
57,303 |
|
||||
Aircraft and Engine Sales and Leasing |
|
5,466 |
|
6,149 |
|
17,248 |
|
21,102 |
|
||||
|
|
$ |
159,519 |
|
$ |
153,051 |
|
$ |
311,633 |
|
$ |
304,216 |
|
|
|
Three
Months Ended
|
|
Six Months
Ended
|
|
||||||||
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
||||
Inventory and Logistic Services |
|
$ |
11,693 |
|
$ |
9,126 |
|
$ |
20,155 |
|
$ |
16,767 |
|
Maintenance, Repair and Overhaul |
|
6,742 |
|
7,471 |
|
12,642 |
|
13,074 |
|
||||
Manufacturing |
|
5,847 |
|
5,058 |
|
9,615 |
|
8,146 |
|
||||
Aircraft and Engine Sales and Leasing |
|
848 |
|
1,275 |
|
3,834 |
|
2,708 |
|
||||
|
|
$ |
25,130 |
|
$ |
22,930 |
|
$ |
46,246 |
|
$ |
40,695 |
|
14
PART 1, ITEM 2 |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
AAR CORP. and Subsidiaries
Results of Operations
(In thousands)
Factors Which May Affect Future Results
The Companys future operating results and financial position may be adversely affected or fluctuate substantially on a quarterly basis as a result of continuing difficulties in the commercial aviation environment, a relatively weak worldwide economic climate and other factors, including: (1) a decline in demand for the Companys products and services and the ability of the Companys customers to meet their financial obligations to the Company, particularly in light of the weakened financial condition of many of the worlds commercial airlines; (2) the potential risk for declining market values for aviation products and equipment caused by various factors, including airline bankruptcies and other factors within the airline industry; (3) difficulties in re-leasing or selling aircraft and engines that are currently being leased on a long- or short-term basis; (4) lack of assurance that sales to the U.S. Government, its agencies and its contractors (which were 28.1% of total sales in fiscal 2003), will continue at levels previously experienced, since such sales are subject to competitive bidding and government funding; (5) access to the debt and equity capital markets and the ability to draw down under financing agreements, which may be limited in light of industry conditions and Company performance; (6) changes in or noncompliance with laws and regulations that may affect certain of the Companys aviation related activities that are subject to licensing, certification and other regulatory requirements imposed by the FAA and other regulatory agencies, both domestic and foreign; (7) competition from other companies, including original equipment manufacturers, some of which have greater financial resources than the Company; (8) exposure to product liability and property claims that may be in excess of the Companys substantial liability insurance coverage; (9) difficulties in being able to successfully integrate business acquisitions; and (10) the outcome of any pending or future material litigation or environmental proceedings.
Critical Accounting Policies
The Companys condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. Management of the Company has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosures of contingent liabilities to prepare the condensed consolidated financial statements. The most significant estimates made by management of the Company include adjustments to reduce the value of inventories and equipment on or available for lease, allowance for doubtful accounts and loss accruals for aviation equipment operating leases. Actual results could differ materially from these estimates. The following is a summary of the accounting policies considered critical by management of the Company.
Allowance for Doubtful Accounts The Companys allowance for doubtful accounts is intended to reduce the value of customer accounts receivable to amounts expected to be collected. In determining the required allowance, the Company considers factors such as general and industry-specific economic conditions, customer credit history, and the customers current and expected future financial performance.
15
Inventories Inventories are valued at the lower of cost or market. Cost is determined by the specific identification, average cost or first-in, first-out methods. Provisions are made for excess and obsolete inventories and inventories that have been impaired as a result of industry conditions. The Company has applied certain assumptions when determining the market value of inventories, such as historical sales of inventory, current and expected future aviation usage trends, replacement values and expected future demand. Principally as a result of the terrorist attacks of September 11, 2001 and their impact on the global airline industrys financial condition, fleet size and aircraft utilization, the Company recorded a significant charge for impaired inventories during the second quarter of fiscal 2002 utilizing those assumptions. During the fourth quarter of fiscal 2003, the Company recorded an additional charge as a result of a further decline in market value for these inventories. Reductions in demand for certain of the Companys inventories or declining market values, as well as differences between actual results and the assumptions utilized by the Company when determining the market value of its inventories, could result in additional impairment charges in future periods.
Equipment on or Available for Lease Lease revenue is recognized as earned. The cost of the asset under lease is original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment, and maintenance costs are expensed as incurred. The balance sheet classification is based on the lease term, with fixed-term leases less than twelve months classified as short-term and all others classified as long-term.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company is required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows. When applying the provisions of SFAS No. 144 to equipment on or available for lease, the Company has applied certain assumptions when estimating future undiscounted cash flows, such as current and estimated future lease rates, estimated residual values and expected future demand. Differences between actual results and the assumptions utilized by the Company when determining undiscounted cash flows could result in future impairments of equipment on or available for lease.
Aviation Equipment Operating Leases The Company from time to time leases aviation equipment (engines and aircraft) from lessors under arrangements that are classified by the Company as operating leases. The Company may also sublease the aviation equipment to a customer on a short- or long-term basis. The terms of the operating leases in which the Company is the lessee are one year with options to renew annually at the election of the Company. If the Company elects not to renew a lease or the lease term expires, the Company will purchase the equipment from the lessor at its scheduled purchase option price. The terms of the lease agreements also allow the Company to purchase the equipment at any time during a lease at its scheduled purchase option price. In those instances in which the Company anticipates that it will purchase aviation equipment and that the scheduled purchase option price will exceed estimated undiscounted cash flows related to the equipment, the Company records an accrual for loss. The Company has applied certain assumptions when estimating future undiscounted cash flows, such as current and estimated future lease rates, estimated residual values, and expected future demand. Differences between actual results and the assumptions utilized by the Company when determining undiscounted cash flows could result in future provisions for losses on aviation equipment under operating leases.
16
Results of Operations Three- and Six-Month Periods Ended November 30, 2003
(as compared with the same period of the prior year)
The Company reports its activities in four business segments: Inventory and Logistic Services; Maintenance, Repair and Overhaul; Manufacturing; and Aircraft and Engine Sales and Leasing.
Sales in the Inventory and Logistic Services segment are derived from the sale of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and military markets, as well as the distribution of new airframe parts purchased from various original equipment manufacturers and sold to commercial and general aviation customers. Cost of sales consists principally of the cost of product (primarily aircraft and engine parts) and overhead (primarily indirect labor, facility cost and insurance).
Sales in the Maintenance, Repair and Overhaul segment are derived from the repair and overhaul of a wide range of commercial and military aircraft engine and airframe parts, landing gear and components; aircraft maintenance and storage; and the repair, overhaul and sale of parts for industrial gas and steam turbine operators. Cost of sales consists principally of cost of product (primarily replacement aircraft parts), direct labor and overhead.
Sales in the Manufacturing segment are derived from the manufacture and sale of a wide array of containers, pallets and shelters used to support the U.S. Militarys tactical deployment requirements, in-plane cargo loading and handling systems for commercial and military applications and advanced composite materials and components for aerospace and industrial use. Cost of sales consists principally of the cost of product, direct labor and overhead.
Sales in the Aircraft and Engine Sales and Leasing segment are derived from the sale and lease of commercial aircraft and engines and technical and advisory services. Cost of sales consists principally of cost of product (aircraft and engines), labor and the cost of lease revenue (primarily depreciation, lease expense and insurance).
The table below sets forth consolidated sales for the Companys four business segments for the three- and six-month periods ended November 30, 2003 and 2002.
|
|
Three
Months Ended
|
|
Six Months
Ended
|
|
||||||||
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
||||
Sales: |
|
|
|
|
|
|
|
|
|
||||
Inventory and Logistic Services |
|
$ |
69,257 |
|
$ |
65,198 |
|
$ |
130,994 |
|
$ |
126,497 |
|
Maintenance, Repair and Overhaul |
|
53,000 |
|
52,388 |
|
106,425 |
|
99,314 |
|
||||
Manufacturing |
|
31,796 |
|
29,316 |
|
56,966 |
|
57,303 |
|
||||
Aircraft and Engine Sales and Leasing |
|
5,466 |
|
6,149 |
|
17,248 |
|
21,102 |
|
||||
|
|
$ |
159,519 |
|
$ |
153,051 |
|
$ |
311,633 |
|
$ |
304,216 |
|
17
(as compared with the same period of the prior year)
Consolidated sales for the second quarter ended November 30, 2003 increased $6,468 or 4.2% over the same period in the prior year. The sales increase is primarily concentrated in two reporting segments as the Company experienced increased demand for logistics support services from government customers and higher sales to airline customers in the Inventory and Logistic Services segment and continued strong demand for manufactured products that support the U.S. Militarys tactical deployment requirements in the Companys Manufacturing segment. Total sales to the U.S. and foreign governments and their contractors for the three-month period ended November 30, 2003 were $57,345, an increase of 21.8% compared to the prior year and represents 35.9% of consolidated sales for the three-month period ended November 30, 2003.
In the Inventory and Logistic Services segment, sales increased $4,059 or 6.2% compared to the prior year period. The increase in sales is primarily attributable to continued strong demand for logistics support services from government customers and higher sales of engine parts supporting the Companys airline customers. During the second quarter the Company experienced lower new parts distribution sales to its general aviation customers.
Sales in the Maintenance, Repair and Overhaul segment increased $612 or 1.2% compared to prior year driven primarily by increased sales at the Companys airframe maintenance facility. The Company experienced lower sales at certain of its component repair facilities due to weak demand for these services.
In the Manufacturing segment, sales increased $2,480 or 8.5% compared to the prior year period principally due to continued strong demand for manufactured products that support the U.S. Militarys tactical deployment requirements and higher sales of cargo systems due to new contract awards. During the second quarter of this fiscal year, the Company experienced lower sales of its non-aviation composite structure products.
In the Aircraft and Engine Sales and Leasing segment, sales decreased $683 or 11.1% compared to the prior year period primarily due to lower lease revenues of aircraft and engines.
Consolidated gross profit increased $2,200 or 9.6% over the prior year period primarily due to increased sales and an increase in the gross profit margin to 15.8% compared to 15.0% in the prior year. The gross margin percentage increased in the Inventory and Logistic Services and Manufacturing segments primarily due to the mix of products and services sold and increased volume.
Operating income improved by $2,141 or 61.4% over the prior year period as a result of increased gross profit. The Companys selling, general and administrative costs were essentially flat compared with the prior year. Selling, general and administrative and other costs for the three-month period ended November 30, 2003 includes a provision for a customer allowance of $1,335, as well as an $836 gain recorded from the sale of a facility in Holtsville, New York. Interest expense decreased $122 or 2.5% and interest income increased $164 or 43.5%, primarily as a result of an increase in average cash invested during the three-month period ended November 30, 2003 compared with the prior year period.
The Company reported consolidated net income of $916 compared to a consolidated net loss of $663 in the prior year as a result of the factors discussed above.
18
Six-Month Period Ended November 30, 2003
(as compared with the same period of the prior year)
Consolidated sales for the six-month period ended November 30, 2003 increased $7,417 or 2.4% over the same period in the prior year.
In the Inventory and Logistic Services segment, sales increased $4,497 or 3.6% compared to the prior year period. The increase in sales is principally attributable to increased demand for engine parts and higher sales to the U.S. Military for spares and logistics support. Offsetting these increases were reductions in airframe part sales and lower sales to general aviation customers in the Companys distribution unit.
Sales in the Maintenance, Repair and Overhaul segment increased $7,111 or 7.2% compared to the same period in the prior year primarily due to higher sales of aircraft maintenance services and industrial turbine engine overhaul and parts supply services, partially offset by lower demand for landing gear overhaul services.
In the Manufacturing segment, sales decreased $337 or 0.6% compared to the prior year period principally due to lower sales of the Companys non-aviation composite structure products and cargo loading systems. During the six-month period ended November 30, 2003, the Company experienced increased sales as a result of continued strong demand for its manufactured products supporting the U.S. Militarys tactical deployment activities.
In the Aircraft and Engine Sales and Leasing segment, sales decreased $3,854 or 18.3% as a result of lower engine sales partially offset by increased aircraft sales as a result of a narrow body aircraft sale during the period ended August 31, 2003.
Total sales to the U.S. and foreign governments and their contractors for the six-month period ended November 30, 2003 were $108,125, an increase of 21.5% compared to the prior year and represents 34.7% of consolidated sales for the six-month period ended November 30, 2003.
Consolidated gross profit increased $5,551 or 13.6% over the prior year period primarily due to increased sales and an increase in the gross profit margin to 14.8% compared to 13.4% in the prior year. The gross margin percentage increased in the Inventory and Logistic Services and Manufacturing segments primarily due to the mix of products and services sold and increased volume.
Operating income improved by $6,625 from the prior year period as a result of increased gross profit and lower selling, general and administrative expenses. The Company reduced its selling, general and administrative costs by $1,074 or 2.7% compared to the same period in the prior year primarily as a result of reduced discretionary spending. Selling, general and administrative and other costs for the six-month period ended November 30, 2003 includes a provision for a customer allowance of $1,335, as well as an $836 gain recorded from the sale of a facility in Holtsville, New York. Interest expense decreased $76 or 0.8%; interest income increased $163 or 21.6%, primarily as a result of an increase in average cash invested during the six-month period ended November 30, 2003 compared with the prior year period.
The Company reported consolidated net loss of $1,080 compared to a consolidated net loss of $5,542 in the prior year as a result of the factors discussed above.
19
Liquidity and Capital Resources
(as compared with May 31, 2003)
Historically, the Company has funded its growth, met contractual commitments and paid dividends through the generation of cash from operations, augmented by the periodic issuance of common stock and debt to the public and private markets. The Company also relies on various secured credit arrangements, which currently include an accounts receivable securitization program, a secured revolving credit facility and certain aviation equipment operating leases to provide additional liquidity. The Companys continuing ability to borrow from its lenders and issue debt and equity securities in the future may be negatively affected by a number of factors, including general economic conditions, airline and aviation industry conditions, Company performance and geopolitical events, including the war on terrorism. The Companys ability to use its accounts receivable securitization program, revolving credit facility and aviation equipment operating leases is also dependent on those factors. The Companys ability to generate cash from operations is influenced primarily by the operating performance of the Company and working capital management.
At November 30, 2003, the Companys liquidity and capital resources included cash of $39,198 and working capital of $212,466. As of November 30, 2003, $6,350 of cash was restricted to support letters of credit. At November 30, 2003, the Company had $35,000 available under its accounts receivable securitization program, all of which was outstanding. The amount available under this agreement is based on a formula of qualifying accounts receivable. At November 30, 2003, the Company had $26,482 available under its secured revolving credit facility, of which $4,000 was outstanding. The amount available under the revolving credit facility is also based on a formula of qualifying assets.
At November 30, 2003, the Companys ratio of long-term debt to capitalization was 36.2%; up slightly from 35.8% at May 31, 2003, and at November 30, 2003 the Companys ratio of total debt to capitalization was 42.8% compared to 46.6% at May 31, 2003. The increase in the long-term debt to capitalization ratio compared to May 31, 2003 is primarily attributable to the Companys $11,000 financing secured by a mortgage on its Wood Dale, Illinois facility. The mortgage financing was completed on July 1, 2003. The decrease in the total debt to capitalization ratio compared to May 31, 2003 is principally due to the payment of $22,600 to retire the Companys 7¼% Notes that matured on October 15, 2003. The Company also has a universal shelf registration on file with the Securities and Exchange Commission under which, subject to market conditions, up to $163,675 of common stock, preferred stock or medium- or long-term debt securities may be issued or sold.
On October 3, 2003, the Company entered into a sale-leaseback transaction whereby the Company sold and leased back a facility in Garden City, New York. Net proceeds from the sale were $13,991 and were used in part to reduce the Companys outstanding borrowings (See Note K).
On October 15, 2003, the Companys 7¼% Notes matured and were retired utilizing proceeds from the sale-leaseback transaction and cash on hand. The outstanding balance of the Notes at the time of maturity was $22,600.
The Company continues to evaluate a number of financing alternatives that would allow the Company to improve its liquidity position and to finance future growth on commercially reasonable terms. The Companys ability to obtain additional financing is dependent upon a number of factors, including the geopolitical environment, general economic conditions, airline industry conditions, the operating performance of the Company and market conditions in the public and private debt and equity markets.
20
On April 18, 2003, Standard and Poors downgraded the senior unsecured debt rating to BB minus from BBB minus with an outlook rating of negative. On July 18, 2003, Fitch Ratings downgraded the unsecured debt rating to BB minus from BB plus and revised the outlook rating to negative from stable. On August 5, 2003, Moodys Investors Service downgraded the senior unsecured debt rating of the Company to B2 from B1. The Company was removed from credit watch following the downgrade actions by each of the respective rating agencies.
In January 2004, the Companys non-recourse notes of $32,141 mature and therefore have been classified as current on the November 30, 2003 Condensed Consolidated Balance Sheet. The Company and the lender have signed a letter of intent to extend the maturity date of the non-recourse notes to August 2005. As of November 30, 2003, the Company's equity investment in this aircraft was $2,537.
During the six-month period ended November 30, 2003, the Company generated $34,174 of cash from operations primarily due to a reduction in working capital and $13,167 of non-cash depreciation and amortization. The improvement in working capital is principally attributable to a decrease in inventories of $19,692 and equipment on short-term lease of $4,270.
During the six-month period ended November 30, 2003, cash provided from investing activities was $12,061 consisting primarily of proceeds from the sale and leaseback of its Garden City, New York facility in the amount of $13,991 and proceeds from the sale of its Holtsville, New York facility in the amount of $2,931, partially offset by capital expenditures of $4,382.
During the six-month period ended November 30, 2003, the Companys financing activities used $36,253 of cash reflecting the payment of $22,600 to retire the Companys 7¼% Notes which matured on October, 15, 2003, the $20,000 paydown of the Merrill Lynch secured credit facility and reductions in other borrowings of $6,785. Cash proceeds from financing activities include the $11,000 financing secured by a mortgage on the Wood Dale, Illinois facility, and additional proceeds from borrowings of $2,959.
21
A summary of long-term debt, bank borrowings, non-cancelable operating lease commitments for aviation equipment and accounts receivable securitization as of November 30, 2003 is as follows:
|
|
Payments Due by Period |
|
|||||||||||||||||||
|
|
Total |
|
11/30/04 |
|
11/30/05 |
|
11/30/06 |
|
11/30/07 |
|
11/30/08 |
|
After
|
|
|||||||
On Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Debt |
|
$ |
182,402 |
|
$ |
14,899 |
|
$ |
15,238 |
|
$ |
6,446 |
|
$ |
852 |
|
$ |
88,014 |
|
$ |
56,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Non-recourse Debt |
|
32,141 |
|
32,141 |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Bank Borrowings |
|
5,940 |
|
1,940 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Off Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Aviation Equipment Operating Leases |
|
32,763 |
|
9,521 |
|
8,323 |
|
14,919 |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Accounts Receivable Securitization Program |
|
35,000 |
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|||||||
Notes:
(1) The secured revolving credit facility expires May 28, 2006, and therefore the outstanding balance of $4,000 at November 30, 2003 has been reported as a payment due by 11/30/06 on the Bank Borrowings line.
(2) The term of the accounts receivable securitization program with LaSalle is one year and therefore has been reported as a payment due by 11/30/04. The Company expects to extend this program subject to approval by LaSalle.
(3) The Company routinely issues letters of credit, performance bonds or credit guarantees in the ordinary course of its business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at November 30, 2003 was approximately $10,234.
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 Company management, as well as assumptions and estimates based on information available to the Company 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 discussed under this Item 2 entitled Factors Which May Affect Future Results. 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 the Companys control. The Company assumes no obligation to publicly release the result of any
22
revisions that may be made to 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.
PART I, ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys exposure to market risk includes fluctuating interest rates under its bank credit agreements and foreign exchange rates. During the six-month periods ended November 30, 2003 and 2002, the Company did not utilize derivative financial instruments to offset these risks.
At November 30, 2003, $26,482 was available to the Company and $4,000 was outstanding under the secured revolving credit facility with Merrill Lynch Capital. Interest on amounts borrowed under this credit facility is LIBOR based. A hypothetical 10 percent increase to the average interest rate under this credit facility applied to the average outstanding balance during the six-month period ended November 30, 2003 would not have had a material impact on the financial position or results of operations of the Company.
Revenues and expenses of the Companys 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 income (loss). A hypothetical 10 percent devaluation of foreign currencies against the U.S. dollar would not have had a material impact on the financial position or results of operations of the Company.
PART I, ITEM 4 CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the chief executive officer and chief financial officer of the Company evaluated the effectiveness of the Companys disclosure controls and procedures and concluded that the Companys disclosure controls and procedures effectively ensure that the information required to be disclosed in the reports that are filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported in a timely manner.
23
AAR CORP. and Subsidiaries
November 30, 2003
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on October 8, 2003. The following item was acted upon at the meeting.
1) Election of three Class I directors to serve until the 2006 Annual Meeting of Stockholders. Three directors were nominated and elected by the stockholders by the requisite vote.
Directors Nominated and Elected at the Meeting |
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
Votes
|
|
James G. Brocksmith, Jr. |
|
25,675,760 |
|
3,595,958 |
|
Joel D. Spungin |
|
25,678,652 |
|
3,593,066 |
|
David P. Storch |
|
25,677,757 |
|
3,593,961 |
|
|
|
|
|
|
|
Continuing Directors |
|
|
|
|
|
|
|
|
|
|
|
A. Robert Abboud |
|
|
|
|
|
Ira A. Eichner |
|
|
|
|
|
Ronald R. Fogleman |
|
|
|
|
|
James E. Goodwin |
|
|
|
|
|
Marc J. Walfish |
|
|
|
|
|
Item 6. Exhibits and Reports on Form 8-K
1) Exhibits
The exhibits to this report are listed on the Exhibit Index included elsewhere herein.
2) Reports on Form 8-K for Quarter ended November 30, 2003
On September 17, 2003, AAR CORP. filed a current report on Form 8-K reporting under Item 12 that it had issued a press release announcing financial results for the first fiscal quarter ended August 31, 2003.
24
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: |
January 14, 2004 |
|
/s/ TIMOTHY J. ROMENESKO |
|
Timothy J. Romenesko |
||
|
Vice President and Chief Financial Officer |
||
|
(Principal Financial Officer) |
||
|
|
||
|
|
||
|
/s/ MICHAEL J. SHARP |
||
|
Michael J. Sharp |
||
|
Vice President Controller |
||
|
(Principal Accounting Officer) |
||
25
Exhibit
|
|
Description |
|
Exhibits |
||
|
|
|
|
|
|
|
10. |
|
Material Contracts |
|
10.16 |
|
Indenture dated October 3, 2003 between AAR Distribution, Inc. and iStar Garden City LLC (filed herewith). |
|
|
|
|
|
|
|
|
|
|
|
10.17 |
|
Lease Agreement dated October 3, 2003 between AAR Allen Services, Inc., as tenant and iStar Garden City LLC, as Landlord, and related Guaranty dated October 3, 2003 from Registrant to iStar Garden City LLC (filed herewith). |
|
|
|
|
|
|
|
31. |
|
Rule 13a-
|
|
31.1 |
|
Section 302 Certification dated January 14, 2004 of David P. Storch, President and Chief Executive Officer of Registrant (filed herewith). |
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Section 302 Certification dated January 14, 2004 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith). |
|
|
|
|
|
|
|
32. |
|
Section 1350
|
|
32.1 |
|
Section 906 Certification dated January 14, 2004 of David P. Storch, President and Chief Executive Officer of Registrant (filed herewith). |
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
Section 906 Certification dated January 14, 2004 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith). |
26
THIS INDENTURE, made the 3 rd day of October, in the year 2003 BETWEEN AAR Distribution, Inc., an Illinois corporation have an office at 1100 N. Wood Dale Road, Wood Dale, Illinois 60191 party of the first part, and iSTAR Garden City LLC, a Delaware limited liability company having an address at 1114 Avenue of Americas, 27 th Floor, New York, New York 10036 party of the second part,
WITNESSETH, that the party of the first part, in consideration of Ten Dollars and other valuable consideration paid by the party of the second part, does hereby grant and release unto the party of the second part, the heirs or successors and assigns of the party of the second part forever,
ALL that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Town of Hempstead, County of Nassau, State of New York and more particularly described on Schedule A annexed hereto.
TOGETHER with all right, title and interest, if any, of the party of the first part of, in and to any streets and roads abutting the above-described premises to the center lines thereof; TOGETHER with the appurtenances and all the estate and rights of the party of the first part in and to said premises; TO HAVE AND TO HOLD the premises herein granted unto the party of the second part, the heirs or successors and assigns of the party of the second part forever.
AND the party of the first part covenants that the party of the first part has not done or suffered anything whereby the said premises have been incumbered in any way whatever, except as aforesaid.
AND the party of the first part, in compliance with Section 13 of the Lien Law, covenants that the party of the first part will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose.
The word party shall be construed as if it read parties whenever the sense of this indenture so requires.
IN WITNESS WHEREOF, the party of the first part has duly executed this deed the day and year first above written.
IN PRESENCE OF: |
|
AAR Distribution, Inc. |
|||
|
|
|
|||
|
|
By: |
/s/ TIMOTHY J. ROMENESKO |
|
|
|
|
Name: |
Timothy J. Romenesko |
||
|
|
Title: |
Vice President |
||
SCHEDULE A
LEGAL DESCRIPTION
ALL THAT CERTAIN PLOT, PIECE, OR PARCEL OF LAND, SITUATE, LYING, AND BEING AT CARLE PLACE, AND, BOUNDED AND DESCRIBED AS FOLLOWS;
BEGINNING AT A POINT ON THE NORTHERLY SIDE OF ZECKENDORF BOULEVARD, DISTANT 625.00 FEET EASTERLY FROM THE CORNER FORMED BY THE INTERSECTION OF THE SAID NORTHERLY SIDE OF ZECKENDORF BOULEVARD WITH THE EASTERLY SIDE OF EAST GATE BOULEVARD;
RUNNING THENCE NORTH 04 DEGREES 35 MINUTES 24 SECONDS WEST 837.10 FEET TO THE SOUTHERLY SIDE OF THE EXISTING LONG ISLAND RAIL ROAD RIGHT OF WAY;
RUNNING THENCE ALONG SAID SOUTHERLY SIDE OF SAID EXISTING LONG ISLAND RAIL ROAD RIGHT OF WAY, NORTH 85 DEGREES 24 MINUTES 36 SECONDS EAST 37.50 FEET;
THENCE NORTH 04 DEGREES 35 MINUTES 24 SECONDS WEST 20.00 FEET TO THE NORTHERLY SIDE OF SAID EXISTING LONG ISLAND RAIL ROAD RIGHT OF WAY;
THENCE NORTH 85 DEGREES 24 MINUTES 30 SECONDS EAST AND ALONG SAID NORTHERLY SIDE OF SAID EXISTING LONG ISLAND RAIL ROAD RIGHT OF WAY, 407.50 FEET TO THE LAND FORMERLY OF OLD COUNTRY TROTTING ASSOCIATION, INC. AND NOW THE WESTERLY SIDE OF ZECKENDORF BOULEVARD;
THENCE SOUTH 04 DEGREES 35 MINUTES 24 SECONDS EAST AND ALONG SAID LAND, 857.10 FEET TO THE NORTHERLY SIDE OF ZECKENDORF BOULEVARD;
THENCE SOUTH 85 DEGREES 24 MINUTES 36 SECONDS WEST ALONG SAID NORTHERLY SIDE OF ZECKENDORF BOULEVARD, 445.00 FEET TO THE POINT OR PLACE OF BEGINNING.
FOR INFORMATION ONLY SECTION 44, BLOCK 67, LOT 16.
Exhibit 10.17
BASIC LEASE INFORMATION
Lease dated as of October 3, 2003
Landlord : iStar Garden City LLC, a Delaware limited liability company, together with any successor or assign.
Tenant : AAR Allen Services, Inc., an Illinois corporation, together with any successor or assign permitted by the Lease.
Commencement Date : October 3, 2003.
Lease Expiration Date : October 31, 2023, which is the last day of the 240 th full calendar month following the Commencement Date, unless extended pursuant to paragraph 4(b) of the Lease.
Primary Term and any Extension Term Fixed Rent : The annual Fixed Rent during the Primary Term and any applicable Extension Term of the Lease shall be payable monthly in advance (unless specifically set forth to be paid at a different time below) as follows:
(a) From the Commencement Date through the 12 th full calendar month after the Commencement Date: at the annual rate of $1,332,000.00, 1/12 of which shall be payable in advance on the first day of each month, commencing (i) if the Commencement Date does not occur on the first day of a month, then on the first day of the month following the month in which the Commencement Date occurs, and (ii) if the Commencement Date occurs on the first day of a month, then on the Commencement Date. Additionally, if the Commencement Date does not occur on the first day of a month, then on the Commencement Date, a payment of an amount equal to the product of $111,000.00 multiplied by a fraction, the numerator of which is the number of days in the month from and including the Commencement Date through the end of the month in which the Commencement Date occurs, and the denominator of which is the total number of days in the month in which the Commencement Date occurs.
(b) Beginning with the 13 th full calendar month after the Commencement Date through the 24 th full calendar month after the Commencement Date: at the annual rate of $1,365,300.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 13 th full calendar month after the Commencement Date.
(c) Beginning with the 25 th full calendar month after the Commencement Date through the 36 th full calendar month after the Commencement Date: at the annual rate of $1,399,433.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 25 th full calendar month after the Commencement Date.
(d) Beginning with the 37 th full calendar month after the Commencement Date through the 48 th full calendar month after the Commencement Date: at the annual
rate of $1,434,418.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 37 th full calendar month after the Commencement Date.
(e) Beginning with the 49 th full calendar month after the Commencement Date through the 60 th full calendar month after the Commencement Date: at the annual rate of $1,470,279.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 49 th full calendar month after the Commencement Date.
(f) Beginning with the 61 st full calendar month after the Commencement Date through the 72 nd full calendar month after the Commencement Date: at the annual rate of $1,507,036.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 61st full calendar month after the Commencement Date.
(g) Beginning with the 73 rd full calendar month after the Commencement Date through the 84 th full calendar month after the Commencement Date: at the annual rate of $1,544,712.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 73 rd full calendar month after the Commencement Date.
(h) Beginning with the 85 th full calendar month after the Commencement Date through the 96 th full calendar month after the Commencement Date: at the annual rate of $1,583,329.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 85 th full calendar month after the Commencement Date.
(i) Beginning with the 97 th full calendar month after the Commencement Date through the 108 th full calendar month after the Commencement Date: at the annual rate of $1,622,913.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 97 th full calendar month after the Commencement Date.
(j) Beginning with the 109 th full calendar month after the Commencement Date through the 120 th full calendar month after the Commencement Date: at the annual rate of $1,663,485.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 109 th full calendar month after the Commencement Date.
(k) Beginning with the 121 st full calendar month after the Commencement Date through the 132 nd full calendar month after the Commencement Date: at the annual rate of $1,705,073.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 121 st full calendar month after the Commencement Date.
(l) Beginning with the 133 rd full calendar month after the Commencement Date through the 144 th full calendar month after the Commencement Date: at the annual rate of $1,747,699.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 133 rd full calendar month after the Commencement Date.
(m) Beginning with the 145 th full calendar month after the Commencement Date through the 156 th full calendar month after the Commencement Date: at the annual rate of $1,791,392.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 145 th full calendar month after the Commencement Date.
(n) Beginning with the 157 th full calendar month after the Commencement Date through the 168 th full calendar month after the Commencement Date: at the annual rate of $1,836,177.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 157 th full calendar month after the Commencement Date.
(o) Beginning with the 169 th full calendar month after the Commencement Date through the 180 th full calendar month after the Commencement Date: at the annual rate of $1,882,081.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 169 th full calendar month after the Commencement Date.
(p) Beginning with the 181 st full calendar month after the Commencement Date through the 192 nd full calendar month after the Commencement Date: at the annual rate of $1,929,133.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 181 st full calendar month after the Commencement Date.
(q) Beginning with the 193 rd full calendar month after the Commencement Date through the 204 th full calendar month after the Commencement Date: at the annual rate of $1,977,361.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 193 rd full calendar month after the Commencement Date.
(r) Beginning with the 205 th full calendar month after the Commencement Date through the 216 th full calendar month after the Commencement Date: at the annual rate of $2,026,797.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 205 th full calendar month after the Commencement Date.
(s) Beginning with the 217 th full calendar month after the Commencement Date through the 228 th full calendar month after the Commencement Date: at the annual rate of $2,077,465.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 217 th full calendar month after the Commencement Date.
(t) Beginning with the 229 th full calendar month after the Commencement Date through the 240 th full calendar month after the Commencement Date: at the annual rate of $2,129,402.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 229 th full calendar month after the Commencement Date.
(u) During the first Extension Term, the annual Fixed Rent payable shall be as follows:
|
(i) |
Beginning with the 241 st full calendar month after the Commencement Date through the 252 nd full calendar month after the Commencement Date: at the annual rate of $2,182,637.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 241 st full calendar month after the Commencement Date. |
|
|
|
|
(ii) |
Beginning with the 253 rd full calendar month after the Commencement Date through the 264 th full calendar month after the Commencement Date: at the annual rate of $2,237,203.00, 1/12 of which shall be payable in advance on the |
|
|
first day of each month, commencing with the 253 rd full calendar month after the Commencement Date. |
|
|
|
|
(iii) |
Beginning with the 265 th full calendar month after the Commencement Date through the 276 th full calendar month after the Commencement Date: at the annual rate of $2,293,133.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 265 th full calendar month after the Commencement Date. |
|
|
|
|
(iv) |
Beginning with the 277 th full calendar month after the Commencement Date through the 288 th full calendar month after the Commencement Date: at the annual rate of $2,350,461.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 277 th full calendar month after the Commencement Date. |
|
|
|
|
(v) |
Beginning with the 289 th full calendar month after the Commencement Date through the 300 th full calendar month after the Commencement Date: at the annual rate of $2,409,223.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 289 th full calendar month after the Commencement Date. |
|
|
|
(v) |
|
During the second Extension Term, the annual Fixed Rent payable shall be as follows: |
|
|
|
|
(i) |
Beginning with the 301 st full calendar month after the Commencement Date through the 312 th full calendar month after the Commencement Date: at the annual rate of $2,469,454.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 301 st full calendar month after the Commencement Date. |
|
|
|
|
(ii) |
Beginning with the 313 th full calendar month after the Commencement Date through the 324 th full calendar month after the Commencement Date: at the annual rate of $2,531,190.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 313 th full calendar month after the Commencement Date. |
|
|
|
|
(iii) |
Beginning with the 325 th full calendar month after the Commencement Date through the 336 th full calendar month after the Commencement Date: at the annual rate of $2,594,470.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 325 th full calendar month after the Commencement Date. |
|
|
|
|
(iv) |
Beginning with the 337 th full calendar month after the Commencement Date through the 348 th full calendar month after the Commencement Date: at the annual rate of $2,659,331.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 337 th full calendar month after the Commencement Date. |
|
(v) |
Beginning with the 349 th full calendar month after the Commencement Date through the 360 th full calendar month after the Commencement Date: at the annual rate of $2,725,815.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 349 th full calendar month after the Commencement Date. |
|
|
|
(w) |
|
During the third Extension Term, the annual Fixed Rent payable shall be as follows: |
|
|
|
|
(i) |
Beginning with the 361 st full calendar month after the Commencement Date through the 372 nd full calendar month after the Commencement Date: at the annual rate of $2,793,960.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 361 st full calendar month after the Commencement Date. |
|
|
|
|
(ii) |
Beginning with the 373 rd full calendar month after the Commencement Date through the 384 th full calendar month after the Commencement Date: at the annual rate of $2,863,809.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 373 rd full calendar month after the Commencement Date. |
|
|
|
|
(iii) |
Beginning with the 385 th full calendar month after the Commencement Date through the 396 th full calendar month after the Commencement Date: at the annual rate of $2,935,404.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 385 th full calendar month after the Commencement Date. |
|
|
|
|
(iv) |
Beginning with the 397 th full calendar month after the Commencement Date through the 408 th full calendar month after the Commencement Date: at the annual rate of $3,008,789.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 397 th full calendar month after the Commencement Date. |
|
|
|
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(v) |
Beginning with the 409 th full calendar month after the Commencement Date through the 420 th full calendar month after the Commencement Date: at the annual rate of $3,084,009.00, 1/12 of which shall be payable in advance on the first day of each month, commencing with the 409 th full calendar month after the Commencement Date. |
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Security Deposit Amount : One years Fixed Rent, subject to the provisions set forth in paragraphs 5 and 25.
Landlord Address for Payment by wire transfer to :
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JPMorgan Chase Bank |
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ABA # 021000021 |
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Account Name: iStar Garden City LLC/ iStar Finance Sub V LLC/ |
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Property Account |
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Acct # 230-329667 |
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Tenant Address : |
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c/o AAR CORP. |
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One AAR Place |
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1100 North Wood Dale Road |
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Wood Dale, Illinois 60191 |
LEASE AGREEMENT
Between
iSTAR GARDEN CITY LLC,
as Landlord
and
AAR ALLEN SERVICES, INC.,
as Tenant
Dated as of October 3, 2003
7
THIS LEASE AGREEMENT, is made and entered into as of the date set forth in the Basic Lease Information (this lease agreement, together with all amendments and supplements hereto, this Lease ), by and between iSTAR GARDEN CITY LLC, a Delaware limited liability company with offices c/o i Star Financial Inc., 1114 Avenue of the Americas, 27th Floor, New York, New York 10036 (together with any successor or assigns, hereinafter called the Landlord ) and AAR ALLEN SERVICES, INC., an Illinois corporation, having an address at c/o AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191 (together with any successor or assign permitted by this Lease, hereinafter collectively called the Tenant ).
Capitalized terms used herein shall have the following meanings for all purposes of this Lease and shall be equally applicable to both the singular and plural forms of the terms herein defined.
Additional Rent means all amounts, liabilities and obligations other than Fixed Rent which Tenant assumes or agrees to pay under this Lease to Landlord or others.
Affiliates means Persons (other than individuals) controlled by, controlling, or under common control with Tenant or Guarantor.
Alternative Credit Rating Agency means if either or both of S & P and Moodys no longer exist or no longer assign Credit Ratings, such other nationally recognized statistical credit rating agency designated by Landlord, acting in its sole discretion.
Basic Lease Information means the page(s) preceding this Lease which are hereby incorporated by reference.
Business Days means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are closed.
Casualty shall mean any damage or destruction caused to any Site by any reason, including fire.
Casualty Repair is defined in paragraph 10 of this Lease.
Casualty Threshold is defined in paragraph 10 of this Lease.
Claims shall mean Liens (including lien removal and bonding costs) liabilities, obligations, damages, losses, demands, penalties, assessments, payments, fees of Mortgagee, fines, claims, actions, suits, judgments, settlements, costs, expenses and disbursements (including legal fees incurred and expenses and costs of investigation and environmental remedial action) of any kind and nature whatsoever.
Commencement Date is defined and shall have the meaning specified in the Basic Lease Information.
Control (including with correlative meanings, the terms controlling, controlled by and under common control with) means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contracts or otherwise.
Corporate Control Event means any of the following: (i) a merger or consolidation of Tenant or Guarantor with another entity, (ii) the sale of all or substantially all the assets of Tenant or Guarantor to any party, (iii) any one Person acquiring 50% or more of publicly traded common stock, voting securities or economic benefits and burdens (including distributions) of Tenant or Guarantor within any twelve month period, or (iv) a change in 50% or more of Tenants or Guarantors Board of Directors in any 12 month period.
Corporate Control Test Dates means both (a) the date which is ninety (90) days following the public announcement of a Corporate Control Event and (b) the date which is sixty (60) days following the consummation of a Corporate Control Event.
Credit Rating means the senior unsecured debt rating issued by S&P and Moodys or if either or both no longer exist or no longer issue ratings then, for either or both as so applicable, an Alternative Credit Rating Agency. All references to specific levels of a Credit Rating mean such rating with a stable or positive outlook, but not a negative outlook or on watch associated with such rating.
Environmental Laws is defined in paragraph 26(b) of this Lease.
Equipment means the equipment listed on Exhibit B .
Event of Default is defined in paragraph 15 of this Lease.
Existing Credit Rating means Guarantors Credit Rating as of the date which is the earlier to occur of one week prior to the public announcement of a Corporate Control Event or one week prior to the occurrence of a Corporate Control Event.
Extension Terms is defined in paragraph 4(b) of this Lease.
Fixed Rent is defined in paragraph 5(a) of this Lease.
Guarantor means AAR CORP., a Delaware corporation, together with any successor or assign permitted by this Lease.
Guaranty means that certain Guaranty dated as of the date of this Lease from Guarantor to Landlord, pursuant to which, among other things, Guarantor unconditionally guarantees the payment and performance of Tenants obligation under the Lease, all upon the terms and subject to the conditions set forth therein, as such Guaranty is amended, modified or restated from time to time.
Imposition means the various taxes and other charges referred to in paragraph 6 of this Lease and the present and future governmental laws and regulations more specifically described in paragraph 6(b) of this Lease.
Improvements means all of the buildings, structures, improvements, equipment, and all building fixtures therein (including parking areas, and driveways) now or hereafter located on the Land and generally described on Exhibit A-2 hereto, other than and specifically excluding Tenants Trade Fixtures.
The words include , includes , including and any other derivation of include means including but not limited to unless specifically set forth to the contrary.
Indemnified Partner is defined in paragraph 26(c) of this Lease.
Initial Appraiser is defined in Exhibit E of this Lease.
Initial Valuation is defined in Exhibit E of this Lease.
Investment Grade Criteria means Tenant or Guarantor has a Credit Rating of either BBB- or higher from S&P or Baa3 or higher from Moodys, (or an approximately equivalent Credit Rating from an Alternative Credit Rating Agency, as applicable) in each case for the immediately preceding six (6) consecutive calendar months.
Issuer is defined in paragraph 5(d)(iii) of this Lease.
Land means the title and interest of Landlord in and to the two (2) parcels of real estate described on Exhibit A-1 hereto, and any land lying in the bed of any existing dedicated street, road or alley adjoining thereto, all strips and gores adjoining thereto, and all rights, ways, easements, privileges and appurtenances thereunto belonging, including all of Landlords right, title, and interest in and to all other property rights, tangible or otherwise, arising out of or connected with Landlords ownership thereof, but none of the Improvements thereon.
Landlord is defined in the first paragraph of this Lease.
Lease is defined in the first sentence of this Lease.
Lease Expiration Date is defined and shall have the meaning specified in the Basic Lease Information.
Legal Requirements is defined in paragraph 12 of this Lease.
Letter of Credit is defined in paragraph 5(d)(iii) of this Lease
Lien shall mean any lien, mortgage, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating
a security interest, including any arising under any conditional sale agreement, capital lease or other title retention agreement.
Moodys means Moodys Investors Services, Inc. and its successors.
Mortgage shall mean a mortgage, deed to secure debt, deed of trust or other security instrument of like nature or any ground or underlying lease or other document of like nature on all or any portion of the Premises given by Landlord to the Mortgagee.
Mortgagee shall mean any holder of a Mortgage with respect to the Premises or any part thereof.
Net Casualty Proceeds shall mean the compensation and/or insurance payments (whether received from a third party insurance company or from Tenant because it has self-insured) net of the reasonable expenses of collecting such amounts incurred by Landlord, any Mortgagee, Tenant, and received by any Mortgagee, Landlord or Tenant in respect of any portion of the Premises by reason of and on account of a fire or other casualty.
Other Taxes is defined in paragraph 6(b) of this Lease.
Overdue Rate means the greater of: (x) twelve percent (12%) per annum or (y) the sum of five percent (5%) plus the prime interest rate as reported from time to time in The Wall Street Journal , but in any event, if lower, the maximum annual interest rate allowed by law for business loans (not primarily for personal, family or household purposes); provided, however, if The Wall Street Journal is no longer in existence or ceases to publish such information, Landlord shall use the prime interest rate as reported in a comparable publicly available publication selected by Landlord in its sole discretion.
Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization, or government or governmental authority, agency or political subdivision thereof.
Permitted Encumbrances means:
Permitted Investments shall mean any one or more of the following obligations or securities having: (a) a predetermined fixed dollar of principal due at maturity that cannot vary or change; (b) bearing interest that may either be fixed or variable but which is tied to a single interest rate index plus a single fixed rate spread (if any) and move proportionately with that index; and (c) having the required ratings, if any, provided for in this definition:
Premises is defined in paragraph 2(a) of this Lease.
Primary Term is defined in paragraph 4(a) of this Lease.
Proceeds Trustee shall mean a federally insured bank or trust company designated by Landlord, subject to the prior written approval of Tenant, such approval not to be unreasonably withheld, delayed, or conditioned; provided, however, if a Mortgage encumbers the Premises, the Mortgagee thereunder may, at its option, be appointed Proceeds Trustee for so long as such Mortgage remains outstanding and such Mortgagee does not control Landlord or is not controlled by or under common control with Landlord.
Property Taxes is defined in paragraph 6(a) of this Lease.
Rent means Fixed Rent and Additional Rent.
Restoration Fund is defined in paragraph 10 of this Lease.
S&P means Standard & Poors Rating Service and its successors or assigns.
Security Deposit is defined in paragraph 5(d) of this Lease.
Security Deposit Amount is defined and shall have the meaning specified in the Basic Lease Information.
Site Assessments is defined in paragraph 26 of this Lease.
Site Reviewers is defined in paragraph 26 of this Lease.
Subordination, Non-Disturbance and Attornment Agreement is defined in paragraph 17(a) of this Lease.
Tenant is defined in the first paragraph of this Lease.
Tenants Trade Fixtures means all personal property of Tenant in or on the Premises, affixed or not, which is not necessary for the operation of the Improvements, including tire racks and handling equipment, pallets, fork lift trucks, lift racks, tools, office computers, and other
equipment or machines owned or leased from/by the Tenant, and specifically excludes the Equipment.
Term means the Primary Term, together with each Extension Term when Tenant has exercised or is deemed to have exercised its option related to such Extension Term.
Termination Date is defined in paragraph 14 of this Lease.
Third Appraiser is defined in Exhibit E of this Lease.
Third Valuation is defined in Exhibit E of this Lease.
Transferee is defined in paragraph 5(d)(vi) of this Lease.
Treasury Rate means the yield to maturity of a debt obligation of the United States Treasury having a maturity date closest to but not earlier than the then-existing remaining Term of the Lease (excluding any then-unexercised options for any Extension Terms) and, if more than one have been issued with such maturity date, then using the debt obligation first issued on or closest to the date of any termination by Landlord under this Lease.
Underground Tanks is defined in paragraph 26(f) of this Lease.
Valuation Notice is defined in Exhibit E of this Lease.
Valuation Period is defined in Exhibit E of this Lease.
Tenant shall, subject to applicable zoning restrictions and any recorded covenants or restrictions in the public records upon the Commencement Date, use and occupy the Premises, only for warehousing, distribution, fulfillment, light assembly, repair, overhaul, packaging, light manufacturing, general offices, and any other lawful purposes which are both associated and related thereto (including the following ancillary uses: ATM machines, cafeteria/food service); provided, however, except for the recordation of any Mortgage and any replacements, renewals, amendments, consolidations, modifications, extensions or refinancing thereof or as otherwise required by governmental order, from and after the Commencement Date, without first having obtained Tenants prior written consent which may be withheld or granted in Tenants sole and absolute discretion, Landlord shall not record or otherwise take any voluntary action to subject the Premises or Land to any additional covenants, restrictions, easements, or other encumbrances of record or otherwise, or any rezoning of any Site from the zoning classifications presently in existence as of the Commencement Date. Tenant shall not use, suffer or permit the Premises, or any portion thereof, to be used by Tenant, any third party or the public, as such, without restriction or in such manner as might adversely affect Landlords title to or interest in the Premises, or in such manner as might make possible a claim or claims of adverse possession by the public, as such, or third Persons, or of implied dedication of the Premises, or any portion thereof.
Tenant shall, at Tenants sole cost and expense, supply the Premises with electricity, heating, ventilating and air conditioning, water, natural gas, lighting, replacement for all lights, restroom supplies, telephone service, window washing, security service, janitor, pest control and disposal services (including hazardous and biological waste disposal), and such other services as Tenant determines to furnish to the Premises. Landlord shall not be in default hereunder or be liable for any damage or loss directly or indirectly resulting from, nor shall the Fixed Rent or Additional Rent be abated or a constructive or other eviction be deemed to have occurred by reason of, the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, any failure to furnish or delay in furnishing any such services, whether such failure or delay is caused by accident or any condition beyond the control of Landlord or Tenant or by the making of repairs or improvements to the Premises, or any limitation, curtailment, rationing or restriction on use of water, electricity, gas or any form of energy serving the Premises, whether such results from mandatory governmental restriction or voluntary compliance with governmental guidelines. Tenant shall pay the full cost of all of the foregoing services and all other utilities and services supplied to the Premises as Additional Rent.
Landlord may, but is not required to, after five (5) Business Days notice to Tenant (except in the case of emergency, in which case Tenant shall be given notice contemporaneously with entry), enter the Premises and make such repairs, alterations, improvements, additions, replacements or maintenance as Landlord deems necessary to cure any Event of Default of Tenant hereunder which remains uncured after the expiration of any notice and cure period provided under this Lease, as applicable, in a diligent fashion, and Tenant shall pay Landlord as Additional Rent forthwith (and in any event within thirty (30) days) after being billed for same by Landlord the cost thereof plus an administrative fee of five percent (5%) of such cost, which bill shall be accompanied by reasonably supporting documentation. Such amounts shall bear interest at the Overdue Rate from the date of expenditure by Landlord to the date of repayment by Tenant at the Overdue Rate.
If the Premises is damaged by fire or other casualty during the Term of this Lease, Tenant shall (a) repair such damage and restore the Premises to substantially the same or better condition as existed before the occurrence of such fire or other casualty using materials of the same or better grade than that of the materials being replaced (herein, a Casualty Repair ) and this Lease shall remain in full force and effect. Such repair and replacement by Tenant shall be done in accordance with paragraph 23 and the standards of paragraph 9 and Tenant shall, at its expense, obtain all permits required for such work. An architect or engineer selected by Landlord shall review, at Tenants expense, all plans and specifications and all draw requests hereunder. In no event shall Fixed Rent or Additional Rent abate, nor shall this Lease terminate by reason of such damage or destruction. Provided that no Event of Default by Tenant shall then exist under this Lease (and no event has occurred which, with the passage of time, the giving of notice, or both, would constitute an Event of Default), and provided Tenant has: (i) delivered to Landlord plans and specifications and a budget for such Casualty Repair (all of which Landlord shall have approved), and (ii) deposited with Landlord or the Proceeds Trustee cash in the sum equal to the excess, if any, of the total cost set forth in such approved budget over the amount of insurance proceeds received on account of such casualty, then to the extent such proceeds are available to Landlord from Mortgagee, Landlord shall make available to Tenant all insurance proceeds actually received by Landlord on account of such casualty, for application to the costs of such approved repair and restoration, as set forth below.
For all Casualty Repairs, the following apply:
As used herein the Casualty Threshold means $250,000; provided, however, that if Tenant or Guarantor, at the time of such fire or casualty, has a Credit Rating of BBB+ or higher from S&P and Baa1 or higher from Moodys, then the Casualty Threshold shall be $1,000,000. If the Net Casualty Proceeds are less than the Credit Threshold at the time of the applicable fire or other casualty, such Net Casualty Proceeds shall be paid to Tenant to apply to the cost of restoration. If the Net Casualty Proceeds are equal to or greater than the Casualty Threshold at the time of the applicable fire or other casualty, such Net Casualty Proceeds shall be paid to the Proceeds Trustee (herein called the Restoration Fund ) for release to Tenant as restoration progresses, subject to and in accordance with paragraph 23(c). If Landlord mortgages the Premises with a Mortgage, the Mortgagee thereunder may, at its option be appointed
Proceeds Trustee for so long as such Mortgage remains outstanding and such Mortgagee does not control Landlord or is not controlled by or under common control with Landlord. Insurance proceeds shall be deposited in an interest bearing account and interest shall be distributed to Tenant upon completion of said installation, repair, replacement or rebuilding, provided no default has occurred and is continuing hereunder. All checks drawn on said account shall be signed by the Proceeds Trustee. Insurance proceeds shall be disbursed to Tenant by the Proceeds Trustee under the following procedure:
Tenant shall throughout the Term promptly comply or cause compliance with or remove or cure any violation of any and all present and future laws including the Americans with Disabilities Act of 1990, as the same may be amended from time to time, ordinances (zoning or otherwise), orders, rules, regulations and requirements of all Federal, State, municipal and other governmental bodies having jurisdiction over the Premises and the appropriate departments, commissions, boards and officers thereof, and the orders, rules and regulations of the Board of Fire Underwriters where the Premises are situated, or any other body now or hereafter constituted exercising lawful or valid authority over the Premises (collectively, Legal Requirements ), or any portion thereof, or the sidewalks, curbs, roadways, alleys or entrances adjacent or appurtenant thereto, or exercising authority with respect to the use or manner of use of the Premises, or such adjacent or appurtenant facilities, and whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall be presently within the contemplation of Landlord or Tenant or shall involve any change in governmental policy, or require structural or extraordinary repairs, alterations or additions by Tenant and irrespective of the amount of the costs thereof. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants, if any, running with the land or hereafter created by Tenant or consented to, in writing, by Tenant or requested, in writing, by Tenant. Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises and required to be obtained and maintained by Tenant under the terms of paragraph 11 hereof and shall comply with all development permits issued by governmental authorities issued in connection with development of the Premises; provided, however, Landlord agrees, upon request of Tenant, to sign promptly and without a charge therefor (except as provided in the final sentence of this subparagraph) any applications or filings (1) for such licenses and permits as may be required by Legal Requirements for the conduct, operation or restoration of the Premises and the business to be conducted therein in accordance with the terms hereof, and (2) the maintenance of the existing zoning for each Site to continue to permit Tenants use thereof, in both cases where the signature of Landlord is required by Legal Requirements in force at the time. All costs incurred by Landlord in connection with obtaining any such licenses and permits and zoning matters shall be borne by Tenant.
If Tenant shall at any time fail to pay any Imposition in accordance with the provisions of paragraphs 6 or 26, or to take out, pay for, maintain and deliver any of the insurance policies or certificates of insurance provided for in paragraph 11, or shall fail to make any other payment or perform any other act on its part to be made or performed hereunder, then Landlord, after five business (5) days prior written notice to Tenant (or without notice in situations where Landlord determines that delay is likely to cause harm to Landlords interest in the Premises), and without waiving or releasing Tenant from any obligation of Tenant contained in this Lease, may, but shall be under no obligation to do so,
Landlord may enter upon the Premises for any such cure purpose set forth in this paragraph 12 and take all such action in or on the Premises as may be necessary therefor pursuant to this paragraph 12. All sums, reasonable under the circumstances, actually so paid by Landlord and all costs and expenses, including attorneys fees, incurred by Landlord in connection with the performance of any such act, together with interest thereon at the Overdue Rate and an administrative fee equal to five percent (5%) of all such costs and expenses, shall be paid by Tenant to Landlord on demand and submission of reasonable evidence of such expenditures. Landlord shall not be limited in the proof of any damages which Landlord may claim against Tenant arising out of or by reason of Tenants failure to provide and keep in force insurance as aforesaid, to the amount of the insurance premium or premiums not paid or incurred by Tenant, and which would have been payable upon such insurance, but Landlord shall also be entitled to recover, as damages for such breach, the uninsured amount of any loss, damages, costs and expenses of suit, including attorneys fees, suffered or incurred by reason of damage to or destruction of the Premises, or any portion thereof or other damage or loss which Tenant is required to insure against hereunder, occurring during any period when Tenant shall have failed or neglected to provide insurance as aforesaid.
If less than substantially all of the Premises shall be taken for public or quasi-public purposes, Tenant will promptly, at its sole cost and expense, restore, repair, replace or rebuild the improvements so taken in conformity with the requirements of paragraph 9 as nearly as practicable to the condition, size, quality of workmanship and market value thereof immediately prior to such taking, without regard to the adequacy of any condemnation award for such purpose. There shall be no abatement of Rent during such period of restoration. In performing its obligations, Tenant shall be entitled to all condemnation proceeds available to Landlord for restoration or repair of the Premises under the same terms and conditions for disbursement set forth for casualty proceeds in paragraph 10 hereof, including such proceeds being made available by Mortgagee. Tenant shall, at its sole cost and expense, negotiate and, if necessary, litigate, the amount of the award, and Landlord shall have the right to participate in such process, and if Tenant fails to diligently prosecute such efforts, Landlord may take control of the process. Any condemnation proceeds in excess of the amounts as are made available to Tenant for restoration or repair of the Premises, shall be the sole and exclusive property of Landlord. Tenant shall have the right to participate in condemnation proceedings with Landlord, and shall be entitled to receive any award made by the condemning authority in respect of business loss or, if available, business relocation and any other claim permitted by law which does not, in any such case, diminish Landlords recovery.
If all or substantially all of the Premises shall be taken for public or quasi-public purposes, and if Tenant determines that such event has rendered the Premises unavailable for use or unsuitable for restoration for continued use and occupancy in Tenants business, then Tenant, in lieu of rebuilding as contemplated by paragraph 13, shall, not later than 90 days after such occurrence (including a final determination of the condemnation award associated therewith), deliver to Landlord (i) notice of its intention to terminate this Lease on a date occurring not more than 180 days nor less than 90 days after such notice (the Termination Date ), (ii) a certificate by the president or a vice president of Tenant describing the event giving rise to such termination, stating that such event has rendered the Premises unavailable for use or unsuitable for restoration for continued use and occupancy in Tenants business and that such termination will not violate any operating agreement or covenant then in effect, and (iii) an irrevocable offer to purchase any remaining portion of the Premises and the related condemnation award at a price equal to the greater of (x) $14,800,000.00 plus any prepayment premium or breakage fees charged by Mortgagee, or (y) the fair market value (as determined in accordance with Exhibit E ) of the Premises, considered as encumbered by this Lease including assuming all Extension Terms have been exercised by Tenant and considered as not having been the subject of a condemnation. Notwithstanding the foregoing, in no event shall the final determination of the condemnation award exceed $16,280,000.00. Landlord shall accept or reject such offer by notice given to Tenant not later than thirty (30) days after receipt of Tenants notice, and if Landlord fails to act, it shall be deemed to have accepted the offer. If Landlord shall have accepted such offer or is deemed to have accepted such offer, (1) on the Termination Date, Landlord shall convey by special or limited warranty deed to Tenant any remaining portion of the Premises in accordance with paragraph 29, along with the right to receive any related condemnation award to which Landlord is entitled, (2) this Lease shall no longer apply to the Premises as of the Termination Date, except for liabilities which accrued prior thereto related to the Premises, (3) Landlord and Tenant shall execute a termination to this Lease confirming the foregoing, which termination shall be prepared by or on behalf of Landlord, and (4) Tenant shall pay all of Landlords costs and expenses (including attorneys fees and expenses) related to all of the foregoing. If Landlord rejects such offer, as of the Termination Date, (1) this Lease shall no longer apply to the Premises, except for liabilities which accrued prior thereto related to the Premises, (2) Landlord and Tenant shall execute a termination of this Lease confirming the foregoing, which termination shall be prepared by or on behalf of Landlord, and (3) Tenant shall pay all of Landlords costs and expenses (including attorneys fees and expenses) related to all of the foregoing.
The occurrence of any one or more of the following events ( Event of Default ) shall constitute a breach of this Lease by Tenant:
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Landlord may treat the occurrence of any one or more of the foregoing Events of Default as a breach of this Lease. For so long as such Event of Default continues, Landlord, at its option and with or without notice or demand of any kind to Tenant or any other Person, may have any one or more of the remedies provided in this Lease, in addition to all other remedies and rights provided at law or in equity.
Upon the occurrence of an Event of Default, Landlord shall, in addition to, and not in derogation of any remedies for any preceding breach, with or without notice of demand (except as otherwise expressly provided herein) and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Event of Default have all of the following remedies available:
Landlord, Mortgagee, and their respective designees, shall have the right to enter the Premises, and any part of the Premises, at any time during normal business hours and any part of the Premises on five (5) Business Days advance notice and to inspect the same, post notices of non-responsibility, monitor construction, perform appraisals, perform engineering studies, and during the last twenty four (24) months of the Term or at any time after an Event of Default, exhibit the Premises to prospective purchasers and mortgagees, and examine Tenants books and records pertaining to the Premises, insurance policies, certificates of occupancy and other documents, records and permits in Tenants possession with respect to the Premises all of which shall be customary and adequate and reasonably satisfactory to Landlord.
Notices, statements, demands, or other communications required or permitted to be given, rendered or made by either party to the other pursuant to this Lease or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this Lease) and shall be deemed to have been properly given, rendered or made, when received by overnight delivery or overnight courier delivery (or, if such delivery is refused, upon the date that delivery would have occurred but for such refusal) or facsimile transmission (with electronic confirmation therefor) with a confirmation copy of the entire original transmittal sent by overnight delivery or by overnight courier delivery addressed to the other parties as follows:
To Landlord: |
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iStar Garden City LLC |
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1114 Avenue of the Americas |
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27 th Floor |
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New York, New York 10036 |
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Attention: Chief Financial Officer |
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Telephone: (212) 930-9400 |
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Facsimile: (212) 930-9494 |
Any party listed in this paragraph 19 may, by notices as aforesaid, designate a different address for addresses for notice, statements, demands or other communications intended for it.
If Tenant complies with the foregoing, and Tenant continues, in good faith, to contest the validity of such lien by appropriate legal proceedings which shall operate to prevent the collection thereof and the sale or forfeiture of the Premises, or any part thereof, to satisfy the same, Tenant shall be under no obligation to pay such lien until such time as the same has been decreed, by court order, to be a valid lien on the Premises. Any surplus deposit retained by Landlord, after the payment of the lien shall be repaid to Tenant. Provided that nonpayment of such lien does not cause Landlord to be in violation of any of its contractual undertakings, Landlord agrees not to pay such lien during the period of Tenants contest. However, if Landlord pays for the discharge of a lien or any part thereof from funds of Landlord, any amount paid by Landlord, together with all costs, fees and expenses in connection therewith (including attorneys fees of Landlord plus an administration fee equal to 5% of such costs and expenses), shall be repaid by Tenant to Landlord on demand by Landlord, together with interest thereon at
the Overdue Rate. Tenant shall indemnify and defend Landlord against and save Landlord and the Premises, and any portion thereof, harmless from and against all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including attorneys fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanics lien or other lien or the attempt by Tenant to discharge same as above provided.
The parties agree to promptly execute a Memorandum of Lease in recordable form and in a form mutually satisfactory to both parties.
For purposes of this paragraph 25(a), the occurrence of a Corporate Control Event, or the public announcement thereof, shall be deemed to be an assignment of this Lease which is prohibited by the preceding paragraph unless Tenant obtains Landlords and Mortgagees prior written consent as set forth above.
Notwithstanding anything to the contrary provided herein, in the event of an assignment or sublease to an entity with a Credit Rating of either BBB or higher from S&P or Baa2 or higher from Moodys, in each case for six (6) consecutive calendar months immediately preceding such assignment or sublease, as the case may be, (i) Landlords and Mortgagees prior written consent shall not be required for such assignment or sublease, as the case may be, and (ii) Guarantor shall be released from its obligations under the Guaranty.
Any of the foregoing prohibited acts without such prior written consent of Landlord and Mortgagee, if required, shall be void and shall, at the option of Landlord or Mortgagee, constitute an immediate Event of Default that entitles Landlord to all remedies available at law and pursuant to this Lease. Tenant agrees that the instrument by which any assignment or sublease to which Landlord and Mortgagee consent is accomplished shall expressly provide that the assignee or subtenant will perform all of the covenants to be performed by Tenant under this Lease (in the case of a partial assignment or a sublease, only insofar as such covenants relate to the portion of the Premises subject to such partial assignment or a sublease) as and when performance is due after the effective date of the assignment or sublease and that Landlord will have the right to enforce such covenants directly against such assignee or subtenant. Any purported assignment or sublease without an instrument containing the foregoing provisions shall be void. Unless and until expressly released by Landlord and Mortgagee, Tenant shall in all cases remain primarily liable (and not liable merely as a guarantor or surety) for the performance by any assignee or subtenant of all such covenants, as if no assignment or sublease had been made.
to be transferred or sold by Landlord pursuant to this Lease; and (iii) any net award or net proceeds received by Landlord, if applicable, not credited to Tenant against the applicable purchase price and required to be delivered by Landlord to Tenant pursuant to this Lease. Additionally, Landlord and Tenant shall execute an amendment to this Lease to reflect such change in the Premises and Rent. Tenant shall pay all charges incident to such conveyance and transfer, including Landlords counsel fees, escrow fees, recording fees, title insurance premiums and all applicable federal, state and local real estate transfer taxes or deed stamps which may be incurred or imposed by reason of such conveyance and transfer and/or by reason of the delivery of said deed and other instruments. Only upon the completion of Tenants purchase of all of the Premises, including all Sites, but not prior thereto, this Lease and all obligations hereunder shall terminate (including the obligations to pay Rent), except any obligations and liabilities of Tenant, actual or contingent, under this Lease, which (a) arose on or prior to such date or purchase or (b) survive termination of this Lease. In the event that the completion of such purchase shall be delayed other than through the sole fault of Landlord, then the applicable purchase price payable by Tenant upon the purchase of the Premises or any Site pursuant to any provisions of this Lease shall, at Landlords sole option, be determined as of the actual date of such purchase by Tenant, provided that Tenant shall have paid to Landlord all Rent due and payable hereunder to and including such date. Any prepaid Fixed Rent or other prepaid sums paid to Landlord shall be prorated as of the date the purchase is completed, and the prorated unapplied balance shall be deducted from the applicable purchase price due to Landlord.
No apportionment of any Impositions shall be made upon such purchase, Tenant being liable for payment thereof during the Term as Tenant and being liable thereafter as owner.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF , the parties have hereunto set their hands under seal on the day and year first above written.
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LANDLORD : |
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iSTAR GARDEN CITY LLC, a Delaware limited liability company |
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iStar Financial Inc., a Maryland corporation |
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/s/ BARCLAY G. JONES, III |
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Barclay G. Jones, III |
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Executive Vice President |
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TENANT : |
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AAR ALLEN SERVICES, INC.,
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/s/ TIMOTHY J. ROMENESKO |
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Timothy J. Romenesko |
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STATE OF New York |
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COUNTY OF New York |
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On the 2nd day of October in the year 2003 before me, the undersigned, personally appeared Barclay G. Jones, personally known to me or proved to me on the basis of satisfactory evidence to be the individuals whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their capacity, and that by their signatures on the instrument, the individuals, or the person or entity upon behalf of which the individual acted, executed the instrument.
/s/ SAMANTHA GARBUS |
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STATE OF Illinois |
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COUNTY OF DuPage |
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On the 2nd day of October in the year 2003 before me, the undersigned, personally appeared Timothy J. Romenesko, personally known to me or proved to me on the basis of satisfactory evidence to be the individuals whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their capacity, and that by their signatures on the instrument, the individuals, or the person or entity upon behalf of which the individual acted, executed the instrument.
/s/ JO-ELLEN KIDDIE |
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FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT |
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(Description Of The Land)
Improvements
One-story building built in 1952 and located on 8.74 acres of land with a total of approximately 145,000 square feet, 30,000 of which is office space.
Equipment
All of the fixtures, equipment, and apparatus of every nature and description, if any, located in or on the Land, necessary for the operation of the Improvements excluding Tenants Trade Fixtures.
Permitted Encumbrances
The items listed on Exhibit B of Chicago Title Insurance Company title policy number 3503-00013 effective as of October 3, 2003.
Form of Subordination, Non-Disturbance and Attornment Agreement
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the Agreement) is made as of the day of , 2003 by and between , a Delaware limited liability company, having an address at c/o iStar Financial Inc., 1114 Avenue of the Americas, 27 th Floor, New York, New York 10036 (Lender) and AAR ALLEN SERVICES, INC., an Illinois corporation, having an address at c/o AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191 (Tenant).
RECITALS:
A. Lender is the present owner and holder of a certain mortgage and security agreement ( together with any and all extensions, renewals, substitutions, replacements, amendments, modifications and/or restatements thereof, the Security Instrument) dated , 2003, given by Landlord (defined below) to Lender which encumbers the fee estate of Landlord in certain premises described in Exhibit A attached hereto (the Property) and which secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated , 2003, given by Landlord to Lender (the note together with all extensions, renewals, modifications, substitutions and amendments thereof shall collectively be referred to as the Note);
B. Tenant is the holder of a leasehold estate in a portion of the Property under and pursuant to the provisions of a certain lease dated , 2003 between iStar Garden City LLC, as landlord (Landlord) and Tenant, as tenant, (such lease, as modified and amended as set forth herein being hereinafter referred to as the Lease); and
C. Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.
AGREEMENT:
For good and valuable consideration, Tenant and Lender agree as follows:
1. SUBORDINATION . The Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease.
2. NON-DISTURBANCE . If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenants possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the Lease shall be in full force and effect and (b) Tenant shall not be in default beyond any applicable notice and cure periods under any of the terms, covenants or conditions of the Lease or of this Agreement on Tenants part to be observed or performed.
3. ATTORNMENT . If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as Purchaser), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (i) liable for the failure of any prior landlord (any such prior landlord, including Landlord, being hereinafter referred to as a Prior Landlord) to perform any obligations of Prior Landlord under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property provided such Purchaser cures any continuing default of Prior Landlord under the Lease, (ii) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, (iii) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser, (iv) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser or (v) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease, or any voluntary surrender of the premises demised under the Lease, made without Lenders or Purchasers prior
written consent prior to the time Purchaser succeeded to Landlords interest. In the event that any liability of Purchaser does arise pursuant to this Agreement or the Lease, such liability shall be limited and restricted to Purchasers interest in the Property and shall in no event exceed such interest.
4. NOTICE TO TENANT . After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments.
5. NOTICE TO LENDER AND RIGHT TO CURE . Tenant shall notify Lender of any default by Landlord under the Lease and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and shall have failed within sixty (60) days after receipt of such notice to cure such default, or if such default cannot be cured within sixty (60) days, shall have failed within sixty (60) days after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default.
6. NOTICES . All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
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AAR CORP. |
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One AAR Place |
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1100 North Wood Dale Road |
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Wood Dale, Illinois 60191 |
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Attention: Tim Romenesko |
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Telephone: (630) 227-2090 |
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Facsimile: (630) 227-2101 |
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If to Lender: |
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or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 6, the term Business Day shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.
7. SUCCESSORS AND ASSIGNS . This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns.
8. GOVERNING LAW . This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State where the Property is located.
9. MISCELLANEOUS . This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.
[NO FURTHER TEXT ON THIS PAGE]
IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written.
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LENDER: |
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TENANT: |
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AAR ALLEN SERVICES, INC., an Illinois corporation |
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The undersigned accepts and agrees to the provisions of Section 4 hereof: |
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LANDLORD: |
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iSTAR GARDEN CITY LLC,
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By: iStar Financial Inc., a Maryland corporation |
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Its: Sole Class A Member |
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Fair Market Value Determination For Premises or any Site
Determination of fair market value of the Premises under paragraph 14 of this Lease shall be made in accordance with the following procedures:
(a) Fair market value of the Premises shall be determined by the agreement of two (2) MAI appraisers (each, an Initial Appraiser ), one of which shall be selected by Landlord and the other of which shall be selected by Tenant as set forth in this Exhibit E. Tenant shall identify in writing, as part of Tenants written notice exercising the purchase option set forth in paragraph 14, the Initial Appraiser selected and retained by Tenant and specifically identify such Initial Appraisers name, address, phone number and qualifications as an appraiser. Within thirty (30) days after receipt of notice of Tenants Initial Appraiser, Landlord shall select its Initial Appraiser and notify Tenant in writing of the name, address, phone number and qualifications of such appraiser. Within five (5) days after Tenant receives from Landlord such notice of Landlords Initial Appraiser, each of Landlord and Tenant shall direct, in writing with a copy to the other party, its Initial Appraiser to work with the other partys Initial Appraiser to endeavor to determine and reach agreement upon the fair market value of the Premises, considered as encumbered by this Lease, and thereafter to deliver in writing to Landlord and Tenant within thirty (30) days (such 30-day period, the Valuation Period ) the agreed-upon fair market value (the Valuation Notice ). The costs and expenses of each Initial Appraiser shall be paid by the party selecting such Initial Appraiser. If Tenant fails to identify in writing an Initial Appraiser as required by this Exhibit E, Landlord shall identify an Initial Appraiser on behalf of Tenant; provided, however, Tenant shall be liable for the costs and expenses of such Initial Appraiser identified on Tenants behalf by Landlord as if Tenant had selected such Initial Appraiser.
(b) If the Initial Appraisers are not able to reach agreement upon the fair market value within the Valuation Period, within ten (10) days after the end of the Valuation Period each Initial Appraiser shall deliver a written notice to Landlord, Tenant, and the other Initial Appraiser setting forth (i) such Initial Appraisers valuation of the fair market value (each, an Initial Valuation ) and (ii) the name, address and qualifications of a third MAI appraiser selected jointly by the Initial Appraisers (the Third Appraiser ). The Initial Appraisers shall, in writing with a copy to Landlord and Tenant, direct the Third Appraiser (or substitute Third Appraiser) to determine a valuation of the fair market value of the Premises, considered as encumbered by this Lease, and to deliver in writing to Landlord, Tenant and the Initial Appraisers such valuation (the Third Valuation ) within twenty (20) days of the date of the written direction retaining such Third Appraiser. The fair market value shall be the arithmetic mean of (A) the Third Valuation and (B) the Initial Valuation closer to the Third Valuation. If the Third Valuation is exactly between the two Initial Valuations, then the fair market value shall be the Third Valuation. If the Initial Appraisers are unable to agree upon the designation of a Third Appraiser within the requisite time period or if the Third Appraiser selected does not make a valuation of the fair market value within twenty (20) days after being directed by the Initial Appraisers, then such Third Appraiser or a substitute Third Appraiser, as
applicable, shall, at the request of Landlord or Offeror, be appointed by the President or Chairman of the American Arbitration Association in the area in which the Premises are located which is the subject of the fair market valuation determination determined hereunder. The costs and expenses of the Third Appraiser (and substitute Third Appraiser and the American Arbitration Association, if applicable) shall be divided evenly between, and paid for by, Landlord and Tenant.
(c) All appraisers selected or appointed pursuant to this Exhibit E shall be independent qualified appraisers. Such appraisers shall have no right, power or authority to alter or modify the provisions of this Lease, and such appraisers shall determine the fair market value of the Premises, considered as encumbered by this Lease.
(d) Notwithstanding the foregoing, if Landlord and Tenant are able to agree upon a fair market value of the Premises, prior to the date on which Tenant receives notice of Landlords Initial Appraiser, Landlord and Tenant shall execute an agreement setting forth such agreed-upon fair market value of the Premises, and waiving each partys right to have the fair market value of the Premises, determined in accordance with the procedures set forth in paragraphs (a) and (b) of this Exhibit E .
Irrevocable Standby Letter Of Credit Number
LETTER OF CREDIT AMOUNT |
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EXPIRATION DATE |
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BENEFICIARY: |
APPLICANT : |
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C/O ISTAR FINANCIAL INC. |
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1114 AVENUE OF THE AMERICAS, 27 TH FLOOR |
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NEW YORK, NEW YORK 10036 |
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ATTN: CHIEF OPERATING OFFICER |
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WITH A COPY TO: |
WITH A FURTHER COPY TO: |
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ISTAR FINANCIAL INC. |
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1114 AVENUE OF THE AMERICAS, 27 TH FLOOR |
3480 PRESTON RIDGE ROAD, SUITE 575 |
NEW YORK, NEW YORK 10036 |
ALPHARETTA, GEORGIA 30005 |
ATTN: GENERAL COUNSEL |
ATTN: DIRECTOR OF LEASE |
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ADMINISTRATION |
GENTLEMEN:
WE HEREBY OPEN OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR FOR THE ACCOUNT OF THE ABOVE REFERENCED APPLICANT IN THE TOTAL AGGREGATE AMOUNT OF USD WHICH IS AVAILABLE BY PAYMENT OF YOUR DRAFT(S) AT SIGHT DRAWN ON OURSELVES.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY EXTENDED WITHOUT WRITTEN AMENDMENT FOR ONE YEAR FROM THE PRESENT OR ANY FUTURE EXPIRY DATE UNLESS AT LEAST THIRTY (30) DAYS PRIOR TO SUCH EXPIRATION DATE, WE NOTIFY YOU IN WRITING AT THE ABOVE ADDRESS THAT WE ELECT NOT TO RENEW THIS LETTER OF CREDIT FOR ANY SUCH ADDITIONAL PERIOD(S).
THIS LETTER OF CREDIT IS TRANSFERABLE IN ITS ENTIRETY. WE SHALL NOT RECOGNIZE ANY TRANSFER OF THE CREDIT UNTIL AN EXECUTED TRANSFER REQUEST IN A FORM SUITABLE TO US, BEARING CERTIFICATION BY YOUR BANKERS THAT THE SIGNATURE IS VALID, IS FILED WITH US, AND NOTICE OF THE TRANSFER ENDORSED ON THE REVERSE OF THIS CREDIT BY US.
THIS LETTER OF CREDIT IS SUCCESSIVELY TRANSFERABLE IN ITS ENTIRETY.
WE HEREBY AGREE WITH YOU THAT DRAFT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS CREDIT SHALL BE DULY HONORED IF PRESENTED TOGETHER WITH DOCUMENT(S) AS SPECIFIED ABOVE AND THE ORIGINAL OF THIS CREDIT, AT OUR OFFICE LOCATED AT , ATTENTION: STANDBY LETTER OF CREDIT DEPARTMENT ON OR BEFORE THE ABOVE STATED EXPIRY DATE OR ANY AUTOMATICALLY EXTENDED EXPIRY DATE AS PROVIDED FOR HEREIN.
DRAFT(S) DRAWN UNDER THIS CREDIT MUST SPECIFICALLY REFERENCE OUR CREDIT NUMBER.
THIS LETTER OF CREDIT IS SUBJECT TO THE 1998 INTERNATIONAL STANDBY PRACTICES, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 590 (ISP98).
SINCERELY, |
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AUTHORIZED SIGNATURE |
Approved Letter Of Credit
Good Working Order Items
Roof
Flashings
No bubbles or holes on roof surface
Drains free and clear
Skylights and flashings
All vents and stacks
Curbs
Expansion joints
Sealed and striped within last 12 months
No dips or holes
Plumbing
Bathrooms toilets, sinks, urinals
Master switch boxes
Transformers
Receptacles and switches
Lighting
Sprinkler system will have been drained, flow tested and certified by a licensed contractor within the last 6 months
Security System
Roof top unit
Controls
Filters replaced within last 6 months
All drain lines to have been cleaned within last 3 months
Repair Items
The following items noted are those more specifically described as Immediate Needs in Property Condition Assessment report prepared by Aaron & Wright Technical Services Incorporated for iStar Financial Inc. and dated September 16, 2003:
Repair severely deteriorated asphalt-paved areas and parking lot throughout the subject site. (Report Section 5.2 Paving and Curbing )
Repair deteriorated section of roofing membrane at the west side of the subject building and replace ballasted roofing at northwest and west end section of subject building. (Report Section 6.3 Roofing )
Insurance Requirements for Underground Tanks
Tenant shall, at its own expense, maintain and keep in force during the period of the Lease Agreement, the following additional coverage:
Pollution Legal Liability (with specific coverage for legal liability involving the Underground Tanks) |
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$1,000,000 per incident; $2,000,000 aggregate |
The liability policies should name Landlord and its affiliates as certificate holders and additional insureds as follows:
iStar Garden City LLC
iStar Financial Inc., and its
Subsidiaries, successors and assigns
3480 Preston Ridge Rd., Suite 575
Alpharetta, GA 30005
GUARANTY
THIS GUARANTY (as amended, modified and restated from time to time is herein called the Guaranty ) is made as of October 3, 2003, by AAR CORP., a Delaware corporation ( Guarantor ), to and for the benefit of iSTAR GARDEN CITY LLC, a Delaware limited liability company (such limited liability company, together with its successors, transferees and assigns is herein called the Landlord ).
RECITALS
A. AAR Allen Services, Inc., an Illinois corporation ( Tenant ), is entering into that certain Lease Agreement with Landlord dated as of the date hereof (such Lease Agreement as modified and restated from time to time is herein called the Lease ), relating to the property having a common address of 747 Zeckendorf Boulevard, Garden City, New York. All terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.
B. Guarantor owns all of the issued and outstanding shares in Tenant, directly or indirectly. Guarantor shall receive substantial benefits from Tenants entering into the Lease. Guarantor has received and reviewed, and hereby approves and acknowledges the terms and conditions of the Lease.
C. The execution and delivery of this Guaranty by Guarantor is a condition precedent to Landlords entering into the Lease with Tenant, and without this Guaranty, Landlord would be unwilling to enter into the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by Guarantor, and to induce Landlord to enter into the Lease with Tenant, Guarantor hereby absolutely, unconditionally and irrevocably agrees as follows:
(j) On the date hereof after giving effect to this Guaranty, the Guarantor will be Solvent. As used in this paragraph, the term Solvent means, with respect to a particular date, that on such date(A) the present fair market value (or present fair saleable value) of the assets of Guarantor is not less than the total amount required to pay the probable liabilities of Guarantor on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (B) Guarantor is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (C) Guarantor is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature and (D) Guarantor is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which Guarantor is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
If to Guarantor: |
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AAR CORP. |
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One AAR Place |
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1100 North Wood Dale Road |
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Wood Dale, Illinois 60191 |
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Attention: |
Tim Romenesko |
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Telephone: |
630.227.2090 |
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Fax: |
630.227.2101 |
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With copies to: |
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AAR CORP. |
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One AAR Place |
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1100 North Wood Dale Road |
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Wood Dale, Illinois 60191 |
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Attention: |
Legal Department |
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Telephone: |
630.227.2040 |
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Fax: |
630.227.2058 |
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and |
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Schiff Hardin & Waite |
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623 Fifth Avenue |
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New York, New York 10022 |
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Attention: |
Christine A. McGuinness, Esq. |
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Telephone: |
212.745.0831 |
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Fax: |
212.753.5044 |
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To Landlord: |
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iStar Garden City LLC |
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c/o iStar Financial Inc. |
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1114 Avenue of the Americas |
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27th Floor |
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New York, New York 10036 |
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Attention: |
Chief Financial Officer |
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Telephone: |
212.930.9400 |
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Fax: |
212.930.9494 |
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With copies to: |
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iStar Garden City LLC |
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c/o iStar Financial Inc. |
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1114 Avenue of the Americas |
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27th Floor |
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New York, New York 10036 |
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Attention: |
General Counsel |
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Telephone: |
212.930.9400 |
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Fax: |
212.930.9494 |
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and |
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Katten Muchin Zavis Rosenman |
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525 West Monroe Street |
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16th Floor |
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Chicago, Illinois 60661-3693 |
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Attention: |
Nina B. Matis, Esq. |
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Gregory P. L. Pierce, Esq. |
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Telephone: |
312.902.5541 |
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Fax: |
312.902.1061 |
or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice. Notices given in any other fashion shall be effective only upon receipt.
[EXECUTION PAGE FOLLOWS]
IN WITNESS WHEREOF, Guarantor has delivered this Guaranty in as of the date first written above.
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GUARANTOR : |
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AAR CORP. , a Delaware corporation |
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By: |
/s/ TIMOTHY J. ROMENESKO |
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Name: |
Timothy J. Romenesko |
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Title: |
Vice President & Chief Financial Officer |
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STATE OF Illinois |
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COUNTY OF DuPage |
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I, Jo-Ellen Kiddie, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Timothy J. Romenesko, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that he signed, sealed and delivered the same instrument as his free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 2nd day of October, 2003.
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/s/ JO-ELLEN KIDDIE |
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Notary Public |
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My Commission expires: |
Exhibit 31.1
SECTION 302
CERTIFICATION
I, David P. Storch, President and Chief Executive Officer of AAR CORP., certify that:
1. I have reviewed this quarterly report on Form 10-Q of AAR CORP. (the registrant) for the quarterly period ending November 30, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: January 14, 2004 |
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/s/ DAVID P. STORCH |
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David P. Storch |
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President and Chief Executive Officer |
Exhibit 31.2
SECTION 302
CERTIFICATION
I, Timothy J. Romenesko, Vice President and Chief Financial Officer of AAR CORP., certify that:
1. I have reviewed this quarterly report on Form 10-Q of AAR CORP. (the registrant) for the quarterly period ending November 30, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: January 14, 2004 |
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/s/ TIMOTHY J. ROMENESKO |
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Timothy J. Romenesko |
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Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the AAR CORP. (the Company) quarterly report on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David P. Storch, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 14, 2004 |
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/s/ DAVID P. STORCH |
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David P. Storch |
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President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the AAR CORP. (the Company) quarterly report on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Timothy J. Romenesko, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 14, 2004 |
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/s/ TIMOTHY J. ROMENESKO |
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Timothy J. Romenesko |
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Vice President and Chief Financial Officer |