AAR Reports Fourth Quarter and Fiscal Year 2010 Results

WOOD DALE, Ill., July 13 /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported fiscal year 2010 fourth quarter consolidated sales of $372.3 million and net income attributable to AAR of $11.2 million, or $0.29 diluted earnings per share. For the fourth quarter of last fiscal year, the Company reported sales of $371.7 million and net income attributable to AAR of $14.2 million, or $0.36 diluted earnings per share.

Consolidated gross profit margin was 17.9% for the fourth quarter compared to 16.4% last year. Selling, general and administrative costs increased $7.2 million, to $42.8 million. The increase was primarily attributable to the acquisition of AWS, including $1.1 million of acquisition related expenses. During the fourth quarter of 2010, the Company generated $59 million of cash flow from operations.

In the fourth quarter of fiscal year 2010, the Company formed the Government and Defense Services segment. This new segment includes the results of AWS, Defense Systems and Logistics (previously reported in the Aviation Supply Chain segment) and Integrated Technologies (formerly known as AAR Brown International and previously reported in the Structures and Systems segment). Prior year information has been revised to conform to the new segment presentation.

Following are the fourth quarter highlights for each segment:

Aviation Supply Chain – Sales declined 9% to $103.3 million and gross profit decreased 6% to $17.1 million compared to last year's fourth quarter, resulting in a gross profit margin of 16.6%. The year-over-year sales decline was primarily due to lower engine parts sales to commercial customers. Sequentially, sales increased 14.9% over the third quarter primarily due to increased demand for airframe parts support.

Government and Defense Services – Sales increased 82% to $80.5 million and gross profit increased 83% to $16.9 million over last year's fourth quarter, resulting in a gross profit margin of 21.0%. The sales increase was driven by revenue from AWS and the KC-10 program, which became operational in February 2010.

The integration of AWS is on track and its operating performance is meeting the Company's expectations. During June and July 2010, AWS began providing additional airlift support deploying both fixed and rotary-wing aircraft under two separate new awards.

Maintenance, Repair and Overhaul – Sales declined 18% to $79.7 million and gross profit declined 26% to $10.6 million compared to last year's fourth quarter, resulting in a gross profit margin of 13.3%. During the fourth quarter, the Company performed on several previously announced contract wins, which helped mitigate soft conditions in the MRO market. The Company expects year-over-year sales growth in the MRO segment beginning in the second quarter of fiscal 2011.

Structures and Systems – Sales declined 7% to $108.9 million while gross profit increased 15% to $22.1 million over last year's fourth quarter, resulting in a gross profit margin of 20.3%. Although the Company experienced a decline in sales at its mobility products business, the year-over-year margin improvement is due principally to a combination of favorable product mix and improved operating efficiencies within that business unit.

Full Year Highlights

For the Company's fiscal year 2010, sales were $1,352.2 million, a decline of 5% versus the prior year, and net income attributable to AAR was $44.6 million, or $1.16 per diluted share.

Commenting on fiscal year 2010 performance, David P. Storch, Chairman and Chief Executive Officer of AAR CORP. stated, "While the pace of the recovery in the commercial markets was not as brisk as expected, we remained focused on capturing new business, delivering quality and cost effective solutions, maintaining a lean cost structure, and generating cash. I am pleased with our new business wins during the year, including the KC-10 performance-based logistics program valued at $600 million over nine years; contracts providing mobility products valued at $300 million over five years; long-term programs to manufacture composite products for the Bombardier C-series and Sikorsky S-92 platforms, together valued in excess of $100 million; several multi-year airframe maintenance contracts and one engineering services contract, together valued in excess of $125 million; a $45 million Airbus narrow-body landing gear program over five years; and a new Airbus inventory management program for Gulf Air valued at $20 million over three years."

Storch continued, "During fiscal year 2010, we generated $153 million of cash from operations. Our balance sheet remains strong and we have substantial liquidity to seize additional opportunities in our markets."

Storch continued, "We are in the integration phase of the AWS acquisition and I am very pleased with our progress to date. Management has been focused on execution and improving the operational and financial performance of the business. We have owned AWS since April 7, 2010, and since closing have successfully won new business and see additional opportunity to provide vital supplemental airlift support to a broader customer base."

Storch concluded, "The focus of the Company remains squarely on capturing new business, solid execution, cost control, and maintaining a strong balance sheet. For fiscal 2011, we expect to benefit from the investments we have made in support of our defense and government customers and from the recovery in the commercial markets."

AAR is a leading provider of products and value-added services to the worldwide aerospace and government/defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve aviation and government/defense customers through four operating segments: Aviation Supply Chain; Government and Defense Services; Maintenance, Repair and Overhaul; and Structures and Systems. More information can be found at www.aarcorp.com.

AAR will hold its quarterly conference call at 7:30 a.m. CDT on July 14, 2010. The conference call can be accessed by calling 866-219-5269 from inside the U.S. or 703-639-1121 from outside the U.S. A replay of the call will be available by calling 888-266-2081 from inside the U.S. or 703-925-2533 from outside the U.S. (access code 1465420) from 10:30 a.m. CDT on July 14, 2010 until 11:59 p.m. CDT on July 21, 2010.

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 May 31, 2009 Form 10-K. 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.

The following information includes sales and gross profit by segment under the new reporting structure for each quarter in fiscal year 2010 and 2009.

SOURCE AAR