AAR Reports Fourth Quarter and Fiscal Year 2003 Results

WOOD DALE, Ill., /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported net sales of $145.1 million, a net loss of $7.5 million, or $0.24 per share, and cash flow from operations of $22.8 million (including $8.5 million resulting from the new accounts receivable securitization program) for the fourth quarter ended May 31, 2003. Fourth quarter results include a $3.4 million after-tax impairment charge related to a reduction in the carrying value of certain engines and parts and $0.4 million in after-tax severance costs relating to the European MRO operations. Excluding the impairment charge and the severance, the net loss was $0.12 per share. For the fourth quarter of the previous fiscal year, the Company reported net sales of $147.4 million and a net loss of $2.7 million, or $0.08 per share.

For the fiscal year ended May 31, 2003, the Company reported net sales of $606.3 million and a net loss of $12.4 million, or $0.39 per share, compared to net sales of $638.7 million and a net loss of $58.9 million, or $2.08 per share, for the prior fiscal year. Excluding impairment and special charges and severance, the net loss for the 2003 fiscal year was $8.6 million, or $0.27 per share, compared to $7.2 million, or $0.26 per share, for the prior fiscal year.

"Demand for the products and services we provide to our airline customers was negatively impacted as our 4th quarter coincided with the war in Iraq and the outbreak of SARS which together dramatically reduced commercial air traffic, as evidenced by a 9.1% decline from the prior year in available seat miles during the month of May," said AAR President and CEO David P. Storch. "I am very pleased with our success in generating significant cash flow from operations as well as free cash flow in this most difficult period. Since 9/11 we had been experiencing steady revenue growth and earnings improvement. While this progress has been disrupted and airline industry conditions remain difficult, we believe that we are positioned to benefit as the industry seeks lower cost maintenance and supply solutions and as industry conditions improve. We remain committed to maintaining our low cost structure and generating cash," Storch continued.

Sales supporting U.S. Military deployment activities remained strong and increased from prior year levels, although lower than the record level achieved during the third quarter. Demand for advisory services continues to increase as aircraft owners seek assistance in protecting and remarketing aviation assets. "While we continue to see strength in our airframe maintenance operations, our other MRO businesses were negatively impacted by industry conditions. In response to the current environment, we have taken cost reduction actions which resulted in the aforementioned severance charges," said Storch.

During the fourth quarter, the Company completed a number of financing transactions to improve its liquidity position, including a new $35 million accounts receivable securitization facility with LaSalle Bank and a $30 million revolving credit facility with Merrill Lynch Capital. Additionally, the Company repaid all of its expiring bank lines during the quarter. The Company also announced the repurchase of $10 million and the exchange for new notes of $16.9 million of the 1993 7-1/4 % Notes due October 15, 2003. The $16.9 million of new notes bear interest at 8% per annum and are due ratably over 3 years commencing October 15, 2004. The balance outstanding on the Company's 1993 Notes is now $22.6 million. The Company also announced the July 1, 2003 completion of an $11 million financing secured by a mortgage on its Wood Dale, Illinois facility.

AAR (NYSE: AIR) is the leading provider of aftermarket support to the worldwide aviation/aerospace industry. Products and services include customized inventory management and logistics programs, 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 10:30 AM (CDT) on July 3, 2003. The conference call can be accessed via dial-in (1-719-457-2617; conference 460863). A replay of the call will be available (1-719-457-0820; conference code 460863) until 12 AM on July 9, 2003.

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, 2002 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 and Subsidiaries


    Comparative Statement of Operations   Three Months        Twelve Months
    (In thousands except per share data)     Ended               Ended
                                             May 31,             May 31,
                                        2003       2002      2003      2002

    Sales                             $145,129 $147,382 $606,337 $638,721
    Cost of sales                      133,291    126,793   529,279   624,873
    Gross profit                        11,838     20,589    77,058    13,848
    Gross profit margin                    8.2%      14.0%     12.7%      2.2%
    SG&A                                19,605     21,195    78,845    95,137
    Operating loss                      (7,767)      (606)   (1,787)  (81,289)
    Interest expense                     4,986      4,323    19,539    19,798
    Interest income                        787        517     1,836     2,858
    Pretax loss                        (11,966)    (4,412)  (19,490)  (98,229)
    Benefit from income taxes           (4,447)    (1,761)   (7,080)  (39,290)
    Net loss                            (7,519)    (2,651)  (12,410)  (58,939)
    Loss per share-Basic                ($0.24)    ($0.08)   ($0.39)   ($2.08)
    Loss per share-Diluted              ($0.24)    ($0.08)   ($0.39)   ($2.08)
    Average shares outstanding-Basic    31,850     31,865    31,852    28,282
    Average shares outstanding-Diluted  31,850     31,865    31,852    28,282


    Balance Sheet Highlights                       May 31,             May 31,
    (In thousands except per share data)             2003                2002

    Cash and cash equivalents                    $ 29,154 $ 34,522
    Current assets                                396,412             436,656
    Current maturities of recourse
     long-term debt                                24,000                 394
    Current maturities of non-recourse LTD*        32,527                  --
    Current liabilities (excluding
     current maturities)                          147,048             150,070
    Working capital                               192,837             286,192
    Net property, plant and equipment              94,029             102,591
    Total assets                                  686,621             710,199
    Bank lines & notes payable                     35,729              42,131
    Recourse long-term debt                       164,658             217,699
    Stockholders' equity                          294,988             310,235
    Book value per share                         $   9.26 $   9.73
    Shares outstanding                             31,850              31,870

    * On June 20, 2002 the Company purchased the equity interest in an
      aircraft joint venture from its partner for nominal consideration as
      disclosed in the Company's May 31, 2002 Form 10-K. As a result, the book
      value of the aircraft and the associated non-recourse debt were recorded
      on the Company's consolidated balance sheet. The debt is currently being
      serviced by the underlying aircraft lease.


    Sales By Business Segment         Three Months Ended   Twelve Months Ended
    (In thousands)                           May 31,              May 31,
                                          2003      2002      2003       2002

    Inventory & Logistic Services     $ 55,880 $ 61,895 $ 246,031 $ 258,067
    Maintenance, Repair & Overhaul      53,856    54,494   205,666    216,727
    Manufacturing                       28,638    25,177   119,871     99,558
    Aircraft & Engine Sales & Leasing    6,755     5,816    34,769     64,369
                                      $145,129 $147,382 $ 606,337 $ 638,721

     Note:
     Pursuant to SEC Regulation G, the Company has included the following
     reconciliation of financial measures reported on the basis of Generally
     Accepted Accounting Principles ("GAAP") to comparable financial measures
     reported on a non-GAAP basis.  The Company believes that the reported
     non-GAAP financial results are more representative of the Company's true
     operating performance as they exclude certain items.


    (In thousands, except per share data)     Three Months Ended
                                                    May 31,
                                                            Loss Per Share
                                     2003        2002       2003      2002

    GAAP net loss                 $(7,519)    $(2,651)    $(0.24)   $(0.08)
     After-tax effect of:
      Impairment charges            3,414          --       0.11        --
      Severance costs                 402          --       0.01        --
    Adjusted net loss             $(3,703)    $(2,651)    $(0.12)   $(0.08)


                                              Twelve Months Ended
                                                     May 31,
                                                            Loss Per Share
                                     2003         2002      2003      2002

    GAAP net loss                $(12,410)    $(58,939)   $(0.39)  $(2.08)
     After-tax effect of:
      Impairment charges            3,414       45,630      0.11     1.61
      Special charges                  --        6,070        --     0.21
      Severance costs                 402           --      0.01       --
    Adjusted net loss             $(8,594)     $(7,239)   $(0.27)  $(0.26)

     Free cash flow is defined as GAAP operating cash flow less capital
     expenditures for property, plant and equipment.  The Company believes
     free cash flow provides investors with important information on cash
     available for shareholders and debt payment after making capital
     investments required to support ongoing business activities.

    (In thousands)                    Three Months Ended   Twelve Months Ended
                                            May 31,               May 31,
                                        2003       2002      2003       2002

    GAAP operating cash flow        $ 22,845   $(17,777) $ 34,733   $(33,904)
     Less: Capital expenditures       (2,013)    (3,664)   (9,930)   (12,112)
    Free cash flow                  $ 20,832   $(21,441) $ 24,803   $(46,016)

SOURCE AAR CORP.


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