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Press release

December 18, 2007

AAR Reports Record Second Quarter Results

  • Record quarterly sales of $310.6 million (up 27% from prior year)
  • Record quarterly income from continuing operations of $17.9 million
  • Operating margin improves to 10.1%
  • $0.42 earnings from continuing operations per diluted share

WOOD DALE, Ill., /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported fiscal 2008 second quarter net sales of $310.6 million and income from continuing operations of $17.9 million, or $0.42 per diluted share. Sales grew 27% from $244.3 million last year, and income from continuing operations increased 28% from $14.0 million in the prior year. For the six months ended November 30, 2007, net sales grew 27% to $616.6 million, and income from continuing operations increased 26% to $33.1 million, or $0.78 per diluted share.

"The principal markets we serve-commercial aviation and defense-continued to expand, despite the turbulence in the global credit markets, uncertainty in the U.S. economy and continued pressure from high fuel prices. The demand from airlines for outsourced technical services and additional aircraft lift is strong, as are the opportunities to support the U.S. Department of Defense and its allies," said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. "During the quarter the AAR team made excellent progress penetrating and growing our presence in these markets. We experienced significant sales growth and margin improvement in our MRO business; continued strength in Aviation Supply Chain; steady progress in our Structures and Systems business; and solid growth in our Aircraft Sales and Leasing business."

Sales and earnings growth in the second quarter was driven by higher sales across all four segments, effective sourcing and merchandising, solid execution and progress with margin improvement initiatives. Sales to commercial customers increased 29%, and sales to defense customers grew 24%, year-over-year.

Consolidated gross profit margin was 19.4% for the second quarter compared to 18.8% last year. The Company achieved an operating margin of 10.1% in the second quarter versus 9.7% last year. Net interest expense increased $0.6 million year-over-year principally due to increased borrowings related to investments in the Aviation Supply Chain and Aircraft Sales & Leasing segments.

The Company purchased 272,000 shares of AAR CORP. stock on the open market through the first six months of fiscal 2008 pursuant to its Board of Directors share repurchase authorization at an average acquisition price of $29.98.

As announced on December 3, 2007, the Company completed the acquisition of Summa Technology, Inc., a leading provider of high-end sub-systems and precision machining, fabrication, welding and engineering services located in Huntsville, Alabama. "We are very excited to add the extensive capabilities of Summa and its management team to our Company," said Storch. "Summa has great momentum and is performing well, and we look forward to creating even more opportunities as we integrate it with our other businesses."

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 7:30 a.m. CST on December 19, 2007. The conference call can be accessed by calling 866-814-1918 from inside the U.S. or 703-639-1362 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 1177120) from 11:30 a.m. CST on December 19, 2007 until 11:59 p.m. CST on December 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
    (In thousands except         Three Months Ended     Six Months Ended
      per share data)               November 30,           November 30,

                                 2007        2006        2007      2006
                                   (Unaudited)            (Unaudited)
    Sales                    $ 310,647   $ 244,272   $ 616,607 $ 484,514
    Cost and expenses:
      Cost of sales            250,297     198,369     499,717   395,588
      Cost of sales --
       impairment charges          ---         ---         ---     7,652
      Selling, general
       and administrative       30,941      25,914      61,603    51,739

    Gain on sale of
     product line                  ---         ---         ---     5,358
    Earnings from
     aircraft joint
     ventures                    1,965       3,761       2,985     6,802

    Operating income            31,374      23,750      58,272    41,695

    Gain on extinguishment
     of debt                       ---         ---         ---     2,927

    Interest expense             5,026       4,736       9,364     9,402
    Interest income and
     other                       1,003       1,300       1,586     2,639

    Income from continuing
     operations before
     income taxes               27,351      20,314      50,494    37,859

    Income tax expense           9,463       6,332      17,351    11,648

    Income from continuing
     operations                 17,888      13,982      33,143    26,211

    Discontinued operations:
      Operating loss, net
       of tax                       33         214         135       659

    Net income                $ 17,855    $ 13,768    $ 33,008  $ 25,552

    Share Data:

    Earnings per share --
     Basic:
      Earnings from continuing
       operations               $ 0.49      $ 0.39      $ 0.90    $ 0.73
      Loss from discontinued
       operations                  ---       (0.01)        ---     (0.02)
      Earnings per share --
       Basic                    $ 0.49      $ 0.38      $ 0.90    $ 0.71

    Earnings per share --
     Diluted
      Earnings from continuing
       operations               $ 0.42      $ 0.34      $ 0.78    $ 0.64
      Loss from discontinued
       operations                  ---       (0.01)        ---     (0.02)
      Earnings per share --
       Diluted                  $ 0.42      $ 0.33      $ 0.78    $ 0.62

    Average shares outstanding
     -- Basic                   36,841      36,250      36,858    36,161
    Average shares outstanding
     -- Diluted                 43,732      43,145      43,770    42,969



    Consolidated Balance Sheet
     Highlights
    (In thousands except per
     share data)                           November 30,         May 31,
                                              2007               2007
                                           (Unaudited)      (Derived from
                                                                audited
                                                               financial
                                                              statements)
    Cash and cash equivalents               $ 28,369           $ 83,317
    Current assets                           666,125            645,721
    Current liabilities
     (excluding debt accounts)               179,169            182,261
    Net property, plant and equipment         94,540             88,187
    Total assets                           1,137,290          1,067,633
    Total recourse debt                      284,128            284,229
    Total non-recourse obligations            84,493             43,627
    Stockholders' equity                     530,327            494,243
    Book value per share                     $ 14.06            $ 13.10
    Shares outstanding                        37,723             37,729



    Sales By Business Segment
    (In thousands -- unaudited)     Three Months Ended     Six Months Ended
                                       November 30,          November 30,
                                      2007      2006       2007      2006
    Aviation Supply Chain         $ 144,784 $ 133,904  $ 287,492 $ 261,420
    Maintenance, Repair & Overhaul   68,679    44,477    131,326    94,072
    Structures and Systems           79,783    62,473    156,281   120,880
    Aircraft Sales and Leasing       17,401     3,418     41,508     8,142
                                  $ 310,647 $ 244,272  $ 616,607 $ 484,514



    Gross Profit/(Loss) By
     Business Segment
    (In thousands -- unaudited)     Three Months Ended     Six Months Ended
                                       November 30,          November 30,
                                      2007      2006       2007      2006
    Aviation Supply Chain          $ 34,970  $ 29,896   $ 66,934  $ 52,151
    Maintenance, Repair & Overhaul    9,921     6,147     17,961    13,304
    Structures and Systems           10,784     8,891     19,905    16,241
    Aircraft Sales and Leasing        4,675       969     12,090      (422)
                                   $ 60,350  $ 45,903  $ 116,890  $ 81,274


    Note:  Gross Profit for the Six Months Ended November 30, 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
    (In thousands except
     per share data)                 Three Months Ended   Six Months Ended
                                        November 30,         November 30,
                                      2007      2006       2007      2006
                                        (Unaudited)          (Unaudited)
    Net income as reported         $ 17,855  $ 13,768   $ 33,008  $ 25,552
    Add: After-tax interest
     on convertible debt                491       491        983       983
    Net income for diluted
     EPS calculation               $ 18,346  $ 14,259   $ 33,991  $ 26,535

    Diluted shares outstanding       43,732    43,145     43,770    42,969

    Diluted earnings per share       $ 0.42    $ 0.33     $ 0.78    $ 0.62

 

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

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