UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 21, 2017
AAR CORP.
(Exact name of registrant as specified in its charter)
Delaware |
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1-6263 |
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36-2334820 |
(State of Incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
One AAR Place
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
(Address and Zip Code of Principal Executive Offices)
Registrants telephone number, including area code: (630) 227-2000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02 Results of Operations and Financial Condition
On December 21, 2017, AAR CORP. (the Company) issued a press release announcing financial results for the second quarter ended November 30, 2017. A copy of the Companys press release is attached hereto as Exhibit 99.1.
The information furnished under Item 2.02 of this Current Report on Form 8-K and the exhibit attached hereto shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or Securities Act of 1933, as amended, if such subsequent filing specifically references this Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. |
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Description |
99.1 |
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Press Release issued by AAR CORP. dated December 21, 2017. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 21, 2017 |
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AAR CORP. | |
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By: |
/s/ MICHAEL D. MILLIGAN |
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Michael D. Milligan |
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Vice President Chief Financial Officer |
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(Principal Financial Officer) |
For immediate release
AAR REPORTS SECOND QUARTER FISCAL YEAR 2018 RESULTS
· Second quarter sales of $449.7 million, up 6% from Q2 FY2017
· Sales growth of 13% in our Aviation Services segment
· Received first task order from the U.S. Department of State and have begun work on the transition phase of the INL/A Worldwide Aviation Support Services contract.
WOOD DALE, ILLINOIS (December 21, 2017) AAR CORP. (NYSE: AIR) today reported second quarter Fiscal Year 2018 consolidated sales of $449.7 million, representing a $25.9 million or 6% increase year over year. This increase was driven by strong sales growth in the Aviation Services segment, which increased 13% from $346.7 million to $391.6 million.
The Company reported a net loss of ($22.6) million, or ($0.66) per diluted share, as it recognized non-cash asset impairment and related charges of $54.2 million in its Expeditionary Services segment due to the completion of certain customer contracts, as well as industry trends affecting the value of certain rotary- and fixed-wing aircraft and support parts. Excluding these non-cash charges, adjusted net income was $12.1 million, or $0.35 per diluted share. Operating results for the affected business within our Expeditionary Services segment unfavorably impacted our consolidated results by ($0.03) per diluted share in the current quarter, excluding these non-cash charges.
Our operating results included robust performance in Aviation Services, which contributed $66.0 million of gross profit, up $10.0 million or 18% over the prior year. We experienced profitability gains across all of our Aviation Services businesses including programs, MRO services, trading and distribution. Gross profit margins at Aviation Services increased from 16% in the prior year quarter to 17% in the current year as increased sales volume improved profitability within the segment.
Our Aviation Services segment continues to experience double-digit growth as we deliver on our industry-leading services. We are executing on our strategy to expand our comprehensive portfolio of aviation services, including supply chain and maintenance solutions, to the global commercial and government markets, said John M. Holmes, President and Chief Operating Officer of AAR CORP. Holmes continued, Im exceptionally pleased with our sales growth to
commercial customers of 20% as we benefited from the successful ramp of our recent program wins, growth in parts supply and expansion of our MRO network.
During the quarter, the Company announced the receipt of its first task order from the U.S. Department of State and the commencement of work under the transition phase of the INL/A Worldwide Aviation Support Services (INL/A WASS) contract. These activities followed the October 31, 2017 decision by the U.S. Court of Federal Claims upholding the Department of States September 1, 2016 award of the contract.
David P. Storch, Chairman and Chief Executive Officer of AAR CORP. said, Overall, in the second quarter, we continued to execute on our focused long-term strategy to be the best independent integrated aviation service provider in the world. We invested in supply chain activities to increase market share, expand our customer base, and enlarge our geographic footprint. Also in the period, we invested in growing our MRO business with the recent acquisition of two facilities in Canada.
We are very excited to begin work on the INL/A WASS contract. Storch continued, Our decades of experience in fleet operation, maintenance, logistics and integrated information technology will greatly benefit this critical national security program of the Department of State. This contract is an important step for our Expeditionary Services segment as we reposition our resources to focus on a government-owned, contractor-operated services (GOCO) model.
Storch continued, We are confident that our investments in our Aviation Services supply chain, logistics, and MRO activities, together with the strategic win within our Expeditionary Services segment, will further drive growth and position the Company for a strong future.
Second quarter sales to commercial customers represented 71% of consolidated sales compared to 64% of consolidated sales in the second quarter of last year. Sales to government and defense customers represented 29% of consolidated sales compared to 36% in the prior years quarter resulting from the completion of certain expeditionary airlift services contracts and the wind-down of the KC-10 CLS Program.
Selling, general and administrative expenses in the second quarter included $3.6 million in Expeditionary Services from the impairment charges and legal costs associated with the defense of our INL/A WASS contract award. Net interest expense for the quarter was $1.9 million compared to $1.1 million last year due to both higher borrowings and higher interest rates. During the quarter, we generated $11.4 million of cash in continuing operations and paid cash dividends of $2.6 million, or $0.075 per share.
The Company will provide preliminary guidance for Fiscal Year 2019 at its Investor Day scheduled for January 11, 2018.
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CDT on December 21, 2017. 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 be available by calling 855-859-2056 from inside the U.S. or 404-537-3406 from outside the U.S. (access code 46019252). The replay will be available from 8:15 p.m. CDT on December 21, 2017, until 11:59 p.m. CDT on December 26, 2017.
About AAR
AAR is a global aftermarket solutions company that employs more than 5,000 people in over 20 countries. Based in Wood Dale, Illinois, AAR supports commercial aviation and government customers through two operating segments: Aviation Services and Expeditionary Services. AARs Aviation Services include inventory management; parts supply; OEM parts distribution; aircraft maintenance, repair and overhaul; and component repair. AARs Expeditionary Services include airlift operations; mobility systems; and command and control centers in support of military and humanitarian missions. More information can be found at www.aarcorp.com.
Contact: Jason Secore, Vice President, Treasurer | (630) 227-2075 | jason.secore@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. 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 Companys Form 10-K for the fiscal year ended May 31, 2017. 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 Companys 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 AARs filings with the Securities and Exchange Commission.
AAR CORP. and Subsidiaries
Consolidated Statements of Operations
(In millions except per share data - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Sales |
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$ |
449.7 |
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$ |
423.8 |
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$ |
888.9 |
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$ |
828.6 |
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Cost and expenses: |
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Cost of sales |
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377.2 |
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357.6 |
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751.9 |
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700.9 |
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Cost of sales impairment and other charges |
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51.6 |
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51.6 |
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Selling, general and administrative |
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52.2 |
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46.3 |
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100.2 |
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91.1 |
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Selling, general and administrative - impairment |
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2.6 |
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2.6 |
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Operating income (loss) |
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(33.9 |
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19.9 |
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(17.4 |
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36.6 |
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Interest expense, net |
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(1.9 |
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(1.1 |
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(3.6 |
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(2.4 |
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Income (Loss) from continuing operations before income tax expense (benefit) |
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(35.8 |
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18.8 |
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(21.0 |
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34.2 |
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Income tax expense (benefit) |
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(13.3 |
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6.7 |
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(9.1 |
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12.2 |
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Income (Loss) from continuing operations |
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(22.5 |
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12.1 |
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(11.9 |
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22.0 |
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Loss from discontinued operations |
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(0.1 |
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(0.1 |
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(0.4 |
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Net income (loss) |
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$ |
(22.6 |
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$ |
12.1 |
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$ |
(12.0 |
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$ |
21.6 |
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Earnings (Loss) per share basic: |
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Continuing operations |
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$ |
(0.66 |
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$ |
0.35 |
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$ |
(0.35 |
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$ |
0.64 |
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Discontinued operations |
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(0.01 |
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Earnings (Loss) per share basic |
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$ |
(0.66 |
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$ |
0.35 |
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$ |
(0.35 |
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$ |
0.63 |
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Earnings (Loss) per share diluted: |
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Continuing operations |
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$ |
(0.66 |
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$ |
0.35 |
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$ |
(0.35 |
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$ |
0.64 |
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Discontinued operations |
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(0.01 |
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Earnings (Loss) per share diluted |
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$ |
(0.66 |
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$ |
0.35 |
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$ |
(0.35 |
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$ |
0.63 |
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Share Data: |
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Average shares outstanding basic |
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34.0 |
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33.7 |
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34.1 |
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33.9 |
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Average shares outstanding diluted |
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34.0 |
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34.1 |
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34.1 |
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34.2 |
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Non-GAAP Measures: |
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Adjusted net income |
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$ |
12.1 |
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$ |
12.1 |
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$ |
22.7 |
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$ |
21.6 |
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Adjusted earnings per share diluted |
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0.35 |
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0.35 |
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0.66 |
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0.63 |
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AAR CORP. and Subsidiaries
Consolidated Balance Sheet Highlights
(In millions except per share data)
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November 30, |
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May 31, |
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(Unaudited) |
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Cash and cash equivalents |
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$ |
27.1 |
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$ |
10.3 |
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Current assets |
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892.2 |
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888.5 |
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Current liabilities (excluding debt accounts) |
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334.6 |
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333.1 |
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Net property, plant and equipment |
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195.3 |
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201.9 |
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Total assets |
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1,544.3 |
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1,504.1 |
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Total debt |
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219.4 |
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159.3 |
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Stockholders equity |
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906.5 |
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914.2 |
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Book value per share |
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$ |
26.12 |
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$ |
26.58 |
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Shares outstanding |
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34.7 |
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34.4 |
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Sales By Business Segment
(In millions - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Aviation Services |
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$ |
391.6 |
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$ |
346.7 |
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$ |
762.9 |
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$ |
681.3 |
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Expeditionary Services |
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58.1 |
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77.1 |
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126.0 |
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147.3 |
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$ |
449.7 |
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$ |
423.8 |
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$ |
888.9 |
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$ |
828.6 |
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Gross Profit (Loss) by Business Segment
(In millions - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Aviation Services |
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$ |
66.0 |
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$ |
56.0 |
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$ |
123.8 |
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$ |
109.4 |
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Expeditionary Services |
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(45.1 |
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10.2 |
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(38.4 |
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18.3 |
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$ |
20.9 |
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$ |
66.2 |
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$ |
85.4 |
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$ |
127.7 |
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Non-GAAP Financial Measures
Adjusted net income, adjusted earnings per share diluted, 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 impairments and other 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. Adjusted EBITDA is income (loss) from continuing operations before interest expense, interest income, income taxes (benefit), depreciation and amortization, stock-based compensation and items of a non-recurring nature including asset impairments and gains on certain asset sales.
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:
AAR CORP. and Subsidiaries
Net Debt
(In millions- unaudited)
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November 30, |
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May 31, |
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Total debt |
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$ |
219.4 |
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$ |
159.3 |
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Less: Cash and cash equivalents |
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(27.1 |
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(10.3 |
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Net debt |
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$ |
192.3 |
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$ |
149.0 |
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Adjusted Net Income
(In millions - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Net income (loss) |
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$ |
(22.6 |
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$ |
12.1 |
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$ |
(12.0 |
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$ |
21.6 |
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Impairment and other charges, net of tax |
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34.7 |
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34.7 |
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Adjusted net income |
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$ |
12.1 |
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$ |
12.1 |
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$ |
22.7 |
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$ |
21.6 |
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Adjusted Earnings per Share - Diluted
(In millions - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Earnings per share diluted |
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$ |
(0.66 |
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$ |
0.35 |
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$ |
(0.35 |
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$ |
0.63 |
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Impairment and other charges, net of tax |
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1.01 |
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1.01 |
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Adjusted earnings per share diluted |
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$ |
0.35 |
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$ |
0.35 |
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$ |
0.66 |
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$ |
0.63 |
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Adjusted EBITDA
(In millions - unaudited)
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Three Months Ended |
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Six Months Ended |
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2017 |
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2016 |
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2017 |
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2016 |
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Income (Loss) from continuing operations |
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$ |
(22.5 |
) |
$ |
12.1 |
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$ |
(11.9 |
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$ |
22.0 |
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Impairment and other charges |
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54.2 |
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54.2 |
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Gain on asset disposal |
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(2.6 |
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Depreciation and intangible amortization |
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13.9 |
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12.0 |
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28.5 |
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24.3 |
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Stock-based compensation |
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2.8 |
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2.4 |
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5.4 |
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4.9 |
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Interest expense, net |
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1.9 |
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1.1 |
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3.6 |
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2.4 |
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Income tax expense (benefit) |
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(13.3 |
) |
6.7 |
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(9.1 |
) |
12.2 |
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Adjusted EBITDA |
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$ |
37.0 |
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$ |
34.3 |
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$ |
70.7 |
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$ |
63.2 |
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