AAR Corp. (AIR) filed Quarterly Report for the period ended 2009-08-31.
AAR Corp. is a worldwide leader in supplying aftermarket products and services to the global aerospace/aviation industry. It provides aircraft engines and engine parts; airframe and accessories products; overhaul repair and maintenance services and company-manufactured products to customers in all segments of this industry including the world's largest commercial airlines and air cargo operators original equipment manufacturers domestic and foreign military and government agencies aircraft leasing companies and maintenance service providers. Aar Corp. has a market cap of $795.3 million; its shares were traded at around $20.47 with a P/E ratio of 10.9 and P/S ratio of 0.6. Aar Corp. had an annual average earning growth of 52.7% over the past 5 years.
Highlight of Business Operations:
Operating income decreased $14,574 or 45.8% compared with the prior year due to the impact from the reduction of sales and gross profit in the Aviation Supply Chain and Maintenance, Repair and Overhaul segments, as well as a reduction in earnings from unconsolidated joint ventures. Selling, general and administrative expenses were essentially flat with the prior year, even while including approximately $2,400 of expense associated with the launch of AAR Global Solutions in fiscal 2010. Earnings from joint ventures declined $1,365 or 94.3%, principally due to increased depreciation expense recorded in the aircraft joint ventures as a result of reducing the useful lives of certain narrow-body aircraft to 25 years, as well as less aircraft owned in joint venture as compared to the prior year. Net interest expense declined $1,542 or 19.8% compared to the prior year due to a reduction in outstanding borrowings. Our effective income tax rate declined to 23.0% in the first quarter of fiscal 2010 compared to 34.4% last year primarily due to the favorable tax impact from the sale of an interest in an aircraft leveraged lease. The Company expects its effective income tax rate to be approximately 34% for the balance of the fiscal year.
During the first quarter of fiscal 2010, we retired $10,500 par value of our 1.625% convertible notes and $2,000 par value of our 2.25% convertible notes resulting in a net gain on extinguishment of debt of $913.
At August 31, 2009, our liquidity and capital resources included cash of $122,840 and working capital of $598,971. Our revolving credit agreement, as amended (the “Credit Agreement”) with various financial institutions, as lenders, and Bank of America National Association as successor by merger to LaSalle Bank National Association (“Bank of America”), as administrative agent for the lenders, provides us with unsecured revolving borrowing capacity of up to $250,000. Under certain circumstances, we may request an increase to the revolving commitment by an aggregate amount of up to $75,000, not to exceed $325,000 in total. The term of our Credit Agreement extends to August 31, 2011. Borrowings under the Credit Agreement bear interest at the London Interbank Offered Rate (“LIBOR”) plus 100 to 237.5 basis points based on certain financial measurements. Borrowings outstanding under this facility at August 31, 2009 were $50,000, and there were approximately $13,190 of outstanding letters of credit which reduced the availability of this facility. In addition to our Credit Agreement, we also have $3,169 available under a foreign line of credit.
During the three-month period ended August 31, 2009, cash flow from operations was $34,122 primarily as a result of a reduction in accounts receivable of $24,469 and net income attributable to AAR and noncontrolling interest and depreciation and amortization of $20,722, partially offset by a decrease in accrued liabilities of $14,249.
During the three-month period ended August 31, 2009, our financing activities used $18,716 of cash primarily due to a reduction in borrowings of $18,768, which includes the retirement of convertible notes for $9,115 cash and the payoff of non-recourse debt of $9,261.
In June 2005, we announced that our Cargo Systems business was selected to provide cargo handling systems for the new Airbus A400M Military Transport Aircraft (“A400M”). We are a subcontractor to Pfalz Flugzeugwerke GmbH (“PFW”) on this Airbus program. Our portion of the revenue from this program is expected to exceed $300,000 through fiscal 2020, based on sales projections of the A400M. During fiscal 2009, Airbus agreed to reimburse AAR and PFW 20.0 million euros for costs incurred to develop the A400M system. AAR’s share of this reimbursement was $18,700 and reduced the amount of capitalized program development costs. As of August 31, 2009, we have capitalized, net of the $18,700 reimbursement, approximately $41,500 of costs associated with the engineering and development of the cargo system in accordance with SOP 81-1 “Accounting for Performance of Construction — Type and Certain Production — Type Contracts.” Sales and related cost of sales will be recognized on the units of delivery method. In determining the recoverability of the
AIR is in the portfolios of Arnold Schneider of Schneider Capital Management.
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