Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

AAR Corp (NYSE:AIR)

F3Q2014 Earnings Conference Call

March 20, 2014 04:45 PM ET

Executives

David P. Storch – Chairman and Chief Executive Officer

John C. Fortson – Vice President, Treasurer and Chief Financial Officer

Analysts

Arnie Ursaner – CJS Securities, Inc.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Tyler E. Hojo – Sidoti & Co. LLC

Kevin Ciabattoni – KeyBanc Capital Markets, Inc.

J.B. Groh – D.A. Davidson & Co.

Stan Mann – Mann Family Investments

Operator

Good afternoon ladies and gentlemen and welcome to AAR’s Fiscal 2014 Third Quarter Earnings Call.

Before we begin, I'd like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as noted in our news release and the Risk Factors section of the Company's Form 10-K for the fiscal year ended May 31, 2013. In providing forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events.

At this time, I'd like to turn the call over to AAR’s Chairman and Chief Executive Officer, David Storch.

David P. Storch

Thank you, sir and good afternoon. Thank you for joining us today to discuss our third quarter fiscal 2014 performance. With me in Chicago are Tim Romenesko and John Fortson and few other senior folks here at the company.

On today’s call I would like to start by discussing our third quarter results and then providing with an explanation about actions we are taking to counter the revenue decline we experience and how we are positioning our company for future growth.

Let me begin with Aviation Services; in the Aviation Services segment, sales were down 10% from last year to $368 million as mentioned in our press release our MRO operations had difficult quarter, sales were down $24.3 million in that sub-segment within our Aviation Services Group.

Sales in the airframe maintenance facility were lower by approximately $5 million as we conclude several large 757 maintenance programs. In this call, I will give you a sense of our billable hours of 1.1 million as opposed to 1.3 million in the prior year.

Sales in our engineering services unit where we completed a sizeable engineering service program were down by $10 million. We have engineering service work, but not of the same size or stock as we had last year with the program we completed and you may recall that this is the business from time-to-time we win contracts and there are times where we have a low-end activity.

Our Landing Gear and Component Repair revenues were down $9.4 million due to the repair cycle declined for Landing Gear and just lower input from component. That address the weakness in MRO activity in this quadrant position of the business for the future, we have narrowed the focus of our leadership team to try to improve performance. In this regard, we had Dany Kleiman who runs MRO performing other functions of the company, we’ve moved in back to MRO only and put a little bit more sales emphasis around him, so that we can recapture some business.

Now we are actively pursuing entry into E-Jet after- market support. We believe that the aircraft is selling well in the United States and we line up well. It’s a good fit for the company. We have the airframe, landing gear and component, repair capability we’ve good enough product knowledge. As you can see from one of the awards that we announced, we’ve had some success supporting that platform.

We also plan to expand our world-class landing gear repair and overall capability into ancillary product line including actuation, wheels, and brakes. We have discussed before the landing gear repair cycles about 10 year cycle, we’re still suffering from the lack of new aircraft sales into the market back in the 2003, 2004 time period. But as you recall, the markets got little bit firmer in the 2004, 2005 or 2006 time period which should bode well again for our landing gear business.

We have not lost any contracts. We have one contract. The existing customer base requirement is softer today than it would at another point in time in that repair cycle. In our commercial supply chain operations sales were down by 2% as we restructured a current and existing contract. This was a Time and Material contract that we shifted over to Power-by-the-Hour. Although the sales from that program are down as sales, the income contribution from that program is relatively flat.

So you have roughly $10 million to $12 million less to sales but roughly the same earning contribution. We do believe that this business had been somewhat negatively impacted by weather conditions in the period. We didn’t talk about that really in the earnings release and we have fundamental because it’s very hard for us to quantify but in the two months in January and February they were 74,500 flights that were canceled, and of course the parts business is tied very much to take off the landing and of course the year aligned cash flows impacted in a way that they can defer certain maintenance events and they can defer certain acquisitions of inventory as we see in the past.

They’ll do so and just to give you a sense of the change in parts business on a sequential basis, our revenues were down $7 million from second quarter in our commercial parts business.

Now the temporary step back that we’d experienced, we believe we counterbalance by strong momentum and a signing new contracts as indicated in the earning release. During last quarter-end, we announced several new distribution supply agreements with blue-chip customers. And I’ll try and provide a little additional color for why these contracts are important for the company that you would not have seen in the earnings release. And so if you look at the Sabena acquisition, it puts a supply chain group in the position offer true notable inventory pooling support to customers in the European Middle East and Africa region. And I’d say a true global inventory pooling.

Our inventory management programs today have been more designed around individual customers and providing inventory to that customer. This will be our first venture if you will into pooling where the inventory is available for multiple aircraft operate flying the same platform. This business is currently headquartered in Brussels and will continue to be headquartered in Brussels. We’ve opened up a new warehouse and will be operational on this business on or about April 1.

And we believe it will give us the size, the scope and the scale and the infrastructure that will allow us to compete effectively in these markets and these markets are dominated by Lufthansa, Air France and some of the other major airline players. We’re hoping that by independent provider that that will be a point of differentiation that will allow us to capture more business and grow this particular piece of our business.

We’ve talked about this U.S. airline win. It’s been requested that we will not disclose the name of the airline, but this new line of business for this supply chain group is offering consumable and expandable support and we believe by doing this successfully for this airline that there will be other airlines who will expect interest which has actually been the case, but since we’ve announced this agreement, we’ve received multiple requested design expandable support programs for other customers in North America and in Asia.

The Eaton win builds on a success with Unison and establishes AAR as the clear alternative for OEM as they look to access more diversified channels to market. So AAR’s access to the matter [ph] is Power-by-the-Hour agreements, MRO network and expendable support offering to get OEMs excited and gets them closer to the point of demand. As they look to streamline their marketing initiative in the case of Eaton and in the case of Unison, they decide to reduce the number of vendors that they’ve worked with and they choose AAR as a preferred distribution source for their products.

Our strategic initiatives with OEMs, I’ll name a few; Honeywell, Thales, Liebherr Rockwell, Technofan, allowing us where they stand behind us and they are powered by our agreements allow us to we believe, it gives us a what we consider to be a superior option to the airline, large airline MRO powered by our support offering and we’ve had some success in some of the programs we have talked about before by doing this.

And we have ramped up our efforts to capture foreign military sales opportunities in terms of programs and material distribution, particularly given the slowdown in U.S. defense spending and we should have some wins that we can announce shortly.

As far our airlines business, as expected, sales were down and in period they were down $13 million. Since our last call in December, we have the following updates that these scoping at a rotary-wing position for the contract that expired on November 30 has proceed as plan and we are expecting to remain free contract positions to be completed by the end of April.

We are currently not flying any aircraft under the new USAFRICOM contract due to a protest that was filed by the incumbent operator and we are expecting decision coming out of JAO shortly and hopefully we will be able to begin work on that contract soon.

No task force have been received to date for the new NATO 18 contract announced in December and you might recall that we have four aircrafts that we have more or less designated for that contract. We are in the process of streamlining our fleet as we’ve discussed before reducing the number of aircraft types that we offer the market. In that regard we’ll be selling off nine different aircrafts that will no longer be required for our long range plan for this business.

So from today’s perspective, we think to end our fiscal 2014 with its haul of 23 aircraft positions, this is a difference from the previously communicated number of 29 which we mentioned in our December call and purely relates to the four delayed NATO Allies [ph] past quarters and the delayed ramp-up in Africa associated with that protest where we were the winning bidder and we are just waiting for the protest to clear and well hoping to clear as favorably – clear in our favor.

I should continue by saying that we do see good prospects for our Airlift Services globally. We are actively engaged on diversifying operations away from Afghanistan and managing through expense of proposal on the bid activity, more specifically we are pursuing SOCOM [ph] and AFRICOM opportunities. We are looking to leverage our success in VirTrap [ph] and that's a maybe contract and DoD expertise to extend this in search and rescue mission.

We are pursuing expansion opportunities through the Fly America Act. We are looking to expand our product offerings into GOCO opportunities this is government supplied aircraft in currently all of our businesses with aircraft that we provide, government does have contracts where they have assets and they look for contractors like us to provide a lift without providing the actual equipment. And then continuing with our fleet optimization to achieve the greatest operating profit potential.

So as we look at the quarter have ended although our revenues were down by 13 million, the profit contribution from this business was relatively flat. So there was virtually no degradation in earnings contribution from the business with even though they had less contract positions and less revenue.

That pretty much concludes my discussion around aviation services. Let me move over to Technology Products. In this segment sales were down 4.8% to $107 million even though we had sales growth in our cargo systems and container business where we had sales increase of $4 million. This was offset by mobility products where we had good visibility. We knew that there would be a soft period.

Sales were down $6 million in that period. So and as we mentioned earnings release we did renew and signed some new contracts for the mobility business and we do expect fourth quarter revenues to be higher for that business than third quarter revenues were.

So our management focus in this segment is a continued ramp of the A400M program, execution of our successful cargo strategy for Telair and Nordisk, expense of our mobility products offering through continued innovation, continue to come up with lighter weight solution and capture new customers as we’ve been in this period with the British. Deepening growth, the engineering solutions work with OEMs and continue to improve their performance of our precision machining operations.

I’ll say just before I turn the call over to John, I could say that historically our businesses we have experienced rotation in our performance around customer requirements and shifting markets and as we sit here today we see near-term demand for Airlift and certain MRO services declined but we do see an increase in supply chain activity as indicated by some of the deals that we just recently mentioned.

So if I look back in time, if I look at the first decade a century, we have a clearly robot aircraft sales and leasing activity contributing sales and earnings to the company and when the financial crisis of July hit that business more or less, now suffered than we managed our way largely out of that activity, and our mobility business picked up. And surely after mobility went down we had good growth at Telair and Airlift.

Now Airlift is done, and we’re looking for contribution from our supply chain. So I think this is a historical kind of perspective for the company. This quarter I think we got quite a little short. We then see – we knew the contracts that were coming off, but we are hoping to get new contracts as commenced we have in the past that would replace but I just might that I’m very proud aside from the disappointment on the sale side at least on the earnings side we were able to keep that relatively respectable.

So, with that thank you for your attention, I would like to turn it over to John to provide some additional financial color.

John C. Fortson

Thanks David. I would like to refer everyone to our press release for general financial information for this quarter and use this time to hold on some specific actions we are taking to rightsize and manage our costs and capital structures in this environment.

I will be available after the call to answer any questions you may have. The impact of the revenue decline in earnings was reduced by aggressive cost management and operational efficiencies, particularly at Airlift where we experience significant revenue decline, but had higher operating margins, and as David mentioned had a net effect of income from this business to be flat year-over-year.

Selling, general and administrative expenses as a percentage of sales were 9.6% for the third quarter compared to 8.0% for last year. However last year included a onetime benefit of $9 million from an acquisition adjustment. If you adjust for this, our SG&A for this quarter was approximately $5 million lower or about 10%. We will continue to make adjustments to our cost structure where appropriate to reflect these lower sales levels.

We are in the process reviewing all sources of spend cross the company about strategic and non-strategic defined cost savings. We will complete our reviews our healthcare insurance as well as freight and travel. We are now focused on other non-strategic spinning areas. As result of this quarter, we identified and taken actions that should result in approximately $4 million a year savings. This does include the elimination of certain positions and the restructuring of some functions including IT as well as other non-personal relative reductions.

As communicated in our press release, given the actual third quarter results in our expectations for the fourth quarter we are adjusting both our revenue and diluted earnings per share guidance for fiscal year 2014.

For the full year we are reducing our revenue guidance by $100 million to a range of $2 billion to $2.05 billion and diluted earnings per share in the range of $79 to $82 per share. Thanks for your attention, and operator, we are now ready to take your questions.

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions) Our first question comes from Larry Solow of CJS Securities. Your line is open.

Arnie Ursaner – CJS Securities, Inc.

Good afternoon, it’s actually Arnie Ursaner backing up Larry on the call. So I have a couple of quick questions for you. First on the financial side, you mentioned, last year you had an earn-out reduction or reversal if you will, was there any reversal this year in the SG&A line?

John C. Fortson

No, that was kind of one-off related to a transaction we did overseas, but we haven’t done a similar type of adjustment this year.

Arnie Ursaner – CJS Securities, Inc.

Okay, what’s your tax rate view for Q4?

John C. Fortson

We did have this one-time adjustment that we talked about in the press release, but our effective tax rate is going to remain at 34.5% going forward.

Arnie Ursaner – CJS Securities, Inc.

Okay. And obviously one of the positives and negatives ignored given the quarter is the fact that you signed on a huge number of very significant, very positive contracts. Can you speak about the working capital and overall investments the company will have to make to realize the benefit of some of these very attractive long-term plans?

John C. Fortson

Yes, so we have actually already started on the unnamed customer, we have obviously made investments and then we’ve made some investments in advance for the Sabena transaction. When you look at this quarter, we actually did invest pretty heavily on our growth both for our sort of traditional transaction business, but also these programs to give you an idea, the order of magnitude and as you probably know, this doesn’t really run through our CapEx line, but we spend about $27 million between the two between parts and engines over the course of this quarter.

So we are going to have to continue to make some investments, but we are going to sequence through them. We think these things give us the right returns going forward.

Arnie Ursaner – CJS Securities, Inc.

Thank you. I will jump back in queue. Thanks.

Operator

Thank you (Operator Instructions) Our next question comes from Julie Yates of Credit Suisse. Your line is open.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Good evening.

David P. Storch

Hi Julie.

John C. Fortson

Hi Julie.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Hi, so this is the second quarter really guys have lowered EPS guidance about 14% below where you started the year excluding the tax benefit. So as you are preparing to give guidance in July for FY 2015, what are you doing differently and how should we think about the level of visibility that you have and the confidence around FY 2015?

John C. Fortson

Well, I think first of all, I will get through FY 2014 and I think that we are trying to share with you that we are positioning ourselves with some of these new contract wins to give us a little bit more dependable revenue base if you will. This is an unusual period for us, because historically we have been able to replace business. I am not sure and I am trying to, I guess get a handle around the impact that the weather may have had in terms of disrupting some of our operations, because it was a little bit unusual in terms of not being able to win certain new businesses and that didn’t happen should we typically would have won.

So I believe we have a fairly good visibility, fairly we’re disappointed here in terms of this quarter’s result, but yes, I think that as we come into July, we should have pretty good visibility.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Okay. And then David, last quarter I think you said that mobility products have reached kind of a steady state, it looks like it’s going to continue to be a bit soft here?

David P. Storch

No, this is purely compared to prior year and that they should have a very decent fourth quarter.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Okay. And then I recall last quarter you did talk about some of the weakness for the second half for the cash flow as you’ve invested in some of these programs…

David P. Storch

Right.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

But this is obviously the weakest it’s been in eight quarters, you had a really good performance.

John C. Fortson

Right.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

How should we think about cash flow in the fourth quarter and even any preliminary indications you can give on next year?

John C. Fortson

We’re going to have some cash going out on the bounce of the Sabena deal. So I think as we ramp in some of these new contracts, there will be some cash going out. As I look out into next year assuming surely from standpoint of our existing customer, our existing business phase, I’d expect our free cash to exceed our after-tax income. I expect to be over that 100% number that we’ve experienced in the last eight quarters as you mentioned. So I think we should be generating some pretty good cash flow next year.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

Okay. And then last one from me, any update on Lake Charles?

John C. Fortson

Yes, Lake Charles has been inactive of late. We completed the contracts that were there when we took on the business and now we are bidding work, but as we sit here today, we haven’t had any success here, but I think everyday has to be just a little bit patient only because we just got the EASA certification in September and we’re trying to figure out how to go ahead and tie [ph] people there in a way that we can still make a buck on it.

So, be a little patient, look back on the Indianapolis now the first couple of years of our Indianapolis adventure, in our mostly even vacant eventually we got some business and we’ve been able to grow from there. So, we still believe that we are positioned well there we just need a little bit more time to break into some accounts.

Julie A. Yates-Stewart – Credit Suisse Securities LLC

All right, thank you.

John C. Fortson

Yes.

Operator

Thank you. Our next question comes from Tyler Hojo of Sidoti & Company. Your line is open.

Tyler E. Hojo – Sidoti & Co. LLC

Yes, good evening. I want to ask you first about the NATO contract that was announced or the NATO weather of intent I should call it I guess, does the $27 million in working capital investment that was already NATO, does that include NATO as well?

John C. Fortson

No, it does not.

Tyler E. Hojo – Sidoti & Co. LLC

Okay, when does that start to hit?

John C. Fortson

We’ll start making investment in that this quarter.

Tyler E. Hojo – Sidoti & Co. LLC

Okay.

David P. Storch

And then we’ll have, there will be a ramp in investment over the next two-year period as the EJs start coming into the fleet.

Tyler E. Hojo – Sidoti & Co. LLC

Okay, but even with that investment, do you think still think free cash flow in fiscal 2015 is going to exceed net income, is that correct?

John C. Fortson

Yes, yes.

Tyler E. Hojo – Sidoti & Co. LLC

Okay. All right, thanks for that clarification. And then, in regards to I think the $200 million contract value that you cited for me, how should we think about that ramping over the next 10, 12years?

John C. Fortson

So I believe they get to the 30 aircrafts in three years if I’m not mistaken and so once we get to that point that should stay relatively constant. So, as the aircraft commence the fleet, the revenues kicks in, but once we get to the year three, the aircraft will be starting to require their C check as well. So, I would say probably will get to full ramp by year five would be my guess.

Tyler E. Hojo – Sidoti & Co. LLC

Okay.

David P. Storch

And you’ll have the, aircraft would have been in service, all the aircrafts would have been in service and all the aircrafts would have been through at least one C check.

Tyler E. Hojo – Sidoti & Co. LLC

Okay, great. Thanks for that. And then, just some regards to the restructuring initiatives that were called out I believe the number of $4 million was drawn out in terms of the savings. Is there any expense associated with these restructuring initiatives that’s included in the Q4 guidance?

John C. Fortson

There will be some and it is in the guidance, so obviously there will be some severance related to some people that will be departing the firm, but that’s part of the bulk of it, but it’s in the guidance.

Tyler E. Hojo – Sidoti & Co. LLC

Okay. Can you call it out or just not going to?

John C. Fortson

I’m rather not, but…

Tyler E. Hojo – Sidoti & Co. LLC

Okay.

David P. Storch

Tyler if I may, let me go back to the question on Mesa for second and – the current agreement that Mesa has with the United Express is for 30 aircraft. I believe Mesa is optimistic as they perform and United Express grow their ERG fleet that though get more aircraft under their contracts. And so there might be a follow-on work there as well just kind of far that away if you don’t mind.

Tyler E. Hojo – Sidoti & Co. LLC

Yes that will be great. Okay, may be one follow-on just in regards to Mesa, those of us that have followed the name for a long time remember the last Mesa contract and kind of how that was a bit painful back in 4 to 5 years ago or so. Is there anyway that you can protect yourself or is it just a function of – this is a better aircraft that’s more in demand.

David P. Storch

I think that’s the way to look at it. I believe and this contract we negotiate not just with Mesa but also with United. And United fairly in better shape today than they were let’s say last quarter around, so. Yes, my belief is that you have brand new equipment, the 70 seaters as opposed to the 50 seaters and our view is that we should be protected on the asset. And that, time will tell of course.

Tyler E. Hojo – Sidoti & Co. LLC

Okay, great. And just one last one for me if I may, just in regards to the tech product segment, really nice margin improvement sequentially in the quarter. And I’m just kind of wondering how we should think about the movement in margin in that segment on a go-forward basis?

John C. Fortson

David mentioned that we’re expecting improvement that mobility in the fourth quarter and I think you should actually see more of the same as we go forward there.

Tyler E. Hojo – Sidoti & Co. LLC

Okay, great. That’s all I had. Thanks a lot.

Operator

Thank you. Our next question comes from Kevin Ciabattoni of KeyBanc Capital Markets. Your line is open.

Kevin Ciabattoni – KeyBanc Capital Markets, Inc.

Thanks, good afternoon, guys. First question, I guess on the NATO 18 contract, maybe some color on what might be holding up those initial task orders. I know you’d been modeling before this year. And then may be if you could talk about I have taken a number of kind of – what's the ramp for next year on that contract that you are kind of looking at, at this point?

David P. Storch

Yes. The NATO 18 contract was released, we were advised which aircraft we are going to get and then with the political turmoil and the elections and our government’s inability to work with Cargo just put everything on hold. We are hopeful that with the new government coming into Afghanistan that we’ll start to see these aircrafts start to be activated, but I don’t know if that’s going to be in April or July or when so, it’s pretty tough to predict a ramp there and we haven’t really been successful to-date on predicting when we think we’ll kick in.

In terms of next year, there is a series of opportunities some one we choosy and then one particular that’s very, very large and I think we last quarter, called it a game changer and that would be pick most of next fiscal year to work through, get awarded and start to some of the place in it and quite frankly we haven’t seen the final RP on that yet.

So we’re looking to see some more aircraft come out of the portfolio as we go into fiscal 2015 and then start to put more aircraft in on these by winning some of these competitions that we’re getting today.

Kevin Ciabattoni – KeyBanc Capital Markets, Inc.

Great, thanks. You have had some nice wins in the supply chain business over the last few months, just wondering if you could talk about looking forward what the pipeline for that business looks like and maybe more specifically what you guys are seeing in terms of the potential for more of the programmatic wins which I know something you look to kind of ship that business towards?

David P. Storch

These things are the way of kind of building off each other, so we’re hopeful that by securing, there have been programs for instance that that will lead to additional business in that field, they could be, not investing in this business for the last few years. So on talking with the people and the business unit, we have a sense that we can possibly win some additional business in that region.

So I think what I am trying to signal in my commentary was as a result some of these wins, the airline expandable win, the Eaton win, the Sabena win that there will be more of this kind of activity in each of those streams coming forward.

Kevin Ciabattoni – KeyBanc Capital Markets, Inc.

Okay, thanks. The supply chain contract in the quarter that you restructured from Time and Material to Power-by-the-Hour, what was the driver there for changing the structure of that contract, was that coming from you, from the customers, just kind of wondering what that played out?

David P. Storch

When we won that contract, you may recall there was an airline, there was a ex-airline maintenance base that was providing the maintenance and again this is one of those situations where we’re not supposed to be discussing who the airline is, by I will explain to you, you might be able to get to the conclusion, but basically the MRO disappointed the airline was when bankrupt and they had a design that were holding a fair amount of that airlines inventory.

So there was no way to price power and they have been operating under power by our agreement, frequent price Power-by-the-Hour nor do they want us to, so we work on a Time and Material basis for year and so we project the Power-by-the-Hour agreement, so we could gain more knowledge and then negotiate Power-by-the-Hour agreement. So it was always intended to go Power-by-the-Hour, it was just a temporary experience to go Time and Material. So this is always planned in the process of going Power-by-the-Hour calls for, it drive the less revenue number, but the profitability is approximately the same.

Kevin Ciabattoni – KeyBanc Capital Markets, Inc.

Okay, that’s helpful on that. I will jump back in queue.

Operator

Thank you. Our next question comes from J.B. Groh of D.A. Davidson. Your question please.

J.B. Groh – D.A. Davidson & Co.

Hey guys most of my questions have been answered. Can you may be lay out the timing in the cash flow bookings for that sale of the nine aircraft?

David P. Storch

Yes, I mean look they are available for sale now I don’t know if we can give you a real prediction as to when we would expect this stock share to be sold, but some of them are back in the U.S., some of them are in transit back to the U.S. and then some of them are actually going to be moved to a location in the Middle East where we think we might have a better chance at marketing them. So we are pushing down hard to get something done this quarter, it’s not a uncertainty, but certainly over the next six months.

J.B. Groh – D.A. Davidson & Co.

Could you give us may be the book value alone or?

David P. Storch

Yes I mean the nine that we have for sale right now on the books for about $18.8 million.

J.B. Groh – D.A. Davidson & Co.

Okay and the price value would be above or below that?

David P. Storch

The expectation is to make a gain.

J.B. Groh – D.A. Davidson & Co.

Okay, good. Okay thank you.

Operator

Thank you. Our next question comes from [indiscernible]. Your question please.

Unidentified Analyst

Hi guys.

David P. Storch

Hi John.

Unidentified Analyst

Thanks for taking my questions, and most of them are answered. But so in at the early part what – could you give me a color on what drove the increase in SG&A as a percentage of sales that you went up by about 160 basis points?

David P. Storch

Well, okay. So, we talked about this a little bit, but yes it’s compared it on an apples-to apples-base shares, you have to make an adjustments the third quarter of last year’s number because there was an acquisition adjustment made in that. So when you add back to last year’s number, that sort of $9 million was part of that actually are SG&A itself by about $5 million.

Unidentified Analyst

Okay.

David P. Storch

Will provide and so adjustment numbers really a kind of one-off related.

Unidentified Analyst

Right.

David P. Storch

That particular deal.

Unidentified Analyst

For the most recent quarters SG&A figure is more in line?

David P. Storch

normalized.

Unidentified Analyst

Normalized okay?

David P. Storch

Correct.

Unidentified Analyst

And then in terms of your availability, liquidity under your revolvers what’s the kind of estimated figure right now?

David P. Storch

So we have lots of liquidity, its a quarter close, we’ve had close to $400 million available and that’s prior to any incremental [indiscernible] or anything else.

Unidentified Analyst

Okay. So excluding the $115 million or so cash about $285 million and your revolver still there that level.

David P. Storch

Right.

Unidentified Analyst

Okay. Fine that’s all I had and the rest were answered. Thank you.

Operator

Thank you (Operator Instructions) Our next question comes from Stan Mann Stan Mann of Mann Family. Your line is open.

Stan Mann – Mann Family Investments

Hi gentlemen, I have four quick questions for David.

David P. Storch

Yes go ahead Stan.

Stan Mann – Mann Family Investments

Question one, any effect that you foresee in the near-term or far-term on the American Airline merger been effecting there?

David P. Storch

No I mean it’s kind of, we are making – there is a progress and we will keep working it.

Stan Mann – Mann Family Investments

Okay so there is nothing specific or that we can expect?

David P. Storch

Nothing that I see at this moment, but we continue to work it.

Stan Mann – Mann Family Investments

Okay. Two, looking forward couple of several years how do you feel about top-line growth, I mean this quarter was weak, but what do you see looking down the road, I mean how is your feel?

David P. Storch

So assuming that the general economy were to grow at like call it for argument sake 3%, I would expect our growth rate to be around 10%.

Stan Mann – Mann Family Investments

Okay, and what’s the positive view? very positive.

David P. Storch

Yes.

Stan Mann – Mann Family Investments

Okay three, there is a little bit more complicated, you are moving into Europe with Sabena deal, that’s correct?

David P. Storch

I won’t say moving into Europe, we have been in Europe, I think we’re kind of in a – kind of increasing our investments in Europe, yeah.

Stan Mann – Mann Family Investments

Okay, well thank the every other companies that does international business favor that I follow has a much lower tax rate and takes advantage of the geographic move for taxes. Your tax rate is inordinately high for a corporation that has international exposure. So, can I ask you think that we might get a base in Ireland or something that will give us the ability to drop our tax rate?

David P. Storch

Let them kind of play around with that and let us give some thoughts to that, before we comment and then get back to you on that, because we didn’t make this acquisition with that mine, but clearly we have actually in the aviation where the fair amount of fall through based in Dublin for that purpose. So let us kind a play around and see if that’s an option for us. We have much thoughts about we don’t really know at this stage as that meaningful for us.

Now let me, let me add to that, although the operations is headquartered in Brussels keep in mind now also one of the motivation is to increase our Middle East and Africa business where fleet sizes are grown.

Stan Mann – Mann Family Investments

Rapidly.

David P. Storch

Yes, yes, yes.

Stan Mann – Mann Family Investments

But the tax question, the tax question is legitimate and substantial. And I want to be there your legal, your high relative to anybody doing business internationally. And of the interest in area for bottom line?

David P. Storch

But we will take that constructively and let us do the work on that and then we’ll let you know, okay.

Stan Mann – Mann Family Investments

I have one last question, in any area of your business, did you have liquidity? Do you sense or are you working on or do you see the possibility of starting acquisition program again, which is kind of delayed for a while?

David P. Storch

So, we didn’t delay it for any real reasonably, we’ve still been looking or thinking about acquisitions, we know feel a lot more courageous today with the stronger balance sheet position and we do see some opportunities obviously my preference is to grow organically and I think in this quarter although we kind of didn’t perform from sales standpoint we did perform from the standpoint of winning some new business contracts.

So my preference would be organic growth and we will look to supplement that organic growth with what we considered to be appropriate acquisitions. We do have a couple of one acquisition in particular which will give us one acquisition [indiscernible] I should say, which should give us some additional possibilities for a new revenue stream and we are looking at that situation very closely to that.

Stan Mann – Mann Family Investments

Okay. You’ve been very successful in opportunistic acquisition that’s why I asked for a question.

David P. Storch

Thank you.

Stan Mann – Mann Family Investments

But anyway, thank you very much.

David P. Storch

Thank you, sir.

Operator

Thank you. And as they appear to be no further questions in the queue, I'd like to turn the call back over to management for any closing remarks.

David P. Storch

Well, thank you for your question today. I appreciate your interest in our company and let us get back to work. Thank you.

Operator

Thank you, sir, thank you ladies and gentlemen for your participation. That does conclude AAR’s fiscal 2014 third quarter earnings call. You may disconnect your lines at this time. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: AAR's CEO Discusses F3Q2014 Results - Earnings Call Transcript
This Transcript
All Transcripts