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AAR Corp. Reports Operating Results (10-Q)

September 23, 2010 | About:
10qk

10qk

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AAR Corp. (AIR) filed Quarterly Report for the period ended 2010-08-31.

Aar Corp. has a market cap of $732.7 million; its shares were traded at around $18.56 with a P/E ratio of 13.7 and P/S ratio of 0.6. Aar Corp. had an annual average earning growth of 18.3% over the past 5 years.AIR is in the portfolios of Arnold Schneider of Schneider Capital Management, Westport Asset Management, Paul Tudor Jones of The Tudor Group, Mario Gabelli of GAMCO Investors, Mario Gabelli of GAMCO Investors, George Soros of Soros Fund Management LLC, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

In the Aviation Supply Chain segment, sales declined $2,567 or 2.3% compared to the prior year. Prior years sales included a $5,329 sale of an interest in an aircraft leveraged lease. Gross profit in the Aviation Supply Chain segment increased $4,162 or 26.1% and the gross profit margin percentage increased to 18.6% from 14.4% in the prior year as the prior year gross profit was unfavorably impacted by the sale of the interest in a leveraged lease, in which the Company recorded a $3,800 negative gross profit margin.

In the Government and Defense Services segment, sales increased $92,587 or 252.0% compared to the prior year. The sales increase reflects the inclusion of revenue from AWS which contributed $65,269 of revenue during the first quarter, as well as growth in the Companys defense logistics business due to the ramp-up of a new performance-based logistics program. Gross profit increased $15,317 or 198.8% and the gross profit margin percentage declined to 17.8% from 21.0% in the prior year reflecting lower margins in the defense logistics business due to transition costs associated with a new performance-based logistics program and a contract adjustment which lowered the pricing for services we deliver under another supply chain program.

Operating income increased $10,997 or 63.9% compared with the prior year due the increase in sales, primarily in the Government and Defense Services segment, as well as an improvement in the consolidated gross profit margin to 17.2% versus 15.8% in the prior year. Selling, general and administrative expenses increased $5,813 or 15.8% reflecting the inclusion of selling, general and administrative expenses of AWS. Earnings from aircraft joint ventures were essentially flat at $28 compared to $83 in the prior year. Net interest expense increased $1,030 or 16.5% compared to the prior year primarily due to an increase in outstanding borrowings. Our effective income tax rate increased to 35.0% in the first quarter of fiscal 2011 compared to 23.0% last year, as the prior year rate reflected a favorable tax impact from the sale of the interest in the aircraft leveraged lease discussed above.

At August 31, 2010, our liquidity and capital resources included cash of $52,155 and working capital of $523,030. 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, 2010 were $60,000, and there were approximately $9,607 of outstanding letters of credit which reduced the availability of this facility. In addition to our Credit Agreement, we also have $3,247 available under a foreign line of credit.

During the three-month period ended August 31, 2010, cash flow from operations was $7,218 primarily as a result of net income attributable to AAR and noncontrolling interest and depreciation and amortization of $31,052, partially offset by a net increase in certain assets and liabilities of $25,060, primarily reflecting investments in inventory and equipment on or available for short-term lease to support growth initiatives in several of the Companys business units.

During the three-month period ended August 31, 2010, our financing activities generated $4,382 of cash primarily due to an increase in short-term borrowings of $14,991, partially offset by a reduction in borrowings of $7,466 which includes the retirement of convertible notes for $4,667 cash, and the purchase of treasury stock for $2,539.

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