AAR Reports Record Sales and Earnings in 3rd Quarter
WOOD DALE, Ill., /PRNewswire/ -- AAR CORP. (NYSE: AIR) announced today record quarterly revenues and increased net income and diluted earnings per share for the Company's fiscal year 2000 third quarter, which ended February 29, 2000. It was the Company's 21st consecutive quarter of year-over-year earnings per share increases.
Sales for the period, excluding "pass through" sales as described later in this release, were $256.6 million, an increase of 12.7% from the third quarter of 1999. Net income was $11.0 million, a 6.6% increase from the same period last year and diluted earnings per share was $0.40, up 8.1%. The Company generated $11.2 million of cash from operations in the quarter. Total sales including "pass through" sales were $272.3 million for the quarter.
During the third quarter, Aircraft and Engine revenues grew 12.9% to $125.4 million, reflecting continued strength in the aircraft and engine sales and leasing businesses, partially offset by reduced sales from engine parts inventory management programs as a result of fewer shop visits at certain customer's engine overhaul facilities. Airframe and Accessories revenues were $101.8 million, an increase of 14.1% over the prior year driven by increased sales from aircraft parts inventory management programs and strength in component, landing gear and airframe maintenance. Manufacturing revenues were $29.3 million, an increase of 7.2% over the prior year as a result of increased sales of the Company's products supporting the U.S. military deployment needs.
"Our Airframe and Accessories businesses reported double digit sales growth for the first time in six quarters, reflecting new inventory management programs, improvement in our aircraft parts business, and continued strength in our aircraft maintenance, landing gear and component repair. Additionally our engine sales and leasing business continued to perform exceptionally well during the period," said President and Chief Executive Officer, David P. Storch.
The Company's consolidated gross profit margin, excluding pass through sales, declined from 18.8% to 17.6% as a result of a low margin, quick-turn aircraft transaction. Gross profit margins elsewhere throughout the Company were consistent with prior period margins. The reduction in the consolidated gross profit margin was partially offset by an improvement in S,G&A expense as a percentage of sales, resulting in an operating margin of 8.1% compared to 8.3% in the prior year.
On February 14, 2000, the Company entered into a joint venture agreement to form aerospan.com and build the industry's most comprehensive electronic marketplace for aviation products and services. AAR's partner in aerospan.com is SITA, the world's leading provider of integrated telecommunications and information solutions to the air transport industry. Leveraging SITA's global network and IT solutions capabilities and AAR's leadership in aviation supply chain management, aerospan.com will enable the 15,000 airlines, aviation/aerospace companies and other industry participants to source, buy and sell products and services online. Expected to launch in the summer of 2000, aerospan.com will provide a neutral e-commerce marketplace for the entire array of products and services used by the air transport industry and create a more efficient and better-informed global marketplace.
Pass Through Sales
In connection with certain long-term inventory management programs, the Company purchases factory new products on behalf of its customers from original equipment manufacturers. These products are purchased from the manufacturer and "passed through" to the Company's customer at the Company's cost. Previously, the Company disclosed these "pass through" sales in the notes to the consolidated financial statements and excluded these transactions from sales and cost of sales.
During the third quarter, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101 summarizing the SEC's views in applying generally accepted accounting principles to revenue recognition. As a result of SAB No. 101, the Company now believes that pass through sales should be included in sales. Prior to issuance of SAB No. 101, the Company believed that excluding pass through sales from sales was appropriate given the limited nature of the services provided for these transactions. Beginning with the third quarter 10-Q, the Company will report pass through sales on the Income Statement. This change will have no impact on net income or earnings per share.
Total sales, including pass through sales, were $272.3 million and $799.3 million for the three and nine month periods ended February 29, 2000, respectively, and $251.0 million and $783.7 million for the three and nine month periods ended February 28, 1999, respectively. As inventory management programs mature, pass through sales typically decline as the Company sources more of its customer's parts requirements with used, serviceable parts, rather than with factory new parts. The reduction in pass through sales during the current fiscal year is attributable to the maturing of the Company's existing long-term inventory management programs, as well as lower engine inputs at certain customer maintenance facilities.
AAR CORP. (NYSE: AIR) is the preeminent provider of products and value-added services to the worldwide aerospace/aviation industry. Products and services include proprietary inventory management and logistic support services, encompassing supply, repair and manufacture of spare parts and systems. Headquartered in Wood Dale, Illinois, AAR serves commercial and government aircraft fleet operators and independent service customers throughout the world.
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, depending on a variety of factors, including: implementation of information technology systems, integration of acquisitions, marketplace competition, economic and aviation/aerospace market stability and Company profitability. 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.
AAR CORP. and Subsidiaries Comparative Statement of Earnings (In thousands except per share data) Three Months Ended Nine Months Ended Feb 29/28, Feb 29/28, 2000 1999 2000 1999 (Unaudited) (Unaudited) Sales $ 256,558 $ 227,699 $ 750,537 $ 672,395 Pass through sales 15,773 23,285 48,717 111,312 Total sales 272,331 250,984 799,254 783,707 Gross profit 45,074 42,706 134,992 126,495 SG&A 24,404 23,768 72,556 70,617 Operating income 20,670 18,938 62,436 55,878 Interest expense 5,979 4,591 17,749 13,464 Interest income 959 399 1,929 536 Pretax income 15,650 14,746 46,616 42,950 Net income 10,955 10,278 32,692 29,936 Earnings Per Share-Basic $ 0.41 $0.37 $ 1.20 $1.08 Earnings Per Share-Diluted $ 0.40 $0.37 $ 1.19 $1.07 Average shares outstanding-Basic 26,942 27,535 27,178 27,606 Average shares outstanding-Diluted 27,273 27,965 27,520 28,108 Balance Sheet Highlights (In thousands except per share data)
February 29, May 31, 2000 1999 (Unaudited) (Derived from audited financial statements) Current assets $ 526,935 $ 508,186 Current liabilities 176,733 173,586 Working capital 350,202 334,600 Long-term debt 180,639 180,939 Stockholders' equity 342,482 326,035 Book value per share $ 12.70 $ 11.91 Shares outstanding 26,965 27,381 Sales By Business Activity (In thousands)
Three Months Ended Nine Months Ended February 29/28, February 29/28, 2000 1999 2000 1999 Aircraft and Engines $125,443 $111,117 $366,635 $299,457 Airframe and Accessories 101,845 89,282 294,475 279,165 Manufacturing 29,270 27,300 89,427 93,773* $256,558 $227,699 $750,537 $672,395 Pass Through Sales 15,773 23,285 48,717 111,312 $272,331 $250,984 $799,254 $783,707
includes sales from industrial products division SOURCE AAR CORP.
CONTACT: Timothy Romenesko, Vice President, Chief Financial Officer of AAR CORP., 630-227-2090, E-mail, email@example.com
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