AAR Corp (AIR) 2003 Q1 法說會逐字稿

Good day everyone and welcome to the first quarter earnings release conference call. Just a reminder, this is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Dawn Kaiser with Investor Relations. Please go ahead, ma'am.

Thank you, Rochelle. Good morning ladies and gentlemen and thank you for taking the time to participate in this morning's conference call. Before we begin, we would like to remind you that certain of the comments made today relate to future events this are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please also refer to the forward looking statement disclaimer contained in the press release issued this morning, as well as factors discussed under Item 7, entitled "Factors Which May Affect Future Results" included in the companies May 31, 2002 form 10-K . By providing forward-looking statements the company assumes no obligation to update the forward looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. At this time, I would like to turn the call over to our President and CEO, David Storch.

Thank you, Dawn and good morning.

With me today is Tim Romenesko, our Chief Financial Officer. By now, I believe that you have had the opportunity to review our first quarter results, which we released earlier today.

For the first quarter, the company reported a loss of $4.9 million and diluted loss per share of 15 cents. Net sales fot the quarter were $151.2 million. Our first quarter results reflect lower than anticipated sales and margin in the inventory and logistic services and maintenance repair and overhaul segments, as we experienced less demand from our airline customers due to their difficult financial condition.

In the inventory and logistics services segment, sales were essentially flat, compared with the fourth quarter of last year, and in the maintenance repair and overhaul segment, sales declined $4.6 million, or 8.4 percent. Sales in aircraft and engine sales and leasing segment were higher than the fourth quarter due to two low margin engine transactions. In the manufacturing segment, sales increased $2.8 million or 11.2 percent over the fourth quarter of last fiscal year and increased $6 million or 27 percent over the first quarter of last year. The increase was due to continued strong demand for the company's manufactured pallets, containers and shelters that support the U.S. deployment needs.

In addition, the company began delivering composite monorail cars under it's contract with BOMBARDIA. The Las Vegas monorail program is expected to be up and running in January 2004 and we expect additional orders as the system is expanded. We're also encouraged by the results and strong program flow we are seeing in providing logistic support to the U.S. military and their major contractors. The Department of Defense is looking for industry partnering to provide performance - based logistic support. We are ideally positioned to provide such support due to our aerospace expertise, inventory management skills, seamless systems integration and Department of Defense performance track record.

We continue to be very focussed on cash and expenses. We generated $4.8 million cash from operations, and $2.5 million in free cash flow during the first quarter. Furthermore, after taking into consideration all debt obligations of the company, our net debt position improved by $7.5 million, from May 31 and we ended the quarter with $35.6 million cash on hand, up slightly from May 31.

As we disclosed in our May 31,2002 form 10-D, we recently acquired our partner's interest in a 767-300 aircraft for a very nominal consideration. As a result, the asset and nonrecourse debt are now recorded on the company's balance sheet and you will notice it on today's balance sheet that went with the earnings release. Our equity investment in the aircraft before and after is $2.7 million, and the nonrecourse debt, which is approximately $33 million, is being serviced by the underlying lease.

We recently took actions to reduce our corporate, administrative and overhead costs, which coupled with the savings from the previously announced consolidation of two company - owned facilities will generate more than $8 million of annual savings. We will begin to realize the benefits from these actions during our second quarter and throughout the balance of our fiscal year and expect to have both buildings sold within the fiscal year at or slightly above book value.

Although we are not pleased with our first quarter performance, we continue to experience increased deal flow and recently entered into a number of new agreements including MR&O agreements with Alaska Airlines and Midwest Express. Both contracts of which were signed in the first week in September and the work will begin here in the second quarter, and a manufacturing program with Israel Aircraft Industries to design a new 767-200 cargo loading system. We have confidence that the 767-200 makes an ideal freighter and we believe that this program will be very beneficial for the company moving forward.

I would also like to add that effective today, I resume the role of Chief Operating Officer following Joe Gullion's resignation. Joe had been in that role since June of last year and will be leaving to pursue an opportunity outside of the aviation industry. That concludes the formal remarks section of the call. I'd like to thank you for your time and open up the lines for any questions you might have.

Thank you, the question and answer session will be conducted electronically. To ask your question, please press the star key followed by the digit one on your touch tone phone. If you're using a speaker phone, please make sure your mute function is turned off to allow signal to reach our equipment. We will proceed in the order that you signal us and will take as many questions as time permits. We'll pause for just one moment. Our first question will come from Tom Lewis with C.L. King & Associates.

Yes, good morning.

Good morning, Tom.

First of all, just a financial clarification. Am I to understand that the $8 million-dollar figure referencing savings includes the proceeds from the asset sales?

No. No, no. Unrelated to the proceeds. I had mentioned the asset sale as kind of an additional item to the $8 million of savings.

Is there any kind of ballpark figure you could give us with respect to how much those facilities are going to generate?

Yes, somewhere between six and six and a half million of cash.

Okay, great. Other questions, uhm, can we assume that these new maintenance contracts that you've announced involve relatively predicable scheduled terms that you can kind of program into your outlook or into your budget over the, you now, next month, next quarter,over the next year?

Yes, it should be very predicable. In the case of Alaska, what we're expecting is nose to tail operations, so when an aircraft comes into our facility, we complete the maintenance and return it to Alaska. Another aircraft comes in and replaces it. In the case of the Midwest Express agreement, it's principally around landing gear and it's a very scheduled program.

Okay. I would think that with the amount of military activity right now that your capacity to do this kind of work would be pretty close to full.

In our Oklahoma City facility, that -- We are making plans to expand our capability there. In our landing gear facility, we still have capacity.

Okay. And last question: Did you have any, during the last quarter, did you have any deferrals or postponements in your landing gear operation?

We started off the quarter relatively slow, June and July had been a continuation of what we had experienced in the prior six - month period. But beginning in August, we started seeing a resurgence in ghat business that continues into the second quarter.The backlog today is higher than it's been at any point in time in the last 18 months. So we are seeing an improvement in that business.

Okay. I'll let somebody else jump in. Thanks a lot.

Once again, to ask your question, please press star followed by the digit one on your touch tone phone. At this time, there are no further questions, I'll turn the call back over to you,Mr. Storch, for any additional or closing remarks.

Okay. Well, thank you for your interest and thanks for your time.

That concludes today's conference call.Thank you for your participation.