AAR CORP
For the period ended Aug 31, 2024. Filed Sep 24, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2024 · Filed Sep 24, 2024
AIR$109.21+4.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-29; filed 2024-03-21.
0001104659-24-037408
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-31; filed 2024-09-24.
0001410578-24-001617
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 96 previous paragraphs and 85 current paragraphs.
25 unchanged; 26 reworded; 33 added; 44 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 41 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
Current report
We report our activities in four business segments:
Current report
Parts Supply
Current report
Our Parts Supply segment primarily consists of sales and leasing of used serviceable aircraft engine and airframe material (“USM”), aircraft and engines and aftermarket distribution of new, original equipment manufacturer (“OEM”)-supplied replacement parts.
Current report
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.
Current report
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.
Current report
Repair & Engineering
Current report
Our airframe maintenance 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 repair services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment. Our landing gear overhaul services also include repair services on wheels and brakes for commercial and military aircraft.
Current report
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.
Current report
Integrated Solutions
Current report
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.
Current report
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.
Current report
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.
Current report
Our integrated software solutions are primarily comprised of our Trax software which we recently 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.
Current report
Expeditionary Services
Current report
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.
Current report
In addition, our Mobility business received a stop-work order from our U.S. Government customer on the Next Generation Pallet contract as the program was terminated for convenience by the customer in the first quarter of fiscal 2025. In conjunction with the termination, we recognized sales of $9.5 million reflecting the estimated recovery on our incurred costs.
Current report
Gross profit on sales to government customers decreased $1.3 million, or 5.1%, from the prior year quarter. Gross profit on sales to government customers decreased primarily due to the impact from the termination of the Next Generation Pallet contract. Gross profit margin on sales to government customers decreased to 12.9% from 16.3% primarily due to the contract termination.
Current report
As a percent of sales, selling, general and administrative expenses decreased to 11.5% from 13.6% in the prior year primarily due to the operating leverage from the acquisition of the Product Support business.
Current report
Sales in the Repair & Engineering segment increased $80.1 million, or 58.3%, over the prior year quarter primarily due to the acquisition of the Product Support business in the fourth quarter of fiscal 2024 which contributed sales of $74.9 million inclusive of repair services transferred from our Garden City, New York location as part of our integration activities. In addition, sales increased $7.9 million at our airframe maintenance facilities.
Current report
Operating income in the Repair & Engineering segment increased $12.0 million, or 131.9%, over the prior year quarter primarily due to the Product Support acquisition. Operating margin increased to 9.7% from 6.6% in the prior year quarter, reflecting the favorability of the higher margin Product Support business.
Current report
Operating income in the Integrated Solutions segment remained consistent at $7.7 million compared to the prior year quarter. The increased favorability from the cumulative catch-up adjustments discussed above was largely offset by lower profitability across
Current report
our government programs primarily due to the mix of products and services. Operating margin decreased to 4.6% from 4.9% in the prior year quarter primarily due to the mix of products and services across our commercial and government programs.
Current report
Sales in the Expeditionary Services segment increased $6.4 million, or 33.5%, over the prior year period primarily due to the sales recognized in conjunction with the termination of our Next Generation Pallet contract.
Current report
Operating income in the Expeditionary Services segment decreased $3.0 million, or 230.8%, from the prior year quarter primarily due to the impact of termination of the Next Generation Pallet contract. In conjunction with the termination, we expensed equipment and inventory of $12.7 million and recognized a contract asset of $9.5 million reflecting the estimated recovery on our incurred costs. Operating margin decreased to (6.7)% from 6.8% in the prior year quarter, primarily due to the contract termination.
Current report
Borrowings
Current report
Sale of Receivables
Current report
Customer Matters
Current report
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 for $20.9 million. The rotable assets are classified as assets held for sale and the carrying value of the assets is presented within Prepaid assets and other current assets on our Condensed Consolidated Balance Sheet.
Current report
Stock Repurchase Program
Current report
This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, or targets, goals, commitments, and other business plans, and often 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.
Current report
These forward-looking statements are based on beliefs of our 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 that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) adverse events and negative publicity in the aviation industry; (iii) a reduction in sales to the U.S. government and its contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) a reduction in outsourcing of maintenance activity by airlines; (vii) a shortage of skilled personnel or work stoppages; (viii) competition from other companies; (ix) financial, operational and legal risks arising as a result of operating internationally; (x) inability to integrate acquisitions effectively and execute operational and financial plans related to the acquisitions; (xi) failure to realize the anticipated benefits of acquisitions; (xii) circumstances associated with divestitures; (xiii) inability to recover costs due to fluctuations in market values for aviation products and equipment; (xiv) cyber or other security threats or disruptions; (xv)
Current report
a need to make significant capital expenditures to keep pace with technological developments in our industry; (xvi) restrictions on use of intellectual property and tooling important to our business; (xvii) inability to fully execute our stock repurchase program and return capital to stockholders; (xviii) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xix) non-compliance with restrictive and financial covenants contained in our debt and loan agreements; (xx) changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety, and environmental matters, and the costs of complying with such laws and regulations; and (xxi) exposure to product liability and property claims that may be in excess of our liability insurance coverage. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.
Current report
For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, “Item 1A, Risk Factors” and our other filings from time to time with the SEC. These events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond our control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. 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.
Removed paragraphs (44)
Previous report
During the first quarter of fiscal 2024, our chief operating decision maker (“CODM”) implemented changes in how he organizes the business, allocates resources, and assesses performance. Specifically, this new structure resulted in the separation of our former Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering, and Integrated Solutions.
Previous report
In conjunction with the re-alignment, our CODM now evaluates each segment’s performance based on operating income instead of gross profit as our CODM believes operating income is a more comprehensive profitability measure for each operating segment.
Previous report
All of our previously reported segment financial information has been recast to conform to our new segment structure. The change in our operating segments had no impact on our previously reported consolidated results of operations, financial condition, or cash flows.
Previous report
Our operating segments are comprised of:
Previous report
The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2023. Cost of sales consists principally of the cost of products, including material used in manufacturing operations, direct labor, and overhead.
Previous report
On March 1, 2024, we completed the acquisition of Triumph Group, Inc.’s Product Support Business (the “Product Support Business”) for a purchase price of $725.0 million subject to customary post-closing adjustments for cash, working capital and indebtedness. The Product Support Business is a leading global provider of specialized maintenance, repair, and overhaul (“MRO”) capabilities for critical aircraft components in the commercial and defense markets, providing MRO services for structural components, engine and airframe accessories, interior refurbishment and wheels and brakes. The Product Support Business also designs proprietary designated engineering representative repairs and parts manufacturer approval parts. The Product Support Business will be reported within our Repair & Engineering segment. The purchase price was paid at closing and was funded with proceeds from the issuance of $550 million of aggregate principal amount of 6.75% Senior Notes due 2029 and borrowings from our Amended Revolving Credit Facility (as defined below).
Previous report
Three-Month Period Ended February 29, 2024
Previous report
Consolidated cost of sales increased $30.2 million, or 7.1%, over the prior year quarter primarily due to the overall higher sales volumes over the prior year period.
Previous report
Consolidated gross profit for the third quarter of fiscal 2024 increased $16.0 million, or 17.0%, over the prior year quarter. Gross profit on sales to commercial customers increased $17.5 million, or 28.4%, over the prior year quarter due to volume growth and favorable product mix for both new parts and used serviceable material. Gross profit margin on sales to commercial customers increased to 19.8% from 18.1% in the prior year quarter primarily due to the acquisition of Trax in the fourth quarter of fiscal 2023 and its higher margin digital services.
Previous report
Gross profit on sales to government customers decreased $1.5 million, or 4.6%, from the prior year quarter due to the completion of certain government programs in our Integrated Solutions segment. Gross profit margin on sales to government customers increased to 18.6% from 18.0% primarily due to changes in the mix of products sold in our Parts Supply segment.
Previous report
Selling, general and administrative expenses increased $20.3 million, or 35.8%, over the prior year quarter primarily due to $9.4 million of costs incurred related to our acquisition of the Product Support Business and investments to support the sales growth across our commercial activities. These investments include $2.6 million of amortization and acquisition-related expenses for Trax. As a percent of sales, selling, general and administrative expenses increased to 13.6% from 10.9% in the prior year quarter primarily due to these costs.
Previous report
Operating income decreased $1.0 million, or 2.9%, from the prior year quarter primarily due to increased selling, general and administrative expenses discussed above.
Previous report
Our effective income tax rate for continuing operations was 31.7% for the third quarter of fiscal 2024 compared to 26.8% in the prior year quarter. The increase in the effective tax rate was primarily attributable to higher non-deductible acquisition expenses in the third quarter of fiscal 2024 which increased the effective income tax rate. In addition, the prior year quarter included higher tax benefits from stock option exercises which decreased the effective income tax rate.
Previous report
Nine-Month Period Ended February 29, 2024
Previous report
Consolidated sales for the nine-month period ended February 29, 2024 increased $225.2 million, or 15.7%, over the prior year period primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $232.0 million, or 24.6%, over the prior year period primarily due to strong demand and volume growth in our Parts Supply segment across both new parts distribution and used serviceable material. Our consolidated sales to government customers decreased $6.8 million, or 1.4%, primarily due to lower sales volume for both our mobility products and for new parts to government customers in our Parts Supply segment.
Previous report
Gross profit on sales to government customers decreased $8.0 million, or 8.9%, from the prior year period with the gross profit margin on sales to government customers decreasing to 16.8% from 18.2%. These decreases are primarily due to the completion of certain government programs in our Integrated Solutions segment.
Previous report
Selling, General and Administrative Expenses
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Operating Income
Previous report
Operating income for the nine-month period ended February 29, 2024 decreased $1.0 million, or 1.0%, from the prior year quarter primarily due to increased selling, general and administrative expenses discussed above.
Previous report
Interest Expense
Previous report
Interest expense for the nine-month period ended February 29, 2024 increased $16.9 million which included $6.1 million of bridge financing facility expenses related to our acquisition of the Product Support Business. In addition, interest expense for the nine-month period ended February 29, 2024 reflects the impact of both higher interest rates and higher average borrowings used to fund investments in the business, including our acquisition of Trax. Our average borrowing rate was 6.67% for the nine-month period ended February 29, 2024 compared to 4.14% in the prior year period.
Previous report
Income Taxes
Previous report
Three-Month Period Ended February 29, 2024
Previous report
Sales in the Parts Supply segment increased $14.7 million, or 6.5%, over the prior year quarter primarily due to a $14.0 million increase in demand and sales volume for our new parts distribution activities.
Previous report
Operating income in the Parts Supply segment increased $6.0 million, or 23.9%, over the prior year period, primarily due to sales volume growth and the mix of products sold across both our new parts distribution and aftermarket parts trading activities. Operating margin increased to 12.8% from 11.0% in the prior year quarter, primarily due to the mix of products sold.
Previous report
Sales in the Repair & Engineering segment increased $12.8 million, or 10.0%, over the prior year quarter primarily due to a $16.4 million sales increase at our airframe maintenance facilities. This increase was partially offset by lower sales volume of $3.0 million at our landing gear facility.
Previous report
Operating income in the Repair & Engineering segment increased $1.7 million, or 17.3%, over the prior year quarter primarily due to the sales volume increase in our airframe maintenance facilities. Operating margin increased to 8.2% from 7.7% in the prior year quarter, primarily due to improved profitability in our airframe maintenance facilities.
Previous report
Operating income in the Integrated Solutions segment increased $1.6 million, or 22.9%, over the prior year quarter with operating margin increasing to 5.2% from 4.9%. These increases are primarily attributable to the favorable cumulative catch-up adjustments discussed above.
Previous report
Sales in the Expeditionary Services segment decreased $3.3 million, or 15.0%, from the prior year period primarily due to lower sales volumes for pallets partially offset by higher sales volumes for shelters.
Previous report
Operating income in the Expeditionary Services segment decreased $1.0 million, or 52.6%, from the prior year quarter primarily due to the lower sales volumes. Operating margin decreased to 4.8% from 8.6% in the prior year quarter, primarily due to increased selling, general and administrative expenses over the prior year quarter.
Previous report
Nine-Month Period Ended February 29, 2024
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Parts Supply Segment
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Repair & Engineering Segment
Previous report
Sales in the Repair & Engineering segment for the nine-month period ended February 29, 2024 increased $33.3 million, or 8.5%, over the prior year period primarily due to a $46.4 million sales increase at our airframe maintenance facilities. This increase was partially offset by lower sales volume of $18.7 million at our landing gear facility.
Previous report
Operating income in the Repair & Engineering segment increased $6.1 million, or 23.6%, over the prior year period primarily due to the sales volume increase in our airframe maintenance facilities. Operating margin increased to 7.5% from 6.6% in the prior year period, primarily due to improved profitability in our airframe maintenance facilities.
Previous report
Integrated Solutions Segment
Previous report
Sales in the Integrated Solutions segment for the nine-month period ended February 29, 2024 increased $79.8 million, or 20.0%, over the prior year period primarily due to higher commercial program activity and the Trax acquisition in the fourth quarter of fiscal 2023 which contributed sales of $26.9 million in the current year period.
Previous report
Operating income in the Integrated Solutions segment increased $0.3 million, or 1.3%, over the prior year period primarily due to the higher commercial government program activity largely offset by $7.9 million of amortization and acquisition-related expenses for Trax. Operating margin decreased to 4.7% from 5.6% primarily due to the completion of certain government programs.
Previous report
Expeditionary Services Segment
Previous report
Sales in the Expeditionary Services segment for the nine-month period ended February 29, 2024 decreased $14.8 million, or 21.6%, from the prior year period primarily due to lower sales volumes for pallets partially offset by higher sales volumes for shelters.
Showing the first 40 of 44 passages. Open the source sections for the rest.
Reworded paragraphs (26)
Previous wording
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.
Current wording
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.
Previous wording
Consolidated sales for the third quarter of fiscal 2024 increased $46.2 million, or 8.9%, over the prior year quarter primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $59.7 million, or 17.6%, over the prior year quarter primarily due to strong demand and volume growth in our new parts distribution activities and increased sales in our airframe maintenance facilities. Our consolidated sales to government customers decreased $13.5 million, or 7.4%, primarily due to lower sales volumes in both our new parts distribution activities and for our mobility products.
Current wording
Consolidated sales for the first quarter of fiscal 2025 increased $112.0 million, or 20.4%, over the prior year quarter primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $80.4 million, or 20.5%, over the prior year quarter 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 new parts distribution. Our consolidated sales to government customers increased $31.6 million, or 20.1%, primarily due to the Product Support acquisition and volume growth in our Parts Supply segment from new parts distribution activities.
Previous wording
Consolidated cost of sales increased $172.2 million, or 14.7%, over the prior year period which was largely in line with the consolidated sales increase of 15.7% discussed above.
Current wording
Consolidated cost of sales increased $96.1 million, or 21.4%, over the prior year quarter which was largely in line with the consolidated sales increase of 20.4% discussed above.
Previous wording
Consolidated gross profit for the nine-month period ended February 29, 2024 increased $53.0 million, or 20.2%, over the prior year period. Gross profit on sales to commercial customers increased $61.0 million, or 35.4%, over the prior year period due to strong demand and volume growth for both new parts and used serviceable material. Gross profit margin on sales to commercial customers increased to 19.8% from 18.2% in the prior year period primarily due to the acquisition of Trax and its higher margin services.
Current wording
Consolidated gross profit for the first quarter of fiscal 2025 increased $15.9 million, or 15.7%, over the prior year quarter. Gross profit on sales to commercial customers increased $17.2 million, or 22.8%, over the prior year quarter due to strong demand and volume growth for both new parts and used serviceable material. Gross profit margin on sales to commercial customers increased to 19.6% from 19.3% in the prior year quarter primarily from our actions to reduce both our fixed and variable cost structure.
Previous wording
Selling, general and administrative expenses increased $57.8 million, or 36.2%, over the prior year period primarily due to the recognition of a charge for $11.2 million in the first quarter of fiscal 2024 related to an unfavorable Russian court judgment. In addition, we recognized expenses of $9.4 million related to our acquisition of the Product Support Business. The remaining increase in selling, general and administrative expenses was largely attributable to investments to support the sales growth as our commercial activities continue to recover from the impact of COVID-19. These investments include $7.9 million of amortization and acquisition-related expenses for Trax. As a percent of sales, selling, general and administrative expenses increased to 13.1% from 11.1% in the prior year quarter primarily due to these costs.
Current wording
Selling, general and administrative expenses increased $1.2 million, or 1.6%, over the prior year quarter primarily due to increased costs of $3.9 million related to the previously disclosed FCPA investigations, amortization and acquisition-related expenses of $3.5 million related to the Product Support acquisition and other investments to support our sales growth across both our commercial and government markets. These increases were partially offset by the recognition of a charge for $11.2 million in the prior year quarter related to an unfavorable Russian court judgment.
Previous wording
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, in the nine-month period ended February 29, 2024, we recognized a non-cash, pre-tax pension settlement charge of $26.7 million ($16.1 million after-tax) related to the accelerated recognition of all unamortized net actuarial losses in Accumulated other comprehensive loss.
Current wording
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 settlements, 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.
Previous wording
Interest expense increased $8.1 million in the third quarter of fiscal 2024 which included $6.1 million of bridge financing facility expenses related to our acquisition of the Product Support Business. In addition, interest expense in the third quarter of fiscal 2024 reflects the impact of both higher interest rates and higher average borrowings used to fund investments in the business, including our acquisition of Trax. Our average borrowing rate was 6.82% in the third quarter of fiscal 2024 compared to 5.65% in the prior year quarter.
Current wording
Interest expense increased $13.0 million in the first quarter of fiscal 2025 reflecting the impact of both higher interest rates and higher average borrowings used to fund investments in the business, including our acquisition of Product Support businesses in the fourth quarter of fiscal 2024. Our average borrowing rate was 6.80% in the first quarter of fiscal 2025 compared to 6.47% in the prior year quarter.
Previous wording
Our effective income tax rate for continuing operations for the nine-month period ended February 29, 2024 was 16.8% compared to 26.8% in the prior year period. The decrease in the effective tax rate was primarily attributable to the deferred tax benefit recognized in conjunction with the pension settlement in the first quarter of fiscal 2024.
Current wording
Our effective income tax rate for continuing operations was 27.7% for the first quarter of fiscal 2025 compared to a tax benefit of (92.0)% in the prior year quarter. The increase in the effective tax rate was primarily attributable to the deferred tax benefit recognized in conjunction with the pension settlement in the prior year quarter.
Previous wording
Three- and Nine- Month Periods Ended February 29, 2024
Current wording
Three-Month Periods Ended August 31, 2024 and 2023
Previous wording
Sales in the Parts Supply segment for the nine-month period ended February 29, 2024 increased $126.9 million, or 21.9%, over the prior year period primarily due to a $69.0 million increase in sales in our aftermarket parts trading activities as a result of increased demand for used serviceable material. Whole asset sales in our aftermarket parts trading activities increased $20.8 million over the prior year period.
Current wording
Sales in the Parts Supply segment increased $12.9 million, or 5.4%, over the prior year quarter primarily due to a $30.6 million increase in sales in our new parts distribution activities from increased demand and growth from new and expanded distribution agreements. Whole asset sales in our aftermarket parts trading activities decreased $24.2 million in the first quarter of fiscal 2025 from the prior year quarter.
Previous wording
Operating income in the Parts Supply segment increased $9.9 million, or 15.3%, over the prior year period, primarily due to increased sales volumes across both new parts distribution and used serviceable material partially offset by the recognition of the $11.2 million charge in the first quarter of fiscal 2024 related to the unfavorable Russian court judgment.
Current wording
Operating income in the Parts Supply segment increased $15.0 million, or 99.3%, from the prior year quarter, primarily due to the recognition of the $11.2 million charge related to an unfavorable Russian court judgment in the prior year quarter.
Previous wording
Sales in the Integrated Solutions segment increased $22.0 million, or 15.3%, over the prior year quarter primarily due to higher commercial program activity and the Trax acquisition in the fourth quarter of fiscal 2023 which contributed sales of $9.9 million in the current year quarter.
Current wording
Sales in the Integrated Solutions segment increased $12.6 million, or 8.1%, over the prior year quarter primarily due to higher commercial program activity.
Previous wording
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. In the third quarter of fiscal 2024, we recognized favorable cumulative catch-up adjustments of $2.5 million. 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. For the three-month period ended February 28, 2023, we recognized no cumulative catch-up adjustments.
Current wording
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. In the first quarter of fiscal 2025, we recognized favorable cumulative catch-up adjustments of $2.4 million compared to net favorable cumulative catch-up adjustments of $0.5 million in the prior year quarter. 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.
Previous wording
At February 29, 2024, our liquidity and capital resources included working capital of $812.5 million inclusive of cash of $69.2 million.
Current wording
At August 31, 2024, our liquidity and capital resources included working capital of $960.0 million inclusive of cash of $49.3 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.
Previous wording
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 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 will increase the interest rate margins on the Amended Revolving Credit Facility to 250 basis points (in the case of SOFR loans) and 150 basis points (in the case of Base Rate loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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 the secured overnight financing rate (“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.
Current wording
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.
Previous wording
At February 29, 2024, borrowings outstanding under the Revolving Credit Facility were $277.0 million and there were approximately $11.0 million of outstanding letters of credit, which reduced the availability under this facility to $332.0 million. There are no other terms or covenants limiting the availability of the Revolving Credit Facility.As of February 29, 2024, we also had other financing arrangements that did not limit availability on our Revolving Credit Facility, including outstanding letters of credit of $11.6 million and foreign lines of credit of $9.4 million.
Current wording
At August 31, 2024, borrowings outstanding under the Amended Revolving Credit Facility were $442.0 million and there were approximately $9.6 million of outstanding letters of credit, which reduced the availability under this facility to $373.4 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility. As of August 31, 2024, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including foreign lines of credit of $9.6 million.
Previous wording
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 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, 2025, 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.
Current wording
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, 2025, 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.
Previous wording
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 ASC 860,Transfers and Servicing, and de-recognize the sold receivables from our Consolidated Balance Sheet. At February 29, 2024, we have utilized $8.7 million which reduced the availability under the Purchase Agreement to $141.3 million.
Current wording
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 Condensed Consolidated Balance Sheet. At August 31, 2024, we have utilized $24.7 million which reduced the availability under the Purchase Agreement to $125.3 million.
Previous wording
During fiscal 2024, we continued to experience 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. Though we currently expect full payment from the customer of all amounts due and do not believe a reserve for credit loss is warranted, the customer’s financial condition may continue to deteriorate and we may in the future experience loss due to a default by the customer and the related nonpayment of account receivable balances. Our Condensed Consolidated Balance Sheet as of February 29, 2024 included accounts receivable of $8.5 million, including $2.2 million past due, and contract assets of $9.7 million related to this customer.
Current wording
We currently 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 Condensed Consolidated Balance Sheet as of August 31, 2024 included accounts receivable of $13.2 million, including $6.8 million past due, and contract assets of $11.2 million related to this customer.
Previous wording
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 the third quarter of 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 2.2 million shares for an aggregate purchase price of $97.5 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.
Current wording
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 repurchases were made during the three-month period ended August 31, 2024. Since inception of the renewal authorization, we have repurchased 2.2 million shares for an aggregate purchase price of $97.5 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.
Previous wording
Net cash provided by operating activities–continuing operations was $19.3 million in the nine-month period ended February 29, 2024 compared to cash used of $21.5 million in the prior year period. The increase in cash provided over the prior year of $40.8 million was primarily attributable to working capital changes, including the timing of payments for inventory and rotable asset investments in both aircraft, new parts and used serviceable material in the current year period.
Current wording
Net cash used in operating activities–continuing operations was $18.6 million in the first quarter of fiscal 2025 compared to $18.5 million in the prior year quarter. The increase in the cash used in operating activities over the prior year of $0.1 million was primarily attributable to working capital changes, including increased inventory investments in both new parts and used serviceable material in the prior year quarter.
Previous wording
Net cash used in investing activities was $26.8 million in the nine-month period ended February 29, 2024 compared to $27.3 million in the prior year period. The decrease in cash used in investing activities from the prior year of $0.5 million was primarily related to decreased expenditures on capital projects in the current year period.
Current wording
Net cash used in investing activities was $5.3 million during the first quarter of fiscal 2025 compared to $11.6 million in the prior year period. The decrease in cash used in investing activities from the prior year of $6.3 million was primarily related to resolution of the post-closing adjustments to the purchase price for our acquisition of the Product Support business.
Previous wording
Net cash provided by financing activities was $9.5 million in the nine-month period ended February 29, 2024 compared to cash provided of $44.5 million in the prior year period. The decrease in cash provided by financing activities from the prior year period of $35.0 million was primarily related to lower borrowings on our Revolving Credit Facility in the current year period.
Current wording
Net cash used in financing activities was $9.1 million during the first quarter of fiscal 2025 compared to cash provided of $38.7 million in the prior year quarter. The decrease in cash provided by financing activities over the prior year of $47.8 million was primarily related to the timing of borrowings and repayments on our Amended Revolving Credit Facility.
Previous wording
We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See* Management’s Discussion and Analysis of Financial Condition and Results of Operations* in our Annual Report on Form 10-K for the year ended May 31, 2023 for a discussion of our critical accounting policies. There have been no significant changes to the application of our critical accounting policies during fiscal 2024.
Current wording
We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. SeeManagement’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended May 31, 2024 for a discussion of our critical accounting policies. There have been no significant changes to the application of our critical accounting policies during the first quarter of fiscal 2025.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Operating income increased $18.1 million, or 71.5%, over the prior year quarter primarily due to the recognition of the $11.2 million charge in the prior year quarter related to the unfavorable Russian court judgment.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
In the nine-month period ended February 29, 2024, we recognized net favorable cumulative catch-up adjustments of $2.7 million compared to net favorable cumulative catch-up adjustments of $5.8 million in the prior year period. 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.