WOOD DALE, Ill., Sept. 22 /PRNewswire-FirstCall/ -- AAR today reported fiscal year 2010 first quarter sales of $341.5 million and net income attributable to AAR of $10.2 million or $0.27 per diluted share. These results are consistent with the preliminary earnings outlook the Company provided on August 24, 2009. For the first quarter of last fiscal year, the Company reported sales of $359.9 million and net income attributable to AAR of $15.0 million or $0.38 per diluted share.
During the first quarter of fiscal year 2010, the Company adopted the provisions of FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion." The adoption of FSP APB 14-1 resulted in increased interest expense of $2.9 million, which had the impact of reducing fiscal year 2010 first quarter results by $0.02 per diluted share. FSP APB 14-1 has been retrospectively applied to the prior year's first quarter. A more detailed description of the effects of adoption of FSP APB 14-1 is provided at the end of this press release.
Sales to defense and government customers increased 4%, year-over-year, and now represent 46% of total sales. Sales to commercial customers declined 12%, year-over-year, as airlines further reduced inventory levels and maintenance visits in response to weak economic conditions and tight credit markets.
The Company's consolidated gross profit margin was 15.8% in the first quarter compared with 18.7% in the same quarter last year, reflecting lower margins in the Aviation Supply Chain and Maintenance, Repair and Overhaul segments. During the first quarter of fiscal year 2010, the Company sold its interest in its only aircraft leveraged lease for $5.3 million in cash, further reducing its number of wholly-owned aircraft to five aircraft. The net loss on this transaction was $0.8 million, however, in accordance with leveraged lease accounting, the Company recorded a loss on sale at the gross profit line of $3.8 million, and a $3.0 million favorable impact to income tax expense. Selling, general and administrative expenses were essentially flat with the prior year, even while including approximately $2.4 million of expense associated with the launch of AAR Global Solutions in fiscal year 2010. After taking into consideration the portion of AAR Global Solutions' loss that is attributable to the noncontrolling interest, first quarter results were negatively impacted by $0.02 per share.
During the first quarter, the Company generated $34 million of cash flow from operations and ended the first quarter with $122.8 million of cash and cash equivalents on hand. Net interest expense decreased $1.5 million year-over-year as a result of a decline in debt outstanding. The effective income tax rate was 23.0% during the first quarter compared to 34.4% a year ago primarily due to the favorable tax impact from the sale of the Company's interest in the aircraft leveraged lease. The Company expects its effective tax rate to be approximately 34% for the balance of the fiscal year.
Also during the first quarter, the Company retired $10.5 million par value of its 1.625% convertible notes and $2.0 million par value of its 2.25% convertible notes for $9.2 million in cash. The resulting gain on extinguishment of debt, after applying the provisions of FSP APB 14-1, was $0.9 million.
"Our defense and government services businesses produced steady results, while weak conditions in commercial markets put pressure on sales and margins in our aftermarket businesses supporting commercial airlines." said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. "We will look for ways to enhance AAR's position in the government, defense and commercial markets, as we manage our costs and generate cash flow from operations."
In the first quarter of fiscal year 2010, the Company combined the financial results for its Aircraft Sales and Leasing segment with the Aviation Supply Chain segment. The Company made this change as the aircraft sales and leasing business has economic characteristics increasingly similar to those of the Aviation Supply Chain segment and in consideration of the decreased significance of aircraft sales and leasing to its overall business activities. The Company will continue to provide pertinent balance sheet and lease related information in its public filings for its wholly-owned and joint venture aircraft portfolio. During the first quarter of Fiscal Year 2010, sales attributable to aircraft sales and leasing activities were $6.8 million.
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 its operating segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; and Structures and Systems. More information can be found at http://www.aarcorp.com/.
AAR will hold its quarterly conference call at 7:30 a.m. CDT on September 23, 2009. The conference call can be accessed by calling 866-793-1299 from inside the U.S. or 703-639-1306 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 1391115) from 10:30 a.m. CDT on September 23, 2009 until 11:59 p.m. CDT on September 30, 2009.
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, 2009 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 Three Months Ended ------------------------------------- August 31, (In thousands except per share data - 2009 2008 unaudited) ---- ---- Sales $341,523 $359,904 Cost and Expenses: Cost of sales 287,500 292,766 Selling, general and administrative 36,892 36,798 Earnings from joint ventures 83 1,448 --- ----- Operating income 17,214 31,788 ------ ------ Gain (loss) on extinguishment of debt 913 (684) Interest expense 6,557 8,149 Interest income 316 366 --- --- Income from continuing operations before income taxes 11,886 23,321 Income tax expense 2,728 8,015 ----- ----- Income from continuing operations 9,158 15,306 ----- ------ Discontinued Operations: Operating loss, net of tax - (331) --- ---- Net income Attributable to AAR and Noncontrolling Interest $9,158 $14,975 Loss Attributable to Noncontrolling Interest 1,046 - ----- --- Net Income attributable to AAR $10,204 $14,975 ======= ======= Share Data: Earnings per share - Basic: Earnings from continuing operations $0.27 $0.40 Loss from discontinued operations - (0.01) --- ----- Earnings per share - Basic $0.27 $0.39 ===== ===== Earnings per share - Diluted: Earnings from continuing operations $0.27 $0.39 Loss from discontinued operations - (0.01) --- ----- Earnings per share - Diluted $0.27 $0.38 ===== ===== Average shares outstanding - Basic 38,090 38,074 Average shares outstanding - Diluted 42,574 42,849 Consolidated Balance Sheet Highlights August 31, May 31, ------------------------------------- 2009 2009 (In thousands except per share data) ---- ---- (Unaudited) Cash and cash equivalents $122,840 $112,505 Current assets 825,047 851,312 Current liabilities (excluding debt accounts) 171,554 190,818 Net property, plant and equipment 128,935 125,048 Total assets 1,344,465 1,375,905 Total recourse debt 346,138 353,028 Total non-recourse obligations 28,385 38,781 Stockholders' equity 708,584 696,734 Book value per share $18.20 $17.92 Shares outstanding 38,927 38,884 Sales By Business Segment Three Months Ended ------------------------- August 31, (In thousands - unaudited) ---------- 2009 2008 ---- ---- Aviation Supply Chain $141,085 $156,825 Maintenance, Repair & Overhaul 78,744 86,310 Structures and Systems 121,694 116,769 ------- ------- $341,523 $359,904 ======== ======== Gross Profit By Business Segment Three Months Ended -------------------------------- August 31, (In thousands - unaudited) ---------- 2009 2008 ---- ---- Aviation Supply Chain $22,736 $36,931 Maintenance, Repair & Overhaul 10,595 12,753 Structures and Systems 20,692 17,454 ------ ------ $54,023 $67,138 ======= ======= Diluted Earnings Per Share Calculation - Three Months Ended ---------------------------------------- August 31, (In thousands except per share data) ---------- 2009 2008 ---- ---- (Unaudited) Net income attributable to AAR $10,204 $14,975 Add: After-tax interest on convertible debt 1,288 1,408 ----- ----- Net income for diluted EPS calculation $11,492 $16,383 ======= ======= Diluted shares outstanding 42,574 42,849 Diluted earnings per share $0.27 $0.38 ===== ===== Adoption of New Accounting Standards:
Effective June 1, 2009, we adopted the FASB's staff position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion" (FSP APB 14-1). FSP APB 14-1 requires companies that have issued convertible debt that may be settled wholly or partly in cash when converted, to account for the debt and equity components separately. The value assigned to the bond liability is the estimated value of a similar bond without the conversion feature as of the issuance date. The difference between the proceeds received for the convertible debt and the amount reflected as a bond liability is recorded as Capital Surplus, net of tax. The bifurcation of the debt and equity components results in a discounted carrying value of the debt component compared to the principal amount. The discount is accreted to the carrying value of the debt component through interest expense over the expected life of the debt using the effective interest method. FSP APB 14-1 requires retrospective application and impacts the accounting for our 1.625% and 2.25% convertible notes issued in February 2008 and our 1.75% convertible notes issued in February 2006.
The following table sets forth the impact of retrospective application of FSP APB 14-1 on certain previously reported items for the three-month period ended August 31, 2008.
Previously FSP APB 14-1 As Reported Impact Adjusted -------- ------ -------- Gain (loss) on extinguishment of debt $1,110 ($1,794) ($684) Interest expense 4,673 3,476 8,149 Provision for income taxes 9,860 (1,845) 8,015 Income from continuing operations 18,731 (3,425) 15,306 Net Income attributable to AAR 18,400 (3,425) 14,975 Earnings per share - basic Continuing operations $0.49 ($0.09) $0.40 Discontinued operations (0.01) - (0.01) ----- --- ----- $0.48 ($0.09) $0.39 Earnings per share -diluted Continuing operations $0.45 ($0.06) $0.39 Discontinued operations (0.01) - (0.01) ----- --- ----- $0.44 ($0.06) $0.38
In addition to FSP APB 14-1, we adopted the provisions of SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS No. 160"), for AAR Global Solutions effective June 1, 2009. SFAS No. 160 requires noncontrolling interest (previously referred to as a minority interest) to be treated as a separate component of equity under most circumstances and not as a liability or other item outside of equity. SFAS No. 160 also changes the presentation requirements of the statement of operations and requires additional disclosures. The Loss Attributable to Noncontrolling Interest of $1,046 on the attached consolidated statements of operations represents the joint venture partners' share of the net loss of the joint venture during the first quarter of fiscal year 2010.
AAR
CONTACT: Richard J. Poulton, Vice President, Chief Financial Officer of
AAR, +1-630-227-2075, rpoulton@aarcorp.com
Web Site: http://www.aarcorp.com/
