AAR Reports Record Sales and Earnings in 3rd Quarter

WOOD DALE, Ill., /PRNewswire/ -- AAR CORP. (NYSE: AIR) announced today record quarterly revenues and increased net income and diluted earnings per share for the Company's fiscal year 2000 third quarter, which ended February 29, 2000. It was the Company's 21st consecutive quarter of year-over-year earnings per share increases.

Sales for the period, excluding "pass through" sales as described later in this release, were $256.6 million, an increase of 12.7% from the third quarter of 1999. Net income was $11.0 million, a 6.6% increase from the same period last year and diluted earnings per share was $0.40, up 8.1%. The Company generated $11.2 million of cash from operations in the quarter. Total sales including "pass through" sales were $272.3 million for the quarter.

During the third quarter, Aircraft and Engine revenues grew 12.9% to $125.4 million, reflecting continued strength in the aircraft and engine sales and leasing businesses, partially offset by reduced sales from engine parts inventory management programs as a result of fewer shop visits at certain customer's engine overhaul facilities. Airframe and Accessories revenues were $101.8 million, an increase of 14.1% over the prior year driven by increased sales from aircraft parts inventory management programs and strength in component, landing gear and airframe maintenance. Manufacturing revenues were $29.3 million, an increase of 7.2% over the prior year as a result of increased sales of the Company's products supporting the U.S. military deployment needs.

"Our Airframe and Accessories businesses reported double digit sales growth for the first time in six quarters, reflecting new inventory management programs, improvement in our aircraft parts business, and continued strength in our aircraft maintenance, landing gear and component repair. Additionally our engine sales and leasing business continued to perform exceptionally well during the period," said President and Chief Executive Officer, David P. Storch.

The Company's consolidated gross profit margin, excluding pass through sales, declined from 18.8% to 17.6% as a result of a low margin, quick-turn aircraft transaction. Gross profit margins elsewhere throughout the Company were consistent with prior period margins. The reduction in the consolidated gross profit margin was partially offset by an improvement in S,G&A expense as a percentage of sales, resulting in an operating margin of 8.1% compared to 8.3% in the prior year.

On February 14, 2000, the Company entered into a joint venture agreement to form aerospan.com and build the industry's most comprehensive electronic marketplace for aviation products and services. AAR's partner in aerospan.com is SITA, the world's leading provider of integrated telecommunications and information solutions to the air transport industry. Leveraging SITA's global network and IT solutions capabilities and AAR's leadership in aviation supply chain management, aerospan.com will enable the 15,000 airlines, aviation/aerospace companies and other industry participants to source, buy and sell products and services online. Expected to launch in the summer of 2000, aerospan.com will provide a neutral e-commerce marketplace for the entire array of products and services used by the air transport industry and create a more efficient and better-informed global marketplace.

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. Previously, the Company disclosed these "pass through" sales in the notes to the consolidated financial statements and excluded these transactions from sales and cost of sales.

During the third quarter, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101 summarizing the SEC's views in applying generally accepted accounting principles to revenue recognition. As a result of SAB No. 101, the Company now believes that pass through sales should be included in sales. Prior to issuance of SAB No. 101, the Company believed that excluding pass through sales from sales was appropriate given the limited nature of the services provided for these transactions. Beginning with the third quarter 10-Q, the Company will report pass through sales on the Income Statement. This change will have no impact on net income or earnings per share.

Total sales, including pass through sales, were $272.3 million and $799.3 million for the three and nine month periods ended February 29, 2000, respectively, and $251.0 million and $783.7 million for the three and nine month periods ended February 28, 1999, respectively. As inventory management programs mature, pass through sales typically decline as the Company sources more of its customer's parts requirements with used, serviceable parts, rather than with factory new parts. The reduction in pass through sales during the current fiscal year is attributable to the maturing of the Company's existing long-term inventory management programs, as well as lower engine inputs at certain customer maintenance facilities.

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.

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
                         (In thousands except per share data)


                                 Three Months Ended       Nine Months Ended
                                     Feb 29/28,               Feb 29/28,
                                  2000        1999          2000        1999
                                     (Unaudited)               (Unaudited)
    Sales                      $ 256,558   $ 227,699     $ 750,537   $ 672,395
    Pass through sales            15,773      23,285        48,717     111,312
    Total sales                  272,331     250,984       799,254     783,707
    Gross profit                  45,074      42,706       134,992     126,495
    SG&A                          24,404      23,768        72,556      70,617
    Operating income              20,670      18,938        62,436      55,878
    Interest expense               5,979       4,591        17,749      13,464
    Interest income                  959         399         1,929         536
    Pretax income                 15,650      14,746        46,616      42,950
    Net income                    10,955      10,278        32,692      29,936
    Earnings Per Share-Basic      $ 0.41       $0.37        $ 1.20       $1.08
    Earnings Per Share-Diluted    $ 0.40       $0.37        $ 1.19       $1.07
    Average shares
     outstanding-Basic            26,942      27,535        27,178      27,606
    Average shares
     outstanding-Diluted          27,273      27,965        27,520      28,108


                                Balance Sheet Highlights
                            (In thousands except per share data)

                                 February 29,               May 31,
                                     2000                    1999
                                  (Unaudited)       (Derived from audited
                                                    financial statements)
    Current assets                $ 526,935               $ 508,186
    Current liabilities             176,733                 173,586
    Working capital                 350,202                 334,600
    Long-term debt                  180,639                 180,939
    Stockholders' equity            342,482                 326,035
    Book value per share            $ 12.70                 $ 11.91
    Shares outstanding               26,965                  27,381


                               Sales By Business Activity
                                     (In thousands)

                                Three Months Ended        Nine Months Ended
                                  February 29/28,          February 29/28,
                                2000        1999          2000       1999
    Aircraft and Engines      $125,443    $111,117      $366,635   $299,457
    Airframe and Accessories   101,845      89,282       294,475    279,165
    Manufacturing               29,270      27,300        89,427     93,773*
                              $256,558    $227,699      $750,537   $672,395
    Pass Through Sales          15,773      23,285        48,717    111,312
                              $272,331    $250,984      $799,254   $783,707

• 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