AAR Reports Second Quarter Results - 2000
WOOD DALE, Ill., /PRNewswire/ -- AAR (NYSE: AIR) today reported diluted earnings per share of $0.16 and net income of $4.3 million for the second quarter of Fiscal 2001, which ended November 30, 2000. Sales for the quarter, excluding pass through sales, were $207.6 million. Total sales including pass through sales were $211.3 million. The Company generated $17.9 million in cash flow from operations during the quarter.
Sales and net income for the second quarter declined from $248.1 million and $10.9 million in the prior year, respectively, primarily due to lower aircraft and engine sales, engine parts sales and sales of products in support of U.S. Government rapid deployment activities.
Beginning with the fourth quarter of Fiscal 2000, the Company's results were adversely impacted by industry factors including higher fuel prices, higher interest rates, bankruptcies at certain airlines and financial pressures experienced by certain competitors. In light of this environment, the Company has reduced its investment in inventory, tightened its extension of credit and lowered expenses.
The earnings improvement over first quarter Fiscal 2001 results was principally due to continued strength in AAR's aircraft component repair businesses, improvement in its Landing Gear business, efficiencies in its engine parts supply and repair operations, and higher manufacturing margins.
"We continue to see sequential earnings improvement as we improve margins and lower expenses," said David P. Storch, AAR President and CEO. "During the quarter, the Company continued to adapt to the changing market and maintain its position as the premier supplier of products and services to the global aviation marketplace. We are encouraged by our progress navigating through this difficult period."
During the second quarter, AAR acquired substantially all of the net assets of Hermetic Aircraft International Corp, a wholly owned subsidiary of Honeywell International Inc. Hermetic, renamed AAR Hermetic, provides repair and distribution services to the North American aviation aftermarket on behalf of European aircraft component manufacturers. Sales were approximately $20 million during the most recent 12-month period prior to the acquisition.
"Hermetic has an excellent industry-wide reputation for service and technology," said Storch. "The acquisition expands our existing aircraft component services offerings to include European manufactured components sold in North America."
Other significant developments in the second quarter include the following:
AAR sold the majority of its ownership position in Aerospan.com to SITA, its partner in the e-marketplace joint venture. The sale resulted in the recovery of all of AAR's investment and a modest return that was partially redeployed to other e-business initiatives. AAR maintains a continuing interest in the success of Aerospan and expects to participate as an important supplier to and customer of the e-marketplace.
AAR was awarded a ten-year service center agreement by Honeywell as an authorized repair center for the maintenance, repair and overhaul of Honeywell environmental control systems in markets including Europe, Asia/Pacific, South America, Africa and most of the Middle East.
AAR purchased two narrow body aircraft on lease to British Airways and signed sales contracts to deliver these aircraft and one additional aircraft already in inventory during the next two quarters.
AAR was awarded a contract with Lufthansa Technik, Hamburg, Germany, one of the largest providers of aircraft-related technical services worldwide. Under terms of the contract, AAR will provide composite interior linings for twelve Boeing Business Jets (BBJ), with options for up to twenty additional linings.
On December 14, 2000, AAR and General Electric ("GE") entered into a series of agreements ("Agreements") whereby AAR ended its exclusive engine part support agreements with three GE engine repair facilities, sold to GE its interest in the Aviation Inventory Management Co. L.L.C. ("AIMCO") joint venture, dissolved the Turbine Engine Asset Management L.L.C. ("TEAM") joint venture and was named a GE preferred supplier.
"As GE's demand for certain parts declined, it became apparent that a change in the relationship was necessary. As a result of the actions taken, AAR will reduce its investment in inventory while still retaining GE as a customer," Storch said.
"Further, the anticipated benefits of the joint venture partnerships with GE were never fully realized," Storch continued. "With respect to the GE used serviceable engine parts market, AAR was a major player before the formation of the TEAM joint venture, we provided the facilities and personnel for the joint venture, and we expect to be a leader in this market going forward independent of TEAM. Regarding rotable leasing, we have identified other financial partners to replace GE in assisting us in structuring transactions for our customers."
Sales to GE under the engine parts support agreements for the last three quarters were between $10-15 million per quarter. The Company does not expect a significant change to sales in subsequent quarters as a result of the Agreements due to future sales to GE under the preferred supplier status and sales previously recorded by TEAM, an unconsolidated joint venture, which now will be recorded by the Company.
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. Further information can be found at www.aarcorp.com.
AAR will hold its quarterly conference call at 10:00 AM (CST) on Wednesday, December 20, 2000. The conference call can be accessed via dial-in (1-719-457-2621; conference code 530407). A replay of the call will be available (1-719-457-0820; conference code 530407) until 12 AM on Wednesday, December 27, 2000.
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, impact of the change in the GE relationship, 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 Three Months Ended Six Months Ended (In thousands except per share data) November 30, November 30, 2000 1999 2000 1999 (Unaudited) (Unaudited) Sales $ 207,637 $ 248,070 $ 432,525 $ 493,979 Pass through sales 3,698 12,170 20,580 32,944 Total sales 211,335 260,240 453,105 526,923 Gross profit 35,337 45,728 69,752 89,918 Selling, general & admin & other 23,879 24,469 48,423 48,152 Operating income 11,458 21,259 21,329 41,766 Interest expense 5,718 5,961 11,706 11,770 Interest income 245 282 751 970 Pretax income 5,985 15,580 10,374 30,966 Net income 4,278 10,906 7,437 21,737 Earnings Per Share-Basic $ 0.16 $0.40 $ 0.28 $0.80 Earnings Per Share-Diluted $ 0.16 $0.40 $ 0.28 $0.79 Average shares outstanding-Basic 26,913 27,199 26,886 27,296 Average shares outstanding-Diluted 26,972 27,489 26,959 27,662 Balance Sheet Highlights November 30, May 31, (In thousands except per share data) 2000 2000 (Unaudited) (Derived from audited financial statements) Current assets $ 514,749 $ 511,267 Current liabilities 189,367 163,816 Working capital 325,382 347,451 Total assets 772,941 740,998 Long-term debt 180,173 180,447 Stockholders' equity 341,264 339,515 Book value per share $ 12.67 $ 12.64 Shares outstanding 26,932 26,865 Sales By Business Activity Three Months Ended Six Months Ended (In thousands) November 30, November 30, 2000 1999 2000 1999 Aircraft and Engines $77,012 $121,217 $174,685 $241,069 Airframe and Accessories 107,170 96,586 211,379 192,753 Manufacturing 23,455 30,267 46,461 60,157 $207,637 $248,070 $432,525 $493,979 Pass Through Sales 3,698 12,170 20,580 32,944 $211,335 $260,240 $453,105 $526,923
SOURCE AAR CORP.
CONTACT: Timothy J. Romenesko, Vice President, Chief Financial Officer of AAR Corp., 630-227-2090, or firstname.lastname@example.org
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