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Press release

December 15, 2010

AAR Reports Second Quarter Fiscal Year 2011 Results

  • Second quarter sales of $447 million, up 36% year-over-year
  • Diluted earnings per share of $0.42, up 24% year-over-year
  • Commercial market sales growth of 27%
  • Operating margin of 7.5%, up sequentially from first quarter of 6.8%
  • Second quarter cash flow from operations of $22.6 million

WOOD DALE, Ill., /PRNewswire via COMTEX/ --AAR (NYSE: AIR) today reported second quarter fiscal year 2011 consolidated sales of $447.1 million and net income of $16.8 million, or $0.42 per diluted share. For the second quarter of the prior fiscal year, the Company reported sales of $328.7 million and net income of $13.3 million, or diluted earnings per share of $0.34.

Sales to government and defense customers increased 46% over last year and were principally driven by sales at the Company's airlift services business, which was acquired in the fourth quarter of fiscal 2010, and growth at the Company's defense logistics business. Sales to commercial customers increased 27% versus the second quarter of fiscal 2010, reflecting an improving commercial airline environment.

Included in the results for the second quarter are $6.5 million in sales and a $2.0 million pre-tax loss ($0.03 per diluted share) at the Company's Amsterdam component repair facility. Subsequent to the close of the second quarter, the Company concluded that it will exit its Amsterdam component repair facility and is currently evaluating a number of strategic alternatives associated with the business unit, including the sale of the unit. The Company expects to report this business as a discontinued operation beginning with the third quarter of fiscal 2011.

"During the second quarter, we saw a significant increase in sales to our airline customers reflecting stronger demand for our industry leading supply chain and MRO services and execution on business wins announced over the past twelve months. The commercial airline market continues to show signs of recovery and we are optimistic this trend will continue into the second half of our fiscal year," said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. "We remain focused on our stated objective of 10% operating margins and we made continued progress on that goal, with our operating margin improving to 7.5% from 6.8% in the first quarter. We have identified certain initiatives that we believe will improve the overall efficiency of the Company and lead to higher margins, including the disposition of our Amsterdam component repair facility, which had a 50 basis point unfavorable impact on the second quarter operating margin."

Also during the second quarter, the Company announced that it had been awarded a task order under the U.S. Transportation Command's latest long-term, multi-billion dollar Indefinite Delivery/ Indefinite Quantity contract for rotary-wing airlift in Afghanistan. The task order has a one-year initial term with four one-year renewal options and is valued at approximately $450 million over the five year term. The Company is acquiring six aircraft to support the program and expects revenue from this award to commence in the third quarter and be fully ramped up in the first quarter of fiscal 2012. Since acquiring the airlift business in April 2010, the Company has booked new contract awards approximating $150 million in annual sales.

Selling, general and administrative expenses as a percentage of sales were 9.7% compared to 10.4% in the first quarter and the current period expenses include approximately $1.0 million in severance costs at its Amsterdam component repair facility. The consolidated gross profit margin was 16.6% compared to 17.2% in the first quarter. Gross margin was negatively impacted by product mix within the Supply Chain segment and start-up costs associated with new programs within the MRO segment. During the second quarter, one aircraft from the Company's joint venture aircraft portfolio was sold and generated pre-tax income of $2.0 million.

The Company generated $22.6 million in cash flow from operations during the second quarter. Net interest expense increased $1.3 million year-over-year, principally due to an increase in average outstanding borrowings compared to a year ago, as well as non-cash interest expense on the Company's outstanding convertible notes. Capital expenditures were $22.9 million, principally reflecting investments in assets to support new airlift services contracts.

Storch continued, "We are encouraged by the improving airline environment and as we enter the second half of the fiscal year, we expect to win new business while leveraging our cost structure - actions that should lead to improving margins."

AAR is a leading provider of products and value-added services to the worldwide aerospace and government/defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve aviation and government/defense customers through four operating segments: Aviation Supply Chain; Government and Defense Services; Maintenance, Repair and Overhaul; and Structures and Systems. More information can be found at www.aarcorp.com.

AAR will hold its quarterly conference call at 7:30 a.m. CST on December 16, 2010. The conference call can be accessed by calling 866-804-3547 from inside the U.S. or 703-639-1328 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 1500173) from 11:30 a.m. CST on December 16, 2010 until 11:59 p.m. CST on December 23, 2010.

AAR -- named one of the "Most Trustworthy Companies" for 2010 by Forbes magazine.

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, 2010 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 update 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 - unaudited)

Three Months Ended

November 30,

 

Six Months Ended

November 30,

 
 

2010

2009

 

2010

2009

 
         

Sales

$447,054

 

$328,684

 

$859,251

 

$670,207

 

Cost and expenses:

               

Cost of sales

372,878

 

264,824

 

714,187

 

552,324

 

Selling, general and administrative

43,334

 

37,591

 

86,039

 

74,483

 
                 

Earnings from aircraft joint ventures

2,529

 

11

 

2,557

 

94

 
                 

Operating income

33,371

 

26,280

 

61,582

 

43,494

 
                 

Gain on extinguishment of debt

---

 

---

 

97

 

913

 
                 

Interest expense

7,579

 

6,463

 

15,010

 

13,020

 

Interest income

76

 

290

 

236

 

606

 
                 

Income from continuing operations before income taxes

25,868

 

20,107

 

46,905

 

31,993

 
                 

Income tax expense

9,054

 

6,914

 

16,417

 

9,642

 
                 

Net income attributable to AAR and noncontrolling interest


16,814

 

13,193

 

30,488

 

22,351

 
                 

Loss attributable to noncontrolling interest

---

 

119

 

---

 

1,165

 
                 

Net income attributable to AAR

$16,814

 

$13,312

 

$30,488

 

$23,516

 
                 
                 

Earnings per share - Basic

$ 0.44

 

$ 0.35

 

$ 0.80

 

$ 0.62

 
                 

Earnings per share - Diluted

$ 0.42

 

$ 0.34

 

$ 0.77

 

$ 0.61

 
                 

Share Data:

               
                 

Average shares outstanding - Basic

38,301

 

38,143

 

38,335

 

38,121

 

Average shares outstanding - Diluted

43,230

 

42,869

 

43,092

 

42,764

 
   
                   
   

Consolidated Balance Sheet Highlights

(In thousands except per share data)

November 30,

2010

 

May 31,

2010

 
 

(Unaudited)

     

Cash and cash equivalents

$ 49,320

 

$ 79,370

 

Current assets

881,764

 

863,429

 

Current liabilities (excluding debt accounts)

235,907

 

224,717

 

Net property, plant and equipment

263,752

 

224,866

 

Total assets

1,557,227

 

1,501,042

 

Total recourse debt

429,628

 

419,732

 

Total non-recourse obligations

16,908

 

17,292

 

Stockholders' equity

780,892

 

746,350

 

Book value per share

$ 19.68

 

$ 18.90

 

Shares outstanding

39,677

 

39,484

 
   
       
   

Sales By Business Segment

(In thousands - unaudited)

Three Months Ended

November 30,

Six Months Ended

November 30,

 
 

2010

2009

2010

2009

 

Aviation Supply Chain

$ 117,856

$ 102,159

$ 225,926

$ 212,796

 

Government and Defense Services

134,406

39,329

263,736

76,072

 

Maintenance, Repair & Overhaul

99,041

71,805

175,860

151,022

 

Structures and Systems

95,751

115,391

193,729

230,317

 
 

$ 447,054

$ 328,684

$ 859,251

$ 670,207

 
   
         
   

Gross Profit By Business Segment

(In thousands - unaudited)

Three Months Ended

November 30,

Six Months Ended

November 30,

 
 

2010

2009

2010

2009

 

Aviation Supply Chain

$ 19,838

$ 21,850

$ 39,965

$ 37,815

 

Government and Defense Services

24,129

8,450

47,151

16,155

 

Maintenance, Repair & Overhaul

12,290

8,577

22,397

19,116

 

Structures and Systems

17,919

24,983

35,551

44,797

 
 

$ 74,176

$ 63,860

$ 145,064

$ 117,883

 
   
         
   

Diluted Earnings Per Share Calculation

(In thousands except per share data - unaudited)

Three Months Ended

November 30,

 

Six Months Ended

November 30,

 
 

2010

2009

 

2010

2009

 
         

Net income as reported

$16,814

 

$13,312

 

$ 30,488

 

$ 23,516

 

Add: After-tax interest on convertible debt

1,392

 

1,308

 

2,763

 

2,596

 

Net income for diluted EPS calculation

$ 18,206

 

$ 14,620

 

$ 33,251

 

$ 26,112

 
                 

Diluted shares outstanding

43,230

 

42,869

 

43,092

 

42,764

 
                 

Diluted earnings per share

$ 0.42

 

$ 0.34

 

$ 0.77

 

$ 0.61

 
   
                 

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