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Press release

September 19, 2007

AAR Reports Record Quarterly Sales and Record First Quarter Earnings

  • 27% sales growth; double-digit sales growth in all segments
  • 25% growth in income from continuing operations
  • 20% increase in diluted earnings per share from continuing operations

WOOD DALE, Ill., /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported fiscal 2008 first quarter net sales of $306.0 million and income from continuing operations of $15.3 million, or $0.36 per diluted share. Sales grew 27% from $240.2 million last year, and income from continuing operations increased 25% from $12.2 million in the prior year. AAR achieved double-digit sales growth in all four of the Company's operating segments. Sales to commercial customers increased 26%, and sales to defense customers grew 30%, year-over-year.

The 26% increase in sales to commercial customers was driven by strength in supply chain programs and aftermarket parts sales, increased heavy maintenance activity, including the acquisition of Reebaire, and continued momentum in the aircraft sales and leasing business. During the quarter, the Company launched an additional line of heavy maintenance for Southwest Airlines at its Indianapolis Maintenance Center. In addition, the Company nearly doubled the size of its aircraft fleet through the acquisition of eighteen 737-400 aircraft and one 747-400 aircraft with joint venture partners.

The 30% growth in sales to defense customers was attributable to robust demand for mobility systems products, the acquisition of Brown International in April 2007 and strength in performance-based logistics programs. AAR was awarded a $162 million contract for specialized shipping/storage containers, shelters and accessories to support several branches of the U.S. military and federal civilian agencies. In addition, the Company received a $31 million order to provide specialized shelters to the U.S. Army and was selected by the U.S. Army to provide 25 cargo handling systems for CH-47 (Chinook) helicopters. Shipments on these new contracts will commence during the second quarter.

Gross profit margin was 18.5% for the first quarter compared to 17.9% last year, excluding impairment charges recorded during the first quarter of fiscal 2007. Selling, general and administrative expenses increased $4.8 million year-over-year, reflecting the impact of acquisitions and increased spending to support growth, as well as investments in operational improvement initiatives across the Company. Selling, general and administrative expenses declined to 10.0% of sales from 10.7%. Net interest expense increased $0.4 million year-over-year related to investments made in the business, including acquisitions and aircraft purchases. The effective income tax rate increased to 34% during the first quarter from 30% a year ago due to the expiration of certain tax benefits.

"We are pleased with the strong sales growth we generated in the first quarter, and fiscal 2008 is off to a solid start," said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. "We believe that our top line momentum combined with the margin improvement initiatives underway will contribute to margin expansion going forward. Further, our banks recognize the Company's significant achievements and agreed to an increase in our revolving credit facility from $140 million to $250 million as we explore new opportunities for growth, increasing our market presence and improving our operating results."

AAR is a leading provider of products and value-added services to the worldwide aerospace and defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve aviation 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. CDT on September 19, 2007. The conference call can be accessed by calling 866-219-5264 from inside the U.S. or 703-639-1118 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 1140068) from 2:30 p.m. CDT on September 19, 2007 until 11:59 p.m. CDT on September 26, 2007.

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 1A, entitled "Risk Factors", included in the Company's May 31, 2007 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                Three Months Ended
    (In thousands except per share data)                      August 31,

                                                          2007         2006
                                                            (Unaudited)
    Sales
                                                      $ 305,960    $ 240,242
    Cost and Expenses:
         Cost of sales                                  249,420      197,219
         Cost of sales - impairment charges                 ---        7,652
         Selling, general and administrative             30,662       25,825


    Earnings from aircraft joint ventures                 1,020        3,041
    Gain on sale of product line                            ---        5,358

    Operating income                                     26,898       17,945

    Gain on extinguishment of debt                          ---        2,927

    Interest expense                                      4,338        4,666
    Interest income                                         583        1,339

    Income from continuing operations
     before income taxes                                 23,143       17,545

    Income tax expense                                    7,888        5,316

    Income from continuing operations                    15,255       12,229

    Discontinued Operations:
         Operating loss, net of tax                         102          445

    Net income                                        $  15,153    $  11,784


    Share Data:

    Earnings per share - Basic:
         Earnings from continuing operations          $    0.41    $    0.34
         Loss from discontinued operations                  ---        (0.01)
         Earnings per share - Basic                   $    0.41    $    0.33

    Earnings per share - Diluted:
         Earnings from continuing operations          $    0.36    $    0.30
         Loss from discontinued operations                  ---        (0.01)
         Earnings per share - Diluted                 $    0.36    $    0.29

    Average shares outstanding - Basic                   36,836       36,076
    Average shares outstanding - Diluted                 43,789       42,893



    Consolidated Balance Sheet Highlights           August 31,       May 31,
    (In thousands except per share data)               2007           2007

                                                   (Unaudited)   (Derived from
                                                                     audited
                                                                    financial
                                                                   statements)

    Cash and cash equivalents                     $   58,021      $   83,317
    Current assets                                   615,927         645,721
    Current liabilities (excluding
     debt accounts)                                  165,243         182,261
    Net property, plant and equipment                 90,935          88,187
    Total assets                                   1,076,976       1,067,633
    Total recourse debt                              284,179         284,229
    Total non-recourse obligations                    57,669          43,627
    Stockholders' equity                             509,380         494,243
    Book value per share                          $    13.51      $    13.10
    Shares outstanding                                37,712          37,729



    Sales By Business Segment                          Three Months Ended
    (In thousands - unaudited)                              August 31,
                                                       2007            2006
    Aviation Supply Chain                         $  142,708      $  127,516
    Maintenance, Repair & Overhaul                    62,647          49,595
    Structures and Systems                            76,498          58,407
    Aircraft Sales and Leasing                        24,107           4,724
                                                  $  305,960      $  240,242



    Gross Profit By Business Segment                   Three Months Ended
    (In thousands - unaudited)                              August 31,
                                                       2007            2006
    Aviation Supply Chain                         $   31,964      $   22,255
    Maintenance, Repair & Overhaul                     8,040           7,157
    Structures and Systems                             9,121           7,350
    Aircraft Sales and Leasing                         7,415          (1,391)
                                                  $   56,540      $   35,371

    Note:  Gross Profit for the Three Months Ended August 31, 2006 includes
           impairment charges of $4.8 million in Aviation Supply Chain and
           $2.9 million in Aircraft Sales & Leasing.



    Diluted Earnings Per Share Calculation -           Three Months Ended
    Earnings from Continuing Operations                     August 31,
    (In thousands except per share data)               2007           2006
                                                          (Unaudited)
    Income from continuing operations             $   15,255      $  12,229
    as reported
    Add: After-tax interest on
     convertible debt                                    491            491
    Income from continuing operations
     for diluted EPS calculation                  $   15,746      $  12,720

    Diluted shares outstanding                        43,789         42,893

    Diluted earnings per share from
     continuing operations                        $     0.36      $    0.30

    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 adjusted non-GAAP gross profit margin for
           the first quarter of fiscal 2007 is more representative of the
           Company's true gross profit margin as it excludes impairment
           charges.



    (In thousands)                                          Three Months
                                                               Ended
                                                          August 31, 2006

    Gross profit as reported                               $    35,371
        Impairment charges                                       7,652

    Adjusted gross profit                                  $    43,023

    Gross profit margin - as reported                             14.7%
    Gross profit margin - adjusted for impairment charges         17.9%



CONTACT:
Richard J. Poulton
Vice President
Chief Financial Officer of +1-630-227-2075
rpoulton@aarcorp.com

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