AAR Reports Fiscal Year 2006 Second Quarter Results
- 24% sales growth; 149% growth in pretax income
- 20% commercial sales growth; 32% defense sales growth
- Net income of $7.9 million or $0.22 per diluted share
- Continued sales growth in Europe and Asia
WOOD DALE, Ill., /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported net sales from continuing operations of $218.2 million for the second quarter of fiscal 2006, an increase of 24% compared to the prior year. Income from continuing operations was $7.9 million or $0.22 per diluted share compared to $5.0 million or $0.15 per diluted share a year ago. Prior year second quarter results included a $1.6 million or $0.05 per diluted share federal income tax benefit. Pretax income from continuing operations was $11.0 million in the second quarter compared with $4.4 million in the second quarter of last year, an increase of 149%.
A recap of our four segments is as follows:
- Aviation Supply Chain -- Sales increased 17% driven by customer acceptance of our innovative and comprehensive product offerings. During the second quarter, the Company announced an additional supply chain management program with Mesa Air Group and a contract with BAE Systems to perform component repair and overhaul services. The Company continued to make strategic investments, including assets to support the Mesa program and other inventory purchases. The Company funded the investment in the new Mesa program during the last week of the second quarter and expects revenue and income beginning in its third quarter.
- Maintenance, Repair and Overhaul -- Sales increased 73% primarily due to the success of the Indianapolis Maintenance Center and increased activity at the Company's Oklahoma facility. During the quarter the Company's MRO segment experienced a three week power outage at its Miami operation due to hurricane Wilma and incurred higher training costs associated with the integration of approximately 225 new employees. The Company estimates that the impact of the hurricane and added training costs reduced operating income by approximately $1.0 million in the quarter. The Miami operation was fully operational by the end of November, and the Company expects higher training costs to continue through the balance of the fiscal year as it grows this segment and positions this business for the future.
- Structures and Systems -- Sales increased 30% fueled by robust demand for specialized mobility products and cargo systems. In September 2005, the Company announced that it had received a $30 million pallet order from the U.S. Air Force. Shipments under this contract began in the second quarter and will continue through the balance of this fiscal year.
- Aircraft Sales and Leasing -- Sales were lower compared to the prior year due to joint venture accounting, which excludes joint venture revenues from consolidated net sales. Operating income increased due to additional deal flow in the Company's joint ventures. One of the Company's aircraft joint ventures purchased five aircraft and sold one aircraft in the quarter, bringing the total number of aircraft held in joint ventures to ten. The Company's strategy post 9/11 has been to participate in aircraft transactions through joint ventures. Additionally, the Company owns seven aircraft outside of the joint ventures, mostly acquired prior to September 11, 2001.
Sales to commercial and defense customers grew 20% and 32%, respectively, in the second quarter versus the same quarter a year ago, and sales in both Asia and Europe increased year over year. Gross profit margin increased from 16.1% to 17.4% in the quarter primarily driven by higher sales volumes. SG&A costs as a percentage of sales decreased from 11.5% to 10.8% during the quarter. While SG&A spending increased over the prior year, it declined modestly from the first quarter of fiscal 2006. Operating income margin improved from 4.7% to 6.9% year over year.
"Our investments in facilities, assets and training have positioned the Company to benefit from outsourcing trends in both the commercial and defense markets," said David P. Storch, Chairman and CEO of AAR. "As a result of our successful campaigns, our biggest challenge is executing across the enterprise, and the results show we are making progress on this front."
AAR is a leading provider of products and value-added services to the worldwide aviation/aerospace industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve airline and defense customers through four operating segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems and Aircraft Sales and Leasing. More information can be found at http://www.aarcorp.com.
AAR will hold its quarterly conference call at 10:30 a.m. CST on December 22, 2005. The conference call can be accessed by calling 866-244-4526 from inside the U.S. or 800-4363-7976 from outside the U.S. A replay of the call will be available by calling 888-266-2081 from inside the U.S. or 703-925-2533 from outside the U.S. (access code 813850). The replay will be available from 1:30 p.m. CST on December 22, 2005 until 11:59 p.m. CST on December 29, 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 Three Months Ended Six Months Ended Operations November 30, November 30, (In thousands except per 2005 2004 2005 2004 share data) Sales $218,230 $176,448 $417,818 $340,221 Cost and expenses: Cost of sales 180,240 147,976 345,146 285,224 Selling, general and administrative 23,621 20,240 47,522 40,279 Equity in earnings of joint ventures 593 8 798 8 Operating income 14,962 8,240 25,948 14,726 Gain on extinguishment of debt --- --- --- 995 Interest expense 4,507 4,227 8,629 8,691 Interest income 503 382 962 665 Income from continuing operations before income taxes 10,958 4,395 18,281 7,695 Income tax expense (benefit) 3,082 (651) 5,147 136 Income from continuing operations 7,876 5,046 13,134 7,559 Discontinued operations: Operating loss, net of tax --- (207) --- (434) Loss on disposal, net of tax --- --- --- --- Loss from discontinued operations --- (207) --- (434) Net income $7,876 $4,839 $13,134 $7,125 Share Data: Earnings (loss) per share - Basic: Earnings from continuing operations $0.24 $0.16 $0.40 $0.23 Loss from discontinued operations --- (0.01) --- (0.01) Earnings per share - Basic $0.24 $0.15 $0.40 $0.22 Earnings (loss) per share - Diluted Earnings from continuing operations $0.22 $0.15 $0.37 $0.23 Loss from discontinued operations --- (0.01) --- (0.01) Earnings per share - Diluted $0.22 $0.14 $0.37 $0.21 Average shares outstanding - Basic 33,048 32,246 33,005 32,244 Average shares outstanding - Diluted 37,137 36,412 37,073 36,311 Consolidated Balance Sheet Highlights November 30, May 31, (In thousands except per share data) 2005 2005 (Unaudited) (Derived from audited financial statements) Cash and cash equivalents $23,081 $50,338 Current assets 471,535 474,542 Current maturities of recourse LTD 16,739 2,123 Current liabilities (excluding debt accounts) 181,004 156,280 Net property, plant and equipment 72,665 71,474 Total assets 798,781 732,230 Recourse long-term debt 197,228 199,919 Total recourse debt 213,967 202,042 Total non-recourse debt 28,162 28,862 Stockholders' equity 328,334 314,744 Book value per share $9.92 $9.66 Shares outstanding 33,092 32,586 Sales By Business Segment Three Months Ended Six Months Ended (In thousands - unaudited) November 30, November 30, 2005 2004 2005 2004 Aviation Supply Chain $107,993 $92,323 $215,104 $178,169 Maintenance, Repair and Overhaul 43,257 25,022 81,229 46,303 Structures and Systems 63,817 49,194 115,177 94,142 Aircraft Sales and Leasing 3,163 9,909 6,308 21,607 $218,230 $176,448 $417,818 $340,221 Diluted Earnings Per Share Three Months Ended Six Months Ended Calculation November 30, November 30, (In thousands except per 2005 2004 2005 2004 share data) Net income as reported $7,876 $4,839 $13,134 $7,125 Add: After-tax interest on convertible debt 306 306 612 618 Net income for diluted EPS calculation $8,182 $5,145 $13,746 $7,743 Basic shares outstanding 33,048 32,246 33,005 32,244 Additional shares due to: Assumed exercise of stock options 485 562 464 463 Assumed conversion of convertible debt 3,604 3,604 3,604 3,604 Diluted shares outstanding 37,137 36,412 37,073 36,311 Diluted earnings per share $0.22 $0.14 $0.37 $0.21
SOURCE AAR CORP.
CONTACT: Timothy J. Romenesko, Vice President, Chief Financial Officer, +1-630-227-2090, firstname.lastname@example.org
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