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Press release

December 20, 2001

AAR Announces Second Quarter Results

WOOD DALE, Ill., /PRNewswire via COMTEX/ -- AAR (NYSE: AIR) today reported a net loss of $2.8 million or $0.10 per share for the second quarter ended November 30, 2001, before consideration of asset impairment and other special charges. The Company recorded after-tax charges of $51.7 million or $1.93 per share primarily related to a reduction in the carrying value of certain inventories and an increase in the allowance for bad debts. These charges were principally due to the rapid and unprecedented decline in commercial aviation activity and its impact on asset values following the events of September 11.

Including the second quarter charge, the Company reported a net loss of $54.5 million or $2.03 per share. Net sales for the second quarter were $144.9 million compared to $207.6 million in the second quarter of last year. The sales decline reflects the reduction in airline capacity as well as efforts by the Company's airline customers to conserve cash by deferring parts orders and maintenance wherever possible.

Prior to September 11, the Company was executing its plan to reduce its investment in support of older generation aircraft in line with 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 management's assessment of these and other conditions, the Company reduced the carrying value of certain of its inventory which primarily support older generation aircraft. Additionally, the Company increased its allowance for bad debts to reflect its inability to recover certain accounts receivable.

During the second quarter, the Company experienced an increase in maintenance and spares support for the U.S. military and its subcontractors, and sales increased year over year in the Manufacturing segment driven by increased demand for products supporting U.S. military requirements. However, parts distribution and redistribution activities in the Inventory and Logistic Services segment were off nearly 45% compared to a year ago. Sales to commercial airline customers in the Maintenance, Repair and Overhaul segment were also lower. Sales in the Aircraft and Engine Sales and Leasing segment reflect the completion of an aircraft sale prior to September 11, no engine sales during the period and an engine sales return from one of its customers.

"We are very focused on cash and expenses," said AAR President and CEO David P. Storch. "Since August 31, we have reduced our annual operating expenses by more than $20 million. Although we experienced savings during the second quarter, additional benefit from these cost reductions will be realized in the third and fourth quarters. During the second quarter we generated $9 million of cash from operations, ended the period with $53 million cash on hand and had available unused bank lines of $55 million. Further, we paid down $65 million of 9.5% notes which will reduce our interest expense going forward by $0.8 million annually."

Storch continued, "Although world events have had a dramatic effect on our airline customers financial performance and fleet size, the aircraft they operate require cost-effective maintenance and parts support. The Company is uniquely positioned to provide inventory and logistic services, MRO and customized manufacturing solutions for our customers' increasing cost-driven demands."

"We have experienced industry downturns before, although nothing quite as abrupt as experienced the past few months. We have taken steps to preserve and enhance the long-term value of the Company," said Storch. "While asset values have been negatively affected by current market imbalances, we believe this environment will generate attractive opportunities. We will focus on the growing military and regional markets and more highly engineered products. Although the next 6 to 12 months will be challenging, we expect a gradual improvement in air traffic, which should benefit AAR."

Significant Developments in Second Quarter
  • AAR was awarded a three-year agreement beginning in November 2001 to provide component management and repair for KLM uk Engineering's fifteen Fokker 100's.
  • AAR was selected by FedEx to design and manufacture the main deck cargo loading systems for its MD-11 freighters. Shipments will begin in Fiscal 2003.
  • AAR was awarded a contract beginning in December 2001 by Orion Power to overhaul and provide field support for five GE Frame 5 gas turbine engines.
  • AAR signed a two-year agreement beginning in January 2002 to provide engine parts support for U.S. Navy fighter aircraft.

AAR will hold its quarterly conference call at 10:30 AM (CST) on Thursday, December 20, 2001. The conference call can be accessed via dial-in (1-719-457-2633; conference code 718706). A replay of the call will be available (1-719-457-0820; conference code 718706).

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 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.

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: the impact of the events of September 11, 2001 on the economy, the aviation/aerospace industry and the Company; general economic conditions; ability to acquire inventory at favorable prices; 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. 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.

 

 

                          AAR CORP. and Subsidiaries

    Comparative Statement
     of Earnings                  Three Months Ended       Six Months Ended
    (In thousands except              November 30,            November 30,
       per share data)              2001       2000         2001      2000
                                      (Unaudited)              (Unaudited)

    Sales                         $144,889    $207,637    $347,882   $432,525
    Pass through sales                 --        3,698         --      20,580
    Total sales                    144,889     211,335     347,882    453,105
    Cost of sales*                 124,381     175,998     298,234    383,353
    Gross profit*                   20,508      35,337      49,648     69,752
    SG&A*                           20,679      23,879      44,374     48,423
    Impairment and other
     special charges                86,000         --       86,000        --
    Operating income (loss)        (86,171)     11,458     (80,726)    21,329
    Interest expense                 5,426       5,718      10,970     11,706
    Interest income                    942         245       1,689        751
    Pretax income (loss)           (90,655)      5,985     (90,007)    10,374
    Provision for income
     taxes (benefit)               (36,171)      1,707     (36,009)     2,937
    Net income (loss)              (54,484)      4,278     (53,998)     7,437
    Earnings (loss) per
     share-Basic                    ($2.03)      $0.16      ($2.01)     $0.28
    Earnings (loss) per
     share-Diluted                  ($2.03)      $0.16      ($2.00)     $0.28
    Average shares
     outstanding-Basic              26,877      26,913      26,911     26,886
    Average shares
     outstanding-Diluted            26,886      26,972      27,048     26,959

    *Before consideration of impairment and other special charges


    Balance Sheet Highlights
    (In thousands except                November 30,           May 31,
      per share data)                      2001                 2001
                                        (Unaudited)         (Derived from
                                                            audited financial
                                                               statements)

    Cash and cash equivalents             $53,129              $13,809
    Current assets                        463,917              485,856
    Net property, plant and equipment     105,513              108,907
    Current liabilities                   175,799              125,392
    Working capital                       288,118              360,464
    Total assets                          706,210              701,854
    Short-term debt                        71,162                  410
    Long-term debt                        189,733              179,987
    Stockholders' equity                  284,344              340,212
    Book value per share                   $10.58               $12.63
    Shares outstanding                     26,876               26,937


    Sales By Business Segment       Three Months Ended     Six Months Ended
    (In thousands)                     November 30,          November 30,
                                      2001      2000         2001      2000

    Inventory & Logistic Services   $55,882     $99,087    $137,068   $197,969
    Maintenance, Repair & Overhaul   55,151      63,271     111,838    124,063
    Manufacturing                    25,482      23,455      47,437     46,461
    Aircraft & Engine
     Sales & Leasing                  8,374      21,824      51,539     64,032
                                   $144,889    $207,637    $347,882   $432,525
    Pass Through Sales                  --        3,698         --      20,580
                                   $144,889    $211,335    $347,882   $453,105

SOURCE AAR CORP.


CONTACT: Timothy J. Romenesko, Vice President, Chief Financial Officer of AAR, +1-630-227-2090, tromenesko@aarcorp.com

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