AAR : Annual Report for Fiscal Year Ending 05-31, 2026 (Form 10-K)

About this update from Aar Corp.

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 Annual Report on Form 10-K. For a discussion of the comparison of fiscal 2025 and 2024, 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, 2025 (filed with the SEC on July 22, 2025). Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. 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 During the fourth quarter of fiscal 2026, we changed our operating segment structure to realign our Integrated Solutions segment which resulted in the following changes: ● Combined our government programs activities and our Mobility Systems business, previously reported as Expeditionary Services, into a new operating segment named Government Solutions; ● Re-positioned our software platform to our Repair and Engineering segment, which is renamed Repair, Engineering, and Software; and ● Legacy Commercial Programs, the remaining business unit within the Integrated Solutions segment, is now separately reported as its own operating segment. These changes resulted in the following four operating segments: ● Parts Supply remains unchanged from the prior structure, primarily consisting of new parts Distribution and sales of used serviceable material, including aircraft, engine and airframe parts and components ("USM"); ● Repair, Engineering, and Software primarily consists of Airframe MRO, Component MRO, and our software platforms, including Trax, Aerostrat, Airvoyant and Airinmar; ● Government Solutions primarily consists 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 War ("DoW"), the U.S. Department of State ("DoS") and foreign governments and the engineering, design, integration, manufacture, and repair of pallets, shelters, and containers ("Mobility Systems"); and ● Legacy Commercial Programs consists of asset-heavy flight hour-based component repair programs for commercial airlines and distribution of consumables and expendables inventory. During the fourth quarter of fiscal 2026, we also announced our intention to exit our Legacy Commercial Programs business as it requires significant asset pools and no longer meets our capital return thresholds. We anticipate that the wind-down of the segment will take approximately three to four years as the Legacy Commercial Programs' existing customer contracts are terminated and its rotable assets are sold. 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. In fiscal 2026, we completed one acquisition in our Parts Supply segment and three acquisitions in our Repair, Engineering, and Software segment to further expand our products and services portfolio and our global footprint: ● In September 2025, we acquired American Distributors Holding Co., LLC ("ADI") for $137.1 million. ADI is a leading distributor of electronic components and assemblies to original equipment manufacturers ("OEMs") across the aerospace and defense industry, ● In November 2025, we acquired HAECO Americas for $78.0 million. HAECO Americas is a provider of heavy aircraft maintenance, repair, and overhaul ("MRO") and modification services across its hangars located in Greensboro, North Carolina and Lake City, Florida HAECO Americas was the second largest heavy maintenance provider in North America and immediately expanded our maintenance footprint. Related to the transaction, we also secured multi-year heavy maintenance contracts with key customers worth over $850 million. ● In April 2026, we acquired Aircraft Reconfig Technologies ("ART") for $36.0 million. ART is a leading aircraft interiors engineering company which adds Federal Aviation Administration ("FAA") Organization Designation Authorization to our engineering services capabilities. This enables us to issue supplemental type certificates and Parts Manufacturer Approval ("PMA") without reliance on third parties. ● In August 2025, we acquired Aerostrat Corp. ("Aerostrat") for $19.0 million. Aerostrat is a leading long-range maintenance planning software provider used by airlines, MRO facilities, and cargo companies to automate complex scheduling, ensure production capacity, and simplify aircraft allocation. Parts Supply Our Parts Supply segment primarily consists of aftermarket distribution of new, OEM supplied replacement parts and sales and leasing of USM. The Parts Supply segment accounted for approximately 45% of our sales in fiscal 2026. We have established formal distribution relationships with OEMs of aircraft components, which are utilized by aircraft operators and aircraft repair and maintenance operations. We are a leading independent distributor of factory new aircraft parts for the aftermarket. We also distribute components and assemblies to OEMs through our recent ADI acquisition. As we continue to enhance our digital solutions, we have developed the online PAARTS sm Store, which facilitates the electronic fulfillment of orders when customers choose this channel. Our parts are supplied for narrow-body, wide-body and regional aircraft to aircraft operators, airlines, government customers and other MRO companies across the world. 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, and Software Our Repair, Engineering, and Software segment primarily provides Airframe MRO, Component MRO, and integrated software solutions. The Repair, Engineering, and Software segment accounted for approximately 35% of our sales in fiscal 2026. Our Airframe MRO services are primarily comprised of major airframe inspection, MRO, 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 MRO services are primarily comprised of repair and overhaul services for structural components, engine and airframe accessories, and interior refurbishment. Our software solutions primarily consist of comprehensive, cloud-based, mobile, and AI-enabled aviation aftermarket software which provide greater value across all aspects of airline and MRO technical operations. Trax is a cloud-based system of record for aircraft maintenance which is enhanced by mobile apps for real-time work execution. Trax supports all MRO workflows including engineering, planning, procurement, inventory management, repair completion, quality, and reporting. Aerostrat is an advanced platform for long-range heavy maintenance planning used by global airlines. Aerostrat automates complex scheduling to ensure heavy maintenance capacity and minimizes aircraft out-of-service time. Airvoyant is an artificial intelligence ("AI") platform that automates the procurement workflow from requisition to invoice (end-to-end) through intelligent sourcing decisions using data science and agentic AI. Airvoyant also provides automated ordering controlled by AI confidence thresholds and business rules such as part type, order value, and approvals. Airinmar provides warranty claim management in support of our airline customers' maintenance activities. 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. Government Solutions The Government 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 DoW, the DoS and foreign governments and our Mobility Systems operations which provides products and services supporting the movement of equipment by the U.S. and foreign governments and non - governmental organizations. The Government Solutions segment accounted for approximately 15% of our sales in fiscal 2026. Fleet management and operations of customer-owned aircraft are 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. Mobility Systems designs, manufactures, and repairs 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. Mobility Systems also provides engineering, design, and system integration services for specialized command and control systems. Legacy Commercial Programs The Legacy Commercial Programs segment primarily consists of asset-heavy flight hour-based component pool and repair programs for commercial airlines and distribution of consumables and expendables inventory. The Legacy Commercial Programs segment accounted for approximately 5% of our sales in fiscal 2026. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components. Our business activities in this segment are primarily conducted through AAR Supply Chain, Inc. and AAR International, Inc. Business Trends and Outlook In fiscal 2026, we set new records throughout the year, expanding our capabilities, strengthening our market position, and delivering exceptional financial results that validated our strategy as the leading Parts, Repair, and Software platform in the aviation aftermarket. The energy across our global operations fueled a year of strong execution. We delivered the high standards our commercial and government customers expect with the urgency required to keep aircraft flying. The pace of that execution reinforced a defining part of how we operate, leading us to add nonstop to our longstanding brand promise, now Doing it Right. Nonstop.™ Our repositioned portfolio and focused strategy drove record-breaking financial results in fiscal 2026. Notably, growth of our new parts Distribution activities contributed to exceptional profitability improvements. More broadly, our focus on significantly expanding margins across all business areas drove unprecedented growth with achievements well above our prepandemic highs. During fiscal 2026, we took decisive steps to simplify our portfolio, increase transparency, and sharpen our focus on higher-margin businesses with stronger returns on capital. We re-segmented our operations to provide greater visibility into our performance and began the multi-year wind down of our Legacy Commercial Programs business. At our recent Investor Day in May 2026, we outlined how these actions position us for long-term growth, providing additional detail on our repositioned portfolio and updated financial framework before ringing the closing bell at the New York Stock Exchange. We continued to strengthen our software portfolio with the launch of Airvoyant, an AI-powered aviation procurement solution that automates the historically complex parts sourcing process. The strong market reception the increasing importance of advanced automation in aviation procurement and supply chain management. Growth remained a priority throughout fiscal 2026, both organically and through acquisitions. We completed the expansion of our Airframe MRO facility in Oklahoma City and are supporting a long-term customer's increased demand for maintenance capacity. Construction on our Miami Airframe MRO expansion is progressing well, and we expect to begin servicing additional maintenance lines from the new hangar this autumn. Fiscal 2026 marked our most acquisitive year with four acquisitions strengthening key areas of our business and further reinforcing our competitive position across the aviation aftermarket. Integration efforts are progressing ahead of plan, and each acquisition is already contributing to our capabilities, customer value proposition, and growth strategy. 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ % Change Sales: ​ ​ ​ ​ ​ ​ Commercial ​ $ 2,384.1 ​ $ 1,976.1 20.6 % Government and defense ​ 923.9 ​ 804.4 ​ 14.9 % ​ ​ $ 3,308.0 ​ $ 2,780.5 19.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 414.8 ​ $ 391.6 ​ 5.9 % Government and defense ​ ​ 207.2 ​ ​ 136.1 ​ 52.2 % ​ ​ $ 622.0 ​ $ 527.7 ​ 17.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit Margin: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ ​ 17.4 % ​ 19.8 % ​ ​ Government and defense ​ ​ 22.4 % ​ 16.9 % ​ ​ Consolidated ​ ​ 18.8 % ​ 19.0 % ​ ​ ​ Consolidated sales in fiscal 2026 increased $527.5 million, or 19.0%, over the prior year primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $408.0 million, or 20.6%, over the prior year primarily due to strong demand and volume growth in our new parts Distribution activities, including from our recent ADI acquisition, which contributed sales of $82.2 million. In addition, our recent HAECO Americas acquisition contributed sales of $131.1 million. Our consolidated sales to government customers increased $119.5 million, or 14.9%, primarily due to volume growth in our Parts Supply segment from our new parts Distribution activities, including from the ADI acquisition, which contributed sales of $33.2 million. Consolidated cost of sales increased $433.2 million, or 19.2%, over the prior year which was largely in line with the consolidated sales increase of 19.0% discussed above. Consolidated gross profit in fiscal 2026 increased $94.3 million, or 17.9%, over the prior year. Gross profit on sales to government customers increased $71.0 million, or 52.2%, over the prior year primarily due to strong demand and volume growth across our new parts Distribution activities increasing gross profit by $22.3 million. In addition, volume growth and favorable mix of products and services drove improvement in gross profit of $19.3 million in our government program activities. Gross profit margin on sales to government customers increased to 22.4% from 16.9% primarily due to the mix of products and services in our government program activities. Gross profit on sales to commercial customers increased $23.2 million, or 5.9%, over the prior year primarily due to strong demand and volume growth in our new parts Distribution activities, including from our recent ADI acquisition. Gross profit margin on sales to commercial customers decreased to 17.4% from 19.8% in the prior year primarily due to the mix of products and services, including the pre-integration, lower margin HAECO Americas operations. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $1.6 million, or 0.5%, over the prior year primarily due to the fiscal 2026 acquisitions, including ADI and HAECO Americas. This increase was largely offset by FCPA investigation and settlement costs of $54.8 in the prior year. As a percent of sales, selling, general and administrative expenses decreased to 10.6% from 12.5% in the prior year primarily due to the operating leverage from the sales derived from the fiscal 2026 acquisitions. Operating Income Operating income in fiscal 2026 increased $92.6 million, or 50.0%, over the prior year primarily due to the factors discussed above. Non-Operating Items During fiscal 2026, we recognized a bargain purchase gain of $29.5 million related to our HAECO Americas acquisition as the preliminary fair value of the identifiable assets acquired exceeded the total purchase price. Additionally, in fiscal 2026, we sold our corporate headquarters building in Wood Dale, Illinois in connection with our corporate headquarters relocation to Chicago, Illinois. The sale price for the property was $26.0 million and we recognized a gain on the sale of $9.8 million. Interest Expense Interest expense in fiscal 2026 decreased $3.3 million reflecting the impact of both lower interest rates and lower average borrowings. Our average borrowing rate on our Amended Revolving Credit Facility was 5.80% in fiscal 2026 compared to 6.54% in the prior year. Income Taxes In fiscal 2026, our effective income tax rate was 23.7% compared to 67.9% in the prior year. This decrease is primarily attributable to the FCPA settlement charge of $55.6 million in fiscal 2025 that was nondeductible for income tax purposes resulting in no income tax benefit. Operating Segment Results of Operations Parts Supply Segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ % Change Third-party sales ​ $ 1,487.7 ​ $ 1,099.6 ​ 35.3 % Operating income ​ ​ 186.2 ​ ​ 156.8 ​ 18.8 % Operating margin ​ 12.5 % ​ 14.3 % ​ ​ ​ Sales in the Parts Supply segment in fiscal 2026 increased $388.1 million, or 35.3%, over the prior year period primarily due to a $295.4 million increase in sales in our new parts Distribution activities from increased demand and growth from new and expanded distribution agreements. The ADI acquisition contributed sales of $115.3 million to the increase in new parts Distribution sales during fiscal 2026. Sales for our USM activities increased $92.7 million as a result of increased demand for whole assets as those sales increased $50.6 million over the prior year. Operating income in the Parts Supply segment increased $29.4 million, or 18.8%, 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. Operating margin decreased to 12.5% from 14.3% in the prior year primarily due to the factors discussed above, including the Russian legal matter and the insurance recovery. Repair, Engineering, and Software Segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ % Change Third-party sales ​ $ 1,080.8 ​ $ 931.0 ​ 16.1 % Operating income ​ ​ 84.6 ​ ​ 84.0 ​ 0.7 % Operating margin ​ 7.8 % ​ 9.0 % ​ ​ Sales in the Repair, Engineering, and Software segment in fiscal 2026 increased $149.8 million, or 16.1%, over the prior year primarily due to growth within our Airframe MRO services of $170.7 million. The HAECO Americas acquisition contributed sales of $131.1 million in fiscal 2026, which was partially offset by the divestiture of our LGO business in the fourth quarter of fiscal 2025. The LGO business contributed sales of $66.9 million in the prior year. Operating income in the Repair, Engineering, and Software segment increased $0.6 million, or 0.7%, over the prior year while the operating margin decreased to 7.8% from 9.0%. These changes were primarily due to the mix of products and services, including the pre-integration, lower margin HAECO Americas operations. Government Solutions Segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ % Change Third-party sales ​ $ 502.3 ​ $ 495.4 ​ 1.4 % Operating income ​ ​ 56.7 ​ ​ 35.1 ​ 61.5 % Operating margin ​ 11.3 % ​ 7.1 % ​ ​ ​ Sales in the Government Solutions segment in fiscal 2026 increased $6.9 million, or 1.4%, over the prior year primarily due to higher government program activity. In addition, we recognized sales of $13.5 million in fiscal 2025 reflecting the estimated recovery on our incurred costs related to Mobility Systems' Next Generation Pallet contract that was terminated for convenience by the customer. Operating income in the Government Solutions segment increased $21.6 million, or 61.5%, over the prior year with the operating margin increasing to 11.3% from 7.1% in the prior year. These increases are primarily due to higher government program activity partially offset by the recognition of a $2 million loss to reduce the estimated recovery from the U.S. government on a long-term aircraft maintenance program. In addition, Mobility Systems operating income increased $5.6 million primarily due to higher sales volumes for pallets. Legacy Commercial Programs Segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ % Change Third-party sales ​ $ 237.2 ​ $ 254.5 ​ (6.8) % Operating income ​ ​ - ​ ​ 8.6 ​ (100.0) % Operating margin ​ - % ​ 3.4 % ​ ​ ​ Sales in the Legacy Commercial Programs segment in fiscal 2026 decreased $17.3 million, or 6.8%, from the prior year. Fiscal 2025 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 2026, we recognized net unfavorable cumulative catch-up adjustments of $(2.7) million compared to net unfavorable cumulative catch-up adjustments of $(2.8) 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 to commercial customers. Operating income in the Legacy Commercial Programs segment decreased $8.6 million, or 100.0%, from the prior year with the operating margin decreasing to 0% from 3.4% in the prior year. These decreases were primarily due to an inventory reserve of $4.9 million recognized in fiscal 2026 in conjunction with the decision to exit our consumables and expendables product line. 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 with various financial institutions as lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders (the "Credit Agreement"), 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. At May 31, 2026, our liquidity and capital resources included working capital of $1,128.9 million inclusive of cash of $84.0 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 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 (as defined in the Revolver Amendment) loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00. 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, 2026, borrowings outstanding under the Amended Revolving Credit Facility were $200.0 million and there were approximately $10.5 million of outstanding letters of credit, which reduced the availability under this facility to $614.5 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility. As of May 31, 2026, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including foreign lines of credit of $9.9 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 Triumph Group Inc.'s 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, commencing September 15, 2024. The Notes will mature on March 15, 2029. 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. On August 14, 2025, we issued an additional $150.0 million aggregate principal amount of our Notes (the "Additional Notes"). Other than with respect to the date of issuance and the offering price, the Additional Notes have the same terms as the Notes. Debt issuance costs of $2.5 million were incurred in connection with the Additional Notes which were issued at an original issuance premium of 102% of their principal amount, or $3.0 million. 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 our significant domestic subsidiaries to provide a guarantee of payment. At May 31, 2026, 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, 2027, 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, 2026, we have utilized $13.9 million which reduced the availability under the Purchase Agreement to $136.1 million. Common Stock Offering During the second quarter of fiscal 2026, we sold 3,450,000 shares of our common stock at $83.00 per share in a registered underwritten offering. After deducting underwriting fees and other offering expenses, we received $273.9 million in net proceeds. 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. No shares were repurchased during fiscal 2026. 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. 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 $98.7 million in fiscal 2026 compared to $36.1 million in the prior year. The increase in cash provided from the prior year of $62.6 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 primarily due to timing of vendor payments. Cash Flows from Investing Activities Net cash used in investing activities was $308.7 million in fiscal 2026 compared to cash provided of $10.7 million in the prior year. The increase in cash used in investing activities from the prior year of $319.4 million was primarily related to the four acquisitions completed in fiscal 2026. Cash Flows from Financing Activities Net cash provided by financing activities was $208.6 million in fiscal 2026 compared to a use of cash of $33.7 million in the prior year. The increase in cash provided by financing activities over the prior year of $242.3 million was primarily related to the common stock and debt offerings we completed in the second quarter of fiscal 2026 to fund our fiscal 2026 acquisitions and reduce our borrowings under our Amended Revolving Credit Facility. Contractual Obligations and Off-Balance Sheet Arrangements A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2026 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ Due in ​ Due in ​ Due in ​ Due in ​ Due in After ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal Fiscal ​ ​ ​ ​ Total ​ ​ ​ 2027 ​ ​ ​ 2028 ​ ​ ​ 2029 ​ ​ ​ 2030 ​ ​ ​ 2031 ​ ​ ​ 2031 On Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit Agreement borrowings ​ $ 200.0 ​ $ - ​ $ 200.0 ​ $ - ​ $ - ​ $ - ​ $ - Credit Agreement interest 1 ​ 19.3 ​ 12.5 ​ 6.8 ​ - ​ - ​ - ​ ​ - 6.75% Senior Notes ​ ​ 700.0 ​ ​ - ​ ​ - ​ ​ 700.0 ​ ​ - ​ ​ - ​ ​ - 6.75% Senior Notes interest ​ ​ 131.9 ​ ​ 47.3 ​ ​ 47.2 ​ ​ 37.4 ​ ​ - ​ ​ - ​ ​ - Facilities and equipment operating leases ​ ​ 227.8 ​ ​ 22.8 ​ ​ 18.9 ​ ​ 13.8 ​ ​ 10.6 ​ ​ 9.4 ​ ​ 152.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Off Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase obligations 2 ​ 1,161.1 ​ 772.0 ​ 282.1 ​ 91.6 ​ 13.2 ​ 1.3 ​ ​ 0.9 Notes: 1 Interest was determined using the interest rates in effect on May 31, 2026. 2 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, 2026 was $10.5 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. 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 and 2024, we utilized the qualitative assessment approach for our annual review of goodwill impairment for each of our reporting units. As a result of the change in our operating segments in late fiscal 2026, we used a combination of quantitative and qualitative for our fiscal 2026 goodwill impairment review. Under the qualitative 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. For our quantitative assessment approach, we estimated the fair value of the applicable reporting unit using primarily an income approach based on discounted cash flows. The assumptions we used to estimate the fair value of the reporting units were based on historical performance, as well as forecasts used in our business plan. We used discount rates based on our consolidated weighted average cost of capital which was adjusted for each applicable reporting unit based on its specific risk, size, and industry characteristics. The fair value measurements used for our goodwill impairment testing used significant unobservable inputs, which reflected our own assumptions about the inputs that market participants would use in measuring fair value. 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. As part of the goodwill re-allocation associated with the change in operating segments, the Legacy Commercial Programs segment was assigned goodwill of $16.4 million. As the wind-down of its operations and sale of its assets occurs over the next three to four years, the fair value of the segment will progressively decrease which will ultimately result in the full impairment of the Legacy Commercial Programs goodwill in a future period or periods. 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 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. 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. ​

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