AAR Reports Fiscal Year 2006 First Quarter Results
- 22% sales growth; 109% income growth
- 25% commercial sales growth; 16% defense services sales growth
- 45% growth in Asia sales
WOOD DALE, ILLINOIS (September 21, 2005) - AAR (NYSE: AIR) today reported net sales from continuing operations of $199.6 million for the first quarter of fiscal 2006, an increase of 22% compared to the prior year. Income from continuing operations more than doubled to $5.3 million or $0.15 per diluted share, from $2.5 million or $0.08 per diluted share in the year ago period, which included a $1.0 million pre-tax gain on extinguishment of debt.
The sales and earnings growth for the quarter were driven by increased sales in the Aviation Supply Chain, Maintenance, Repair & Overhaul and Structures & Systems segments. Within the Aviation Supply Chain segment, sales increased 25% reflecting strong demand from our commercial and defense customers as AAR creates and provides cost-effective solutions for managing their supply chains. MRO segment sales increased 78% reflecting the commencement of operations at the Indianapolis Maintenance Center as well as increased sales at the Oklahoma maintenance facility. Structures and Systems sales increased 14% as the Company experienced stronger volumes across all businesses within this segment. Sales in the Aircraft Sales and Leasing segment were lower primarily due to joint venture accounting treatment, which excludes joint venture revenues from consolidated net sales.
"This is a great start to fiscal 2006," said David P. Storch, President and CEO of AAR. "We are seeing the benefits of the actions we have taken over the past few years to strengthen and grow the Company. Increasingly, our airline and defense customers are turning to AAR to meet their maintenance and engineering, supply chain and deployment needs."
Higher sales and operational efficiencies drove an improvement in gross profit margin from 16.2% to 17.4% year over year. Although selling, general and administrative costs increased as the Company made investments and prepared for growth, they declined as a total percentage of sales from 12.2% to 12.0%. Net interest expense was $0.5 million lower for the quarter due to lower average borrowings. The Company also made progress in its goal to improve asset performance, increasing working capital turnover from 3.0x to 3.6x. Investments in inventory primarily to support supply chain programs resulted in an operating cash outflow of $22 million for the quarter. We expect the returns from these investments to favorably impact results in future periods.
Subsequent to the Company's quarter-end, two valued customers, Delta Air Lines and Northwest Airlines, filed for bankruptcy. AAR was proactive in minimizing its exposure to these events, and the financial impact was minimal and was provided for in the first quarter. The Company continues to support both airlines by providing cost-effective solutions for their maintenance and supply requirements.
Storch added, "We made progress on many fronts. Our results were significantly stronger than last year, and we won several new programs during the quarter, including the Airbus A400M cargo system program, a contract to provide pallets to the U.S. Air Force and the United Kingdom's Royal Air Force E-3D AWACS and MESA Air Group supply chain programs, all of which should have a positive impact on future periods." Storch continued, "We are also very pleased with the progress made at our recently-opened Indianapolis Maintenance Center, as the business unit produced profitable results in the quarter."
AAR is a leading provider of diverse products and value-added services to the worldwide aviation/aerospace industry. Headquartered in Wood Dale, Illinois, with locations around the world, AAR serves commercial and government aircraft fleet operators and independent service customers by providing Aviation Supply Chain services; Maintenance; Repair and Overhaul services; Structures and Systems manufacturing and Aircraft Sales and Leasing. Further information can be found at www.aarcorp.com.
AAR will hold its quarterly conference call at 10:30 a.m. CDT on September 21, 2005. The conference call can be accessed via dial-in (1-866-219-5829). A replay of the call will be available (1-888-266-2081; access code 767240) from approximately 1:30 p.m. CDT on September 21, 2005 until 11:59 p.m. CDT on September 28, 2005.
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, 2005 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
(In thousands except per share data) Three Months Ended
August 31,
2005 2004
(Unaudited)
Sales $ 199,588 $ 163,773
Cost and Expenses:
Cost of sales 164,906 137,248
Selling, general and administrative 23,901 20,040
Equity in earnings of joint ventures 205 ---
Operating income 10,986 6,485
Gain on extinguishment of debt --- 995
Interest expense 4,122 4,463
Interest income 459 283
Income from continuing operations before
income taxes 7,323 3,300
Income tax expense 2,065 787
Income from continuing operations 5,258 2,513
Discontinued Operations:
Operating loss, net of tax --- (227)
Net income $ 5,258 $ 2,286
Share Data:
Earnings per share - Basic:
Earnings from continuing operations $ 0.16 $ 0.08
Loss from discontinued operations --- (0.01)
Earnings per share - Basic $ 0.16 $ 0.07
Earnings per share - Diluted:
Earnings from continuing operations $ 0.15 $ 0.08
Loss from discontinued operations --- (0.01)
Earnings per share - Diluted $ 0.15 $ 0.07
Average shares outstanding - Basic 32,961 32,243
Average shares outstanding - Diluted 37,040 36,198
Consolidated Balance Sheet Highlights
(In thousands except per share data) August 31, May 31,
2005 2005
(Unaudited) (Derived from
audited
financial
statements)
Cash and cash equivalents $ 24,411 $ 50,338
Current assets 462,526 474,542
Current maturities of recourse LTD 437 2,123
Current liabilities (excluding debt accounts) 164,118 156,280
Net property, plant and equipment 72,565 71,474
Total assets 757,826 732,230
Recourse long-term debt 201,288 199,919
Total recourse debt 201,725 202,042
Total non-recourse debt 28,612 28,862
Stockholders' equity 319,902 314,744
Book value per share $ 9.69 $ 9.66
Shares outstanding 33,004 32,586
Sales By Business Segment
(In thousands - unaudited) Three Months Ended
August 31,
2005 2004
Aviation Supply Chain $ 107,111 $ 85,846
Maintenance, Repair & Overhaul 37,972 21,281
Structures and Systems 51,360 44,948
Aircraft Sales and Leasing 3,145 11,698
$ 199,588 $ 163,773
Diluted Earnings Per Share Calculation
(In thousands except per share data) Three Months Ended
August 31,
2005 2004
(Unaudited)
Net income as reported $ 5,258 $ 2,286
Add: After-tax interest on convertible debt 306 313
Net income for diluted EPS calculation $ 5,564 $ 2,599
Basic shares outstanding 32,961 32,243
Additional shares due to:
Assumed exercise of stock options 475 351
Assumed conversion of convertible debt 3,604 3,604
Diluted shares outstanding 37,040 36,198
Diluted earnings per share $ 0.15 $ 0.07
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