AAR (AIR) 10-Q 20 Sep 17 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	3 Months Ended
	Aug. 31, 2017shares
Document and Entity Information
Entity Registrant Name	AAR CORP
Entity Central Index Key	1,750
Document Type	10-Q
Document Period End Date	Aug. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	34,622,093
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q1

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Aug. 31, 2017	May 31, 2017
Current assets:
Cash and cash equivalents	$ 15.1	$ 10.3
Accounts receivable, less allowances of $6.1 and $5.8, respectively	264.7	251.4
Inventories	473	483.1
Rotable spares and equipment on or available for short-term lease	118.2	118
Deposits, prepaids and other	33.7	25.7
Total current assets	904.7	888.5
Property, plant and equipment, net of accumulated depreciation of $398.4 and $413.9, respectively	198.1	201.9
Other assets:
Goodwill	115.5	115.4
Intangible assets, net of accumulated amortization of $30.9 and $29.8, respectively	31.7	32.8
Rotable assets supporting long-term programs	167.7	159.6
Other	114	105.9
Total other assets	428.9	413.7
Total assets	1,531.7	1,504.1
Current liabilities:
Current maturities of long-term debt	2	2
Accounts and trade notes payable	176.3	177.4
Accrued liabilities	133.8	155.7
Total current liabilities	312.1	335.1
Long-term debt, less current maturities	189	155.3
Deferred tax liabilities	37.7	37.2
Other liabilities and deferred income	68.2	62.3
Total noncurrent liabilities	294.9	254.8
Equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,300,786 and 45,175,302 shares at cost, respectively	45.3	45.2
Capital surplus	460.3	460.8
Retained earnings	735.9	727.9
Treasury stock, 10,678,693 and 10,820,844 shares at cost, respectively	(277.8)	(279.8)
Accumulated other comprehensive loss	(39)	(39.9)
Total equity	924.7	914.2
Total liabilities and equity	$ 1,531.7	$ 1,504.1

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Aug. 31, 2017	May 31, 2017
Condensed Consolidated Balance Sheets
Accounts receivable, allowances (in dollars)	$ 6.1	$ 5.8
Property, plant and equipment, accumulated depreciation (in dollars)	398.4	413.9
Intangible assets, accumulated amortization (in dollars)	$ 30.9	$ 29.8
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, authorized shares	250,000	250,000
Preferred stock, issued shares	0	0
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, authorized shares	100,000,000	100,000,000
Common stock, issued shares	45,300,786	45,175,302
Treasury stock, shares	10,678,693	10,820,844

Condensed Consolidated Statemen

Condensed Consolidated Statements of Income - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Sales:
Sales from products	$ 244.7	$ 213.9
Sales from services	194.5	190.9
Total sales	439.2	404.8
Cost and operating expenses:
Cost of products	199.6	179.5
Cost of services	175.1	163.8
Selling, general and administrative	48	44.8
Total costs and operating expenses	422.7	388.1
Operating income	16.5	16.7
Interest expense	(1.7)	(1.3)
Income from continuing operations before provision for income taxes	14.8	15.4
Provision for income taxes	4.2	5.5
Income from continuing operations	10.6	9.9
Loss from discontinued operations		(0.4)
Net income	$ 10.6	$ 9.5
Earnings per share - basic:
Earnings from continuing operations	$ 0.31	$ 0.29
Loss from discontinued operations		(0.01)
Earnings per share - basic	0.31	0.28
Earnings per share - diluted:
Earnings from continuing operations	0.31	0.29
Loss from discontinued operations		(0.01)
Earnings per share - diluted	$ 0.31	$ 0.28

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Condensed Consolidated Statements of Comprehensive Income
Net income	$ 10.6	$ 9.5
Other comprehensive income (loss), net of tax expense (benefit):
Currency translation adjustments, net of tax of $0 and $0.1	0.6	(1.5)
Pension and other post-retirement plans:
Amortization of actuarial loss and prior service cost included in net income, net of tax of $0.1 and $0.1	0.3	0.3
Other comprehensive income (loss), net of tax	0.9	(1.2)
Comprehensive income	$ 11.5	$ 8.3

Condensed Consolidated Stateme6

Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Condensed Consolidated Statements of Comprehensive Income
Currency translation adjustments, tax	$ 0	$ 0.1
Amortization of actuarial loss and prior service cost included in net income, tax	$ 0.1	$ 0.1

Condensed Consolidated Stateme7

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Cash flows used in operating activities:
Net income	$ 10.6	$ 9.5
Loss from discontinued operations		0.4
Income from continuing operations	10.6	9.9
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and intangible amortization	14.6	12.4
Stock-based compensation	2.6	2.5
Amortization of overhaul costs	3	4.5
Deferred tax provision (benefit)	0.2	(0.9)
Gain on asset disposal		(2.6)
Changes in certain assets and liabilities:
Accounts receivable	(13.2)	9.7
Inventories	10.8	3
Rotable spares and equipment on or available for short-term lease	(0.2)	(0.7)
Equipment supporting long-term programs	(11.8)	(17.3)
Accounts and trade notes payable	(0.7)	(8.4)
Accrued and other liabilities	(29.6)	(5.8)
Other, primarily program and overhaul costs	(6.4)	(6.8)
Net cash used in operating activities - continuing operations	(20.1)	(0.5)
Net cash used in operating activities - discontinued operations	(0.5)	(0.6)
Net cash used in operating activities	(20.6)	(1.1)
Cash flows used in investing activities:
Property, plant and equipment expenditures	(8.2)	(9.4)
Proceeds from asset disposals	1.3	3
Investment in aircraft joint ventures		(0.2)
Net cash used in investing activities - continuing operations	(6.9)	(6.6)
Cash flows provided from (used in) financing activities:
Short-term borrowings, net	34	7
Reduction in long-term borrowings		(5)
Cash dividends	(2.6)	(2.6)
Purchase of treasury stock	(5.2)	(14.8)
Stock option exercises	6.5	0.6
Other	(0.4)	(0.4)
Net cash provided from (used in) financing activities - continuing operations	32.3	(15.2)
Effect of exchange rate changes on cash		(0.4)
Increase (Decrease) in cash and cash equivalents	4.8	(23.3)
Cash and cash equivalents, beginning of period	10.3	31.2
Cash and cash equivalents, end of period	$ 15.1	$ 7.9

Condensed Consolidated Stateme8

Condensed Consolidated Statements of Changes in Equity - 3 months ended Aug. 31, 2017 - USD ($) $ in Millions	Common Stock	Capital Surplus	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Total
Balance at May. 31, 2017	$ 45.2	$ 460.8	$ 727.9	$ (279.8)	$ (39.9)	$ 914.2
Increase (Decrease) in Stockholders' Equity
Net income			10.6			10.6
Cash dividends			(2.6)			(2.6)
Stock option activity		(0.6)		6.6		6
Restricted stock activity	0.1	0.1		0.6		0.8
Repurchase of shares				(5.2)		(5.2)
Other comprehensive income, net of tax					0.9	0.9
Balance at Aug. 31, 2017	$ 45.3	$ 460.3	$ 735.9	$ (277.8)	$ (39)	$ 924.7

Basis of Presentation

Basis of Presentation	3 Months Ended
	Aug. 31, 2017
Basis of Presentation
Basis of Presentation	Note 1 — Basis of Presentation AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our,” unless the context indicates otherwise. The accompanying Condensed Consolidated Financial Statements include the accounts of AAR and its subsidiaries after elimination of intercompany accounts and transactions. We have prepared these statements without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet as of May 31, 2017 has been derived from audited financial statements. To prepare the financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), management has made a number of estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain information and note disclosures, normally included in comprehensive financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules and regulations of the SEC. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our latest annual report on Form 10-K. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the condensed consolidated financial position of AAR CORP. and its subsidiaries as of August 31, 2017, the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Cash Flows for the three-month periods ended August 31, 2017 and 2016, and the Condensed Consolidated Statement of Changes in Equity for the three-month period ended August 31, 2017. The results of operations for such interim periods are not necessarily indicative of the results for the full year. New Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, and most industry-specific guidance. This ASU will also supersede certain cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of the new standard by one year which will make the new standard effective for us beginning June 1, 2018. The ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We continue to analyze and document our significant customer contracts to evaluate the potential impact of the adoption of this new ASU. We have not yet selected a transition method for adoption nor determined the potential effect on our accounting policies and consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets, including those classified as operating leases under the current accounting guidance. In addition, this ASU will require new qualitative and quantitative disclosures about the Company’s leasing activities. This new standard will be effective for us beginning June 1, 2019 with early adoption permitted. This ASU requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are in the preliminary phases of assessing the effect of this ASU on our portfolio of leases. While this assessment continues, we have not yet selected a transition date nor have we determined the effect of this ASU on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which amends ASC Topic 718, Compensation — Stock Compensation. This ASU requires excess tax benefits or deficiencies for share-based payments be recorded in the period shares vest as income tax expense or benefit, rather than within equity. Cash flows related to excess tax benefits will be included in operating activities and will no longer be classified as a financing activity. We adopted this ASU on June 1, 2017 and recognized excess tax benefits of $1.2 million as a reduction to income tax expense during the three-months ended August 31, 2017. We have also presented the excess tax benefits within operating activities in the condensed consolidated statement of cash flows for the three-months ended August 31, 2017. As permitted, we adopted the statement of cash flow presentation guidance on a prospective basis with no adjustments to the previously reported amounts.

Discontinued Operations

Discontinued Operations	3 Months Ended
	Aug. 31, 2017
Discontinued Operations
Discontinued Operations	Note 2 — Discontinued Operations During the first quarter of fiscal 2017, we completed the shut down of the metal machining operation of our Precision Systems Manufacturing business. This business is reported as discontinued operations for all periods presented. Liabilities of discontinued operations of $6.5 million and $6.9 million at August 31, 2017 and May 31, 2017, respectively, were classified as Accrued Liabilities on the Condensed Consolidated Balance Sheet. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to our continuing operations.

Revenue Recognition

Revenue Recognition	3 Months Ended
	Aug. 31, 2017
Revenue Recognition
Revenue Recognition	Note 3 — Revenue Recognition Sales and related cost of sales for product sales are recognized upon shipment of the product to the customer. Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer. Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title. Under the majority of our expeditionary airlift services contracts, we are paid and record as revenue a fixed daily amount per aircraft for each day an aircraft is available to perform airlift services. In addition, we are paid and record as revenue an amount which is based on number of hours flown. Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer. We have adopted this accounting policy because at the time the customer-owned material is shipped back to the customer, all services related to that material are complete as our service agreements generally do not require us to provide services at customer sites. Furthermore, serviced units are typically shipped to the customer immediately upon completion of the related services. Sales and related cost of sales for certain large airframe maintenance contracts and performance-based logistics programs are recognized by the percentage of completion method, based on the relationship of costs incurred to date to the estimated total costs. We recognized favorable cumulative catch-up adjustments of $3.8 million during the three-month period ended August 31, 2016 related to changes in estimated profitability of these programs. Lease revenues are recognized as earned. Income from monthly or quarterly rental payments is recorded in the pertinent period according to the lease agreement. However, for leases that provide variable rents, we recognize lease income on a straight-line basis. In addition to a monthly lease rate, some engine leases require an additional rental amount based on the number of hours the engine is used in a particular month. Lease income associated with these contingent rentals is recorded in the period in which actual usage is reported to us by the lessee, which is normally the month following the actual usage. Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution, and maintenance and repair services. We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services. In June 2016, the U.S. Air Force awarded the new contract for the KC-10 Extender Contractor Logistics Support Program (“KC-10 Program”) to a competitor. Our principal services under the prior contract for the KC-10 Program were completed in January 2017; however, we have provided limited services since that date and will continue to do so for an unspecified period of time. Sales for the KC-10 Program during the three-month periods ended August 31, 2017 and 2016 were $11.7 million and $38.6 million, respectively. Gross profit for the KC-10 Program during the three-month periods ended August 31, 2017 and 2016 was $1.1 million and $2.8 million, respectively. Included in accounts receivable as of August 31, 2017 and May 31, 2017, were $10.8 million and $14.5 million, respectively, of unbilled accounts receivable related to the KC-10 Program. These unbilled accounts receivable related to costs we have incurred on parts that were requested and accepted by our customer to support the KC-10 Program. These costs have not been billed by us because the customer has not yet issued the final paperwork necessary to allow for billing.

Accounting for Stock-Based Comp

Accounting for Stock-Based Compensation	3 Months Ended
	Aug. 31, 2017
Accounting for Stock-Based Compensation
Accounting for Stock-Based Compensation	Note 4 — Accounting for Stock-Based Compensation Restricted Stock In the three-month period ended August 31, 2017, as part of our annual long-term stock incentive compensation, we granted 98,750 shares of performance-based restricted stock and 24,425 shares of time-based restricted stock to eligible employees. The grant date fair value per share for these shares was $35.26 (the closing price on the grant date). In June 2017, we also granted 55,000 shares of time-based restricted stock to members of the Board of Directors with a grant date fair value per share of $34.95. Expense charged to operations for restricted stock during the three-month periods ended August 31, 2017 and 2016 was $1.4 million and $1.3 million, respectively. Stock Options In July 2017, as part of our annual long-term stock incentive compensation, we granted 453,450 stock options to eligible employees at an exercise price of $35.26 and weighted average fair value of $9.27. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Risk-free interest rate % Expected volatility of common stock % Dividend yield % Expected option term in years The total intrinsic value of stock options exercised during the three-month periods ended August 31, 2017 and 2016 was $5.0 million and $0.3 million, respectively. Expense charged to operations for stock options during the three-month periods ended August 31, 2017 and 2016 was $1.1 million and $1.2 million, respectively.

Inventory

Inventory	3 Months Ended
	Aug. 31, 2017
Inventory
Inventory	Note 5 — Inventory The summary of inventories is as follows: August 31, May 31, 2017 2017 Raw materials and parts $ $ Work-in-process Aircraft and engine parts, components and finished goods Aircraft held for sale and related support parts $ $

Supplemental Cash Flow Informat

Supplemental Cash Flow Information	3 Months Ended
	Aug. 31, 2017
Supplemental Cash Flow Information
Supplemental Cash Flow Information	Note 6 — Supplemental Cash Flow Information Three Months Ended August 31, 2017 2016 Interest paid $ $ Income taxes paid Income tax refunds received —

Financing Arrangements

Financing Arrangements	3 Months Ended
	Aug. 31, 2017
Financing Arrangements
Financing Arrangements	Note 7 — Financing Arrangements A summary of the carrying amount of our debt is as follows: August 31, May 31, 2017 2017 Revolving Credit Facility expiring November 1, 2021 with interest payable monthly $ $ Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly Capital lease obligations Total debt Current maturities of debt ) ) Debt issuance costs, net ) ) Long-term debt $ $ At August 31, 2017, our variable rate and fixed rate debt had a fair value that approximates the carrying value of $192.9 million and are classified as Level 2 in the fair value hierarchy. The industrial revenue bond that matures on August 1, 2018 has been classified as a long-term liability due to our intent and ability to refinance this bond on a long-term basis using our Revolving Credit Facility. Our financing arrangements also requires us to comply with leverage and interest coverage ratios, maintain a minimum net working capital level, and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, payment of indebtedness, cash dividends, taxes and other obligations, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. The Revolving Credit Facility also requires our significant domestic subsidiaries, and any subsidiaries that guarantee our other indebtedness, to provide a guarantee of payment under the Revolving Credit Facility. At August 31, 2017, we were in compliance with the financial and other covenants in our financing agreements.

Earnings per Share

Earnings per Share	3 Months Ended
	Aug. 31, 2017
Earnings Per Share
Earnings Per Share	Note 8 — Earnings per Share The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options and shares issuable upon vesting of restricted stock awards. In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method , our unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares. During periods of net income, the calculation of earnings per share for common stock excludes income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. A reconciliation of the computations of basic and diluted earnings per share information for the three-month periods ended August 31, 2017 and 2016 is as follows: Three Months Ended August 31, 2017 2016 Basic and Diluted EPS: Income from continuing operations $ $ Less income attributable to participating shares ) ) Income from continuing operations attributable to common shareholders Loss from discontinued operations attributable to common shareholders — ) Net income attributable to common shareholders for earnings per share $ $ Weighted average common shares outstanding—basic Additional shares from assumed exercise of stock options Weighted average common shares outstanding—diluted Earnings per share — basic: Earnings from continuing operations $ $ Loss from discontinued operations — ) Earnings per share — basic $ $ Earnings per share — diluted: Earnings from continuing operations $ $ Loss from discontinued operations — ) Earnings per share — diluted $ $ At August 31, 2017, the average market price of our common shares was in excess of all of our outstanding options. At August 31, 2016, stock options to purchase 2,041,000 shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of each of these options was greater than the average market price of the common shares during the interim period then ended.

Accumulated Other Comprehensive

Accumulated Other Comprehensive Loss	3 Months Ended
	Aug. 31, 2017
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss	Note 9 — Accumulated Other Comprehensive Loss Changes in our accumulated other comprehensive loss (“AOCL”) by component for the three-month periods ended August 31, 2017 and 2016 were as follows: Currency Pension Total Balance at June 1, 2017 $ ) $ ) $ ) Other comprehensive income before reclassifications — Amounts reclassified from AOCL — Total other comprehensive income Balance at August 31, 2017 $ ) $ ) $ ) Balance at June 1, 2016 $ ) $ ) $ ) Other comprehensive loss before reclassifications ) — ) Amounts reclassified from AOCL — Total other comprehensive income (loss) ) ) Balance at August 31, 2016 $ ) $ ) $ )

Sale of Product Line

Sale of Product Line	3 Months Ended
	Aug. 31, 2017
Sale of Product Line
Sale of Product Line	Note 10 — Sale of Product Line During the three-month period ended August 31, 2016, we sold certain assets related to our temperature-controlled container product line to Sonoco Protective Solutions, Inc. (“Sonoco”) for $5 million. The sale price included $3 million paid at closing and $2 million in non-contingent, deferred consideration due over the following two years. We recognized a gain of $2.6 million on the sale. In conjunction with the sale, we also entered into a long-term manufacturing agreement to supply temperature-controlled containers to Sonoco over the following three years.

Business Segment Information

Business Segment Information	3 Months Ended
	Aug. 31, 2017
Business Segment Information
Business Segment Information	Note 11 — Business Segment Information Consistent with how our chief operating decision making officer (Chief Executive Officer) evaluates performance and the way we are organized internally, we report our activities in two business segments: Aviation Services comprised of supply chain and maintenance, repair and overhaul (“MRO”) activities and Expeditionary Services comprised of airlift and mobility activities. The Aviation Services segment consists of aftermarket support and services businesses that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers. Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets. We provide customized inventory supply chain management, performance based logistics programs, aircraft component repair management services, and aircraft modifications. The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components. Cost of sales consists principally of the cost of product, direct labor, and overhead. The Expeditionary Services segment consists of businesses that provide products and services supporting the movement of equipment and personnel by the U.S. Department of Defense (“DoD”), foreign governments and non-governmental organizations. Sales in the Expeditionary Services segment are derived from the delivery of airlift services primarily to government and defense customers and the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force. We also provide engineering, design, and system integration services for specialized command and control systems, and design and manufacture advanced composite materials for commercial, business and military aircraft. Cost of sales consists principally of aircraft maintenance costs, depreciation, the cost of material to manufacture products, direct labor and overhead. 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, 2017. Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments and utilizes gross profit as a primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around differences in products and services. Selected financial information for each segment is as follows: Three Months Ended August 31, 2017 2016 Net sales: Aviation Services $ $ Expeditionary Services $ $ Three Months Ended August 31, 2017 2016 Gross profit: Aviation Services $ $ Expeditionary Services $ $ The following table reconciles segment gross profit to income from continuing operations before provision for income taxes. Three Months Ended August 31, 2017 2016 Segment gross profit $ $ Selling, general and administrative ) ) Interest expense ) ) Income from continuing operations before provision for income taxes $ $

Legal Proceedings

Legal Proceedings	3 Months Ended
	Aug. 31, 2017
Legal Proceedings
Legal Proceedings	Note 12 — Legal Proceedings We are not a party to any material pending legal proceeding (including any governmental or environmental proceeding) other than routine litigation incidental to our business except for the following: DynCorp International LLC v. AAR Airlift Group, Inc. On September 5, 2015, DynCorp International LLC (“DynCorp”) filed a complaint in the United States District Court for the Middle District of Florida, Orlando Division (the “District Court”), accusing AAR Airlift Group, Inc. (“AAR Airlift”), a wholly-owned subsidiary of AAR CORP., of misappropriation of DynCorp information, including trade secrets, and other related allegations. DynCorp’s complaint, which sought damages in an unspecified amount and a preliminary injunction, alleged that AAR Airlift engaged in this conduct in connection with the submission of proposals in response to the solicitation issued by the U.S. Department of State (“DOS”) Bureau of International Narcotics and Law Enforcement Affairs, Office of Aviation (“INL/A”) in support of the Global Aviation Support Services program. The INL/A contract was subsequently awarded to AAR Airlift on September 1, 2016. The District Court denied DynCorp’s preliminary injunction motion, and on October 19, 2015, DynCorp filed an amended complaint with the District Court. On January 14, 2016, the District Court granted AAR Airlift’s motion to dismiss DynCorp’s amended complaint. On February 2, 2016, DynCorp appealed the District Court’s order to the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”). On November 21, 2016, the Eleventh Circuit reversed in part the District Court’s dismissal of the amended complaint and remanded the case to the District Court for further proceedings. The District Court set a discovery schedule that was to end on September 1, 2017 and a trial date of April 2, 2018. On June 16, 2017, the District Court granted AAR Airlift’s motion to stay the legal proceeding against AAR Airlift. The stay will remain in effect until the earlier of (a) November 1, 2017 or (b) the entry of a decision of the United Stated Court of Federal Claims (“COFC”), on DynCorp’s protest of the award of the INL/A contract to AAR Airlift. The District Court’s stay immediately halted all discovery and other activity in the DynCorp lawsuit. The COFC decision is expected on or before October 31, 2017. AAR Airlift will continue to defend itself vigorously against DynCorp’s lawsuit, which it believes is entirely without merit.

Acquisition of Premier Aviation

Acquisition of Premier Aviation	3 Months Ended
	Aug. 31, 2017
Acquisition of Premier Aviation
Acquisition of Premier Aviation	Note 13 — Acquisition of Premier Aviation On September 19, 2017, we acquired the outstanding shares of two MRO facilities in Quebec and Ontario, Canada owned by Premier Aviation for approximately $29.0 million. The purchase price includes approximately $26.7 million paid at closing and deferred consideration of $2.3 million payable September 2018. This business will operate as part of our Aviation Services segment.

Accounting for Stock-Based Co22

Accounting for Stock-Based Compensation (Tables)	3 Months Ended
	Aug. 31, 2017
Accounting for Stock-Based Compensation
Schedule of assumptions used in the Black-Scholes option pricing model to estimate the fair value of stock option grant	Risk-free interest rate % Expected volatility of common stock % Dividend yield % Expected option term in years

Inventory (Tables)

Inventory (Tables)	3 Months Ended
	Aug. 31, 2017
Inventory
Summary of inventories	August 31, May 31, 2017 2017 Raw materials and parts $ $ Work-in-process Aircraft and engine parts, components and finished goods Aircraft held for sale and related support parts $ $

Supplemental Cash Flow Inform24

Supplemental Cash Flow Information (Tables)	3 Months Ended
	Aug. 31, 2017
Supplemental Cash Flow Information
Schedule of supplemental information on cash flow	Three Months Ended August 31, 2017 2016 Interest paid $ $ Income taxes paid Income tax refunds received —

Financing Arrangements (Tables)

Financing Arrangements (Tables)	3 Months Ended
	Aug. 31, 2017
Financing Arrangements
Summary of carrying amount of debt	August 31, May 31, 2017 2017 Revolving Credit Facility expiring November 1, 2021 with interest payable monthly $ $ Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly Capital lease obligations Total debt Current maturities of debt ) ) Debt issuance costs, net ) ) Long-term debt $ $

Earnings per Share (Tables)

Earnings per Share (Tables)	3 Months Ended
	Aug. 31, 2017
Earnings Per Share
Schedule of reconciliation of computations of basic and diluted earnings per share information	Three Months Ended August 31, 2017 2016 Basic and Diluted EPS: Income from continuing operations $ $ Less income attributable to participating shares ) ) Income from continuing operations attributable to common shareholders Loss from discontinued operations attributable to common shareholders — ) Net income attributable to common shareholders for earnings per share $ $ Weighted average common shares outstanding—basic Additional shares from assumed exercise of stock options Weighted average common shares outstanding—diluted Earnings per share — basic: Earnings from continuing operations $ $ Loss from discontinued operations — ) Earnings per share — basic $ $ Earnings per share — diluted: Earnings from continuing operations $ $ Loss from discontinued operations — ) Earnings per share — diluted $ $

Accumulated Other Comprehensi27

Accumulated Other Comprehensive Loss (Tables)	3 Months Ended
	Aug. 31, 2017
Accumulated Other Comprehensive Loss
Schedule of changes in accumulated other comprehensive loss ("AOCL") by component	Currency Pension Total Balance at June 1, 2017 $ ) $ ) $ ) Other comprehensive income before reclassifications — Amounts reclassified from AOCL — Total other comprehensive income Balance at August 31, 2017 $ ) $ ) $ ) Balance at June 1, 2016 $ ) $ ) $ ) Other comprehensive loss before reclassifications ) — ) Amounts reclassified from AOCL — Total other comprehensive income (loss) ) ) Balance at August 31, 2016 $ ) $ ) $ )

Business Segment Information (T

Business Segment Information (Tables)	3 Months Ended
	Aug. 31, 2017
Business Segment Information
Schedule of selected financial information for each reportable segment	Three Months Ended August 31, 2017 2016 Net sales: Aviation Services $ $ Expeditionary Services $ $ Three Months Ended August 31, 2017 2016 Gross profit: Aviation Services $ $ Expeditionary Services $ $
Schedule of reconciliation of segment gross profit to income (loss) from continuing operations before provision for income taxes	Three Months Ended August 31, 2017 2016 Segment gross profit $ $ Selling, general and administrative ) ) Interest expense ) ) Income from continuing operations before provision for income taxes $ $

Basis of Presentation (Details)

Basis of Presentation (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
New Accounting Pronouncements
Amount of recognized excess tax benefits as a reduction to income tax expense	$ 4.2	$ 5.5
Improvements to Employee Share-Based Payment Accounting
New Accounting Pronouncements
Amount of recognized excess tax benefits as a reduction to income tax expense	$ (1.2)

Discontinued Operations (Detail

Discontinued Operations (Details) - USD ($) $ in Millions	Aug. 31, 2017	May 31, 2017
Precision Systems Manufacturing | Discontinued Operations, Held-for-sale or Disposed of by Sale
Discontinued Operations
Liabilities of discontinued operations	$ 6.5	$ 6.9

Revenue Recognition (Details)

Revenue Recognition (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016	May 31, 2017
Revenue Recognition
Recognized net favorable cumulative catch-up adjustments		$ 3.8
Sales from support services	$ 194.5	190.9
Gross profit on support services	64.5	61.5
KC10 logistics support services
Revenue Recognition
Sales from support services	11.7	38.6
Gross profit on support services	1.1	$ 2.8
KC10 Supply Program
Revenue Recognition
Unbilled accounts receivable related to KC10 program	$ 10.8		$ 14.5

Accounting for Stock-Based Co32

Accounting for Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended		3 Months Ended
	Jul. 31, 2017	Jun. 30, 2017	Aug. 31, 2017	Aug. 31, 2016
Restricted stock
Stock options, additional disclosures
Compensation expense			$ 1.4	$ 1.3
Performance-based restricted stock
Stock options, additional disclosures
Granted (in shares)			98,750
Granted (in dollars per share)			$ 35.26
Time-based restricted stock
Stock options, additional disclosures
Granted (in shares)			24,425
Granted (in dollars per share)			$ 35.26
Time-based restricted stock | Board of Directors
Stock options, additional disclosures
Granted (in shares)		55,000
Granted (in dollars per share)		$ 34.95
Stock options
Stock options, additional disclosures
Granted (in shares)	453,450
Granted (in dollars per share)	$ 35.26
Weighted average fair value of stock options granted (in dollars per share)	$ 9.27
Total intrinsic value of stock options exercised			$ 5	0.3
Compensation expense			$ 1.1	$ 1.2
Assumptions used in the Black-Scholes option pricing models to estimate the fair value of each stock option grant
Risk-free interest rate			1.80%
Expected volatility of common stock			31.70%
Dividend yield			0.90%
Expected option term in years			4 years 3 months 18 days

Inventory (Details)

Inventory (Details) - USD ($) $ in Millions	Aug. 31, 2017	May 31, 2017
Inventory
Raw materials and parts	$ 45.9	$ 45
Work-in-process	29.3	25.8
Aircraft and engine parts, components and finished goods	379.8	393.1
Aircraft held for sale and related support parts	18	19.2
Total inventories	$ 473	$ 483.1

Supplemental Cash Flow Inform34

Supplemental Cash Flow Information (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Supplemental Cash Flow Information
Interest paid	$ 1.4	$ 1
Income taxes paid	$ 1.3	1.5
Income tax refunds received		$ 1

Financing Arrangements (Details

Financing Arrangements (Details) - USD ($) $ in Millions	Aug. 31, 2017	May 31, 2017
Financing Arrangements
Total debt	$ 192.9	$ 159.3
Current maturities of debt	(2)	(2)
Debt issuance costs, net	(1.9)	(2)
Long-term debt	189	155.3
Capital lease obligations
Financing Arrangements
Total debt	2.9	3.3
Revolving Credit Facility expiring November 1, 2021 with interest payable monthly
Financing Arrangements
Total debt	165	131
Industrial revenue bond (secured by property, plant and equipment) due August 1, 2018 with interest payable monthly
Financing Arrangements
Total debt	25	$ 25
Variable rate and fixed rate debt | Significant other observable inputs (Level 2)
Financing Arrangements
Estimated fair value of long-term debt	$ 192.9

Earnings per Share (Details)

Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Earnings Per Share
Effect to the participating securities as result of net loss	$ 0
Basic and Diluted EPS:
Income from continuing operations	10.6	$ 9.9
Less income attributable to participating shares	(0.1)	(0.1)
Income from continuing operations attributable to common shareholders	10.5	9.8
Loss from discontinued operations attributable to common shareholders		(0.4)
Net income attributable to common shareholders for earnings per share	$ 10.5	$ 9.4
Weighted Average Shares:
Weighted average common shares outstanding - basic	34,000,000	33,900,000
Additional shares from assumed exercise of stock options	500,000	200,000
Weighted average common shares outstanding - diluted	34,500,000	34,100,000
Earnings per share - basic:
Earnings from continuing operations	$ 0.31	$ 0.29
Loss from discontinued operations		(0.01)
Earnings per share - basic	0.31	0.28
Earnings per share - diluted:
Earnings from continuing operations	0.31	0.29
Loss from discontinued operations		(0.01)
Earnings per share - diluted	$ 0.31	$ 0.28
Antidilutive stock options excluded from the computation of diluted earnings per share (in shares)		2,041,000

Accumulated Other Comprehensi37

Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Accumulated Other Comprehensive Loss
Balance at beginning of the period	$ (39.9)	$ (44.4)
Other comprehensive income (loss) before reclassifications from AOCL	0.6	(1.5)
Amounts reclassified from AOCL	0.3	0.3
Other comprehensive income (loss), net of tax	0.9	(1.2)
Balance at end of the period	(39)	(45.6)
Currency Translation Adjustments
Accumulated Other Comprehensive Loss
Balance at beginning of the period	(1.7)	(1.1)
Other comprehensive income (loss) before reclassifications from AOCL	0.6	(1.5)
Other comprehensive income (loss), net of tax	0.6	(1.5)
Balance at end of the period	(1.1)	(2.6)
Pensions Plans
Accumulated Other Comprehensive Loss
Balance at beginning of the period	(38.2)	(43.3)
Amounts reclassified from AOCL	0.3	0.3
Other comprehensive income (loss), net of tax	0.3	0.3
Balance at end of the period	$ (37.9)	$ (43)

Sale of Product Line (Details)

Sale of Product Line (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Discontinued Operations
Amount received from sale of assets	$ 1.3	$ 3
Sonoco | Long-term manufacturing agreement to supply temperature-controlled containers
Discontinued Operations
Term of long-term manufacturing agreement	3 years
Temperature-controlled container product line | Disposed of by sale
Discontinued Operations
Sale consideration	$ 5
Amount received from sale of assets	3
Non-contingent deferred consideration amount in the sale consideration	$ 2
Period over which non-contingent deferred consideration is due	2 years
Gain on sale of assets	$ 2.6

Business Segment Information (D

Business Segment Information (Details) $ in Millions	3 Months Ended
	Aug. 31, 2017USD ($)segment	Aug. 31, 2016USD ($)
Business Segment Information
Number of business segments | segment	2
Net sales	$ 439.2	$ 404.8
Gross profit	64.5	61.5
Aviation Services
Business Segment Information
Net sales	371.3	334.6
Gross profit	57.8	53.4
Expeditionary Services
Business Segment Information
Net sales	67.9	70.2
Gross profit	$ 6.7	$ 8.1

Business Segment Information -

Business Segment Information - Reconcile of Gross Profit to Income (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2017	Aug. 31, 2016
Reconciliation of segment gross profit to consolidated income before provision for income taxes
Segment gross profit	$ 64.5	$ 61.5
Selling, general and administrative	(48)	(44.8)
Interest expense	(1.7)	(1.3)
Income from continuing operations before provision for income taxes	$ 14.8	$ 15.4

Acquisition of Premier Aviati41

Acquisition of Premier Aviation (Details) - MRO facilities acquired in Quebec and Ontario, Canada owned by Premier Aviation $ in Millions	Sep. 19, 2017USD ($)facility
Acquisition of Premier Aviation
Number of facilities acquired | facility	2
Total consideration	$ 29
Purchase price	26.7
Deferred consideration payable	$ 2.3