AAR CORP (AIR)

CIK: 0000001750. SIC: 3720 Aircraft & Parts. Latest 10-K as of: 2025-07-22.

SIC breadcrumb: Manufacturing > Transportation Equipment > SIC 3720 Aircraft & Parts

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1750. Latest filing source: 0001410578-25-001475.

Selected Fundamentals

Metric	Value	Unit	FY	Filed
Revenue	2,780,500,000	USD	2025	2025-07-22
Net income	12,500,000	USD	2025	2025-07-22
Assets	2,844,600,000	USD	2025	2025-07-22

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2025-07-22. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000001750.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Metric	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025
Revenue								1,590,800,000	1,748,300,000	2,051,800,000	2,072,000,000	1,652,300,000	1,820,000,000	1,990,500,000	2,318,900,000	2,780,500,000
Net income							47,700,000	56,500,000	15,600,000	7,500,000	4,400,000	35,800,000	78,700,000	90,200,000	46,300,000	12,500,000
Gross profit							233,100,000	263,400,000	294,100,000	329,800,000	269,200,000	275,900,000	313,200,000	370,100,000	442,300,000	527,700,000
Diluted EPS							1.37	1.64	0.41	0.21	0.13	1.00	2.17	2.53	1.29	0.35
Assets							1,456,000,000	1,504,100,000	1,524,700,000	1,517,200,000	2,079,000,000	1,539,700,000	1,573,900,000	1,833,100,000	2,770,000,000	2,844,600,000
Stockholders' equity	746,906,000	835,845,000	864,600,000	918,600,000	999,500,000	845,100,000							1,034,500,000	1,099,100,000	1,189,800,000	1,211,600,000
Cash and cash equivalents							31,200,000	10,300,000	31,100,000	21,300,000	404,700,000	51,800,000	53,500,000	68,400,000	85,800,000	96,500,000
Net margin								3.55%	0.89%	0.37%	0.21%	2.17%	4.32%	4.53%	2.00%	0.45%

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-25. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000001750.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarter	End Date	Revenue	Net Income	Diluted EPS	Method
2022-Q3	2022-02-28			0.63	reported discrete quarter
2023-Q2	2022-11-30			0.64	reported discrete quarter
2023-Q3	2023-02-28	521,100,000	21,800,000	0.62	reported discrete quarter
2023-Q4	2023-05-31	553,300,000	23,200,000		derived Q4 = FY annual - nine-month YTD
2023-Q1	2023-08-31			-0.02	reported discrete quarter
2024-Q2	2023-11-30	545,400,000	23,800,000	0.67	reported discrete quarter
2024-Q3	2024-02-29	567,300,000	14,000,000	0.39	reported discrete quarter
2024-Q4	2024-05-31	656,500,000	9,100,000		derived Q4 = FY annual - nine-month YTD
2025-Q1	2024-08-31	661,700,000	18,000,000	0.50	reported discrete quarter
2025-Q2	2024-11-30	686,100,000	-30,600,000	-0.87	reported discrete quarter
2025-Q3	2025-02-28	678,200,000	-8,900,000	-0.25	reported discrete quarter
2025-Q4	2025-05-31	754,500,000	34,000,000		derived Q4 = FY annual - nine-month YTD
2026-Q1	2025-08-31	739,600,000	34,400,000	0.95	reported discrete quarter
2026-Q2	2025-11-30	795,300,000	34,600,000	0.90	reported discrete quarter
2026-Q3	2026-02-28	845,100,000	68,000,000	1.71	reported discrete quarter

Quarterly Charts

Macro Cross-References

CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
UNRATE - Unemployment Rate
FEDFUNDS - Federal Funds Effective Rate
CES0500000003 - Average Hourly Earnings of All Employees, Total Private
DFEDTARU - Federal Funds Target Range - Upper Limit
DFEDTARL - Federal Funds Target Range - Lower Limit
DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
PCEPI - Personal Consumption Expenditures: Chain-type Price Index
PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
PPIACO - Producer Price Index by Commodity: All Commodities
T10YIE - 10-Year Breakeven Inflation Rate
U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
PAYEMS - All Employees, Total Nonfarm
CIVPART - Labor Force Participation Rate
EMRATIO - Employment-Population Ratio
UNEMPLOY - Unemployed
CE16OV - Employment Level
ICSA - Initial Claims
JTSJOL - Job Openings: Total Nonfarm
JTSQUR - Quits: Total Nonfarm
GDPC1 - Real Gross Domestic Product
A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
INDPRO - Industrial Production: Total Index
TCU - Capacity Utilization: Total Index
HOUST - New Privately-Owned Housing Units Started: Total Units
PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
RSAFS - Advance Retail Sales: Retail Trade
PCE - Personal Consumption Expenditures
DSPIC96 - Real Disposable Personal Income
PSAVERT - Personal Saving Rate
M2SL - M2
BOPGSTB - U.S. International Trade in Goods and Services: Balance
MSPUS - Median Sales Price of Houses Sold for the United States
HSN1F - New One Family Houses Sold: United States
RHORUSQ156N - Homeownership Rate in the United States
TTLCONS - Total Construction Spending: Total Construction in the United States
RRVRUSQ156N - Rental Vacancy Rate in the United States
TOTALSL - Total Consumer Credit Owned and Securitized
REVOLSL - Revolving Consumer Credit Owned and Securitized
DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
GDP - Gross Domestic Product
GPDI - Gross Private Domestic Investment
GCE - Government Consumption Expenditures and Gross Investment
PCEC - Personal Consumption Expenditures
NETEXP - Net Exports of Goods and Services
GFDEBTN - Federal Debt: Total Public Debt
GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
FYFSD - Federal Surplus or Deficit
FGRECPT - Federal Government Current Receipts
FGEXPND - Federal Government: Current Expenditures
MANEMP - All Employees, Manufacturing
USCONS - All Employees, Construction
USTRADE - All Employees, Retail Trade
USFIRE - All Employees, Financial Activities
USGOVT - All Employees, Government
AWHAETP - Average Weekly Hours of All Employees, Total Private
DGORDER - Manufacturers' New Orders: Durable Goods
NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
BUSINV - Total Business Inventories
EXPGS - Exports of Goods and Services
IMPGS - Imports of Goods and Services
IR - Import Price Index (End Use): All Commodities
PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001104659-26-033973.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-03-25. Report date: 2026-02-28.

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)



General Overview and Outlook



We report our activities in four business segments:



●

Parts Supply, primarily consisting of distribution of new parts (“Distribution”) and sales of used serviceable material (“USM”), including aircraft, engine and airframe parts and components;

●

Repair & Engineering, primarily consisting of our MRO services across airframes (“Airframe MRO”) and components (“Component Services”);

●

Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”), the U.S. Department of State (“DoS”) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions, including Trax; and

●

Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations with sales derived from the engineering, design, integration, and manufacture of pallets, shelters, and containers.



Our chief operating decision making officer (“CODM”) is our Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services. The Company has not aggregated operating segments for purposes of identifying reportable segments. Inter-segment sales are recorded at fair value which results in intercompany profit on inter-segment sales that is eliminated in consolidation. Corporate selling, general and administrative expenses include centralized functions such as legal, finance, treasury and human resources with a portion of the costs allocated to our operating segments.



During the first quarter of fiscal 2026, we executed a restructuring plan to streamline operations and reduce costs. As part of this plan, we eliminated approximately 60 positions and recognized severance charges of $1.0 million.



Parts Supply



Our Parts Supply segment primarily consists of aftermarket distribution of new, original equipment manufacturer (“OEM”)- supplied replacement parts and sales and leasing of USM.



We distribute new OEM-supplied replacement parts to aircraft operators, airlines, government customers and other MRO companies across the world. Our parts are supplied to narrow-body, wide-body and regional aircraft. In most cases, we enter exclusive relationships with OEM manufacturers for a given market where we are the only provider of that supplier’s product category. We provide global scale, independence, and highly technical sales capabilities across both commercial and government end-markets.



USM is an important category of the aviation aftermarket in which parts removed from engines or airframes can be refurbished to be utilized as replacement parts in the aftermarket. We utilize a network of third-party repair facilities to perform this work. USM parts often represent a cost-effective and more timely solution for operators when compared to sourcing new parts.



On September 25, 2025, we acquired the outstanding shares of American Distributors Holding Co., LLC (“ADI”), including ADI American Distributors, LLC and other of ADI’s subsidiaries, for a final purchase price of $137.1 million. ADI is a leading distributor of electronic components and assemblies to OEMs across the aerospace and defense industry.



Repair & Engineering



Our Airframe MRO services are primarily comprised of major airframe inspection, maintenance, repair, and overhaul services, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft. Component Services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment.



32

Table of Contents

We are currently expanding both our Miami and Oklahoma City airframe maintenance facilities to meet growing customer demand. In Miami, we are constructing a 114,000 square foot facility with three bays adjacent to our existing hangar. In Oklahoma City, we have completed the construction of an 80,000 square foot facility with three bays and warehouse space adjacent to our existing hangar. The Miami expansion is expected to be complete in mid-to-late calendar 2026.



On November 3, 2025, we acquired the outstanding shares of HAECO Americas, LLC and its subsidiary HAECO Airframe Services, LLC (together, “HAECO Americas”) from HAECO USA, Inc. for a purchase price of $78.0 million. HAECO Americas provides heavy aircraft maintenance, repair, and overhaul (“MRO”) and modification services across its hangars located in Greensboro, North Carolina and Lake City, Florida.



On December 17, 2025, we entered into an agreement to acquire the outstanding equity of Aircraft Reconfig Technologies (“ART”), a leading aircraft interiors engineering company for $35 million subject to customary post-closing adjustments for cash, working capital, and indebtedness. The acquisition is expected to close in the fourth quarter of fiscal 2026, subject to customary closing conditions, including receipt of certain regulatory approvals.



In fiscal 2025, we sold our Landing Gear Overhaul (“LGO”) business to GA Telesis for net proceeds of $48 million subject to post-closing adjustments for working capital, cash, and debt. We recognized a loss on the divestiture of $71.1 million, which included goodwill of $14.6 million.



Our Repair & Engineering segment also develops Parts Manufacturer Approval (“PMA”) parts for aftermarket applications. PMA is a designation under Federal Aviation Administration (“FAA”) regulations that permits the design of approved parts for specific aircraft components that can be provided by non-OEM sources at cost-efficient and sometimes improved availability.



Integrated Solutions



Our Integrated Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoD and foreign governments, flight hour component inventory and repair programs for commercial airlines and integrated software solutions, including Trax.



Fleet management and operations of customer-owned aircraft is performed for the DoS under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft.



Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components including warranty claim management in support of our airline customers’ maintenance activities.



Our integrated software solutions are primarily comprised of our Trax software, which we acquired in fiscal 2023. Trax has the first fully cloud-based electronic enterprise resource platform for the MRO industry and also offers a full suite of “paperless” mobility apps that are in process of automating MRO workflows with artificial intelligence. In addition, we acquired Aerostrat, a leading long- range maintenance planning software company, in the first quarter of fiscal 2026 for a purchase price of $15 million plus contingent consideration of up to $5 million.



In conjunction with the decision to exit our consumables and expendables product line, we do not expect certain inventories to be recoverable and have recognized an inventory reserve of $4.9 million during the three-month period ended February 28, 2026.



Expeditionary Services



The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities. The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters. Shelters include both stationary and vehicle-mounted applications. We also provide engineering, design, and system integration services for specialized command and control systems.

33

Table of Contents

Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable. As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets.



Discussion of Results of Operations



Three- and Nine-Month Periods Ended February 28, 2026 and 2025











































Three Months Ended February 28, 

Nine Months Ended February 28, 







2026

    

2025

    

% Change

    

2026

    

2025

    

% Change

    

Sales:

    



  





  

    

  





  





  



  



Commercial



$

615.8



$

485.5

26.8

%  

$

1,705.5



$

1,458.6



16.9

%  

Government and defense



229.3



192.7

19.0

%  

674.5



567.4



18.9

%





$

845.1



$

678.2

24.6

%  

$

2,380.0



$

2,026.0

17.5

%





































Gross Profit:



  









  









Commercial



$

98.9



$

95.6

3.5

%  

$

298.5



$

286.2

4.3

%

Government and defense



55.8



36.1

54.6

%  

146.8



91.3

60.8

%





$

154.7



$

131.7

17.5

%  

$

445.3



$

377.5

18.0

%





































Gross Profit Margin:



  



  

  



  



  





Commercial



16.1

%  

19.7

%  

  



17.5

%  

19.6

%  





Government and defense



24.3

%

18.7

%  

  



21.8

%

16.1

%  





Consolidated



18.3

%

19.4

%  

  



18.7

%

18.6

%  







Three-Month Periods Ended February 28, 2026 and 2025



Consolidated sales for the third quarter of fiscal 2026 increased $166.9 million, or 24.6%, over the prior year quarter primarily due to an increase in sales to commercial customers.  Consolidated sales to commercial customers increased $130.3 million, or 26.8%, over the prior year quarter primarily due to strong demand and volume growth in our new parts Distribution activities, including from our recent ADI acquisition, which contributed sales of $26.3 million.  In addition, our recent HAECO Americas acquisition contributed sales of $55.2 million.



Our consolidated sales to government customers increased $36.6 million, or 19.0%, primarily due to volume growth in our Parts Supply segment from our new parts Distribution activities, including from the ADI acquisition that contributed sales of $15.2 million.



Consolidated cost of sales increased $143.9 million, or 26.3%, over the prior year quarter, which was largely in line with the consolidated

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2025-07-22. Report date: 2025-05-31.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions)

Background and Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K. For a discussion of the comparison of fiscal 2024 and 2023, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended May 31, 2024 (filed July 19, 2024).

Management’s Discussion and Analysis of Financial Condition and Results of Operations contain 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. Forward-looking statements may also be identified because they contain words such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘likely,’’ ‘‘may,’’ ‘‘might,’’ ‘‘plan,’’ ‘‘potential,’’ ‘‘predict,’’ ‘‘project,’’ ‘‘seek,’’ ‘‘should,’’ ‘‘target,’’ ‘‘will,’’ ‘‘would,’’ or similar expressions and the negatives of those terms. These forward-looking statements are based on the beliefs of management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties, including those factors discussed under Item 1A, “Risk Factors,” that could cause actual results to differ materially from those anticipated. Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. We assume 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.

General Overview

We report our activities in four business segments:

●

Parts Supply, primarily consisting of our sales of used serviceable material (“USM”), including aircraft, engine and airframe parts and components and distribution of new parts (“Distribution”);

●

Repair & Engineering, primarily consisting of our maintenance, repair, and overhaul (“MRO”) services across airframes (“Airframe MRO”) and components (“Component Services”);

●

Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions, including Trax; and

●

Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.

Our chief operating decision making officer (“CODM”) is our Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services. The Company has not aggregated operating segments for purposes of identifying reportable segments. Inter-segment sales are recorded at fair value which results in intercompany profit on inter-segment sales that is eliminated in consolidation. Corporate selling, general and administrative expenses include centralized functions such as legal, finance, treasury and human resources with a portion of the costs allocated to our operating segments.

Parts Supply

Our Parts Supply segment primarily consists of sales and leasing of USM and aftermarket distribution of new, original equipment manufacturer (“OEM”)-supplied replacement parts.

Table of Contents

USM is an important category of the aviation aftermarket in which parts removed from engines or airframes can be refurbished to be utilized as replacement parts in the aftermarket. We utilize a network of third-party repair facilities to perform this work. USM parts often represent a cost-effective and more timely solution for operators when compared to sourcing new parts.

We also distribute new OEM-supplied replacement parts to aircraft operators, airlines, government customers and other MRO companies across the world. Our parts are supplied to narrow-body, wide-body and regional aircraft. In most cases, we enter exclusive relationships with OEM manufacturers for a given market where we are the only provider of that supplier’s product category. We provide global scale, independence, and highly technical sales capabilities across both commercial and government end-markets.

Repair & Engineering

Our Airframe MRO services are primarily comprised of major airframe inspection, maintenance, repair, and overhaul services, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft. Component Services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment.

In fiscal 2025, we sold our Landing Gear Overhaul (“LGO”) business to GA Telesis for net proceeds of $48 million subject to post-closing adjustments for working capital, cash, and debt. We recognized a loss on the divestiture of $71.1 million which included goodwill of $14.6 million.

Our Repair & Engineering segment also develops Parts Manufacturer Approval (“PMA”) parts for aftermarket applications. PMA is a designation under Federal Aviation Administration (“FAA”) regulations that permits the design of approved parts for specific aircraft components that can be provided by non-OEM sources at cost-efficient and sometimes improved availability.

Integrated Solutions

Our Integrated Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoD and foreign governments, flight hour component inventory and repair programs for commercial airlines and integrated software solutions including Trax.

Fleet management and operations of customer-owned aircraft is performed for the U.S. Department of State (“DoS”) under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft.

Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components including warranty claim management in support of our airline customers’ maintenance activities.

Our integrated software solutions are primarily comprised of our Trax software which we acquired in fiscal 2023. Trax has the first fully cloud-based electronic enterprise resource platform for the MRO industry and also offers a full suite of “paperless” mobility apps that are in process of automating MRO workflows with artificial intelligence.

Table of Contents

Expeditionary Services

The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities. The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters. Shelters include both stationary and vehicle-mounted applications. We also provide engineering, design, and system integration services for specialized command and control systems.

Business Trends and Outlook

In fiscal 2025, we continued our efforts to optimize our products and services portfolio to position us for continued strong growth as well as to respond to the industry’s increased demand for aftermarket services. Double-digit sales growth in our new parts Distribution activities was a key contributor to improvements in profitability. Our fiscal 2023 investment in Trax has enabled us to scale to win the business from some of the largest airlines and maintenance, repair and overhaul (“MRO”) providers. We also continued our integration of our fiscal 2024 Product Support acquisition and have realized significant synergies while our broader Component Services activities have benefited from these additional capabilities, expanded global footprint, and higher margin offerings brought through the acquisition.

As part of our portfolio optimization efforts, we divested our LGO business to better focus on our core segments and highest margin offerings. We have made further investments to continue to strengthen our existing businesses, including in digital technologies, to help transform our service delivery and the aviation industry while contributing to improved profitability. In our Airframe MRO activities, digital advancements have driven efficiencies contributing to significant profitability improvement, and we continue to make progress toward additional maintenance capacity through the construction of two Airframe MRO facility expansions, one in Miami, Florida and one in Oklahoma City, Oklahoma.

We were also successful in winning new long-term agreements in both the government and commercial markets. In our Parts Supply segment, we were awarded multiple distribution contracts including from Unison, Chromalloy, and Ontic and we extended our exclusive agreement with FTAI Aviation to provide used serviceable material (“USM”) on the CFM56 engine platform through 2030. In the government market, we were awarded two, multi-year contracts from the U.S. Navy to support their P-8A aircraft, advancing our support of commercial derivatives.

Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable. As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets.

Table of Contents

Discussion of Results of Operations

Year Ended May 31,

2025

2024

% Change

Sales:

Commercial

1,976.1

1,637.9

20.6

Government and defense

804.4

681.0

18.1

2,780.5

2,318.9

19.9

Gross Profit:

Commercial

391.6

322.8

21.3

Government and defense

136.1

119.5

13.9

527.7

442.3

19.3

Gross Profit Margin:

Commercial

19.8

19.7

Government and defense

16.9

17.5

Consolidated

19.0

19.1

Consolidated sales in fiscal 2025 increased $461.6 million, or 19.9%, over the prior year primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $338.2 million, or 20.6%, over the prior year primarily due to the acquisition of the Product Support business in the fourth quarter of fiscal 2024 and strong demand and volume growth in our Parts Supply segment from our new parts distribution activities. Our consolidated sales to government customers increased $123.4 million, or 18.1%, primarily due to increased sales volume for our new parts distribution activities and increased pallet demand in our Mobility business.

Consolidated cost of sales increased $376.2 million, or 20.0%, over the prior year which was largely in line with the consolidated sales increase of 19.9% discussed above.

Consolidated gross profit in fiscal 2025 increased $85.4 million, or 19.3%, over the prior year. Gross profit on sales to commercial customers increased $68.8 million, or 21.3%, over the prior year primarily due to the acquisition of the Product Support business in the fourth quarter of fiscal 2024. Gross profit margin on sales to commercial customers increased slightly to 19.8% from 19.7% in the prior year primarily due to the acquisition of the Product Support business as its margins are accretive to our historical margins.

Gross profit on sales to government customers increased $16.6 million, or 13.9%, over the prior year primarily due to strong demand and volume growth across our new parts distribution activities. Gross profit margin on sales to government customers decreased to 16.9% from 17.5% primarily due to lower margins from inefficiencies related to the shutdown of our Garden City, New York component services facility.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $35.5 million, or 11.4%, over the prior year primarily due to increased costs of $54.8 million related to the previously disclosed FCPA investigation and settlement. This increase was partially offset by lower amortization and acquisition-related expenses of $18.2 million related to the Trax and Product Support business acquisitions.

As a percent of sales, selling, general and administrative expenses decreased to 12.5% from 13.5% in the prior year primarily due to the operating leverage from a full year of sales from the Product Support acquisition.

Operating Income

Operating income in fiscal 2025 increased $56.0 million, or 43.3%, over the prior year primarily due to the factors discussed above.

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Pension Settlement Charge

During the first quarter of fiscal 2024, we settled all future obligations under our frozen U.S. defined benefit retirement plan. The settlement included a combination of lump-sum payments to participants who elected to receive them and the transfer of the remaining benefit obligations to a third-party insurance company under a group annuity contract. As a result of the settlement, we recognized a non-cash, pre-tax pension settlement charge of $26.7 million ($16.1 million after-tax) in fiscal 2024 related to the accelerated recognition of all unamortized net actuarial losses in Accumulated other comprehensive loss.

Interest Expense

Interest expense in fiscal 2025 increased $32.2 million primarily reflecting the impact of higher average borrowings used to fund investments in the business, including our acquisition of Product Support businesses in the fourth quarter of fiscal 2024. This increase was partially offset by $6.1 million of bridge financing facility expenses in fiscal 2024 related to our acquisition of the Product Support business. Our average borrowing rate was 6.54% in fiscal 2025 compared to 6.69% in the prior year.

Income Taxes

In fiscal 2025, our effective income tax rate was 67.9% as the majority of the FCPA settlement charge was nondeductible for income tax purposes resulting in no income tax benefit. In fiscal 2024, our effective income tax rate was 20.6% which reflected the recognition of a deferred tax benefit in conjunction with the pension settlement in the first quarter of fiscal 2024.

Operating Segment Results of Operations

Parts Supply Segment

Year Ended May 31,

2025

2024

% Change

Third-party sales

1,099.6

967.0

13.7

Operating income

156.8

109.8

42.8

Operating margin

14.3

11.4

Sales in the Parts Supply segment in fiscal 2025 increased $132.6 million, or 13.7%, over the prior year period primarily due to a $129.9 million increase in sales in our new parts distribution activities from increased demand and growth from new and expanded distribution agreements.

Sales for our USM activities increased $2.7 million as a result of increased demand for whole assets as those sales increased $13.1 million over the prior year.

Operating income in the Parts Supply segment increased $47.0 million, or 42.8%, over the prior year, primarily due to increased sales volumes across our new parts distribution activities. In addition, an $11.2 million Russian legal liability was de-recognized in fiscal 2025 as a result of the Russian Court’s ruling which reversed the previous judgment against us. We also recognized a gain of $6.5 million in fiscal 2025 as a result of an insurance recovery related to an aircraft which was on lease to a customer and was damaged beyond repair in Haiti. The aircraft was originally acquired in the third quarter of fiscal 2024 and was expected to be sold in fiscal 2025. The insured value for the aircraft approximated its fair value and the insurance proceeds were recognized within Cost of sales.

Repair & Engineering Segment

Year Ended May 31,

2025

2024

% Change

Third-party sales

884.9

640.1

38.2

Operating income

81.2

52.5

54.7

Operating margin

9.2

8.2

Sales in the Repair & Engineering segment in fiscal 2025 increased $244.8 million, or 38.2%, over the prior year primarily due to the acquisition of the Product Support business in the fourth quarter of fiscal 2024 which contributed incremental sales of $232.7

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million in fiscal 2025. In addition, sales increased $39.0 million at our Airframe MRO facilities. These increases were partially offset by lower sales volume of $8.6 million due to the sale of our LGO business in the fourth quarter of fiscal 2025.

Operating income in the Repair & Engineering segment increased $28.7 million, or 54.7%, over the prior year primarily due to the Product Support acquisition. Operating margin increased to 9.2% from 8.2% in the prior year, reflecting the favorability of the higher margin Product Support business.

Integrated Solutions Segment

Year Ended May 31,

2025

2024

% Change

Third-party sales

695.3

641.9

8.3

Operating income

36.4

23.9

52.3

Operating margin

5.2

3.7

Sales in the Integrated Solutions segment in fiscal 2025 increased $53.4 million, or 8.3%, over the prior year primarily due to higher commercial program activity with increased sales of $36.5 million. This increase included our sale of certain rotable assets for $18.7 million to a former, long-term power-by-the-hour customer in conjunction with the contract’s termination.

In fiscal 2025, we recognized net unfavorable cumulative catch-up adjustments of $(2.8) million compared to net favorable cumulative catch-up adjustments of $3.0 million in the prior year. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services as well as certain long-term government programs.

Operating income in the Integrated Solutions segment increased $12.5 million, or 52.3%, over the prior year with the operating margin increasing to 5.2% from 3.7% in the prior year. These increases were primarily due to lower amortization and acquisition-related expenses of $5.3 million for Trax and improved profitability from the mix of products and services across our government programs.

Expeditionary Services Segment

Year Ended May 31,

2025

2024

% Change

Third-party sales

100.7

69.9

44.1

Operating income

10.1

3.5

188.6

Operating margin

10.0

5.0

Sales in the Expeditionary Services segment in fiscal 2025 increased $30.8 million, or 44.1%, over the prior year primarily due to higher sales volumes for pallets. In addition, we recognized sales of $13.5 million reflecting the estimated recovery on our incurred costs for the Next Generation Pallet contract that was terminated for convenience by the customer.

Operating income in the Expeditionary Services segment increased $6.6 million, or 188.6%, over the prior year with the operating margin increasing to 10.0% from 5.0% in the prior year. These increases are primarily due to the higher sales volumes for pallets.

Liquidity, Capital Resources and Financial Position

Our operating activities are funded and commitments met through the generation of cash from operations. Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. In addition to operations, our current capital resources include an unsecured revolving credit facility under the Credit Agreement referred to below and an accounts receivable financing program. Periodically, we may also raise capital through common stock and debt financings in the public or private markets. We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms. Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, our debt service obligations, and our operating performance.

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At May 31, 2025, our liquidity and capital resources included working capital of $955.9 million inclusive of cash of $96.5 million. We expect that our cash on hand, coupled with future cash flows from operations and other available sources of liquidity discussed below, will provide ample liquidity to enable us to meet our cash requirements for at least the next 12 months and foreseeable future thereafter.

Borrowings

On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the “Credit Agreement”) that included an unsecured revolving credit facility (the “Revolving Credit Facility”) that we can draw upon for working capital and general corporate purposes. In conjunction with the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the “2011 Credit Agreement”) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement.

On March 1, 2024, we entered into an amendment (the “Revolver Amendment”) to our Credit Agreement, which governs the Company’s existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the “Amended Revolving Credit Facility”). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620.0 million under the Revolving Credit Facility, (ii) increased the maximum leverage ratio permitted under the financial covenants applicable to the Amended Revolving Credit Facility and (iii) included an additional pricing level that increases the interest rate margins on the Amended Revolving Credit Facility to 250 basis points (in the case loans based on the secured overnight financing rate (“SOFR”)) and 150 basis points (in the case of Base Rate loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00.

In connection with the Revolver Amendment, we borrowed $186.2 million under the Amended Revolving Credit Facility to fund a portion of the purchase price for the acquisition of the Product Support business in the fourth quarter of fiscal 2024.

Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $1,125 million in total. The Credit Agreement expires on December 14, 2027. Borrowings under the Credit Agreement bear interest at a variable rate based on SOFR plus 112.5 to 250 basis points based on certain financial measurements if a SOFR loan, or at the offered fluctuating Base Rate plus 12.5 to 150 basis points based on certain financial measurements if a Base Rate loan.

At May 31, 2025, borrowings outstanding under the Amended Revolving Credit Facility were $427.0 million and there were approximately $7.9 million of outstanding letters of credit, which reduced the availability under this facility to $390.1 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility. As of May 31, 2025, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including outstanding letters of credit of $0.1 million and foreign lines of credit of $9.8 million.

On March 1, 2024, we issued $550.0 million aggregate principal amount of 6.75% Senior Notes due 2029 (the “Notes”) to fund a portion of the purchase price for the acquisition of the Product Support business. The Notes bear interest at a rate of 6.75% per year, payable semiannually in cash in arrears on March 15 and September 15 of each year, which commenced on September 15, 2024. The Notes mature on March 15, 2029.

At any time prior to March 15, 2026, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable “make-whole” premium. At any time prior to March 15, 2026, the Company may also redeem up to 40% of the Notes with net cash proceeds of certain equity offerings at a redemption price equal to 106.75% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after March 15, 2026, the Company may redeem the Notes, in whole or in part, at specified redemption prices ranging from 100.000% to 103.375% depending on the date of redemption.

Our financing arrangements require us to comply with leverage and interest coverage ratios and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. Our financing arrangements also generally require

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our significant domestic subsidiaries to provide a guarantee of payment. At May 31, 2025, we were in compliance with the financial and other covenants under each of our financing arrangements.

Sale of Receivables

We maintain a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150.0 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell. The term of the Purchase Agreement expires after February 22, 2026, but, the Purchase Agreement may be terminated earlier under certain circumstances. The term of the Purchase Agreement is automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under Accounting Standards Codification 860, Transfers and Servicing, and de-recognize the sold receivables from our Consolidated Balance Sheet. At May 31, 2025, we have utilized $13.9 million which reduced the availability under the Purchase Agreement to $136.1 million.

Customer Matters

During fiscal 2024, we experienced delayed collections from one of our significant regional airline customers and issued the customer a Notice of Payment and Other Defaults during the second quarter of fiscal 2024 to request payment and reserve our rights under our agreements. In the fourth quarter of fiscal 2024, we terminated a power-by-the-hour (“PBH”) program with this customer which resulted in a net termination charge of $4.8 million. The charge included a reduction in contract assets and revenue of $7.8 million and the establishment of repair reserves of $2.5 million partially offset by a $5.5 million gain recognized from the customer’s obligation to purchase the rotable assets we utilized to perform the PBH services. In conjunction with the termination for default, the customer is obligated to purchase the rotable assets and we sold the assets to the customer in the fourth quarter of fiscal 2025 for $18.7 million.

We expect full payment from the customer of all amounts due under the terminated agreement and all other agreements and do not believe a reserve for credit loss is warranted. Our Consolidated Balance Sheet as of May 31, 2025 included accounts receivable of $29.4 million, including $7.5 million past due, and contract assets of $1.4 million related to this customer.

Stock Repurchase Program

On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date. During fiscal 2025, we repurchased 0.2 million shares for an aggregate purchase price of $10.1 million. During fiscal 2024, we repurchased 0.1 million shares for an aggregate purchase price of $5.1 million. During fiscal 2023, we repurchased 1.2 million shares for an aggregate purchase price of $50.1 million. Since inception of the renewal authorization, we have repurchased 2.4 million shares for an aggregate purchase price of $107.5 million. The timing and amount of repurchases are subject to prevailing market conditions and other considerations, including our liquidity and acquisition and other investment opportunities.

Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities was $36.1 million in fiscal 2025 compared to $43.6 million in the prior year. The decrease in cash provided from the prior year of $7.5 million was primarily attributable to working capital changes, including the timing of customer collections in accounts receivable partially offset by higher amounts of accounts payable and accrued liabilities primarily due to timing of vendor payments.

Cash Flows from Investing Activities

Net cash provided by investing activities was $10.7 million in fiscal 2025 compared to a use of cash of $758.5 million in the prior year. The increase in cash provided by investing activities over the prior year’s use of cash was $769.2 million which was primarily related to the acquisition of the Product Support business in fiscal 2024 compared to the sale of the LGO business in fiscal 2025.

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Cash Flows from Financing Activities

Net cash used in financing activities was $33.7 million in fiscal 2025 compared to cash provided by financing activities of $729.2 million in the prior year. The decrease in cash provided by financing activities from the prior year of $762.9 million was primarily related to debt financing to fund the acquisition of the Product Support business in fiscal 2024.

Contractual Obligations and Off-Balance Sheet Arrangements

A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2025 is as follows:

Payments Due by Period

Due in

After

Fiscal

Total

2026

2027

2028

2029

2030

On Balance Sheet:

Credit Agreement borrowings

427.0

—

427.0

—

Credit Agreement interest1

69.6

27.4

14.8

—

6.75% Senior Notes

550.0

—

550.0

—

6.75% Senior Notes interest

140.7

37.1

29.4

—

Facilities and equipment operating leases

150.1

15.3

11.9

10.6

9.8

6.7

95.8

Off Balance Sheet:

Purchase obligations2

845.7

657.1

156.9

26.7

2.4

2.6

—

Notes:

Interest was determined using the interest rates in effect on May 31, 2025.

Purchase obligations arise in the ordinary course of business and represent a binding commitment to acquire inventory, including raw materials, parts, and components, as well as equipment to support the operations of our business.

We routinely issue letters of credit and performance bonds in the ordinary course of business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at May 31, 2025 was $7.9 million.

Critical Accounting Policies and Significant Estimates

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. Management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare the Consolidated Financial Statements. The most significant estimates made by management include those related to assumptions used in accounting for business combinations, assessing goodwill impairment, adjustments to reduce the value of inventories and certain rotable assets, revenue recognition, and allowance for credit losses. Accordingly, actual results could differ materially from those estimates. The following is a summary of the accounting policies considered critical by management.

Business Combinations

When we acquire a business, we allocate the purchase price by recognizing assets acquired and liabilities assumed based on their estimated fair values at acquisition date with any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired recognized as goodwill. A preliminary fair value is determined once a business is acquired, with the final determination of fair value completed no later than one year from the date of acquisition.

The determination of the estimated fair value of assets acquired and liabilities assumed requires significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in determining the fair value of assets acquired and liabilities assumed in business combinations.

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The fair value of the intangible assets is estimated using several valuation methodologies, including the income-based or market-based approaches, which represent Level 3 fair value measurements. The value for customer relationships is typically estimated based on a multi-period excess earnings approach. The more significant inputs used in the customer relationships intangible asset valuation include (i) future revenue growth rates, (ii) projected gross margins, (iii) the customer attrition rate, and (iv) the discount rate. The value for developed technology is estimated based on a relief from royalty approach. The more significant inputs used in the developed technology intangible asset valuation include (i) future revenue growth rates, (ii) profitability, (iii) technology obsolescence, (iv) market royalty rates, and (v) the discount rate. The useful lives are estimated based on the future economic benefit expected to be received from the assets.

Transaction costs are not included as components of consideration transferred but instead, expensed as incurred.

Goodwill

Under accounting standards for goodwill and other intangible assets, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually, on May 31, or more frequently if circumstances indicate that impairment is possible.

The accounting standards for goodwill allow for either a qualitative or quantitative approach for the annual impairment test. Under the qualitative approach, factors such as macroeconomic conditions, industry and market conditions and company-specific events or circumstances are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When the quantitative approach is utilized, we compare the fair value of each reporting unit with the carrying value of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to recognize an impairment loss for the excess carrying value of the reporting unit’s assets.

In fiscal 2025, 2024, and 2023, we utilized the qualitative assessment approach for our annual review of goodwill impairment for each of our reporting units. Under this approach, we considered the overall industry and market conditions related to the aerospace and government/defense markets as well as conditions in the global capital markets. We also considered the long-term forecasts for each reporting unit, which incorporated specific opportunities and risks, working capital requirements, and capital expenditure needs. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other items. We concluded it was more likely than not that the fair value of each reporting unit exceeded its carrying value at the respective measurement dates, and thus no impairment charges were recorded in those fiscal years.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined by the specific identification, average cost or first-in, first-out methods. Write-downs are made for excess and obsolete inventories and inventories that have been impaired as a result of industry conditions. We have utilized certain assumptions when determining the market value of inventories, such as inventory quantities and aging, historical sales of inventory, current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap recovery rates. Reductions in demand for certain of our inventories or declining market values, as well as differences between actual results and the assumptions utilized by us when determining the market value of our inventories, could result in the recognition of impairment charges in future periods.

Revenue Recognition

Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer.

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes

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another good or service or whether the good or service is highly interdependent or interrelated. If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.

Our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. The majority of our sales from products are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment. In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product. We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers.

For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs, and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results.

Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. These changes are primarily adjustments to the estimated profitability for our long-term programs where we provide component inventory management and/or repair services.

When contracts are modified, we consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original goods or services provided, are accounted for as if they were part of that existing contract with the effect of the contract modification recognized as an adjustment to revenue on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct, they are accounted for as a new contract and performance obligation, which are recognized prospectively.

Under most of our U.S. government contracts, if the contract is terminated for convenience, we are entitled to payment for items delivered and fair compensation for work performed, the costs of settling and paying other claims, and a reasonable profit on the costs incurred or committed.

Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Consolidated Statements of Income, and are not considered a performance obligation to our customers. Our reported sales on our Consolidated Statements of Income include sales and related non-income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.

The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract assets and contract liabilities are determined on a contract-by-contract basis.

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Allowance for Credit Losses

We maintain an allowance for credit losses to reflect the expected uncollectibility of accounts receivable based on past collection history and specific risks identified among uncollected accounts. In determining the required allowance, we consider factors such as general and industry-specific economic conditions, customer credit history, and our customers’ current and expected future financial performance. The majority of our customers are recurring customers with an established payment history. Certain customers are required to undergo an extensive credit check prior to delivery of products or services.

We perform regular evaluations of customer payment experience, current financial condition, and risk analysis. We may require collateral in the form of security interests in assets, letters of credit, and/or obligation guarantees from financial institutions for transactions executed on other than normal trade terms. We also maintain trade credit insurance for certain customers to provide coverage, up to a certain limit, in the event of insolvency of some customers.

Impairment of Long-Lived Assets

We are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows. When applying accounting standards addressing impairment of long-lived assets, we have utilized certain assumptions to estimate future undiscounted cash flows, including current and future sales volumes or lease rates, expected changes to cost structures, lease terms, residual values, market conditions, and trends impacting future demand. Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of long-lived assets.

We maintain a significant inventory of rotable parts and equipment to service customer aircraft and components. Portions of that inventory are used parts that are often exchanged with parts removed from aircraft or components, and are reworked to a useable condition. We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry.