AAR REPORTS FISCAL YEAR
2007 FIRST QUARTER RESULTS
- 127% growth in income from continuing operations
- 21% sales growth
- Commercial sales growth of 21%; defense sales growth of
22%
WOOD DALE, ILLINOIS (September 20, 2006) - AAR (NYSE: AIR)
today reported fiscal 2007 first quarter income from
continuing operations of $11.9 million, an increase of 127%
compared to last year. Diluted earnings per share were $0.29
compared to $0.15 in the prior year period. Net sales
increased 21% to $242.2 million as each segment of the Company
experienced double digit sales growth. Income from continuing
operations includes a net favorable after-tax impact of $0.4
million, or $0.01 per diluted share, from certain special
items which are discussed in more detail in the
segment-specific sections of this press release.
Following are highlights for each segment:
- Aviation Supply Chain - Sales increased
19% compared to last year as the Company benefited from its
expanded presence in the global markets it serves, growth in
new supply chain programs and strength in its parts
arbitrage business. Efficiency gains in inventory management
programs and recent investments in high demand products have
positioned this segment for continued strong results.
The Company recorded a $4.8 million non-cash pre-tax
($3.1 million after-tax) impairment charge to provide
additional reserves for certain inventory acquired prior to
September 11, 2001 and which was previously subject to
impairment charges. The charge was triggered by the
Company's decision to aggressively pursue the liquidation of
this inventory. The Company made this decision to recognize
the impact of persistently high fuel costs and fewer
operators on the demand for these parts, as well as to
better align human and physical resources with higher
potential opportunities in this rapidly-growing segment.
- Maintenance, Repair and Overhaul -
Sales grew 31% compared to last year reflecting the
Company's success in providing heavy maintenance and landing
gear repair to its commercial, regional and defense
customers. The new Indianapolis facility provides a platform
for additional services and continues to attract industry
attention as the Company expands its customer base and
capability. As the Company adds new base load customers and
gains efficiencies, margins in this segment are expected to
improve.
- Structures and Systems - Sales
increased 18% year-over-year attributable to increased
deliveries of products to the U.S. Department of Defense.
The Company continues to experience growth in this segment
and expects demand for mobility products to remain strong,
although margins will continue to be under pressure due to
the mix of products sold.
Today the Company announced the receipt of a $68 million
order to supply mobility products to the U.S. Air Force.
Deliveries will begin in the third quarter of this fiscal
year.
The Company expects to open a new manufacturing plant in
Goldsboro, North Carolina in November 2006 to produce cargo
systems for the Airbus A400M military transport aircraft.
Eventually, all production for our Cargo Systems division is
expected to be transferred to the new facility. The Company
also sold a non-core product line from this division for
$6.6 million in cash and recorded a $5.4 million pre-tax
($3.5 million after-tax) gain on the sale.
- Aircraft Sales and Leasing - The
Company's strategy is to build an aircraft portfolio through
its participation in joint ventures and for its own account,
while opportunistically selling aircraft. This market
continues to be very active as six aircraft were acquired
during the quarter, including two for the Company's own
account. In addition, three aircraft held in joint ventures
and one aircraft owned outright were sold. As of August 31,
2006, seventeen aircraft were held in joint ventures and
eight were owned outright.
During the quarter, the Company restructured the lease and
non-recourse debt on a wide-body aircraft originally purchased
prior to September 11, 2001. As a result of this
restructuring, the Company recorded a $2.9 million pre-tax
($1.9 million after-tax) gain on the extinguishment of debt.
Further, the Company decided to offer this aircraft for sale
and recorded a $2.9 million pre-tax ($1.9 million after-tax)
impairment charge to reduce the carrying value of the aircraft
to net realizable value. The asset and related debt have been
reclassified to current from long term.
Selling, general and administrative expenses decreased as a
percentage of sales from 12.0% to 10.7% year-over-year and
operating margins increased from 5.5% to 7.2% despite the 100
basis point negative impact due to the special items. Return
on equity improved from 6.6% to 11.1% compared to the prior
year.
Net interest expense decreased by $0.3 million
year-over-year, and the effective income tax rate increased to
30% from 28% in the first quarter of last year.
"We continue to benefit from our position as an
industry-leading provider of supply chain solutions, expanded
MRO capabilities, investment in aircraft and the design and
manufacturing of products for new applications," said David P.
Storch, Chairman, President and Chief Executive Officer of AAR
CORP.
The Company ended the quarter with $119 million in cash on
hand and announced that it closed on a $140 million senior,
unsecured revolving credit facility on August 31, 2006. This
new facility replaces the Company's $30 million secured
revolving credit facility, which has been cancelled, and its
$50 million accounts receivable securitization facility, which
will be cancelled by the end of the second quarter.
AAR is a leading provider of products and value-added
services to the worldwide aviation/aerospace industry. With
facilities and sales locations around the world, AAR uses its
close-to-the-customer business model to serve airline and
defense customers through four operating segments: Aviation
Supply Chain; Maintenance, Repair and Overhaul; Structures and
Systems and Aircraft Sales and Leasing. More information can
be found at http://www.aarcorp.com/.
AAR will hold its quarterly conference call at 10:30 a.m.
CDT on September 20, 2006. The conference call can be accessed
by calling 866-837-9789 from inside the U.S. or 703-639-1425
from outside the U.S. A replay of the call will be available
by calling 1-888-266-2081 from inside the U.S. or 703-925-2533
from outside the U.S. (access code 965630) from 1:30 p.m. CDT
on September 20, 2006 until 11:59 p.m. CDT on September 27,
2006.
This press release contains certain
statements relating to future results, which are
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 currently available to the Company, and are
subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or
those anticipated, including those factors discussed under
Item 7, entitled "Factors Which May Affect Future Results",
included in the Company's May 31, 2006 Form 10-K. Should one
or more of these risks or uncertainties materialize adversely,
or should underlying assumptions or estimates prove incorrect,
actual results may vary materially from those described. These
events and uncertainties are difficult or impossible to
predict accurately and many are beyond the Company's control.
The Company assumes no obligation to publicly release the
result of any 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. For additional
information, see the comments included in AAR's filings with
the Securities and Exchange Commission. AAR CORP. and Subsidiaries
Consolidated Statements of Operations Three Months Ended
(In thousands except per share data) August 31,
2006 2005
(Unaudited)
Sales $242,198 $199,588
Cost and Expenses:
Cost of sales 199,454 164,906
Cost of sales - impairment charges 7,652 ---
Selling, general and administrative 25,981 23,901
Gain on sale of product line 5,358 ---
Equity in earnings of joint ventures 3,041 205
Operating income 17,510 10,986
Gain on extinguishment of debt 2,927 ---
Interest expense 4,666 4,122
Interest income 1,339 459
Income from continuing operations before income
taxes 17,110 7,323
Income tax expense 5,164 2,065
Income from continuing operations 11,946 5,258
Discontinued Operations:
Operating loss, net of tax 162 ---
Net income $11,784 $5,258
Share Data:
Earnings per share - Basic:
Earnings from continuing operations $0.33 $0.16
Loss from discontinued operations 0.00 ---
Earnings per share - Basic $0.33 $0.16
Earnings per share - Diluted:
Earnings from continuing operations $0.29 $0.15
Loss from discontinued operations 0.00 ---
Earnings per share - Diluted $0.29 $0.15
Average shares outstanding - Basic 36,076 32,961
Average shares outstanding - Diluted 42,893 37,040
Consolidated Balance Sheet Highlights August 31, May 31,
(In thousands except per share data) 2006 2006
(Unaudited) (Derived from
audited
financial
statements)
Cash and cash equivalents $119,131 $121,738
Current assets 634,345 624,454
Current liabilities (excluding debt accounts) 170,713 185,499
Net property, plant and equipment 74,541 72,637
Total assets 978,803 978,819
Total recourse debt 294,623 293,624
Total non-recourse debt 30,934 27,241
Stockholders' equity 434,562 422,717
Book value per share $11.84 $11.53
Shares outstanding 36,691 36,654
Sales By Business Segment Three Months Ended
(In thousands - unaudited) August 31,
2006 2005
Aviation Supply Chain $127,516 $107,111
Maintenance, Repair & Overhaul 49,595 37,972
Structures and Systems 60,363 51,360
Aircraft Sales and Leasing 4,724 3,145
$242,198 $199,588
Diluted Earnings Per Share Calculation Three Months Ended
(In thousands except per share data) August 31,
2006 2005
(Unaudited)
Net income as reported $11,784 $5,258
Add: After-tax interest on convertible debt 491 306
Net income for diluted EPS calculation $12,275 $5,564
Diluted shares outstanding 42,893 37,040
Diluted earnings per share $0.29 $0.15
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