AAR Reports Fourth Quarter and Fiscal Year 2005 Results
- Fourth quarter sales growth of 19% and income up 119%
- Annual sales growth of 16% and increase in income of 307%
- Record cash flow from operations of $51 million for the year
- Annual commercial aviation sales growth of 26%
- 47% annual sales growth in Asia; 34% in Europe
WOOD DALE, Ill., /PRNewswire-FirstCall via COMTEX/ -- AAR (NYSE: AIR) today reported fourth quarter net sales from continuing operations of $209.9 million and income from continuing operations of $5.8 million or $0.17 per diluted share. For the fourth quarter of last year, the Company reported net sales from continuing operations of $176.8 million and income from continuing operations of $2.7 million or $0.08 per diluted share. The sales growth of 19% was fueled by increases in the Company's Inventory and Logistic Services and Maintenance, Repair and Overhaul segments. Higher sales and margin improvements at several of the Company's operating units drove the 119% growth in income from continuing operations.
Fourth quarter net income included: a $2.6 million pre-tax gain on extinguishment of debt related to an aircraft debt restructuring; $1.8 million of pre-tax expenses related to stock option exercises and changes in retirement benefit plans; and a $0.9 million pre-tax charge related to the write down of an aircraft as a result of a renegotiated lease with an airline customer operating under bankruptcy protection. Combined, these special items resulted in a $0.1 million impact to fourth quarter results. The effective tax rate for the quarter was 26%, reflecting the reduced benefit of certain tax credits.
For the fiscal year ended May 31, 2005, the Company reported net sales from continuing operations of $747.8 million and income from continuing operations of $18.6 million or $0.55 per diluted share. In fiscal year 2004, net sales from continuing operations were $644.5 million, and income from continuing operations was $4.6 million or $0.14 per diluted share. This represents net sales and income from continuing operations growth for the year of 16% and 307%, respectively.
"During fiscal 2005 we saw an uptick in activity and took steps to position the Company for long-term growth in the changing aviation environment," said David P. Storch, President and CEO of AAR. "Our expanded MRO capability in Indianapolis, recently-awarded commercial and defense supply chain programs and newly-introduced engineered products should positively impact our results in future periods. However, in the near term, we remain cautious in light of the impact of high fuel costs on our airline customers and their already precarious financial condition."
Sales in the Inventory and Logistic Services segment increased 44% in the fourth quarter over the prior year. This increase is primarily attributable to the continuing recovery in the worldwide commercial aviation market and the ramp up of new supply chain programs.
In the Maintenance, Repair and Overhaul segment, sales grew 13% in the fourth quarter compared to last year. The commencement of sales activity at the Company's Indianapolis maintenance facility and increased volume in the aircraft component and landing gear businesses were the main growth drivers for this segment. Operations at the Indianapolis facility began in earnest during the fourth quarter following AAR's selection by United Airlines to be the exclusive maintenance provider for its fleet of 737 aircraft.
Sales to Asian and European customers continued to be strong, growing at 52% and 37%, respectively, in the fourth quarter and were up 47% and 34%, respectively, for the year. AAR's business in Asia benefited from expansion in the region, including recently-opened sales offices in Tokyo and Shanghai. Sales in Europe also increased as the Company introduced new and expanded inventory support programs. Company-wide, sales to commercial aviation customers increased 33% for the quarter and 26% for the year.
Gross profit margins increased 110 basis points to 16.7% in the fourth quarter versus the prior year. For the year, gross profit margins increased to 16.2% from 15.6%. Even though operating expenses increased during the quarter as AAR brought the Indianapolis facility on line and expanded its reach geographically, selling, general and administrative costs as a percentage of sales decreased from 12.5% to 11.8% for the year. The Company also incurred costs associated with implementing a new retirement plan that is portable, provides investment flexibility for the employees and relieves the Company of the long-term and unpredictable burdens of a defined benefit plan.
AAR generated $23 million of cash from operations during the fourth quarter and $51 million during the year. In addition, total recourse debt decreased by $18 million during the year. The Company achieved improvements in inventory turns from 2.0x to 2.4x and working capital turnover from 3.1x to 3.3x on a year-over-year basis.
Other Significant Events in Fiscal 2005
Commercial Aviation MarketSigned agreements with Brit Air and Regional to provide component services
Signed an agreement to provide Mesa Air Group with a supply chain solution
Developed a parts exchange pool in Hong Kong
Formed a joint venture with AIROD in Malaysia for landing gear services
Signed an agreement with Malaysia Airlines for repair and maintenance of landing gear
Awarded an agreement by CanJet for component inventory and maintenance services
Entered into a multi year supply agreement with Chromalloy
Government Services MarketAwarded a contract for U.S. Navy C-40A logistical support
Selected by U.S. Air Force for repair of certain F100 engine components operating on Air Force F-15 and F-16 aircraft
Chosen to provide cargo systems for the new C-27J Military Transport Aircraft
OtherEarned the FAA's Diamond Certificate of Excellence and 100% Participation Awards for maintenance technician training at all 15 of AAR's certified repair stations
Significant Subsequent Events
Subsequent to fiscal 2005 year end, AAR was awarded significant programs that increase the Company's backlog position considerably. The United States Air Force (USAF) selected AAR to supply and repair specialty pallets. This contract covers an initial one-year term with an estimated value of $23.7 million and four one-year renewal options. Work on this contract commences immediately. In addition, AAR's Cargo Systems unit was selected to provide cargo handling systems for the new Airbus A400M Military Transport Aircraft as a subcontractor to Pfalz Flugzeugwerke GmbH (PFW) of Speyer, Germany. AAR's share of the revenue, including systems and spare parts, is expected to exceed $300 million over the contract period, and deliveries are expected to begin toward the end of AAR's fiscal 2007.
Operating Segment Realignment
As the Company positions itself for the future, it is aligning its businesses to maximize revenues and to increase its market share. The change of the names and composition of the business segments will be incorporated in the Company's fiscal year 2005 Form 10-K. The new segments are as follows: Aviation Supply Chain; Structures and Systems; Maintenance, Repair and Overhaul (MRO); and Aircraft Sales and Leasing.
The Aviation Supply Chain segment includes the component supply and repair businesses under one combined organization, presenting the marketplace with end-to-end supply chain products across a broad range of commercial and defense aircraft platforms. In this segment, AAR combines its supply, repair, redistribution, information technology and logistics skills to support large and regional airlines, maintenance organizations and government and defense agencies. This segment is led by Jim Clark, a 23-year veteran of AAR. Jim has progressed to his current position after leading our European-based component repair business for five years.
The Structures and Systems segment primarily includes our specialized mobility products, cargo systems, and composites businesses. This group designs, engineers and produces a variety of systems and components for aircraft and non-aircraft applications. As AAR continues to develop products for more platforms and capture market share, it sees numerous opportunities to grow after-sales support and expand services to our customers.
The MRO segment includes the aircraft maintenance and landing gear services businesses. Adding the Indianapolis Maintenance Center (IMC) capability to the existing Oklahoma City operation allows AAR to provide a more complete MRO service offering. The IMC was designed to provide for the best turn times available anywhere in the world. Since operations commenced earlier in the year, four out of the first five "C" checks were completed in three days, and the fifth missed by one shift. The Company also expects to gain market share in the landing gear services market as its joint venture in Malaysia becomes operational in the second quarter of fiscal year 2006. The Structures and Systems and MRO segments are led by Mark McDonald. Mark has been in various leadership positions at AAR since joining the Company in 1996. Prior to AAR, he was with General Electric for 12 years.
The Aircraft Sales and Leasing segment leases and manages aircraft for its own account and in partnership with others. During fiscal 2005 the Company added aircraft to its portfolio in two partnerships and has identified additional aircraft which it expects to add to its portfolio in the coming months. Combining AAR's extensive MRO and supply chain capabilities allows the Company to offer unique solutions to airline customers as they look to reposition aircraft. John Johnson leads our Aircraft Group. John is a successful entrepreneur who joined AAR over a year ago.
Attached is a schedule showing sales by current business segment as well as sales by new business segment for the three month and twelve month periods ending May 31, 2005 and May 31, 2004.
AAR is a leading provider of products and value-added services to the worldwide aviation/aerospace industry. Products and services include: aviation supply chain and parts support programs; maintenance, repair and overhaul of aircraft and landing gear; design and manufacture of composite structures and specialized mobility and cargo systems; and aircraft sales and leasing. Headquartered in Wood Dale, Illinois, AAR serves commercial and government aircraft fleet operators, original equipment manufacturers and independent service customers around the world. AAR recently earned special recognition from the Federal Aviation Administration for receiving the FAA's Diamond Award of Excellence at each of its 15 certified repair stations. More information can be found at http://www.aarcorp.com.
AAR will hold its quarterly conference call at 10:30 a.m. CDT on July 13, 2005. The conference call can be accessed via dial-in (1-866-244-4616). A replay of the call will be available (1-888-266-2081; access code 726195) from approximately 2:30 p.m. CDT on July 13, 2005 until 11:59 p.m. CDT on July 20, 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, 2004 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 Operations (In thousands except per share data) Three Months Ended Twelve Months Ended May 31, May 31, 2005 2004 2005 2004 Sales $ 209,926 $ 176,835 $ 747,848 $ 644,469 Cost and expenses: Cost of sales 174,832 149,321 627,022 543,851 Selling, general and administrative 26,442 21,662 87,902 80,552 Equity in earnings of joint ventures 362 135 568 215 Operating income 9,014 5,987 33,492 20,281 Gain on extinguishment of debt 2,567 --- 3,562 --- Interest expense 4,062 4,394 16,917 18,691 Interest income 399 548 1,502 1,748 Income from continuing operations before income taxes 7,918 2,141 21,639 3,338 Income tax expense (benefit) 2,090 (521) 3,067 (1,227) Income from continuing operations 5,828 2,662 18,572 4,565 Discontinued operations: Operating loss, net of tax --- (90) (798) (1,061) Loss on disposal, net of tax (95) --- (2,321) --- Loss from discontinued operations (95) (90) (3,119) (1,061) Net income $ 5,733 $ 2,572 $ 15,453 $ 3,504 Share Data: Earnings (loss) per share - Basic: Earnings from continuing operations $ 0.18 $ 0.08 $ 0.58 $ 0.14 Loss from discontinued operations --- --- (0.10) (0.03) Earnings per share - Basic $ 0.18 $ 0.08 $ 0.48 $ 0.11 Earnings (loss) per share - Diluted Earnings from continuing operations $ 0.17 $ 0.08 $ 0.55 $ 0.14 Loss from discontinued operations --- --- (0.09) (0.03) Earnings per share - Diluted $ 0.17 $0.08 $ 0.46 $ 0.11 Average shares outstanding - Basic 32,439 32,245 32,297 32,111 Average shares outstanding - Diluted 36,410 36,673 36,205 33,737 Consolidated Balance Sheet Highlights (In thousands except per share data) May 31, May 31, 2005 2004 Cash and cash equivalents $ 50,338 $ 41,010 Current assets 474,542 432,204 Current maturities of recourse LTD 2,123 2,656 Current liabilities (excluding debt accounts) 156,280 127,869 Net property, plant and equipment 71,474 81,866 Total assets 732,230 709,292 Recourse long-term debt 199,919 217,434 Total recourse debt 202,042 220,090 Total non-recourse debt 28,862 31,968 Stockholders' equity 314,744 301,684 Book value per share $ 9.70 $ 9.36 Shares outstanding 32,440 32,245 Sales By Business Segment - Current (In thousands) Three Months Ended Twelve Months Ended May 31, May 31, 2005 2004 2005 2004 Inventory & Logistic Services $ 88,869 $ 61,816 $ 289,697 $ 253,958 Maintenance, Repair and Overhaul 65,233 57,820 214,254 208,994 Manufacturing 50,228 50,098 193,297 151,310 Aircraft & Engine Sales & Leasing 5,596 7,101 50,600 30,207 $ 209,926 $ 176,835 $ 747,848 $ 644,469 Sales By Business Segment - New (In thousands) Three Months Ended Twelve Months Ended May 31, May 31, 2005 2004 2005 2004 Aviation Supply Chain $ 115,419 $ 86,247 $ 390,060 $ 349,527 Maintenance, Repair and Overhaul 36,680 31,502 111,932 106,416 Structures and Systems 53,303 53,334 200,717 163,557 Aircraft Sales and Leasing 4,524 5,752 45,139 24,969 $ 209,926 $ 176,835 $ 747,848 $ 644,469 Diluted Earnings Per Share Calculation (In thousands except per share data) Three Months Ended Twelve Months Ended May 31, May 31, 2005 2004 2005 2004 Net income as reported $ 5,733 $ 2,572 $ 15,453 $ 3,504 Add: After-tax interest on convertible debt 306 342 1,230 449 Net income for diluted EPS calculation $ 6,039 $ 2,914 $ 16,683 $ 3,953 Basic shares outstanding 32,439 32,245 32,297 32,111 Additional shares due to: Assumed exercise of stock options 367 394 304 281 Assumed conversion of convertible debt 3,604 4,034 3,604 1,345 Diluted shares outstanding 36,410 36,673 36,205 33,737 Diluted earnings per share $ 0.17 $ 0.08 $ 0.46 $ 0.11
SOURCE AAR CORP.
Timothy J. Romenesko, Vice President, Chief Financial Officer of AAR, +1-630-227-2090, firstname.lastname@example.org
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