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AAR Corp. Reports Operating Results (10-Q)

December 21, 2010 | About:

10qk

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AAR Corp. (AIR) filed Quarterly Report for the period ended 2010-11-30.

Aar Corp. has a market cap of $1.09 billion; its shares were traded at around $27.71 with a P/E ratio of 18.9 and P/S ratio of 0.8. 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, Diamond Hill Capital of Diamond Hill Capital Management Inc, Jim Simons of Renaissance Technologies LLC, Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Operating income increased $7,091 or 27.0% compared with the prior year due the increase in sales. Selling, general and administrative expenses increased $5,743 or 15.3% reflecting the inclusion of selling, general and administrative expenses of Airlift, and approximately $1,000 in severance costs at our Amsterdam component repair facility. Earnings from aircraft joint ventures increased $2,518 compared to the prior year principally due to an aircraft sale from our joint venture aircraft portfolio. Net interest expense increased $1,330 or 21.5% compared to the prior year primarily due to an increase in outstanding borrowings. Our effective income tax rate increased slightly to 35.0% in the second quarter of fiscal 2011 compared to 34.4% last year.

In the Aviation Supply Chain segment, sales increased $13,130 or 6.2% compared to the prior year as our parts supply businesses benefitted from the improving airline environment and recent investments in high demand products. Prior year sales included a $5,329 sale of an interest in an aircraft leveraged lease. Gross profit in the Aviation Supply Chain segment increased $2,150 or 5.7% and the gross profit margin percentage declined slightly to 17.7% from 17.8% in the prior year due to the mix of products sold. Prior year gross profit was negatively impacted by the sale of the interest in a leveraged lease, in which the Company recorded a $3,800 negative gross profit margin.

Operating income increased $18,088 or 41.6% compared with the prior year due to the increase in sales, primarily in the Government and Defense Services segment. Selling, general and administrative expenses increased $11,556 or 15.5% reflecting the inclusion of selling, general and administrative expenses of Airlift. Earnings from aircraft joint ventures increased $2,463 compared to the prior year due to an aircraft sale from our joint venture aircraft portfolio during our second quarter. Net interest expense increased $2,360 or 19.0% compared to the prior year primarily due to an increase in outstanding borrowings. Our effective income tax rate increased to 35.0% in the second quarter of fiscal 2011 compared to 30.1% 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 November 30, 2010, our liquidity and capital resources included cash of $49,320 and working capital of $529,958. 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 November 30, 2010 were $60,000, and there were approximately $10,381 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 six-month period ended November 30, 2010, cash flow from operations was $29,812 primarily as a result of net income attributable to AAR and noncontrolling interest and depreciation and amortization of $65,343, partially offset by a net increase in certain assets and liabilities of $35,417, 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 six-month period ended November 30, 2010, our financing activities generated $1,215 of cash primarily due to an increase in short-term borrowings of $14,991, partially offset by a reduction in other borrowings of $10,482 which includes the retirement of convertible notes for $4,667 cash, and the purchase of treasury stock for $2,539.

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10qk
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