WOOD DALE, Ill., March 24, 2020 /PRNewswire/ -- AAR CORP. (NYSE:
AIR) today reported third quarter Fiscal Year 2020 consolidated
sales of $553.1 million and income
from continuing operations of $2.6
million, or $0.07 per diluted
share. Third quarter results included a predominantly
non-cash pretax charge of $24.7
million primarily resulting from restructuring and exiting
underperforming contracts in commercial programs. For the
third quarter of the prior year, the Company reported sales of
$529.5 million and income from
continuing operations of $27.4
million, or $0.78 per diluted
share. Our adjusted diluted earnings per share from
continuing operations were $0.67 in
the current quarter compared to $0.62
in the third quarter of the prior year.
Consolidated sales increased 4% over the prior year period due
to continued growth across our Aviation Services segment, which
experienced sales growth of 7%. Excluding the sales impact of
the restructuring actions of $9.8
million, Aviation Services sales grew 9% during the quarter
primarily from execution on our government contracts. Sales
to government and defense customers represented 35% of our
consolidated sales in the current quarter compared to 33% in the
prior year quarter reflecting growth from new government
programs.
"While we saw record results during our third quarter, our
attention is focused on the unprecedented impact to our airline
customers from COVID-19. Our strategy to maintain a balanced
portfolio across the government, commercial and cargo markets,
along with our strong balance sheet, including net leverage of
0.9x, liquidity of over $425 million
and no meaningful debt maturities until September 2024, sets us up well to navigate the
COVID-19 impact. We are in discussions with our airline
customers and will actively manage our costs to align with the
current reality," said John M.
Holmes, President and Chief Executive Officer of AAR
CORP.
As indicated earlier, during the third quarter, we took actions
to improve the long-term operating performance in our commercial
programs activities. These actions will reduce our costs,
free up capital and allow for margin improvement upon the recovery
of the commercial airline market.
In the fourth quarter, we will be taking actions to reduce our
fixed costs and overhead by consolidating facilities with the goal
to improve our operating efficiencies. Further, in response
to the impact of COVID-19, we have taken actions including reducing
executive compensation, freezing new hiring, reducing or
eliminating all non-essential spend, furloughs and, unfortunately,
reducing our workforce. We expect the cost of these fourth
quarter actions to be approximately $15 to $20 million
with the payback of these actions realized within one year.
We remain prepared to take additional action as warranted to
respond to the evolving airline demand environment.
Also during the third quarter, we announced multiple new
contract wins including:
- Multiyear distribution agreement with AeroControlex, a large
manufacturer of critical components to the aviation industry
- Expansion of our airframe maintenance services with Air Canada
including plans to add A330 maintenance capability to our
operations in Quebec
- Sole-source Indefinite Delivery/Indefinite Quantity contract
award with an estimated value of $90
million from the Defense Logistics Agency Troop Support to
produce specialized shipping/storage containers and
accessories
Holmes concluded, "We have worked very hard to build an
exceptional team at AAR and I am very proud of our
accomplishments. As we enter this uncertain time, we are
making very difficult decisions that involve sacrifices by our
employees and I want to thank our people for their commitment and
flexibility. I also have been in dialogue with members of the
House, Senate and the Administration regarding potential aid to the
broader aviation industry and we are particularly supportive of any
measures aimed at preserving jobs. I am confident we will
emerge as an even stronger company as a result of the quality and
dedication of our team."
Outlook
Given the current macro uncertainty from the impact of COVID-19,
we believe it is prudent to withdraw our guidance for the balance
of the year.
Conference Call
Information
AAR will hold its quarterly conference call at 3:45 p.m. CDT on March 24,
2020. The conference call can be accessed by calling
866-802-4322 from inside the U.S. or 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 1826378). The replay will be
available from 7:15 p.m. CST on
March 24, 2020 until 10:59 p.m. CST on March
29, 2020.
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, including but not limited
to, our position of strength, our actions to reduce costs and their
anticipated impact on our results, the availability of potential
aid to the broader aviation industry, the anticipated payback
timeframe for our cost-reduction initiatives, and our ability to
navigate the impact of COVID-19. 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, 2019, as well
as the risks presented by COVID-19, which are more particularly
described in the Company's Form 10-Q for the fiscal quarter ended
February 29, 2020. 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
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
Sales
|
$
553.1
|
|
$ 529.5
|
|
$
1,655.5
|
|
$ 1,489.1
|
Cost and
expenses:
|
|
|
|
|
|
|
|
Cost of
sales
|
487.8
|
|
444.2
|
|
1,422.7
|
|
1,254.3
|
Provision for doubtful
accounts
|
1.9
|
|
0.7
|
|
3.3
|
|
13.7
|
Selling, general and
administrative
|
58.1
|
|
54.8
|
|
173.3
|
|
152.1
|
|
|
|
|
|
|
|
|
Operating
income
|
5.3
|
|
29.8
|
|
56.2
|
|
69.0
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
(2.3)
|
|
(2.4)
|
|
(6.2)
|
|
(6.4)
|
Other expense,
net
|
(0.2)
|
|
(0.6)
|
|
(0.6)
|
|
(0.4)
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income tax expense
|
2.8
|
|
26.8
|
|
49.4
|
|
62.2
|
Income tax expense
(benefit)
|
0.2
|
|
(0.6)
|
|
9.6
|
|
4.7
|
Income from
continuing operations
|
2.6
|
|
27.4
|
|
39.8
|
|
57.5
|
Loss from
discontinued operations
|
(0.3)
|
|
(64.8)
|
|
(18.9)
|
|
(72.8)
|
Net income
(loss)
|
$
2.3
|
|
$
(37.4)
|
|
$
20.9
|
|
$
(15.3)
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per share – Basic:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.08
|
|
$ 0.79
|
|
$
1.14
|
|
$ 1.66
|
Loss from discontinued
operations
|
(0.01)
|
|
(1.87)
|
|
(0.54)
|
|
(2.11)
|
Earnings (Loss) per share
– Basic
|
$
0.07
|
|
$ (1.08)
|
|
$
0.60
|
|
$ (0.45)
|
|
|
|
|
|
|
|
|
Earnings (Loss)
per share – Diluted:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.07
|
|
$ 0.78
|
|
$
1.13
|
|
$ 1.63
|
Loss from discontinued
operations
|
(0.01)
|
|
(1.86)
|
|
(0.54)
|
|
(2.08)
|
Earnings (Loss) per share
– Diluted
|
$
0.06
|
|
$ (1.08)
|
|
$
0.59
|
|
$ (0.45)
|
|
|
|
|
|
|
|
|
Share
Data:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
34.7
|
|
34.5
|
|
34.8
|
|
34.6
|
Weighted average
shares outstanding – Diluted
|
35.1
|
|
34.9
|
|
35.1
|
|
35.0
|
|
|
|
|
|
|
|
|
AAR CORP. and
Subsidiaries
|
|
|
Consolidated
Balance Sheets
(In
millions)
|
February
29,
2020
|
|
May
31,
2019
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
37.0
|
|
$ 21.3
|
Restricted
cash
|
27.9
|
|
19.8
|
Accounts
receivable, net
|
225.7
|
|
197.8
|
Contract
assets
|
64.7
|
|
59.2
|
Inventories,
net
|
621.6
|
|
523.7
|
Rotable assets and
equipment on or available for lease
|
69.0
|
|
65.3
|
Assets of
discontinued operations
|
26.3
|
|
29.2
|
Other current
assets
|
85.9
|
|
36.2
|
Total current
assets
|
1,158.1
|
|
952.5
|
Property, plant,
and equipment, net
|
136.7
|
|
132.8
|
Operating lease
right-of-use assets, net
|
99.4
|
|
––
|
Goodwill and
intangible assets, net
|
128.5
|
|
138.4
|
Rotable assets
supporting long-term programs
|
225.3
|
|
216.0
|
Other non-current
assets
|
80.9
|
|
77.5
|
Total
assets
|
$
1,828.9
|
|
$ 1,517.2
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Accounts payable
and accrued liabilities
|
$
444.9
|
|
$ 328.3
|
Liabilities of
discontinued operations
|
40.4
|
|
29.2
|
Total current
liabilities
|
485.3
|
|
357.5
|
Long-term
debt
|
206.0
|
|
141.7
|
Operating lease
liabilities
|
80.0
|
|
––
|
Other liabilities
and deferred income
|
128.2
|
|
112.1
|
Total
liabilities
|
899.5
|
|
611.3
|
Equity
|
929.4
|
|
905.9
|
Total liabilities and
equity
|
$
1,828.9
|
|
$ 1,517.2
|
AAR CORP. and
Subsidiaries
|
|
|
Consolidated
Statements of Cash Flows
(In millions –
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cash flows
provided from operating activities:
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
2.3
|
|
$ (37.4)
|
|
$
20.9
|
|
$ (15.3)
|
Loss from
discontinued operations
|
0.3
|
|
64.8
|
|
18.9
|
|
72.8
|
Income from
continuing operations
|
2.6
|
|
27.4
|
|
39.8
|
|
57.5
|
Adjustments
to reconcile income from continuing operations to net
cash
provided from (used in) operating activities
|
|
|
|
|
|
|
|
Depreciation and intangible
amortization
|
11.0
|
|
10.8
|
|
32.8
|
|
31.3
|
Amortization of stock-based
compensation
|
3.2
|
|
3.6
|
|
10.3
|
|
8.8
|
Customer contract restructuring/exit
costs
|
24.7
|
|
––
|
|
24.7
|
|
––
|
Provision for doubtful
accounts
|
1.9
|
|
0.7
|
|
3.3
|
|
13.7
|
Changes in certain assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(23.6)
|
|
(21.2)
|
|
(34.6)
|
|
(73.3)
|
Contract
assets
|
(2.6)
|
|
8.2
|
|
(5.4)
|
|
(5.2)
|
Inventories
|
(41.2)
|
|
(19.7)
|
|
(98.0)
|
|
(71.8)
|
Rotable assets
supporting long-term
programs
|
(4.6)
|
|
(11.5)
|
|
(23.7)
|
|
(38.2)
|
Accounts payable
and accrued liabilities
|
72.9
|
|
44.8
|
|
97.5
|
|
50.5
|
Deferred revenue on
long-term programs
|
(22.2)
|
|
24.1
|
|
1.1
|
|
51.9
|
Other
|
(12.4)
|
|
(9.6)
|
|
(48.3)
|
|
(8.8)
|
Net cash
provided from (used in) operating activities – continuing
operations
|
9.7
|
|
57.6
|
|
(0.5)
|
|
16.4
|
Net cash
provided from (used in) operating activities – discontinued
operations
|
(0.7)
|
|
2.4
|
|
(8.4)
|
|
8.1
|
Net cash
provided from (used in) operating activities
|
9.0
|
|
60.0
|
|
(8.9)
|
|
24.5
|
|
|
|
|
|
|
|
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
|
Property,
plant and equipment
expenditures
|
(8.1)
|
|
(4.3)
|
|
(18.3)
|
|
(12.3)
|
Other
|
(0.2)
|
|
––
|
|
(1.7)
|
|
(1.0)
|
Net cash
used in investing activities – continuing operations
|
(8.3)
|
|
(4.3)
|
|
(20.0)
|
|
(13.3)
|
Net cash
used in investing activities – discontinued
operations
|
––
|
|
(0.1)
|
|
––
|
|
(0.5)
|
Net cash
used in investing activities
|
(8.3)
|
|
(4.4)
|
|
(20.0)
|
|
(13.8)
|
|
|
|
|
|
|
|
|
Cash flows
provided from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from (repayments on) borrowings,
net
|
10.0
|
|
(42.0)
|
|
65.0
|
|
––
|
Cash
dividends
|
(2.6)
|
|
(2.6)
|
|
(8.1)
|
|
(7.9)
|
Purchase of
treasury stock
|
––
|
|
(0.8)
|
|
(4.1)
|
|
(0.8)
|
Other
|
4.1
|
|
0.1
|
|
(0.2)
|
|
8.3
|
Net cash provided
from (used in) financing activities – continuing
operations
|
11.5
|
|
(45.3)
|
|
52.6
|
|
(0.4)
|
Net cash used in
financing activities – discontinued
operations
|
––
|
|
(0.7)
|
|
––
|
|
(1.4)
|
Net cash provided
from (used in) financing activities
|
11.5
|
|
(46.0)
|
|
52.6
|
|
(1.8)
|
Effect of exchange
rate changes on
cash
|
––
|
|
0.1
|
|
0.1
|
|
(0.1)
|
Increase in cash
and cash
equivalents
|
12.2
|
|
9.7
|
|
23.8
|
|
8.8
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
52.7
|
|
40.7
|
|
41.1
|
|
41.6
|
Cash, cash
equivalents, and restricted cash at end of
period
|
$
64.9
|
|
$ 50.4
|
|
$
64.9
|
|
$ 50.4
|
AAR CORP. and
Subsidiaries
|
|
|
Sales By Business
Segment
(In millions -
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Aviation
Services
|
$
530.3
|
$ 497.3
|
|
$
1,574.1
|
$ 1,398.6
|
Expeditionary
Services
|
22.8
|
32.2
|
|
81.4
|
90.5
|
|
$
553.1
|
$ 529.5
|
|
$
1,655.5
|
$ 1,489.1
|
|
Gross Profit by
Business Segment
(In millions-
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Aviation
Services
|
$
65.2
|
$ 81.7
|
|
$
230.9
|
$ 223.7
|
Expeditionary
Services
|
0.1
|
3.6
|
|
1.9
|
11.1
|
|
$
65.3
|
$ 85.3
|
|
$
232.8
|
$ 234.8
|
Adjusted income from continuing operations, adjusted diluted
earnings per share from continuing operations, adjusted selling,
general, and administrative expenses, adjusted cash used in
operating activities from continuing operations, 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 but not
limited to severance, facility repositioning costs, investigation
and remediation compliance costs, and significant customer events
such as early terminations, contract restructurings, and
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
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Income from
continuing operations
|
$
2.6
|
$ 27.4
|
|
$
39.8
|
$ 57.5
|
Investigation and
remediation compliance costs, net of tax
|
2.1
|
0.9
|
|
6.3
|
1.0
|
Customer contract
restructuring/exit costs, net of tax
|
18.8
|
––
|
|
18.8
|
––
|
Recognition of
previously reserved income tax benefits
|
––
|
(6.5)
|
|
––
|
(6.5)
|
Customer
bankruptcy charge, net of tax
|
––
|
––
|
|
––
|
9.6
|
Severance charges,
net of tax
|
0.4
|
0.2
|
|
1.6
|
0.1
|
Adjusted income
from continuing operations
|
$
23.9
|
$ 22.0
|
|
$
66.5
|
$ 61.7
|
|
|
Adjusted Diluted
Earnings per Share from Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine
Months Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Diluted earnings
per share from continuing operations
|
$
0.07
|
$ 0.78
|
|
$
1.13
|
$ 1.63
|
Investigation and
remediation compliance costs, net of tax
|
0.06
|
0.02
|
|
0.18
|
0.04
|
Customer contract
restructuring/exit costs, net of tax
|
0.53
|
––
|
|
0.53
|
––
|
Recognition of
previously reserved income tax benefits
|
––
|
(0.19)
|
|
––
|
(0.19)
|
Customer
bankruptcy charge, net of tax
|
––
|
––
|
|
––
|
0.27
|
Severance charges,
net of tax
|
0.01
|
0.01
|
|
0.04
|
––
|
Adjusted diluted
earnings per share from continuing operations
|
$
0.67
|
$ 0.62
|
|
$
1.88
|
$ 1.75
|
|
|
Adjusted Selling,
General and Administrative Expenses
(In millions -
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine
Months Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Selling, general
and administrative expenses
|
$
58.1
|
$ 54.8
|
|
$
173.3
|
$ 152.1
|
Investigation and
remediation compliance costs
|
(2.7)
|
(1.1)
|
|
(7.9)
|
(1.3)
|
Severance
charges
|
(0.4)
|
(0.2)
|
|
(2.2)
|
(0.1)
|
Stock-based
compensation
|
(3.2)
|
(3.6)
|
|
(10.3)
|
(8.8)
|
Adjusted selling,
general and administrative expenses
|
$
51.7
|
$ 49.9
|
|
$
152.9
|
$ 141.9
|
|
|
Adjusted Cash
Provided by (Used in) Operating Activities
from Continuing
Operations
(In millions -
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine
Months Ended
February
29/28,
|
|
2020
|
2019
|
|
2020
|
2019
|
Cash provided by
(used in) operating activities from
continuing operations
|
$
9.7
|
$
57.6
|
|
$
(0.5)
|
$ 16.4
|
Amounts
outstanding on accounts receivable financing
program:
|
|
|
|
|
|
Beginning of
period
|
85.7
|
95.2
|
|
86.2
|
71.7
|
End of
period
|
(85.6)
|
(99.5)
|
|
(85.6)
|
(99.5)
|
Adjusted cash
provided by (used in) operating activities
from
continuing operations
|
$
9.8
|
$ 53.3
|
|
$
1.0
|
$
(11.4)
|
Adjusted
EBITDA
(In millions -
unaudited)
|
Three Months
Ended
February
29/28,
|
|
Nine Months
Ended
February
29/28,
|
|
Year Ended
May 31,
|
|
2020
|
2019
|
|
2020
|
2019
|
|
2019
|
Net income
(loss)
|
$
2.3
|
$ (37.4)
|
|
$
20.9
|
$
(15.3)
|
|
$
7.5
|
Loss from
discontinued operations
|
0.3
|
64.8
|
|
18.9
|
72.8
|
|
76.6
|
Income tax expense
(benefit)
|
0.2
|
(0.6)
|
|
9.6
|
4.7
|
|
4.9
|
Other expense,
net
|
0.2
|
0.6
|
|
0.6
|
0.4
|
|
0.8
|
Interest expense,
net
|
2.3
|
2.4
|
|
6.2
|
6.4
|
|
8.5
|
Depreciation and
intangible amortization
|
11.0
|
10.8
|
|
32.8
|
31.3
|
|
42.8
|
Customer contract
restructuring/exit costs
|
24.7
|
––
|
|
24.7
|
––
|
|
––
|
Customer
bankruptcy charge
|
––
|
––
|
|
––
|
12.4
|
|
12.4
|
Investigation and
remediation costs
|
2.7
|
1.1
|
|
8.3
|
1.3
|
|
3.5
|
Severance
charges
|
0.5
|
0.2
|
|
2.1
|
0.1
|
|
0.2
|
Facility
repositioning costs
|
––
|
––
|
|
––
|
––
|
|
0.9
|
Stock-based
compensation
|
3.2
|
3.6
|
|
10.3
|
8.8
|
|
13.5
|
Adjusted
EBITDA
|
$
47.4
|
$ 45.5
|
|
$
134.4
|
$ 122.9
|
|
$ 171.6
|
Net Debt
(In millions-
unaudited)
|
February 29,
2020
|
|
February 29,
2019
|
Total
debt
|
$
208.1
|
|
$ 178.5
|
Less: Cash and
cash equivalents
|
(37.0)
|
|
(28.9)
|
Net
debt
|
$
171.1
|
|
$ 149.6
|
Net Debt to Adjusted
EBITDA
(In millions -
unaudited)
|
|
Adjusted EBITDA
for the year ended May 31, 2019
|
$
171.6
|
Less:
Adjusted EBITDA for the nine months ended February 28,
2019
|
(122.9)
|
Plus:
Adjusted EBITDA for the nine months ended February 29,
2020
|
134.4
|
Adjusted EBITDA
for the twelve months ended February 29, 2020
|
183.1
|
Net debt at
February 29, 2020
|
$
171.1
|
Net debt to
Adjusted EBITDA
|
0.93
|
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SOURCE AAR CORP.