WOOD DALE, Ill., March 19, 2019 /PRNewswire/ -- AAR CORP. (NYSE:
AIR) today reported third quarter fiscal year 2019 consolidated
sales of $529.5 million and income
from continuing operations of $27.4
million, or $0.78 per diluted
share. Third quarter results included a reduction in income
tax expense of $6.5 million, or
$0.19 per diluted share, primarily
related to the recognition of previously reserved income tax
benefits. For the third quarter of the prior year, the
Company reported sales of $456.3
million and income from continuing operations of
$31.3 million, or $0.90 per diluted share. Our adjusted
diluted earnings per share from continuing operations increased 61%
to $0.79 in the current quarter from
$0.49 last year.
Consolidated sales increased 16% over the prior year period due
to continued growth in our parts supply and programs
activities. We continued to experience strong growth of 16%
in our Aviation Services segment as well as growth of 18% in our
Expeditionary Services segment.
"Our double-digit sales growth and strong cash flows were driven
by outstanding performance in our parts supply and programs
activities. Our comprehensive aviation services growth
strategy has driven success in both the global commercial and
government markets," said John M.
Holmes, President and Chief Executive Officer of AAR
CORP.
Subsequent to the end of the quarter, we announced a new
international site, Costa Rica,
within the INL/A WASS program with the U.S. Department of
State. We expect to begin our operations in Costa Rica in the fourth quarter of fiscal
2019 achieving full run rate by the end of the first quarter of
fiscal 2020. We also announced a contract award for
production of cargo pallets for the U.S. Air Force. This
contract will be fulfilled by AAR Mobility Systems which is a
global leader in the design and production of lightweight pallets
for use in military aircraft.
Sales to government and defense customers were 33% of
consolidated sales compared to 23% in the prior year's quarter
reflecting growth from the WASS program and other government
sales. Third quarter sales to commercial customers, which
increased slightly during the period, represented 67% of
consolidated sales compared to 77% of consolidated sales in the
third quarter of last year.
Gross profit margins decreased to 16.1% in the current quarter
from 17.0% in the prior year quarter due to continued weakness in
certain airframe maintenance facilities as a result of labor
shortages in these markets. Selling, general and
administrative expenses as a percentage of sales were 10.3% for the
quarter, compared to 11.7% last year, reflecting continued leverage
of our cost structure to support our double-digit sales growth.
Net interest expense for the quarter was $2.4 million compared to $2.2 million last year. Also during the
quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share. Average diluted share
count for the quarter was 34.9 million compared to 34.5 million in
the third quarter last year. Cash flow from operating
activities from continuing operations was $57.6 million during the current quarter.
Subsequent to quarter end, we signed a definitive agreement to
sell certain contracts and assets of our contractor-owned,
contractor-operated ("COCO") business. We expect the sale,
which is subject to certain regulatory approvals, to close before
the end of calendar 2019. In conjunction with this agreement
and other expected asset sales of the COCO business, we recognized
a non-cash, after-tax impairment charge in discontinued operations
of $58.5 million during the
quarter.
We are updating our financial guidance for fiscal 2019 to
reflect annual sales in the range of $2,010 to $2,030
million, adjusted EBITDA in the range of $165 to $170
million, and adjusted diluted earnings per share from
continuing operations, inclusive of this quarter's tax benefits of
$0.19, in the range of $2.50 to $2.57.
Holmes concluded, "We are very pleased with our double-digit
organic growth during the quarter and particularly pleased with the
cash flow from operations which further strengthened our balance
sheet. We are excited about the opportunities we see to
deploy capital to continue to build out our services offering and
drive shareholder return."
Conference Call
Information
AAR will hold its quarterly conference call at 3:45 p.m. CT on March 19,
2019. The conference call can be accessed by calling
866-802-4322 from inside the U.S. or +1-703-639-1319 from outside
the U.S. A replay of the conference call will also be
available by calling 855-859-2056 from inside the U.S. or
404-537-3406 from outside the U.S. (access code 4480048). The
replay will be available from 7:15 p.m.
CT on March 19, 2019 until
10:59 p.m. CT on March 26, 2019.
About AAR
AAR is a global aerospace and defense aftermarket solutions
company that employs more than 6,000 people in over 20 countries.
Headquartered in the Chicago area,
AAR supports commercial and government customers through two
operating segments: Aviation Services and Expeditionary Services.
AAR's Aviation Services include parts supply; OEM solutions;
integrated solutions; maintenance, repair, overhaul; and
engineering. AAR's Expeditionary Services include mobility systems
and composite manufacturing operations. Additional information can
be found at
www.aarcorp.com.
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 Form 10-K for the fiscal year
ended May 31, 2018. 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 millions
except per share data - unaudited)
|
Three Months
Ended
February
28,
|
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
Sales
|
$
529.5
|
|
$ 456.3
|
|
$
1,489.1
|
|
$ 1,274.8
|
Cost and
expenses:
|
|
|
|
|
|
|
|
Cost of
sales
|
444.2
|
|
378.7
|
|
1,254.3
|
|
1,064.9
|
Provision for doubtful
accounts (a)
|
0.7
|
|
0.1
|
|
13.7
|
|
0.4
|
Selling, general and
administrative
|
54.8
|
|
53.3
|
|
152.1
|
|
146.3
|
|
|
|
|
|
|
|
|
Operating
income
|
29.8
|
|
24.2
|
|
69.0
|
|
63.2
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
(2.4)
|
|
(2.2)
|
|
(6.4)
|
|
(5.7)
|
Other expense,
net
|
(0.6)
|
|
(0.5)
|
|
(0.4)
|
|
(0.5)
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income tax expense
(benefit)
|
26.8
|
|
21.5
|
|
62.2
|
|
57.0
|
Income tax expense
(benefit)
|
(0.6)
|
|
(9.8)
|
|
4.7
|
|
1.4
|
Income from
continuing operations
|
27.4
|
|
31.3
|
|
57.5
|
|
55.6
|
Loss from
discontinued operations
|
(64.8)
|
|
(15.8)
|
|
(72.8)
|
|
(52.0)
|
Net income
(loss)
|
$
(37.4)
|
|
$
15.5
|
|
$
(15.3)
|
|
$
3.6
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per share – Basic:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.79
|
|
$ 0.91
|
|
$
1.66
|
|
$ 1.62
|
Loss from discontinued
operations
|
(1.87)
|
|
(0.46)
|
|
(2.11)
|
|
(1.52)
|
Earnings (Loss) per share
– Basic
|
$
(1.08)
|
|
$ 0.45
|
|
$
(0.45)
|
|
$ 0.10
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per share – Diluted:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.78
|
|
$0.90
|
|
$
1.63
|
|
$ 1.60
|
Loss from discontinued
operations
|
(1.86)
|
|
(0.46)
|
|
(2.08)
|
|
(1.52)
|
Earnings (Loss) per share
– Diluted
|
$
(1.08)
|
|
$0.44
|
|
$
(0.45)
|
|
$ 0.08
|
|
|
|
|
|
|
|
|
Share
Data:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
34.5
|
|
34.0
|
|
34.6
|
|
34.1
|
Weighted average
shares outstanding – Diluted
|
34.9
|
|
34.5
|
|
35.0
|
|
34.5
|
|
|
(a)
|
The nine-month period
ended February 28, 2019 includes a provision for doubtful accounts
of $12.4 million related to the bankruptcy of a European airline
customer.
|
AAR CORP. and
Subsidiaries
|
|
|
|
|
|
Consolidated
Balance Sheets
(In
millions)
|
February
28,
2019
|
|
May
31,
2018
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
28.9
|
|
$ 31.1
|
Restricted
cash
|
21.5
|
|
10.5
|
Accounts
receivable, net
|
237.6
|
|
202.0
|
Contract
assets
|
54.9
|
|
––
|
Inventories,
net
|
514.7
|
|
460.7
|
Rotable assets and
equipment on or available for lease
|
68.3
|
|
87.2
|
Assets of
discontinued operations
|
28.2
|
|
125.0
|
Other current
assets
|
39.3
|
|
26.2
|
Total current
assets
|
993.4
|
|
942.7
|
Property, plant,
and equipment, net
|
134.4
|
|
133.2
|
Goodwill and
intangible assets, net
|
141.8
|
|
146.5
|
Rotable assets
supporting long-term programs
|
209.4
|
|
183.4
|
Other non-current
assets
|
67.5
|
|
118.9
|
Total
assets
|
$
1,546.5
|
|
$ 1,524.7
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Accounts payable
and accrued liabilities
|
$
333.6
|
|
$ 308.3
|
Liabilities of
discontinued operations
|
26.0
|
|
25.0
|
Total current
liabilities
|
359.6
|
|
333.3
|
Long-term
debt
|
177.2
|
|
177.2
|
Other liabilities
and deferred income
|
110.3
|
|
77.9
|
Total
liabilities
|
647.1
|
|
588.4
|
Equity
|
899.4
|
|
936.3
|
Total liabilities and
equity
|
$
1,546.5
|
|
$1,524.7
|
|
|
AAR CORP. and
Subsidiaries
|
|
|
Consolidated
Statements of Cash Flows
(In millions –
unaudited)
|
Three Months
Ended
February
28,
|
|
Nine Months
Ended
February
28,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cash flows
provided from operating activities:
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
(37.4)
|
|
$ 15.5
|
|
$
(15.3)
|
|
$ 3.6
|
Loss from
discontinued operations
|
64.8
|
|
15.8
|
|
72.8
|
|
52.0
|
Income from
continuing operations
|
27.4
|
|
31.3
|
|
57.5
|
|
55.6
|
Adjustments
to reconcile income from continuing operations to net
cash provided from
operating activities
|
|
|
|
|
|
|
|
Depreciation and intangible
amortization
|
10.8
|
|
10.6
|
|
31.3
|
|
31.4
|
Amortization of stock-based
compensation
|
3.6
|
|
3.4
|
|
8.8
|
|
8.7
|
Provision for doubtful
accounts
|
0.7
|
|
0.1
|
|
13.7
|
|
0.4
|
Changes in certain assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(21.2)
|
|
48.7
|
|
(73.3)
|
|
34.8
|
Contract
assets
|
8.2
|
|
––
|
|
(5.2)
|
|
––
|
Inventories
|
(19.7)
|
|
(14.6)
|
|
(71.8)
|
|
(36.7)
|
Rotable assets
supporting long-term
programs
|
(11.5)
|
|
(7.3)
|
|
(38.2)
|
|
(35.7)
|
Accounts payable
and accrued liabilities
|
44.8
|
|
(13.0)
|
|
50.5
|
|
(3.5)
|
Other
|
14.5
|
|
(8.9)
|
|
43.1
|
|
(39.4)
|
Net cash
provided from operating activities – continuing
operations
|
57.6
|
|
50.3
|
|
16.4
|
|
15.6
|
Net cash
provided from (used in) operating activities – discontinued
operations
|
2.4
|
|
(7.5)
|
|
8.1
|
|
17.3
|
Net cash
provided from operating activities
|
60.0
|
|
42.8
|
|
24.5
|
|
32.9
|
|
|
|
|
|
|
|
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
|
Property,
plant and equipment
expenditures
|
(4.3)
|
|
(4.8)
|
|
(12.3)
|
|
(18.4)
|
Payments
for acquisitions
|
––
|
|
––
|
|
(2.3)
|
|
(22.9)
|
Other
|
––
|
|
1.1
|
|
1.3
|
|
9.0
|
Net cash
used in investing activities – continuing operations
|
(4.3)
|
|
(3.7)
|
|
(13.3)
|
|
(32.3)
|
Net cash
used in investing activities – discontinued
operations
|
(0.1)
|
|
(0.4)
|
|
(0.5)
|
|
(4.7)
|
Net cash
used in investing activities
|
(4.4)
|
|
(4.1)
|
|
(13.8)
|
|
(37.0)
|
|
|
|
|
|
|
|
|
Cash flows
provided from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from (repayments on) borrowings,
net
|
(42.0)
|
|
(21.0)
|
|
––
|
|
40.8
|
Cash
dividends
|
(2.6)
|
|
(2.5)
|
|
(7.9)
|
|
(7.7)
|
Purchase of
treasury stock
|
(0.8)
|
|
(7.9)
|
|
(0.8)
|
|
(13.1)
|
Other
|
0.1
|
|
0.7
|
|
8.3
|
|
9.7
|
Net cash provided
from (used in) financing activities – continuing
operations
|
(45.3)
|
|
(30.7)
|
|
(0.4)
|
|
29.7
|
Net cash used in
financing activities – discontinued
operations
|
(0.7)
|
|
(0.5)
|
|
(1.4)
|
|
(1.3)
|
Net cash provided
from (used in) financing activities
|
(46.0)
|
|
(31.2)
|
|
(1.8)
|
|
28.4
|
Effect of exchange
rate changes on
cash
|
0.1
|
|
––
|
|
(0.1)
|
|
––
|
Increase in cash
and cash
equivalents
|
9.7
|
|
7.5
|
|
8.8
|
|
24.3
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
40.7
|
|
27.1
|
|
41.6
|
|
10.3
|
Cash, cash
equivalents, and restricted cash at end of
period
|
$
50.4
|
|
$ 34.6
|
|
$
50.4
|
|
$ 34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAR CORP. and
Subsidiaries
|
|
|
Sales By Business
Segment (1)
(In millions -
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
2019
|
2018
|
Aviation
Services
|
$
497.3
|
$ 429.0
|
$
1,398.6
|
$ 1,192.0
|
Expeditionary
Services
|
32.2
|
27.3
|
90.5
|
82.8
|
|
$
529.5
|
$ 456.3
|
$
1,489.1
|
$ 1,274.8
|
|
|
|
Gross Profit by
Business Segment (1)
(In millions-
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
2019
|
2018
|
Aviation
Services
|
$
81.7
|
$ 72.1
|
$
223.7
|
$ 195.9
|
Expeditionary
Services
|
3.6
|
5.5
|
11.1
|
14.0
|
|
$
85.3
|
$ 77.6
|
$
234.8
|
$ 209.9
|
|
|
(1)
|
In the first quarter
of fiscal 2019, we re-aligned the composition of our operating
segments to leverage the full breadth of our operational expertise
in Aviation Services. Our government-owned,
contractor-operated business, which includes the INL/A WASS
program, was previously included in our Expeditionary Services
segment and is now reported within our Aviation Services segment
for all periods presented.
|
|
Adjusted income from continuing operations, adjusted diluted
earnings per share from continuing operations, adjusted selling,
general, and administrative expenses, adjusted EBITDA, and net debt
are "non-GAAP financial measures" as defined in Regulation G of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We believe these non-GAAP financial measures are
relevant and useful for investors as they provide a better
understanding of our actual operating performance unaffected by the
impact of certain items. When reviewed in conjunction with
our GAAP results and the accompanying reconciliations, we believe
these non-GAAP financial measures provide additional information
that is useful to gain an understanding of the factors and trends
affecting our business and provide a means by which to compare our
operating performance against that of other companies in the
industries we compete. These non-GAAP measures should be
considered as a supplement to, and not as a substitute for, or
superior to, the corresponding measures calculated in accordance
with GAAP. Adjusted EBITDA is income from continuing
operations before interest income (expense), other income
(expense), income taxes, depreciation and amortization, stock-based
compensation and other items of an unusual nature including
severance costs and significant customer bankruptcies.
Pursuant to the requirements of Regulation G of the Exchange
Act, we are providing the following tables that reconcile the above
mentioned non-GAAP financial measures to the most directly
comparable GAAP financial measures:
Adjusted Income
from Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
2019
|
2018
|
Income from
continuing operations
|
$
27.4
|
$ 31.3
|
$
57.5
|
$ 55.6
|
Deferred tax
re-measurement from the Tax Cuts and Jobs Act
|
––
|
(13.0)
|
––
|
(13.0)
|
Impact of new
lower tax rate on first half pre-tax income
|
––
|
(1.8)
|
––
|
––
|
Customer
bankruptcy charge, net of tax
|
––
|
––
|
12.4
|
––
|
Severance and
pension settlement charges, net of tax
|
0.2
|
0.8
|
0.2
|
1.3
|
Adjusted income
from continuing operations
|
$
27.6
|
$ 17.3
|
$
70.1
|
$ 43.9
|
|
|
|
Adjusted Diluted
Earnings per Share from Continuing
Operations
(In millions -
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
2019
|
2018
|
Diluted earnings
per share from continuing operations
|
$
0.78
|
$ 0.90
|
$
1.63
|
$ 1.60
|
Deferred tax
re-measurement from the Tax Cuts and Jobs Act
|
––
|
(0.38)
|
––
|
(0.38)
|
Impact of new
lower tax rate on first half pre-tax income
|
––
|
(0.05)
|
––
|
––
|
Customer
bankruptcy charge, net of tax
|
––
|
––
|
0.27
|
––
|
Severance and
pension settlement charges, net of tax
|
0.01
|
0.02
|
––
|
0.04
|
Adjusted diluted
earnings per share from continuing operations
|
$
0.79
|
$ 0.49
|
$
1.90
|
$ 1.26
|
|
|
|
Adjusted Selling,
General and Administrative Expenses
(In millions -
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
|
2019
|
2018
|
2019
|
2018
|
Selling, general
and administrative expenses
|
$
54.8
|
$ 53.3
|
$
152.1
|
$146.3
|
Severance
charges
|
(0.2)
|
(1.1)
|
(0.1)
|
(1.9)
|
Stock-based
compensation
|
(3.6)
|
(3.4)
|
(8.8)
|
(8.7)
|
Adjusted selling,
general and administrative expenses
|
$
51.0
|
$ 48.8
|
$
143.2
|
$ 135.7
|
Adjusted
EBITDA
(In millions -
unaudited)
|
Three Months
Ended
February
28,
|
Nine Months
Ended
February
28,
|
Year Ended
May 31,
|
|
2019
|
2018
|
2019
|
2018
|
2018
|
Net income
(loss)
|
$
(37.4)
|
$ 15.5
|
$
(15.3)
|
$
3.6
|
$
15.6
|
Loss from
discontinued operations
|
64.8
|
15.8
|
72.8
|
52.0
|
58.1
|
Income tax expense
(benefit)
|
(0.6)
|
(9.8)
|
4.7
|
1.4
|
3.5
|
Other expense,
net
|
0.6
|
0.5
|
0.4
|
0.5
|
0.9
|
Interest expense,
net
|
2.4
|
2.2
|
6.4
|
5.7
|
7.9
|
Depreciation and
intangible amortization
|
10.8
|
10.6
|
31.3
|
31.4
|
40.5
|
Customer
bankruptcy charge
|
––
|
––
|
12.4
|
––
|
––
|
Severance
charges
|
0.2
|
1.1
|
0.1
|
1.9
|
4.5
|
Stock-based
compensation
|
3.6
|
3.4
|
8.8
|
8.7
|
15.3
|
Adjusted
EBITDA
|
$
44.4
|
$ 39.3
|
$
121.6
|
$ 105.2
|
$ 146.3
|
Net
Debt
(In millions-
unaudited)
|
February 28,
2019
|
|
February 28,
2018
|
Total
debt
|
$
178.5
|
|
$196.2
|
Less: Cash and
cash equivalents
|
(28.9)
|
|
(23.9)
|
Net
debt
|
$
149.6
|
|
$172.3
|
Net Debt to
Adjusted EBITDA
(In millions -
unaudited)
|
|
Adjusted EBITDA
for the year ended May 31, 2018
|
$
146.3
|
Less:
Adjusted EBITDA for the nine months ended February 28,
2018
|
(105.2)
|
Plus:
Adjusted EBITDA for the nine months ended February 28,
2019
|
121.6
|
Adjusted EBITDA
for the twelve months ended February 28, 2019
|
162.7
|
Net debt at
February 28, 2019
|
$
149.6
|
Net debt to
Adjusted EBITDA
|
0.92
|
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SOURCE AAR