AAR Reports 4th Quarter and Fiscal Year 2000 Results

WOOD DALE, Ill., /PRNewswire/ -- AAR CORP. (NYSE: AIR) reported diluted earnings per share (EPS) of $0.20 for the fourth quarter ended May 31, 2000 before consideration of a $4.0 million, or $0.11 per share, charge to net income to increase bad debt reserves. Including this charge, EPS for the quarter was $0.09. For the fiscal year, the Company reported EPS of $1.39, compared to $1.49 last year, or $1.28 per share after the effects of the charge.

The Company attributed the decline in fourth quarter results primarily to an unexpected shortfall in aircraft and engine sales and leasing activity. The Company also cited lower than expected sales to inventory management programs in support of certain engine service shops. Increased information technology costs, principally e-business development related, negatively impacted the year-over-year results as well. In addition, the Company increased bad debt reserves primarily in response to the recent bankruptcy filings of two customers, Tower Air, Inc. and Kitty Hawk, Inc.

Sales for the quarter, excluding pass through sales(A), were $207.0 million, compared to $245.6 million in the fourth quarter of 1999. Total sales including pass through sales were $225.1 million for the quarter. The Company generated $4.4 million of cash from operations in the quarter.

"Our aircraft and engine sales and leasing and engine parts inventory management program businesses experienced a combined decline in revenue of $40.8 million compared to last year's fourth quarter. Our aircraft sales and leasing business has seen steady revenue growth for the last three fiscal years, but did not conclude any sales transactions in the fourth quarter this year; in addition, several engine sales transactions expected during the quarter did not occur," AAR President and CEO David P. Storch said. "We have forged a viable niche in the aircraft and engine sales and leasing markets and expect to generate meaningful sales and earnings from these activities as we have in the past."

Storch continued, "Further, one of our main inventory management customers has continued to experience a significant decline in the number of shop visits for the engine types we support and we are working with them to resolve pending issues. We continue to aggressively pursue new inventory management programs and building our engine parts manufacturing (PMA) and non-program trading activities."

"Our service shops in support of aircraft maintenance, aircraft components and landing gear performed well and experienced another strong quarter. We continue to develop new capabilities in these markets including expanding services into the military and regional airline markets."

"The dramatic increase in jet fuel prices and rising interest rates have impacted our industry," said Storch. "We believe, as in the past, the Company is well-positioned to benefit from this changing environment and we remain focused on using our marketing, technical, systems and financial strength to enable our customers to operate more efficiently and competitively. Additionally, we have already taken appropriate steps to reduce our corporate overhead and other expenses."

AAR Significant Events in Fiscal 2000

• AAR formed Aerospan.com, the Company's joint venture with SITA to create the most comprehensive electronic marketplace for the air transport industry. Development is progressing on schedule and Beta testing is expected to begin on July 10, 2000. The site will launch commercially in mid-August.

• All of AAR's major manufacturing, overhaul, supply and repair business units completed ISO 9000 certification reflecting the Company's continuing commitment to operational excellence and high quality standards.

• Honeywell selected AAR Allen Aircraft as the sole distributor of its Hydro Mechanical Unit (HMU) for the CFM56-7 engine. The CFM56-7 engine powers Boeing's 737 "next generation" aircraft. There are currently approximately 480 of these 737s in service with an additional 887 next generation 737s on order.

*AAR opened up new facilities and expanded capabilities in the following areas:

• AAR Wheel & Brake Services opened facilities in Dallas, TX and Miami, FL.

• AAR Aircraft Services' facility in Roswell, NM received FAA certification (ROWR263Y) to provide limited maintenance, storage and tear down services. AAR Cargo Systems opened a new FAA-certified repair station (YG5R698Y)in Memphis, TN specializing in the repair of air cargo system components.

• AAR Landing Gear Services expanded its facility in Miami, FL to accommodate additional bushing manufacturing and expanded hydro-mechanical actuator repair capabilities.

• AAR Aircraft Component Services expanded its facility in Garden City, NY to accommodate growth in military aircraft accessory repairs as well as expanded commercial capability in environmental control systems.

Sales for fiscal year 2000, excluding pass through sales, grew to a record $957.5 million compared to $918.0 million in fiscal 1999, while net income was $35.2 million compared to $41.7 million last year. Aircraft and Engine revenues grew to $440.5 million compared to $416.2 million in fiscal 1999. Airframe and Accessories revenues were $397.1 million compared to $376.3 million last year. Manufacturing revenues were $119.9 million compared to $125.6 million in the prior year. Total sales including pass through sales were $1,024.3 million for the fiscal year. The Company generated $10.1 million of cash from operations and repurchased 618,100 shares of the Company's stock during the fiscal year.

(A) Pass Through Sales

In connection with certain long-term inventory management programs, the Company purchases factory new products on behalf of its customers from original equipment manufacturers. These products are purchased from the manufacturer and "passed through" to the Company's customer at the Company's cost. Beginning with the third quarter of fiscal 2000, the Company began reporting "pass through" sales on the Income Statement. Prior to the third quarter, "pass through" sales were disclosed in the notes to the consolidated financial statements.

AAR CORP. (NYSE: AIR) is the preeminent provider of products and value-added services to the worldwide aerospace/aviation industry. Products and services include proprietary inventory management and logistic support services, encompassing supply, repair and manufacture of spare parts and systems. Headquartered in Wood Dale, Illinois, AAR serves commercial and government aircraft fleet operators and independent service customers throughout the world.

Further information can be found at www.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, depending on a variety of factors, including: implementation of information technology systems, integration of acquisitions, marketplace competition, economic and aviation/aerospace market stability and Company profitability. 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.

                          AAR CORP. and Subsidiaries

    Comparative Statement of
     Earnings                  Three Months            Twelve Months
    (In thousands except       Ended May 31,            Ended May 31
     per share data),
                             2000      1999           2000      1999
     (Unaudited)
    Sales                 $ 206,988   $ 245,641   $ 957,525    $ 918,036
    Pass through sales       18,091      21,250      66,808      132,562
    Total sales             225,079     266,891   1,024,333    1,050,598
    Gross profit             37,861      46,764     172,853      173,259
    SG&A                     29,639(a)   25,261     102,195(a)    95,878
    Operating income          8,222      21,503      70,658       77,381
    Interest expense          5,682       5,103      23,431       18,567
    Interest income             370         436       2,299          972
    Pretax income             2,910      16,836      49,526       59,786
    Net income                2,471      11,735      35,163       41,671
    Earnings Per Share -
     Basic                   $ 0.09       $0.43      $ 1.30        $1.51
    Earnings Per Share -
     Diluted                 $ 0.09       $0.42      $ 1.28        $1.49
    Average shares
     outstanding - Basic     26,877      27,379      27,103       27,549
    Average shares
     outstanding - Diluted   27,114      27,690      27,415       28,006

(a) Includes $4 million fourth quarter charge to increase bad debt reserves

    Balance Sheet Highlights                         May 31,        May 31,
    (In thousands except per share data)                2000           1999

    Current assets                                 $ 511,267      $ 508,186
    Current liabilities                              163,816        173,586
    Working capital                                  347,451        334,600
    Long-term debt                                   180,447        180,939
    Stockholders' equity                             339,515        326,035
    Book value per share                             $ 12.64        $ 11.91
    Shares outstanding                                26,865         27,381


    Sales By Business Activity     Three Months             Twelve Months
    (In thousands)                 Ended May 31,            Ended May 31,
                                 2000        1999           2000        1999
    Aircraft and Engines     $ 73,866    $116,743       $440,502    $416,196

    Airframe and Accessories  102,615      97,091        397,090     376,259
    Manufacturing              30,507      31,807        119,933     125,581(b)
        Total                $206,988    $245,641       $957,525    $918,036
    Pass Through Sales         18,091      21,250         66,808     132,562
        Total                $225,079    $266,891     $1,024,333  $1,050,598

(b) includes sales from industrial products division

SOURCE AAR CORP.

CONTACT: Timothy Romenesko, Vice President, Chief Financial Officer of AAR CORP., 630-227-2090, e-mail, tromenesko@aarcorp.com