10q10k10q10k.net

What changed in AAR CORP's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of AAR CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+235 added−217 removedSource: 10-K (2023-07-18) vs 10-K (2022-07-21)

Top changes in AAR CORP's 2023 10-K

235 paragraphs added · 217 removed · 154 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

43 edited+24 added−8 removed39 unchanged
Biggest changeAs we continue to invest in the pipeline of opportunities in the government market and maintain our focus on the commercial market recovery, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in those markets.
Biggest changeAs we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets. 2 Table of Contents Business Segments Aviation Services The Aviation Services segment provides aftermarket support and services for the commercial aviation and government and defense markets and accounted for approximately 95% of our sales in fiscal 2023, 2022, and 2021.
Department of State personnel presence in Afghanistan during calendar year 2021. In conjunction with the U.S. exit from Afghanistan, we concluded our activities in country under our INL/A WASS and U.S. Department of Defense contracts. The operations related to our activities in Afghanistan contributed revenue of $67 million in fiscal 2021.
Department of State personnel presence in Afghanistan during calendar year 2021. In conjunction with the U.S. exit from Afghanistan, we concluded our activities in country under our INL/A WASS and U.S. Department of Defense contracts in fiscal 2022. The operations related to our activities in Afghanistan contributed revenue of $67 million in fiscal 2021.
Available Information For additional information concerning our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business Segment Information” in Note 15 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Our internet address is www.aarcorp.com.
Available Information For additional information concerning our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business Segment Information” in Note 16 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Our internet address is www.aarcorp.com.
Jessup previously served as Chief Commercial Officer for the Company’s Aviation Services segment since February 2015, and prior to that, he served in various capacities within the Company’s Maintenance, Repair and Overhaul business. Mr. Pachapa is Vice President, Controller and Chief Accounting Officer, having served in that capacity since July 2016. Mr.
Jessup previously served as Chief Commercial Officer for the Company’s Aviation Services segment since February 2015, and prior to that, he served in various capacities within the Company’s Maintenance, Repair and Overhaul operations. Mr. Pachapa is Vice President, Controller and Chief Accounting Officer, having served in that capacity since July 2016. Mr.
Backlog includes our remaining performance obligations based on the transaction price of firm orders for which work has not yet been performed as of May 31, 2022 and excludes unexercised contract options and potential orders under contracts such as ID/IQ contracts.
Backlog includes our remaining performance obligations based on the transaction price of firm orders for which work has not yet been performed as of May 31, 2023 and excludes unexercised contract options and potential orders under contracts such as ID/IQ contracts.
Expeditionary Services The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. The Expeditionary Services segment accounted for approximately 5% of our sales in fiscal 2022, 2021, and 2020.
Expeditionary Services The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. The Expeditionary Services segment accounted for approximately 5% of our sales in fiscal 2023, 2022, and 2021.
We sell and lease a wide variety of new, overhauled and repaired engine and airframe parts and components and aircraft to our commercial aviation and government/defense customers. 2 Table of Contents We provide customized flight hour component inventory and repair programs, warranty claim management, and outsourcing programs for engine and airframe parts and components in support of our airline and government customers’ maintenance activities.
We sell and lease a wide variety of new, overhauled and repaired engine and airframe parts and components and aircraft to our commercial aviation and government/defense customers. We provide customized flight hour component inventory and repair programs, warranty claim management, and outsourcing programs for engine and airframe parts and components in support of our airline and government customers’ maintenance activities.
The majority of our U.S. government sales are for products and services supporting the DoD logistics and mobility strategy and supporting DoS flight operations. Thus, our government contracts have changed, and may continue to change, with fluctuations in defense and other governmental agency spending and requirements. For example, the U.S. Government decided to withdraw its U.S.
The majority of our U.S. government sales are for products and services supporting DoS flight operations and DoD logistics and mobility strategy. Thus, our government contracts have changed, and may continue to change, with fluctuations in defense and other governmental agency spending and requirements. 5 Table of Contents For example, the U.S. Government decided to withdraw its U.S.
Sales to the DoD and other government agencies are subject to a number of factors, including the level of troop deployment worldwide, government funding, competitive bidding, and requirements generated by worldwide geopolitical events. 4 Table of Contents We primarily market and sell products and services through our own employees.
Sales to the DoD and other government agencies are subject to a number of factors, including the level of troop deployment worldwide, government funding, competitive bidding, and requirements generated by worldwide geopolitical events. We primarily market and sell products and services through our own employees.
Information contained on our web site is not a part of this report. Information about our Executive Officers Information concerning each of our executive officers is set forth below: ​ ​ ​ ​ ​ Name Age Present Position with the Company John M. Holmes ​ 45 ​ Chief Executive Officer and President, Director Sean M.
Information contained on our web site is not a part of this report. Information about our Executive Officers Information concerning each of our executive officers is set forth below: ​ ​ ​ ​ ​ Name Age Present Position with the Company John M. Holmes ​ 46 ​ Chairman, President, and Chief Executive Officer, Director Sean M.
Business activities in this segment are primarily conducted through AAR Manufacturing, Inc. and Brown International Corporation. 3 Table of Contents 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.
Business activities in this segment are primarily conducted through AAR Manufacturing, Inc. and Brown International Corporation. 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.
Our U.S. airframe maintenance facilities are in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; and Rockford, Illinois and our Canadian airframe maintenance facilities are in Trois Rivieres, Quebec and Windsor, Ontario. In addition to our North American facilities, we also have an interest in a joint venture to develop and operate an airframe maintenance facility in India.
Our U.S. airframe maintenance facilities are in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; and Rockford, Illinois and our Canadian airframe maintenance facilities are in Trois Rivieres, Quebec and Windsor, Ontario. In addition to our North American facilities, we also have an interest in a joint venture which operates an airframe maintenance facility in India.
Sales to government and defense customers are reported in each of our reportable segments (See Note 15 of Notes to Consolidated Financial Statements). Since such sales are subject to competitive bidding and government funding, no assurance can be given that such sales will continue at levels previously experienced.
Sales to government and defense customers are reported in each of our operating segments (See Note 16 of Notes to Consolidated Financial Statements). Since such sales are subject to competitive bidding and government funding, no assurance can be given that such sales will continue at levels previously experienced.
Business activities in this segment are primarily conducted through AAR Supply Chain, Inc.; AAR Government Services, Inc.; AAR Aircraft & Engine Sales & Leasing, Inc.; AAR Aircraft Services, Inc.; AAR Allen Services, Inc.; AAR Landing Gear LLC; AAR Airlift Group, Inc.; and AAR International, Inc.
Business activities in this segment are primarily conducted through AAR Supply Chain, Inc.; AAR Government Services, Inc.; AAR Aircraft & Engine Sales & Leasing, Inc.; AAR Aircraft Services, Inc.; AAR Allen Services, Inc.; AAR Landing Gear LLC; AAR International, Inc.; Trax USA CORP.; and AAR Airlift Group, Inc.
Certain inventory supply and management and performance-based logistics program agreements reflect negotiated terms and conditions. To support activities within the Aviation Services segment, we acquire aviation parts and components from domestic and foreign airlines, independent aviation service companies, aircraft leasing companies, and OEMs.
Certain inventory supply and management and performance-based logistics program agreements reflect negotiated terms and conditions. 3 Table of Contents To support activities within the Aviation Services segment, we acquire aviation parts and components from domestic and foreign airlines, independent aviation service companies, aircraft leasing companies, and OEMs.
We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. We maintain comprehensive safety programs focused on identifying hazards and eliminating risks that can lead to severe injuries. Competitive Pay and Benefits We focus on paying our employees competitively.
We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. We maintain comprehensive safety programs focused on identifying hazards and eliminating risks that can lead to severe injuries.
From time to time, we purchase airframes and engines for disassembly into individual parts and components. Airframes and engines may also be leased to airlines on a short-term basis prior to disassembly or sale.
From time to time, we purchase airframes and engines for resale or disassembly into individual parts and components. Airframes and engines may also be leased to airlines by us or through joint ventures on a short-term basis prior to disassembly or sale.
Sales to branches, agencies, and departments of the U.S. government and their contractors were $620.0 million (34.1% of consolidated sales), $738.8 million (44.7% of consolidated sales) and $668.2 million (32.2% of consolidated sales) in fiscal 2022, 2021, and 2020, respectively.
Sales to branches, agencies, and departments of the U.S. government and their contractors were $577.0 million (29.0% of consolidated sales), $620.0 million (34.1% of consolidated sales) and $738.8 million (44.7% of consolidated sales) in fiscal 2023, 2022, and 2021, respectively.
Holmes is Chief Executive Officer and President, having served in that capacity since June 2018. From June 2017 to May 2018, Mr. Holmes served as President and Chief Operating Officer. From February 2015 to June 2017, Mr. Holmes served as Chief Operating Officer – Aviation Services. Prior to that, Mr.
From June 2017 to May 2018, Mr. Holmes served as President and Chief Operating Officer. From February 2015 to June 2017, Mr. Holmes served as Chief Operating Officer – Aviation Services. Prior to that, Mr.
Sales to Government and Defense Customers Sales to global government and defense customers (including sales to branches, agencies, and departments of the U.S. government) were $736.2 million (40.5% of consolidated sales), $845.9 million (51.2% of consolidated sales) and $778.8 million (37.6% of consolidated sales) in fiscal 2022, 2021 and 2020, respectively.
Sales to Government and Defense Customers Sales to global government and defense customers (including sales to branches, agencies, and departments of the U.S. government) were $661.7 million (33.2% of consolidated sales), $736.2 million (40.5% of consolidated sales) and $845.9 million (51.2% of consolidated sales) in fiscal 2023, 2022 and 2021, respectively.
Pachapa previously served as Controller since October 2015 and Senior Director of Accounting and Reporting since April 2014. Prior to joining the Company, Mr. Pachapa was with Glanbia plc from 2011 to 2014, and with Ernst & Young LLP from 1996 to 2011. Each executive officer is elected annually by the Board of Directors.
Pachapa previously served as Controller since October 2015 and Senior Director of Accounting and Reporting since April 2014. Prior to joining the Company, Mr. Pachapa was with Glanbia plc from 2011 to 2014, and with Ernst & Young LLP from 1996 to 2011. Ms.
Garascia served in positions of increasing responsibility for USG Corporation, most recently as Deputy General Counsel. Prior to USG, Ms. Garascia was an attorney for the Museum of Science and Industry and the law firm of Jenner & Block. Mr. Jessup is Vice President, Chief Commercial Officer, having served in that capacity since June 2017. Mr.
Prior to USG, Ms. Garascia was an attorney for the Museum of Science and Industry and the law firm of Jenner & Block. Mr. Jessup is Senior Vice President, Chief Commercial Officer Vice President, Chief Commercial Officer, having served in that capacity since June 2017. Mr.
At May 31, 2022, our firm backlog was approximately $850 million, and we expect that approximately 45% of this backlog will be recognized as revenue over the next 12 months, with approximately 55% of the remaining balance recognized as revenue over the next three years.
At May 31, 2023, our firm backlog was approximately $740 million, and we expect that approximately 45% of this backlog will be recognized as revenue over the next 12 months and approximately 75% will be recognized as revenue over the next three years.
Although certain of our competitors have substantially greater financial and other resources than we do, we believe that we have maintained a satisfactory competitive position through our responsiveness to customer needs, our attention to quality, and our unique combination of market expertise and technical and financial capabilities. 5 Table of Contents Backlog Backlog represents the amount of revenue that we expect to derive from unshipped orders or signed contracts.
Although certain of our competitors have substantially greater financial and other resources than we do, we believe that we have maintained a satisfactory competitive position through our responsiveness to customer needs, our attention to quality, and our unique combination of market expertise and technical and financial capabilities.
The backlog primarily relates to our long-term programs where we provide component inventory management, supply chain logistics programs, and/or repair services.
Backlog Backlog represents the amount of revenue that we expect to derive from unshipped orders or signed contracts. The backlog primarily relates to our long-term programs where we provide component inventory management, supply chain logistics programs, and/or repair services.
Gillen ​ 36 ​ Vice President and Chief Financial Officer Jessica A. Garascia ​ 43 ​ Vice President, General Counsel, and Secretary Chris Jessup ​ 44 ​ Vice President, Chief Commercial Officer Eric S. Pachapa ​ 49 ​ Vice President, Controller and Chief Accounting Officer ​ Mr.
Gillen ​ 37 ​ Senior Vice President and Chief Financial Officer Jessica A. Garascia ​ 44 ​ Senior Vice President, General Counsel, Chief Administrative Officer and Secretary Chris Jessup ​ 45 ​ Senior Vice President, Chief Commercial Officer Eric S.
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. We also provide customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”) and foreign governments.
We provide fleet management and operations of customer-owned aircraft 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.
The types of services provided under these programs include some or all of the following functions: material planning, sourcing, logistics, information and program management, airframe maintenance and maintenance planning, and component repair and overhaul.
We also provide customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”) and foreign governments. The types of services provided under these programs include some or all of the following functions: material planning, sourcing, logistics, information and program management, airframe maintenance and maintenance planning, and component repair and overhaul.
Raw Materials and Procurement of Repair and Other Services Although we generated approximately 60% of our fiscal 2022 sales from the sale of products, we are generally engaged in only limited manufacturing activities and have minimal exposure to fluctuations in both the availability and pricing of raw materials.
These changes will be initially reflected in our condensed consolidated financial statements for the quarterly period ended August 31, 2023 and are not reflected herein. 4 Table of Contents Raw Materials and Procurement of Repair and Other Services Although we generated approximately 60% of our fiscal 2023 sales from the sale of products, we are generally engaged in only limited manufacturing activities and have minimal exposure to fluctuations in both the availability and pricing of raw materials.
We are continually seeking out new ways to broaden our exposure to underrepresented groups in the aviation industry and to develop a diverse talent pipeline. Our ERGs support the development of diverse talent internally and promote the acquisition of talent externally.
Our ERGs also support the recruitment and development of diverse talent throughout the organization. 7 Table of Contents We are continually seeking out new ways to broaden our exposure to underrepresented groups in the aviation industry and to do our part to develop talent globally.
Gillen is Vice President and Chief Financial Officer, having served in that capacity since January 2019. Prior to joining AAR, Mr. Gillen was Vice President and Treasurer of USG Corporation since 2017. Prior to USG, Mr.
Gillen is Senior Vice President and Chief Financial Officer, having served in that capacity since January 2019. Prior to joining AAR, Mr. Gillen was Vice President and Treasurer of USG Corporation since 2017. Prior to USG, Mr. Gillen spent nine years in investment banking with Goldman Sachs, most recently as a Vice President in their Global Industrials Group. Ms.
Over the long-term, we expect to see strength in our Aviation Services segment given its offerings of value-added services to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
Borrowings outstanding under the Revolving Credit Facility were $272.0 million at May 31, 2023 with an availability on the facility of $336.9 million. Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
In particular, the employees in our MRO facilities, sales, and quality assurance departments are instrumental in driving operational execution and strong financial performance, and maintaining a strong quality and compliance program.
Our employees provide the foundation for our ability to achieve our strategic objectives. They are instrumental in driving operational execution and strong financial performance and maintaining a strong quality and compliance program.
We retain these contract workers as they provide unique skill sets which are necessary at certain facilities as well as mitigate the impact of demand variability with our customers. Our employees set the foundation for our ability to achieve our strategic objectives.
We also retained approximately 500 contract workers as of May 31, 2023, the majority of whom are located at 6 Table of Contents our airframe maintenance facilities. We retain these contract workers as they provide unique skill sets which are necessary at certain facilities as well as mitigate the impact of demand variability with our customers.
Our sales to commercial customers in fiscal 2022 increased by $277.4 million, or 34.4%, over the prior year as we were successful in driving sales growth through the uneven recovery from COVID-19. We were also successful in winning new long-term agreements in both our commercial and government markets.
Our sales to government customers in fiscal 2023 decreased by $74.5 million, or 10.1%, from the prior year as we completed certain government programs, including our Afghanistan contracts. We were also successful in winning new long-term agreements in both our commercial and government markets.
The success and growth of our business depends in large part on our ability to attract, retain and develop a population of talented and high-performing employees at all levels of our organization.
The success and growth of our business depends on our ability to attract, retain, and develop a population of talented and high-performing employees at all levels of our organization. To achieve this objective, we have formulated a human capital management vision to be the place of choice for people to build an inspiring career.
We are also an authorized distributor for more than 30 product lines, which include parts from over 300 Federal Supply Class codes sourced from over 25 leading aviation original equipment manufacturers (“OEM”s). We provide fleet management and operations of customer-owned aircraft for the U.S. Department of State (“DoS”) under the INL/A WASS contract.
We are also an authorized distributor for more than 30 product lines, which include parts from over 300 Federal Supply Class codes sourced from over 20 leading aviation original equipment manufacturers (“OEM”s). We also have an interest in a joint venture supporting the distribution of OEM parts to customers in Asia.
Gillen spent nine years in investment banking with Goldman Sachs, most recently as a Vice President in their Global Industrials Group. 7 Table of Contents Ms. Garascia is Vice President, General Counsel, and Secretary, having served in the capacity of General Counsel and Secretary since February 2020. Prior to joining the Company, from September 2013 through February 2020, Ms.
Garascia is Senior Vice President, General Counsel, Chief Administrative Officer and Secretary, having served in the capacity of General Counsel and Secretary since February 2020 and Chief Administrative Officer since July 2022. Prior to joining the Company, from September 2013 through February 2020, Ms. Garascia served in positions of increasing responsibility for USG Corporation, most recently as Deputy General Counsel.
Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment. ​
Patterson spent ten years in client service delivery with Aon and Arthur Andersen. Each executive officer is elected annually by the Board of Directors. Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment. ​
Some of our facilities have fitness centers on site for employees to use. 6 Table of Contents Diversity, Inclusion and Engagement We are an equal opportunity employer and recognize the value of a diverse workforce. We have established company-wide Employee Resource Groups (“ERGs”) where employees can foster connections and develop in a supportive environment.
We have established company-wide Employee Resource Groups (“ERGs”) where employees can foster connections and develop in a supportive environment.
This $365 million, ten-year contract provides for F-16 depot work as well as Service Life Extension Program modifications and maintenance. During fiscal 2022, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $89.8 million.
During fiscal 2023, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $23.8 million which included significant investments in inventory, rotable assets, and licensing arrangements to support further growth.
Human Capital Resources As of May 31, 2022, we had approximately 4,500 employees worldwide, with approximately 3,300 employees in the United States and approximately 1,200 employees outside of the United States. We also retained approximately 350 contract workers as of May 31, 2022, the majority of whom are located at our airframe maintenance facilities.
Human Capital Resources As of May 31, 2023, we employed approximately 5,000 employees worldwide, with approximately 3,850 employees in the U.S. and approximately 1,150 employees outside of the U.S. The numbers are inclusive of approximately 100 U.S. employees from our recent Trax acquisition.
To achieve this objective we have formulated a human capital management strategy, which includes the components below: Commitment to Safety One of our primary objectives is the health and safety of our employees. The commitment to safety starts at the top levels of our organization.
Tom Hoferer has also joined as our Senior Vice President and General Manager to lead our Repair & Engineering segment where a large percentage of our workforce resides. Commitment to Safety One of our primary objectives is the health and safety of our employees. The commitment to safety starts at the top levels of our organization.
Removed
Fiscal 2022 began with our focus centered on continuing to navigate the unprecedented decline in commercial passenger flight hours. We maintained our strategy of leveraging our efficiency gains, optimized portfolio and strong balance sheet to drive growth and margin expansion through the recovery in our commercial markets from the impact of COVID-19.
Added
In fiscal 2023, we established new partnerships, expanded our service offerings, and enhanced our approach to safety to best serve our customers across the world. The global recovery in commercial air travel drove an increased demand for our services, enabling us to achieve strong results across our portfolio, particularly in used serviceable material and new parts distribution.
Removed
We were awarded an exclusive distribution agreement with Collins Aerospace’s Goodrich De-Icing & Specialty Heating Systems business. Under the agreement, we provide airlines, business jet and other aircraft operators as well as maintenance, repair and overhaul (“MRO”) facilities globally with de-icers and supporting products.
Added
Our actions to reduce costs and improve operating efficiency were reflected in our improved profitability during fiscal 2023.
Removed
We also were awarded a five-year renewal of our power-by-the-hour component pool and repair support program for flydubai’s fleet of 33 Boeing 737NG aircraft.
Added
Our sales to commercial customers in fiscal 2023 increased by $245.0 million, or 22.6%, over the prior year reflecting the recovery in commercial air travel following the height of the impact of COVID-19 as well as growth from recently awarded new parts distribution contracts.
Removed
Our sales to government customers in fiscal 2022 decreased by $109.7 million, or 13.0%, from the prior year as we were impacted by the U.S. exit from Afghanistan in fiscal 2022 and certain programs coming to a natural completion.
Added
We were awarded a significant expansion of our exclusive agreement with Unison Industries which broadens our distribution of select Unison ignitor plugs, ignition leads, harnesses, and related spare parts. We also extended our distribution relationship with Leach International Corp to supply electromechanical and solid-state switch gears to the electronics end-market.
Removed
The operations related to our activities in Afghanistan contributed revenue of $67 million and $43 million in fiscal 2021 and fiscal 2022, respectively. During fiscal 2022, we were awarded a firm fixed price, indefinite delivery/indefinite quantity contract from the Air Force to support United States Air Forces in Europe (“USAFE”) F-16 aircraft.
Added
In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with flydubai for their growing Boeing 737 MAX fleet. In our government market, we were awarded a firm-fixed price contract from the U.S. Air Force to produce Next Generation All Aluminum Cargo Pallets with a total contract value, including option periods, of $173.5 million.
Removed
Borrowings outstanding under the Revolving Credit Facility were $100.0 million at May 31, 2022 with an availability on the facility of $488.6 million. Our long-term strategy also emphasizes the return of capital to shareholders. In December 2021, our Board of Directors authorized a renewal of our stock repurchase program.
Added
We were also awarded a contract from the Norwegian Defence Logistics Organisation to provide commercial common parts for the Royal Norwegian Air Force P-8A fleet. During the fourth quarter of fiscal 2023, we acquired Trax USA Corp. (“Trax”), a leading independent provider of aircraft MRO and fleet management software which was founded in 1999.
Removed
The authorization has no expiration date and permits the Company to repurchase up to $150 million of our common stock. We were able to return capital to shareholders through common stock repurchases of $42.4 million during fiscal 2022 and expect to fully utilize the authorization by the end of calendar 2023.
Added
The acquisition price was $120 million in cash, plus up to a $20 million earn-out payment based on adjusted revenue in calendar year 2023 and 2024. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft.
Removed
Business Segments Aviation Services The Aviation Services segment provides aftermarket support and services for the commercial aviation and government and defense markets and accounted for approximately 95% of our sales in fiscal 2022, 2021, and 2020. In this segment, we also provide inventory management and distribution services, MRO services, and engineering services.
Added
Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. The Trax acquisition adds established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services.
Added
In this segment, we also provide inventory management and distribution services, maintenance, repair, and overhaul (“MRO”) services, and engineering services.
Added
Change in Operating Segments During the first quarter of fiscal 2024, our chief operating decision maker (“CODM”) implemented changes in how he evaluates the business, allocates resources, and assesses performance. Specifically, this new structure results in the separation of our Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering and Integrated Solutions.
Added
Beginning with the first quarter of fiscal 2024, we will report under this new structure using the following four operating segments: ● Parts Supply, primarily consisting of our sales of used serviceable engine and airframe parts and components and distribution of new parts; ● Repair & Engineering, primarily consisting of our maintenance, repair, and overhaul services across airframes and components, including landing gear; ● Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S.
Added
Department of Defense (“DoD”) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions including Trax; and ● Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.
Added
In conjunction with the re-alignment, our CODM will evaluate each segment’s performance based on operating income instead of gross profit as the CODM believes operating income is a more comprehensive profitability measure for each operating segment.
Added
Our people are at the center of our business. We care about the experience they have with us and the impact we collectively have in our community. Our human capital management strategy is centered on a purposeful culture, proactive career development and an inspiring employee experience.
Added
We believe this strategy is important because it helps us ensure workforce engagement, retention and productivity, which sets a foundation for strong business growth. Our human capital strategy includes the components noted below. We are excited that Tracey Patterson has joined AAR as our Chief HR Officer leading our people strategy globally.
Added
We launched a corporatewide Safety and Management System (“SMS”), making us the first independent third-party MRO organization to implement this FAA recognized program. Our corporate SMS provides a single platform for all employees to proactively identify and report hazards, perform risk analysis, mitigate risks and share best practices. Competitive Pay and Benefits We focus on paying our employees competitively.
Added
Some of our facilities have fitness centers on site for employees to use. Diversity, Inclusion and Engagement We are an equal opportunity employer and recognize the value of an inclusive workforce. We believe that diversity and inclusivity empowers us to live our core values, and to be more innovative and focused on embracing new ideas for an ever-changing world.
Added
AAR’s Fellowship Program provides recipients tuition assistance and the opportunity to work at one of our MRO facilities while completing their Airframe and Powerplant program at a partner college. After graduation, fellows in good standing are guaranteed employment with us.
Added
Due to the success of this program, we have expanded our Fellowship program in calendar 2023 to include two Indianapolis, Indiana colleges. Talent Development Our continued success depends on a workforce of skilled talent. Attracting people to join us and retaining that workforce requires collaboration across industry, education, and government to develop pathways for future talent.
Added
We are proud to lead the way. Our custom-built Eagle Career Pathway program is helping us build the next generation labor force, hire from untapped talent pools and enable easy transition from military service. We are also proud to partner with Choose Aerospace, a 501(c)(3) nonprofit, to create a general aviation curriculum based on FAA standards.
Added
Following a successful pilot program, the curriculum officially launched across six states. Internally, our global talent development model aligns with our desire to support a talented and high performing workforce throughout our organization. Annual talent reviews are conducted to provide meaningful and timely feedback, identify career aspirations and opportunities to grow future focused skills.
Added
The development of our talent is ongoing through Individual Development Plans, assessments, learning and development classes, mentorship programs, and cohort style leadership development programs. We seek to foster a spirit of continuous learning and our workforce has responded with a total of 19,000 hours of professional development since 2019 including 5,000 hours in fiscal 2023.
Added
Pachapa ​ 50 ​ Vice President, Controller and Chief Accounting Officer Tracey Patterson ​ 48 ​ Senior Vice President, Chief Human Resources Officer ​ 8 Table of Contents Mr. Holmes is Chairman, President and Chief Executive Officer, having served in that capacity since January 2023. Prior to that he served as President and Chief Executive Officer since June 2018.
Added
Patterson is Senior Vice President, Chief Human Resources Officer, having served in that capacity since February 2023. Prior to joining the Company, from June 2006 through February 2023, Ms. Patterson served in positions of increasing responsibility for Accenture, most recently as Managing Director in their Operations business leading Global HR Operations for Accenture. Prior to Accenture, Ms.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

43 edited+18 added−15 removed65 unchanged
Biggest changeReduced numbers of aircraft flying or flight hours has and will continue to negatively impact the demand for our services, and any prolonged reduction could materially and adversely affect our business, operating results, financial condition, and liquidity. As the situation surrounding the COVID-19 pandemic remains fluid, the pandemic has continued to negatively impact travel demand and our business.
Biggest changeThe emergence of new variants or diseases, developments in the public health situation, the reimposition of regional or global travel restrictions, and other pandemic-related complications could have a negative impact on our business. 10 Table of Contents Reduced numbers of aircraft flying or flight hours negatively impacts the demand for our aftermarket parts support and maintenance services, and any prolonged reduction in the future could materially and adversely affect our business, operating results, financial condition, and liquidity.
Cyber security threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to our sensitive information, business e-mail compromises, ransomware attacks, and other electronic security breaches, including at our customers, suppliers, subcontractors, and joint venture partners, that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. 12 Table of Contents A theft, loss, fraudulent use or misuse of customer, stockholder, employee or our proprietary data by cybercrime or otherwise, noncompliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in costs, fines, litigation or regulatory action against us.
Cyber security threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to our sensitive information, business e-mail compromises, ransomware attacks, and other electronic security breaches, including at our customers, suppliers, subcontractors, and joint venture partners, that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. 14 Table of Contents A theft, loss, fraudulent use or misuse of customer, stockholder, employee or our proprietary data by cybercrime or otherwise, noncompliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in costs, fines, litigation or regulatory action against us.
If we were required to pay the expenses related to any future environmental claims for which neither indemnification nor insurance coverage were available, these expenses could have an adverse impact on our results of operations and financial condition. 16 Table of Contents Future environmental regulatory developments in the United States and abroad concerning environmental issues, such as climate change, could adversely affect our operations and increase operating costs and, through their impact on our customers, reduce demand for our products and services.
If we were required to pay the expenses related to any future environmental claims for which neither indemnification nor insurance coverage were available, these expenses could have an adverse impact on our results of operations and financial condition. 17 Table of Contents Future environmental regulatory developments in the United States and abroad concerning environmental issues, such as climate change, could adversely affect our operations and increase operating costs and, through their impact on our customers, reduce demand for our products and services.
Any adjustment as a result of a change in estimate is recognized as events become known. Changes in the underlying assumptions, circumstances or estimates could result in adjustments that may adversely affect our future financial results.
Any adjustment as a result of a change in estimates is recognized as events become known. Changes in the underlying assumptions, circumstances or estimates could result in adjustments that may adversely affect our future financial results.
These expenditures could adversely affect our results of operations and financial condition. Risk Related to Financial Matters We may need to reduce the carrying value of our assets. We own and distribute a significant amount of engines, aircraft parts and components, as well as own manufacturing facilities and joint venture investments.
These expenditures could adversely affect our results of operations and financial condition. Risks Related to Financial Matters We may need to reduce the carrying value of our assets. We own and distribute a significant amount of engines, aircraft parts and components, as well as own manufacturing facilities and joint venture investments.
Access to the debt and equity capital markets may be limited by various factors, including the condition of overall credit markets, general economic factors, state of the aviation industry, our financial performance, and credit ratings. Debt and equity capital may not continue to be available to us on favorable terms, or at all.
Access to the debt and equity capital markets may be limited by various factors, including the condition of overall credit markets, general economic factors, interest rates, state of the aviation industry, our financial performance, and credit ratings. Debt and equity capital may not continue to be available to us on favorable terms, or at all.
In addition, certain of our airline customers have in the past been impacted by tight credit markets, which limited their ability to buy parts, services, engines, and aircraft. A reduction in the operating fleet of aircraft both in the U.S. and abroad will result in reduced demand for parts support and maintenance activities for the type of aircraft affected.
In addition, certain of our airline customers have in the past been impacted by tight credit markets, which limited their ability to buy parts, services, engines, and aircraft. 9 Table of Contents A reduction in the operating fleet of aircraft both in the U.S. and abroad will result in reduced demand for parts support and maintenance activities for the type of aircraft affected.
A termination for default could expose us to liability and adversely affect our financial performance and our ability to win new contract awards. Success at our airframe maintenance facilities is dependent upon continued outsourcing by the airlines. We currently perform airframe maintenance, repair, and overhaul activities at six leased locations.
A termination for default could expose us to liability and adversely affect our financial performance and our ability to win new contract awards. Success at our airframe maintenance facilities is dependent upon continued outsourcing by the airlines and our ability to maintain our operational footprint. We currently perform airframe maintenance, repair, and overhaul activities at six leased locations.
The cost of providing products or services may be adversely affected by increases in the cost of labor, materials, fuel, overhead, and other unknown variants, including manufacturing and other operational inefficiencies and differences between assumptions used by us to price a contract and actual results.
The cost of providing products or services may be adversely affected by increases in the cost of labor, materials, fuel, overhead, and other unknown variants, including manufacturing and other operational 11 Table of Contents inefficiencies and differences between assumptions used by us to price a contract and actual results.
Whether we make any further repurchases will depend on many factors, including but not limited to our business and financial performance, the business and market conditions at the time, including the price of our shares, and other factors that management considers relevant.
Whether 15 Table of Contents we make any further repurchases will depend on many factors, including but not limited to our business and financial performance, the business and market conditions at the time, including the price of our shares, and other factors that management considers relevant.
Foreign Corrupt Practices Act, United Kingdom (“UK”) Bribery Act 2010, and other anti-bribery and anti-corruption laws; see Note 16 of Notes to Consolidated Financial Statements for information about certain pending proceedings; ● the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; ● contract award and funding delays; ● potential restrictions on transfers of funds; 11 Table of Contents ● import and export duties and value added taxes; ● foreign exchange risk; ● transportation delays and interruptions, including those related to COVID-19 travel restrictions; ● uncertainties arising from foreign local business practices and cultural considerations; and ● changes in U.S. policies on trade relations and trade policy, including implementation of or changes in trade sanctions, tariffs, and embargoes.
Foreign Corrupt Practices Act, United Kingdom (“UK”) Bribery Act 2010, and other anti-bribery and anti-corruption laws; see Note 17 of Notes to Consolidated Financial Statements for information about certain pending proceedings; ● the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; ● contract award and funding delays; ● potential restrictions on transfers of funds; ● import and export duties and value added taxes; ● foreign exchange risk; ● transportation delays and interruptions; ● uncertainties arising from foreign local business practices and cultural considerations; and ● changes in U.S. policies on trade relations and trade policy, including implementation of or changes in trade sanctions, tariffs, and embargoes.
If we are unable to respond effectively, investors may conclude that our ESG policies and/or actions are inadequate. If we are perceived to have failed to achieve our ESG initiatives or accurately disclose our progress on such matters, our reputation, business, financial condition and results of operations could be adversely impacted.
If we are unable to respond effectively, investors may conclude that our ESG policies and/or actions are inadequate and decide not to invest in our stock. If we are perceived to have failed to achieve our ESG initiatives or accurately disclose our progress on such matters, our reputation, business, financial condition and results of operations could be adversely impacted.
If our maintenance facilities become unavailable either temporarily or permanently due to labor disruptions or circumstances beyond our control, such as geopolitical developments or logistical complications arising from acts of war, cyber-attacks, weather, global climate change, earthquakes or other natural disasters including public health crises, we may be unable to shift such work to other facilities or to make up for lost work.
If our maintenance facilities become unavailable either temporarily or permanently due to our inability to extend our leases on commercial reasonable terms, labor disruptions or circumstances beyond our control, such as geopolitical developments or logistical complications arising from acts of war, cyber-attacks, weather, global climate change, earthquakes or other natural disasters including public health crises, we may be unable to shift such work to other facilities or to make up for lost work.
The criteria used to evaluate ESG practices may continue to evolve, which could result in greater expectations and may cause us to undertake costly initiatives to satisfy new criteria. The increasing attention to sustainability could also result in reduced demand for certain of our products and/or reduced profits.
The criteria used to evaluate ESG practices may continue to evolve, which could result in greater expectations and may cause us to undertake costly initiatives to satisfy new criteria and abide by any new disclosure requirements. The increasing attention to sustainability could also result in reduced demand for certain of our products and/or reduced profits.
For example, in conjunction with the U.S. exit from Afghanistan in fiscal 2022, we concluded our activities in country under our WASS and U.S. Department of Defense contracts. U.S. government programs are subject to annual congressional budget authorization and appropriation processes.
For example, in conjunction with the U.S. exit from Afghanistan in fiscal 2022, we concluded our activities in country under our DoS and DoD contracts. U.S. government programs are subject to annual congressional budget authorization and appropriation processes.
Our ability to operate successfully and meet our customers’ demands could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel, including aviation mechanics, to conduct our business, or we experience a significant or prolonged work stoppage in such an environment, our ability to secure new work and our results of operations and financial condition could be adversely affected.
Our ability to operate successfully and meet our customers’ demands could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel, including aviation mechanics, to conduct our business, or we experience a significant or prolonged work stoppage in such an environment.
If a contracting officer were to impose such a withholding on us or even one of our prime contractors, it would increase the risk that we would not be paid in full or paid timely. If future audit adjustments exceed our estimates, our profitability could be adversely affected.
If a contracting officer were to impose such a withholding on us or even on a prime contractor where we are the subcontractor, it would 16 Table of Contents increase the risk that we would not be paid in full or paid timely. If future audit adjustments exceed our estimates, our profitability could be adversely affected.
Differences between actual results and the assumptions utilized by us when determining the recoverability of our assets could result in impairment charges in future periods, which would adversely affect our results of operations and financial condition. We have recorded goodwill and other intangible assets related to acquisitions.
Differences between actual results and the assumptions utilized by us when determining the recoverability of our assets could result in impairment charges in future periods, which would adversely affect our results of operations and financial condition. We have recorded goodwill and other intangible assets related to acquisitions, including $122.3 million associated with our acquisition of Trax in fiscal 2023.
Additionally, our key suppliers could also increase the pricing of their products, which would negatively affect our operating results if we were not able to pass these price increases through to our customers. 8 Table of Contents Our business, financial condition, results of operations, and growth rates have been and may continue to be adversely affected by these and other events that impact the aviation industry, including the following: ● deterioration in the financial condition of our existing and potential customers; ● reductions in the need for, or the deferral of, aircraft maintenance and repair services and spare parts support; ● retirement of older generation aircraft, resulting in lower prices for spare parts and services for those aircraft; ● reductions in demand for used aircraft and engines; ● increased in-house maintenance by airlines; ● lack of parts in the marketplace; ● acts of terrorism; ● economic sanctions; ● inflationary pressures; ● political, social and economic instability and disruptions; ● cost of labor shortages and other changes in labor conditions; ● future outbreaks of infectious diseases; and ● acts of God.
Our business, financial condition, results of operations, and growth rates have been and may continue to be adversely affected by these and other events that impact the aviation industry, including the following: ● deterioration in the financial condition of our existing and potential customers; ● reductions in the need for, or the deferral of, aircraft maintenance and repair services and spare parts support; ● retirement of older generation aircraft, resulting in lower prices for spare parts and services for those aircraft; ● reductions in demand for used aircraft and engines; ● increased in-house maintenance by airlines; ● lack of parts in the marketplace; ● acts of terrorism; ● economic sanctions; ● inflationary pressures and conditions; ● political, social and economic instability and disruptions; ● cost of labor shortages and other changes in labor conditions; ● future outbreaks of infectious diseases; and ● acts of God.
If either the number of aircraft operating or the level of outsourcing of maintenance activities declines, we may not be able to execute our operational and financial plans at our maintenance, repair, and overhaul facilities, which could adversely affect our results of operations and financial condition. 10 Table of Contents Our operations would be adversely affected by a shortage of skilled personnel or work stoppages.
If either the number of aircraft operating or the level of outsourcing of maintenance activities declines, we may not be able to execute our operational and financial plans at our maintenance, repair, and overhaul facilities, which could adversely affect our results of operations and financial condition.
In 2021, we announced a stock repurchase program in which we may repurchase up to $150 million of our common stock. There is no guarantee as to the exact number of shares or value that will be repurchased under the stock repurchase program and we may discontinue purchases at any time.
There is no guarantee as to the exact number of shares or value that will be repurchased under the stock repurchase program and we may discontinue purchases at any time.
Any measures adopted to reduce the potential impact of losses resulting from the risks of doing business internationally, may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all.
Any measures adopted to reduce the potential impact of losses resulting from the risks of doing business internationally, may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all. 13 Table of Contents Acquisitions expose us to risks, including the risk that we may be unable to effectively integrate acquired businesses.
Future congressional appropriation and authorization of defense spending and the application of sequestration remain marked by significant debate and an uncertain schedule. The federal debt limit continues to be actively debated as plans for long-term national fiscal policy are discussed.
Future congressional appropriation and authorization of defense spending and the application of sequestration remain marked by significant debate and an uncertain schedule. The federal debt limit continues to be actively debated as plans for long-term national fiscal policy are discussed. The outcome of these debates could have a significant impact on defense spending broadly and programs we support in particular.
For any businesses we may acquire in the future, we may not be able to execute our operational, financial, or integration plans for the acquired businesses, which could adversely affect our results of operations and financial condition.
In addition, acquisitions often require substantial management resources and have the potential to divert our attention from our existing business. For any businesses we may acquire in the future, we may not be able to execute our operational, financial, or integration plans for the acquired businesses, which could adversely affect our results of operations and financial condition.
These competitive markets also create pressure on our ability to hire and retain qualified technicians and other skilled labor needs. We believe that our ability to compete depends on superior customer service and support, on-time delivery, sufficient inventory availability, competitive pricing, and effective quality assurance programs.
We believe that our ability to compete depends on superior customer service and support, on-time delivery, sufficient inventory availability, competitive pricing, and effective quality assurance programs.
There is significant competition for such personnel in the industries in which we operate. We may be impacted by higher labor costs and/or labor shortages due to wage and salary inflationary pressures in the economy, a tightening labor market and increased rates of employee resignations generally throughout the U.S. economy.
We may be impacted by higher labor costs and/or labor shortages due to wage and salary inflationary pressures in the economy, a tightening labor market and increased rates of employee resignations generally throughout the U.S. economy. Employees in certain locations have shown increased interest in unionization.
The outcome of these debates could have a significant impact on defense spending broadly and programs we support in particular. 9 Table of Contents If there are funding delays and constraints, we may be required to continue to perform for some period of time on certain of our U.S. government contracts even if the U.S. government is unable to make timely payments.
If there are funding delays and constraints, we may be required to continue to perform for some period of time on certain of our U.S. government contracts even if the U.S. government is unable to make timely payments.
Also, any inadequacies in our systems and policies could result in payments being withheld, penalties and reduced future business. 15 Table of Contents U.S. government rules allow contracting officers to impose contractual withholdings at no less than certain minimum levels if a contracting officer determines that one or more of a contractor’s business systems have one or more significant deficiencies.
U.S. government rules allow contracting officers to impose contractual withholdings at no less than certain minimum levels if a contracting officer determines that one or more of a contractor’s business systems have one or more significant deficiencies.
See Note 16 of Notes to Consolidated Financial Statements for information about certain pending proceedings. We are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent governmental regulation. The aviation industry is highly regulated by the FAA in the United States and equivalent regulatory agencies in other countries.
We are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent governmental regulation. The aviation industry is highly regulated by the FAA in the U.S. and equivalent regulatory agencies in other countries.
In addition, U.S. government programs budgets could be negatively impacted under President Biden’s administration, including possible policy changes on defense spending, spending priorities outside defense, reduction in military presence overseas and in general pressure to reduce U.S. defense spending.
In addition, U.S. government programs budgets could be negatively impacted by possible policy changes on defense spending, spending priorities outside defense, reduction in military presence overseas and in general pressure to reduce U.S. defense spending. A significant reduction in defense spending could result in a reduction in the amount of our products and services furnished to the U.S. government.
In addition, we recognized impairment charges over the last three years of $2.6 million related to our Malaysian joint venture. In addition, if aircraft or engines for which we offer replacement parts or supply repair and overhaul services are retired and there are fewer aircraft that require these parts or services, our revenues may decline.
In addition, if aircraft or engines for which we offer replacement parts or supply repair and overhaul services are retired and there are fewer aircraft that require these parts or services, our revenues may decline.
Similarly, if we were to lose a key customer or if a regulator were to terminate any of our repair certificates at our airframe maintenance or landing gear facilities, we might be required to record an impairment charge if we were unable to operate. 13 Table of Contents We may not be able to fully execute our stock repurchase program and may not otherwise return capital to our stockholders in the foreseeable future.
Similarly, if we were to lose a key customer or if a regulator were to terminate any of our repair certificates at our airframe maintenance or landing gear facilities, we might be required to record an impairment charge if we were unable to operate.
Risks Related to Legal and Regulatory Matters If we fail to comply with government procurement laws and regulations, we could lose business and be liable for various penalties or sanctions. We must comply with laws and regulations relating to the formation, administration, and performance of government contracts.
Our failure to comply with these covenants could adversely affect our results of operations and financial condition. Risks Related to Legal and Regulatory Matters If we fail to comply with government procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.
Any costs found to be misclassified or inaccurately allocated to a specific contract are not reimbursable, and to the extent already reimbursed, must be refunded.
Any costs found to be misclassified or inaccurately allocated to a specific contract are not reimbursable, and to the extent already reimbursed, must be refunded. Also, any inadequacies in our systems and policies could result in payments being withheld, penalties and reduced future business.
Our business has historically been dependent on educated and skilled aviation mechanics because of the complex nature of many of our products and services. We face competition for management and qualified technical personnel from other companies and organizations. Furthermore, we have a collective bargaining agreement covering approximately 200 employees (5% of employees) in our Expeditionary Services segment.
Our operations may be adversely affected by a shortage of skilled personnel or work stoppages. Our business has historically been dependent on educated and skilled aviation mechanics because of the complex nature of many of our products and services. We face competition for management and qualified technical personnel from other companies and organizations.
Recurring losses in certain operations could require us to evaluate the recoverability of the carrying value of the related assets and recognize an impairment charge through earnings to reduce the carrying value. During fiscal 2020, we recognized impairment charges of $11.8 million related to our COCO business which is classified as a discontinued operation.
Recurring losses in certain operations could require us to evaluate the recoverability of the carrying value of the related assets and recognize an impairment charge through earnings to reduce the carrying value.
Reduced demand from customers caused by weak economic conditions, including tight credit conditions and customer bankruptcies, may adversely impact our financial condition or results of operations. In addition, an increase in energy costs and the price of fuel to the airlines could result in additional pressure on the operating costs of airlines, who comprise our largest customers.
In addition, an increase in energy costs and the price of fuel to the airlines could result in additional pressure on the operating costs of airlines, who comprise our largest customers.
We operate in highly competitive markets, and competitive pressures may adversely affect us. The markets for our products and services to our commercial, government, and defense customers are highly competitive, and we face competition from a number of sources, both domestic and international.
The markets for our products and services to our commercial, government, and defense customers are highly competitive, and we face competition from a number of sources, both domestic and international. Our competitors include aircraft manufacturers, aircraft component and parts manufacturers, airline and aircraft service companies, other companies providing maintenance, repair and overhaul services, other aircraft spare parts distributors and redistributors.
Acquisitions involve risks, including difficulties in integrating the operations and personnel, the effects of amortization of any acquired intangible assets and the potential impairment of goodwill, and the potential loss of key employees of the acquired business. In addition, acquisitions often require substantial management resources and have the potential to divert our attention from our existing business.
We have completed acquisitions in the past and we have discussions with third parties regarding acquisitions on a regular basis. Acquisitions involve risks, including difficulties in integrating the operations and personnel, the effects of amortization of any acquired intangible assets and the potential impairment of goodwill, and the potential loss of key employees of the acquired business.
Our U.S. government contracts may not continue at present sales levels, which may have a material adverse effect on our financial condition and results of operations. Our sales to branches, agencies and departments of the U.S. government and their contractors were $620.0 million (34.1% of consolidated sales) in fiscal 2022 (See Note 15 of Notes to Consolidated Financial Statements).
Our sales to branches, agencies and departments of the U.S. government and their contractors were $577.0 million (29.0% of consolidated sales) in fiscal 2023 (See Note 16 of Notes to Consolidated Financial Statements).
Our competitors include aircraft manufacturers, aircraft component and parts manufacturers, airline and aircraft service companies, other companies providing maintenance, repair and overhaul services, other aircraft spare parts distributors and redistributors. Some of our competitors have substantially greater financial and other resources than we have and others may price their products and services below our selling prices.
Some of our competitors have substantially greater financial and other resources than we have and others may price their products and services below our selling prices. These competitive markets also create pressure on our ability to hire and retain qualified technicians and other skilled labor needs.
Our inability to obtain financing on favorable terms could adversely affect our results of operations and financial condition. LIBOR, the London interbank offered rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally.
Our inability to obtain financing on favorable terms could adversely affect our results of operations and financial condition. Our existing debt includes restrictive and/or financial covenants.
A deteriorating airline environment may also result in additional airline bankruptcies, and in such circumstances we may not be able to fully collect outstanding accounts receivable, which was recently seen over the past two years during the COVID-19 pandemic.
A deteriorating airline environment may also result in our inability to fully collect outstanding accounts receivable, which we experienced during the height of the COVID-19 pandemic in 2020 and 2021. Reduced demand from customers caused by weak economic conditions, including tight credit conditions and customer bankruptcies, may adversely impact our financial condition or results of operations.
Removed
A significant reduction in defense spending could result in a reduction in the amount of our products and services furnished to the U.S. government.
Added
Additionally, our key suppliers could also increase the pricing of their products, which would negatively affect our operating results if we were not able to pass these price increases through to our customers.
Removed
In light of COVID-19, the percentage of our revenue that comes from government contracts increased and became more important to our overall business, which heightens the possible adverse effects on our results of operations and financial condition of any reduction in the sales levels of our U.S. government contracts.
Added
Pandemics and other disease outbreaks, such as COVID-19, and similar public health threats that may arise in the future, may have a material adverse impact on our business, results of operations, financial condition, and liquidity.
Removed
Acquisitions expose us to risks, including the risk that we may be unable to effectively integrate acquired businesses. We have completed acquisitions in the past and we have discussions with third parties regarding acquisitions on a regular basis.
Added
While commercial airline traffic recovered significantly from COVID-19 over the last two years, pandemics, disease outbreaks or similar public health threats, continues to pose a range of risks to our business.
Removed
Interest rates under our Revolving Credit Facility (as defined below) are based partly on LIBOR. On March 5, 2021, the UK Financial Conduct Authority, which regulates LIBOR, announced that it would cease publication of all tenors of LIBOR immediately after June 30, 2023.
Added
From the COVID-19 pandemic, some businesses have expanded remote working opportunities and continued to restrict non-essential travel for their employees, which has kept demand for business air travel below pre-pandemic levels.
Removed
Additionally, the Federal Reserve Board has advised banks to stop entering into new U.S. dollar LIBOR based contracts. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate which is currently intended to serve as an alternative reference rate to LIBOR.
Added
Consumer behavior related to traveling may continue to be negatively impacted by adverse changes in business travel patterns or adverse changes in the perceived or actual economic climate, including declines in income levels and/or loss of wealth resulting from the impact from economic conditions.
Removed
If lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our borrowings.
Added
We are unable to predict the extent to which disease outbreaks or other public health threats that may arise in the future may change air travel, which could have a material impact on our business.
Removed
We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. Our existing debt includes restrictive and/or financial covenants.
Added
The degree to which any future disease outbreaks or public health threats may impact our business, results of operations, financial condition, and liquidity is uncertain and will depend on future developments. Our U.S. government contracts may not continue at present sales levels, which may have a material adverse effect on our financial condition and results of operations.
Removed
Our failure to comply with these covenants could adversely affect our results of operations and financial condition. 14 Table of Contents Risks Related to COVID-19 The COVID-19 pandemic has had a material adverse impact on our business, results of operations, financial condition, and liquidity, and the duration and extent of the pandemic is uncertain.
Added
Furthermore, we have a collective bargaining agreement covering approximately 200 employees in our Expeditionary Services segment (approximately 5% of our total workforce).
Removed
The COVID-19 pandemic prompted governments and businesses to take unprecedented measures in response that have included international and domestic travel restrictions or advisories, restrictions on business operations, limitations on public gatherings, social distancing recommendations, temporary closures of businesses, remote work arrangements, closures of tourist destinations and attractions as well as quarantine and shelter-in-place orders.
Added
In such case, our ability to secure new work and our results of operations and financial condition could be adversely affected. There is significant competition for such personnel in the industries in which we operate.
Removed
Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion adversely affected travel demand and travel behavior although passenger airline traffic has been improving recently. With the roll-out of the COVID-19 vaccines, many countries have started to lift their states of emergency and restrictions on air travel.
Added
If a significant portion of our employees were to become unionized, our labor costs could increase and our business could be negatively affected by other requirements and expectations that could increase our costs, change our employee culture, decrease our flexibility and disrupt our business.
Removed
With the easing of these restrictions, passenger airline traffic has started to pick-up in the United States, but business travel in particular remains well below pre-pandemic levels. In addition, we have seen and expect to continue to see reduced demand in our non-cargo commercial businesses in certain markets.
Added
Additionally, our responses to any union organizing efforts could negatively impact how we are perceived and have adverse effects on our business, including on our financial results.
Removed
In some cases, airlines have reduced their operating fleet of aircraft both in the U.S. and abroad which results in reduced demand for parts support and maintenance activities for the type of aircraft affected. Moreover, if the COVID-19 pandemic continues to result in decreased worldwide commercial activity, it could also adversely affect the demand for airline cargo services.
Added
These responses could also expose us to legal risk, causing us to incur costs to defend legal and regulatory actions, potential penalties and restrictions or reputational harm. 12 Table of Contents We operate in highly competitive markets, and competitive pressures may adversely affect us.
Removed
It remains difficult to reasonably predict the full extent of the ongoing impact of the COVID-19 pandemic on our longer-term operational and financial performance, which will depend on a number of future developments, many of which are outside our control, such as the ultimate duration of and factors impacting the recovery from the pandemic including the introduction and spread of new variants of the virus that may be resistant to currently approved vaccines or treatment options and the continuation of existing or implementation of new government travel restrictions.
Added
We may not realize the anticipated benefits of the Trax acquisition, and may face difficulties integrating Trax’s operations. We expect the acquisition of Trax, as a provider of comprehensive MRO and airline fleet management software, to expand our proprietary technology and digital portfolio and accelerate our strategy to offer digital solutions to our customers.
Removed
In addition, we source parts and components for our business from various suppliers around the world. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could have adverse effects on our ability to provide aftermarket support and services.
Added
However, we may not realize the anticipated benefits of the Trax acquisition or our digital solutions strategy, including any synergies, cross-selling opportunities, cost savings or growth opportunities. These benefits may not be achieved within the anticipated time frame, or at all.
Removed
Moreover, a prolonged epidemic or pandemic, or the threat thereof, could result in worker absences, lower productivity, voluntary closure of our offices and facilities, travel restrictions for our employees and other disruptions to our business. These impacts could have a material adverse effect on our business, financial condition or results of operations.
Added
Further, we may not be able to execute our integration plans for Trax and may face diversion of management attention from our existing business, unanticipated costs and risks associated with expanding further into the digital solutions market. Failing to realize the anticipated benefits and difficulties integrating Trax could have a material adverse effect on business, operating results and financial condition.
Added
We may not be able to fully execute our stock repurchase program and may not otherwise return capital to our stockholders in the foreseeable future. In 2021, we announced a stock repurchase program with authorization to repurchase up to $150 million of our common stock, of which $92.4 million has been repurchased under the program as of May 31, 2023.
Added
The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition, capital requirements and strategy and any future government restrictions.
Added
We must comply with laws and regulations relating to the formation, administration, and performance of government contracts.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+1 added−0 removed0 unchanged
Biggest changeThe information in Notes 14 and 16 are incorporated by reference in this Item 3. ​ There are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Notes 14 and 16 to our Consolidated Financial Statements for the year ended May 31, 2022 contained in this Annual Report on Form 10-K. ​ ITEM 4.
Biggest changeThere are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Note 17 to our Consolidated Financial Statements for the year ended May 31, 2023 contained in this Annual Report on Form 10-K. ​ ITEM 4.
LEGAL PROCEEDINGS Notes 14 and 16 of the Notes to our Consolidated Financial Statements for the year ended May 31, 2022 contained in Item 8 of this Annual Report on Form 10-K includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material adverse effect on our consolidated financial position or liquidity if they were resolved in a manner that is adverse to us.
LEGAL PROCEEDINGS Note 17 of the Notes to our Consolidated Financial Statements for the year ended May 31, 2023 contained in Item 8 of this Annual Report on Form 10-K includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material adverse effect on our consolidated financial position or liquidity if they were resolved in a manner that is adverse to us.
MINE SAFETY DISCLOSURES Not Applicable. ​ 17 Table of Contents PART II
MINE SAFETY DISCLOSURES Not Applicable. ​ 18 Table of Contents PART II
Added
The information in Note 17 is incorporated by reference in this Item 3.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−2 removed0 unchanged
Biggest changeStockholder Return Performance Graph The following graph compares the total return on a cumulative basis of $100 invested, and reinvestment of dividends in our common stock on May 31, 2017 to the Standard and Poor’s (“S&P”) 500 Index and the Proxy Peer Group: ​ The S&P 500 Index is comprised of domestic industry leaders in four major sectors: Industrial, Financial, Utility, and Transportation, and serves as a broad indicator of the performance of the U.S. equity market.
Biggest changeStockholder Return Performance Graph The following graph compares the total return on a cumulative basis of $100 invested, and reinvestment of dividends in our common stock on May 31, 2018 to the Standard and Poor’s (“S&P”) 500 Index and the Proxy Peer Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Indexed Returns ​ ​ Base Period ​ Years Ending Company/Index/Peer Group ​ 5/31/18 ​ 5/31/19 ​ 5/31/20 ​ 5/31/21 ​ 5/31/22 ​ 5/31/23 AAR CORP. 100.00 67.84 45.89 94.99 109.71 114.01 S&P 500 Index 100.00 103.78 117.11 164.32 163.83 168.62 Peer Group 100.00 107.72 79.11 125.38 113.68 125.57 ​ The S&P 500 Index is comprised of domestic industry leaders in four major sectors: Industrial, Financial, Utility, and Transportation, and serves as a broad indicator of the performance of the U.S. equity market.
The mix of the Company’s commercial and government/defense markets presents a challenge in constructing a peer group, given that many government/defense contractors have substantially greater resources than the Company. 18 Table of Contents Dividends The prohibition on our payment of dividends under the Payroll Support Program of the CARES Act ended September 30, 2021.
The mix of the Company’s commercial and government/defense markets presents a challenge in constructing a peer group, given that many government/defense contractors have substantially greater resources than the Company. Dividends The prohibition on our payment of dividends under the Payroll Support Program of the CARES Act ended September 30, 2021.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol “AIR.” On June 30, 2022, there were approximately 800 holders of common stock, including participants in security position listings.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol “AIR.” On June 30, 2023, there were approximately 775 holders of common stock, including participants in security position listings.
The Company’s Fiscal 2022 Proxy Peer Group companies are listed as follows: Aerojet Rocketdyne Holdings, Inc. Kaman Corporation Applied Industrial Technologies, Inc. ​ Moog Inc. Barnes Group Inc. ​ MSC Industrial Direct Co., Inc. CACI International Inc ​ Teledyne Technologies Incorporated Crane Co. ​ The Timken Company Cubic Corporation ​ TriMas Corporation Curtiss-Wright Corporation ​ Triumph Group, Inc.
The Company’s Fiscal 2023 Proxy Peer Group companies are listed as follows: Aerojet Rocketdyne Holdings, Inc. Kaman Corporation Applied Industrial Technologies, Inc. ​ Moog Inc. Barnes Group Inc. ​ MSC Industrial Direct Co., Inc. Crane Co. ​ Spirit Aerosystems Holdings, Inc. * Curtiss-Wright Corporation ​ The Timken Company Ducommun Incorporated * ​ TriMas Corporation Heico Corporation ​ Triumph Group, Inc.
Heico Corporation ​ Woodward, Inc. Hexcel Corporation ​ ​ ​ The Company annually revisits the composition of the peer group to ensure that the Company’s performance is measured against those of comparably-sized and situated companies.
Hexcel Corporation ​ Woodward, Inc. * New peer group companies added for fiscal 2023 due to their business and financial comparability to the Company. ​ 19 Table of Contents Three companies were removed from the prior year’s peer group: Cubic Corporation was acquired, and Teledyne Technologies Incorporated and CACI International Inc were judged to no longer be suitable comparator companies due to their size. ​ The Company annually revisits the composition of the peer group to ensure that the Company’s performance is measured against those of comparably sized and situated companies.
Removed
We did not declare any dividends in fiscal 2022.
Added
We did not declare any dividends in fiscal 2022 or 2023. The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition, capital requirements and strategy and any future government restrictions. ​ ITEM 6. (Reserved) ​
Removed
The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition, capital requirements and strategy and any future government restrictions. ​ Issuer Purchases of Equity Securities The following table provides information about purchases we made during the quarter ended May 31, 2022 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number ​ Approximate ​ ​ ​ ​ ​ ​ ​ of Shares ​ Dollar Value of ​ ​ ​ ​ ​ ​ ​ Purchased as ​ Shares that May ​ ​ ​ ​ ​ ​ ​ Part of Publicly ​ Yet Be ​ ​ Total Number ​ Average ​ Announced ​ Purchased ​ ​ of Shares ​ Price Paid per ​ Plans or ​ Under the Plans Period Purchased Share Programs (1) or Programs (1) 3/1/2022 – 3/31/2022 ​ 62,000 ​ $ 49.04 ​ 62,000 ​ $ 126,814,424 4/1/2022 – 4/30/2022 261,796 ​ 48.82 261,796 ​ 114,033,577 5/1/2022 – 5/31/2022 136,909 ​ 46.53 136,909 ​ 107,663,581 Total 460,705 ​ $ 48.17 460,705 ​ ​ ​ (1) On December 21, 2021, our Board of Directors announced it had authorized a renewal of our stock repurchase program providing for the repurchase of up to $150 million of our common stock, with no expiration date. ​ ITEM 6.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. (Reserved) 19 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures about Market Risk 30 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 31 ​ ​ ​
Biggest changeItem 6. (Reserved) 20 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 31 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

57 edited+36 added−37 removed43 unchanged
Biggest changeAs we continue to invest in the pipeline of opportunities in the government market and maintain our focus on the commercial market recovery, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in those markets. 21 Table of Contents Results of Operations – Fiscal 2022 Compared with Fiscal 2021 Sales and gross profit for our two business segments for the years ended May 31, 2022 and 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2022 2021 % Change Sales: ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 1,081.6 ​ $ 793.9 36.2 % Government and defense ​ 664.2 ​ 759.8 ​ (12.6) % ​ ​ $ 1,745.8 ​ $ 1,553.7 12.4 % Expeditionary Services ​ ​ ​ ​ Commercial ​ $ 2.2 ​ $ 12.5 (82.4) % Government and defense ​ 72.0 ​ 86.1 (16.4) % ​ ​ $ 74.2 ​ $ 98.6 (24.7) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2022 2021 % Change Gross Profit (Loss): ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 180.3 ​ $ 136.2 32.4 % Government and defense ​ 117.2 ​ 127.0 (7.7) % ​ ​ $ 297.5 ​ $ 263.2 13.0 % Expeditionary Services ​ ​ ​ ​ Commercial ​ $ — ​ $ (1.1) nm ​ Government and defense ​ 15.7 ​ 13.8 13.8 % ​ ​ $ 15.7 ​ $ 12.7 23.6 % nm – Percentage change is not meaningful.
Biggest changeResults of Operations – Fiscal 2023 Compared with Fiscal 2022 Sales and gross profit for our two operating segments for the years ended May 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2023 2022 % Change Sales: ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 1,320.5 ​ $ 1,081.6 22.1 % Government and defense ​ 578.2 ​ 664.2 ​ (12.9) % ​ ​ $ 1,898.7 ​ $ 1,745.8 8.8 % Expeditionary Services ​ ​ ​ ​ ​ ​ Commercial ​ $ 8.3 ​ $ 2.2 277.3 % Government and defense ​ 83.5 ​ 72.0 16.0 % ​ ​ $ 91.8 ​ $ 74.2 23.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2023 2022 % Change Gross Profit: ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 248.2 ​ $ 180.3 37.7 % Government and defense ​ 106.9 ​ 117.2 (8.8) % ​ ​ $ 355.1 ​ $ 297.5 19.4 % Expeditionary Services ​ ​ ​ ​ ​ ​ Commercial ​ $ 0.9 ​ $ — n/a ​ Government and defense ​ 14.1 ​ 15.7 (10.2) % ​ ​ $ 15.0 ​ $ 15.7 (4.5) % ​ 22 Table of Contents Aviation Services Segment Sales in the Aviation Services segment increased $152.9 million, or 8.8%, over the prior year due to a $238.9 million, or 22.1%, increase in sales to commercial customers.
In fiscal 2022 and 2021, we utilized the qualitative assessment approach for all reporting units. Under this approach, we considered the overall industry and market conditions related to the aerospace and government/defense markets as well as conditions in the global capital markets.
In fiscal 2023, 2022, and 2021, we utilized the qualitative assessment approach for all reporting units. Under this approach, we considered the overall industry and market conditions related to the aerospace and government/defense markets as well as conditions in the global capital markets.
If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to recognize an impairment loss for the excess carrying value of the reporting unit’s assets. 26 Table of Contents As of May 31, 2022, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and MRO) and one comprised of our Expeditionary Services segment.
If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to recognize an impairment loss for the excess carrying value of the reporting unit’s assets. 26 Table of Contents As of May 31, 2023, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and MRO) and one comprised of our Expeditionary Services segment.
For a discussion of the comparison of fiscal 2021 and 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended May 31, 2021 (filed July 21, 2021).
For a discussion of the comparison of fiscal 2022 and 2021, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended May 31, 2022 (filed July 21, 2022).
We used a broad population of Aa-rated corporate bonds as of May 31, 2022 to determine the discount rate assumption. All bonds were denominated in U.S. Dollars, with a minimum outstanding of $50.0 million.
We used a broad population of Aa-rated corporate bonds as of May 31, 2023 to determine the discount rate assumption. All bonds were denominated in U.S. Dollars, with a minimum outstanding of $50.0 million.
The most significant estimates made by management include those related to assumptions used in assessing goodwill impairment, adjustments to reduce the value of inventories and certain rotable assets, revenue recognition, allowance for credit losses, and assumptions used in determining pension plan obligations. Accordingly, actual results could differ materially from those estimates.
The most significant estimates made by management include those related to assumptions used in accounting for business combinations, assessing goodwill impairment, adjustments to reduce the value of inventories and certain rotable assets, revenue recognition, allowance for credit losses, and assumptions used in determining pension plan obligations. Accordingly, actual results could differ materially from those estimates.
We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers. For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer.
We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers. 27 Table of Contents For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer.
The liabilities and net periodic cost of our pension plans are determined utilizing several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets. 29 Table of Contents We use discount rates to measure our benefit obligation and net periodic benefit cost for our pension plans.
The liabilities and net periodic cost of our pension plans are determined utilizing several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets. We use discount rates to measure our benefit obligation and net periodic benefit cost for our pension plans.
We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. 27 Table of Contents Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer.
We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $19.8 million, or 10.9%, over the prior year primarily due to investments to support the sales growth as our commercial activities continue the recovery from the impact of COVID-19.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $28.2 million, or 13.9%, over the prior year primarily due to investments to support the sales growth as our commercial activities continue the recovery from the impact of COVID-19.
The increase in sales to commercial customers was primarily attributable to increased sales of $99.4 million in our MRO activities and $81.5 million related to new parts distribution activities as commercial passenger air traffic continues to recover from the impact of COVID-19.
The increase in sales to commercial customers was primarily attributable to increased sales of $91.1 million related to new parts distribution activities and $71.4 million in our MRO activities as commercial passenger air traffic continues to recover from the impact of COVID-19.
The total of these instruments outstanding at May 31, 2022 was $23.0 million. Critical Accounting Policies and Significant Estimates Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
The total of these instruments outstanding at May 31, 2023 was $22.7 million. Critical Accounting Policies and Significant Estimates Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead. 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.
Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead. Our chief operating decision making officer (“CODM”) is our Chief Executive Officer and he evaluates performance on our operating segments using gross profit as the primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales.
The term of the Purchase Agreement runs through February 22, 2023, however, the Purchase Agreement may also be terminated earlier under certain circumstances. The term of the Purchase Agreement shall be automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.
The term of the Purchase Agreement runs through February 22, 2024, 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.
The Expeditionary Services segment consists of primarily manufacturing operations with sales derived from the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force including engineering, design, and system integration services for specialized command and control systems.
Cost of sales consists principally of the cost of product, direct labor, and overhead. 20 Table of Contents The Expeditionary Services segment consists of primarily manufacturing operations with sales derived from the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force including engineering, design, and system integration services for specialized command and control systems.
In addition, sales increased $74.0 million in our aftermarket trading activities which included whole asset sales of $66.6 million in fiscal 2022 compared to $20.3 million in the prior year. During fiscal 2022, sales in this segment to government and defense customers decreased $95.6 million, or 12.6%, from the prior year.
In addition, sales increased $43.2 million in our aftermarket trading activities which included whole asset sales of $74.0 million in fiscal 2023 compared to $66.6 million in the prior year. During fiscal 2023, sales in this segment to government and defense customers decreased $86.0 million, or 12.9%, from the prior year.
In fiscal 2022 and 2021, we recognized additional impairment charges of $1.0 million and $1.4 million, respectively, on these assets. Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties.
In conjunction with reclassifying rotable assets as inventory held for sale, we recognized rotable asset impairment charges of $1.0 million and $1.4 million in fiscal 2022 and 2021, respectively. Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties.
The current year also included $42.4 million for the repurchase of 1.0 million shares in conjunction with our stock repurchase program announced in fiscal 2022. 25 Table of Contents Contractual Obligations and Off-Balance Sheet Arrangements A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ Due in ​ Due in ​ Due in ​ Due in ​ Due in ​ After ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Total 2023 2024 2025 2026 2027 2028 On Balance Sheet: ​ ​ ​ ​ ​ ​ ​ Bank borrowings ​ $ 100.0 ​ $ — ​ $ — ​ $ 100.0 ​ $ — ​ $ — ​ $ — Facilities and equipment operating leases ​ 80.2 ​ 13.6 ​ 12.4 ​ 11.0 ​ 9.2 ​ 8.5 ​ 25.5 Interest 1 ​ ​ 5.8 ​ ​ 2.5 ​ ​ 2.5 ​ ​ 0.8 ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Off Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase obligations 2 ​ 506.0 ​ 406.6 ​ 79.3 ​ 17.7 ​ 0.9 ​ 0.7 ​ 0.8 Pension contribution 3 ​ 0.3 ​ 0.3 ​ — ​ — ​ — ​ — ​ — Notes: 1 Interest associated with variable rate debt was determined using the interest rate in effect on May 31, 2022. 2 Purchase obligations arise in the ordinary course of business and represent a binding commitment to acquire inventory, including raw materials, parts, and components, as well as equipment to support the operations of our business. 3 Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits.
Contractual Obligations and Off-Balance Sheet Arrangements A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ Due in ​ Due in ​ Due in ​ Due in ​ Due in ​ After ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Total 2024 2025 2026 2027 2028 2028 On Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ Credit Agreement borrowings ​ $ 272.0 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 272.0 ​ $ — Facilities and equipment operating leases ​ 69.7 ​ 14.5 ​ 12.3 ​ 9.1 ​ 8.4 ​ 7.8 ​ 17.6 Credit Agreement interest 1 ​ ​ 80.5 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 9.7 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Off Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase obligations 2 ​ 540.9 ​ 406.1 ​ 93.4 ​ 34.6 ​ 4.8 ​ — ​ 2.0 Pension contributions 3 ​ 0.4 ​ 0.4 ​ — ​ — ​ — ​ — ​ — Notes: 1 Interest was determined using the interest rate in effect on May 31, 2023. 2 Purchase obligations arise in the ordinary course of business and represent a binding commitment to acquire inventory, including raw materials, parts, and components, as well as equipment to support the operations of our business. 25 Table of Contents 3 Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits.
Cash Flows – Fiscal 2022 Compared with Fiscal 2021 Cash Flows from Operating Activities Net cash provided from operating activities–continuing operations was $89.8 million in fiscal 2022 compared to $108.5 million in fiscal 2021.
Cash Flows – Fiscal 2023 Compared with Fiscal 2022 Cash Flows from Operating Activities Net cash provided by operating activities–continuing operations was $23.8 million in fiscal 2023 compared to $89.8 million in fiscal 2022.
We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms.
Periodically, we may also raise capital through common stock and debt financings in the public or private markets. We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms.
Receivables sold under the Purchase Agreement during fiscal 2022, 2021, and 2020 were $283.3 million, $440.6 million, and $746.4 million, respectively. Amounts remitted to the Purchaser on their behalf during fiscal 2022, 2021, and 2020 were $306.9 million, $476.3 million, and $758.3 million, respectively.
Receivables sold under the Purchase Agreement during fiscal 2023, 2022, and 2021 were $171.6 million, $283.3 million, and $440.6 million, respectively. Amounts remitted to the Purchaser on its behalf during fiscal 2023, 2022, and 2021 were $173.8 million, $306.9 million, and $476.3 million, respectively.
Borrowings outstanding under the Revolving Credit Facility at May 31, 2022 were $100.0 million and there were approximately $11.4 million of outstanding letters of credit, which reduced the availability of this facility to $488.6 million. There are no other terms or covenants limiting the availability of this facility.
Borrowings outstanding under the Revolving Credit Facility under the Credit Agreement at May 31, 2023 were $272.0 million and there were approximately $11.1 million of outstanding letters of credit, which reduced the availability under this facility to $336.9 million as of May 31, 2023. There are no other terms or covenants limiting the availability of the Revolving Credit Facility.
Write-downs are made for excess and obsolete inventories and inventories that have been impaired as a result of industry conditions. We have utilized certain assumptions when determining the market value of inventories, such as inventory quantities and aging, historical sales of inventory, current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap recovery rates.
We have utilized certain assumptions when determining the market value of inventories, such as inventory quantities and aging, historical sales of inventory, current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap recovery rates.
In light of declines in commercial airline volumes and commercial program contract terminations, we evaluated future cash flows related to certain rotable assets supporting long-term programs and recognized asset impairment charges of $2.3 million, $5.8 million, and $1.9 million in fiscal 2022, 2021, and 2020, respectively.
In light of declines in commercial airline volumes and commercial program contract terminations driven by the impact of COVID, we evaluated future cash flows related to certain rotable assets supporting long-term programs and recognized asset impairment charges of $2.3 million and $5.8 million in fiscal 2022 and 2021, respectively. Pension Plans Effective May 31, 2022, our Union and U.S.
Cost of sales in Aviation Services increased $157.8 million, or 12.2%, over the prior year which was largely in line with the sales increase of 12.4% discussed above. 22 Table of Contents Gross profit in the Aviation Services segment increased $34.3 million, or 13.0%, over the prior year.
Cost of sales in Aviation Services increased $95.3 million, or 6.6%, over the prior year which was largely in line with the sales increase of 8.8% discussed above. Gross profit in the Aviation Services segment increased $57.6 million, or 19.4%, over the prior year.
The following is a summary of the accounting policies considered critical by management. Goodwill Under accounting standards for goodwill and other intangible assets, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests.
Goodwill Under accounting standards for goodwill and other intangible assets, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests.
Portions of that inventory are used parts that are often exchanged with parts removed from aircraft or components, and are reworked to a useable condition. We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry.
We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry.
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 segment also includes repair, maintenance and overhaul of aircraft, landing gear and components.
As of May 31, 2022, 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 $9.3 million. On October 18, 2017, we entered into a Credit Agreement with the Canadian Imperial Bank of Commerce, as lender (the “Credit Agreement”).
As of May 31, 2023, 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 $9.2 million. We maintain a Purchase Agreement with Citibank N.A.
The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other items.
We also considered the long-term forecasts for each reporting unit, which incorporated specific opportunities and risks, working capital requirements, and capital expenditure needs. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other items.
As of May 31, 2022 and May 31, 2021, we had collected cash of $5.4 million and $8.4 million, respectively, which was not yet remitted to the Purchaser as of those dates and was classified as Restricted cash on our Consolidated Balance Sheets.
As of May 31, 2023 and May 31, 2022, we had collected cash of $1.3 million and $5.4 million, respectively, which was not yet remitted to the Purchaser as of those dates and was classified as Restricted cash on our Consolidated Balance Sheets. 24 Table of Contents At May 31, 2023, we were in compliance with all financial and other covenants under each of our financing arrangements.
We also considered the long-term forecasts for each reporting unit, which incorporated specific opportunities and risks, working capital requirements, and capital expenditure needs. We concluded it was more likely than not that the fair value of each reporting unit exceeded its carrying value at the respective measurement dates, and thus no impairment charges were recorded in those fiscal years.
We concluded it was more likely than not that the fair value of each reporting unit exceeded its carrying value at the respective measurement dates, and thus no impairment charges were recorded in those fiscal years. Inventories Inventories are valued at the lower of cost or net realizable value.
These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract assets and contract liabilities are determined on a contract-by-contract basis.
Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made.
The majority of our customers are recurring customers with an established payment history. Certain customers are required to undergo an extensive credit check prior to delivery of products or services. We perform regular evaluations of customer payment experience, current financial condition, and risk analysis.
In determining the required allowance, we consider factors such as general and industry-specific economic conditions, customer credit history, and our customers’ current and expected future financial performance. The majority of our customers are recurring customers with an established payment history. Certain customers are required to undergo an extensive credit check prior to delivery of products or services.
Over the long-term, we expect to see strength in our Aviation Services segment given its offerings of value-added services to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
Borrowings outstanding under the Revolving Credit Facility were $272.0 million at May 31, 2023 with an availability on the facility of $336.9 million. Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
We may require collateral in the form of security interests in assets, letters of credit, and/or obligation guarantees from financial institutions for transactions executed on other than normal trade terms. We also maintain trade credit insurance for certain customers to provide coverage, up to a certain limit, in the event of insolvency of some customers.
We perform regular evaluations of customer payment experience, current financial condition, and risk analysis. We may require collateral in the form of security interests in assets, letters of credit, and/or obligation guarantees from financial institutions for transactions executed on other than normal trade terms.
Gross profit margin on sales to government and defense customers increased to 17.6% from 16.7% in the prior year period primarily as a result of the mix of sales. Expeditionary Services Segment Sales in the Expeditionary Services segment decreased $24.4 million, or 24.7%, from the prior year primarily due to reduced volume for our mobility products.
Gross profit in the Expeditionary Services segment decreased $0.7 million, or 4.5%, from the prior year primarily due to changes in the mix of products sold. Gross profit margin decreased to 16.3% from 21.2% in the prior year primarily as a result of changes in the mix of products sold.
When considering these adjustments on a net basis, we recognized favorable cumulative catch-up adjustments of $10.0 million and $12.0 million for fiscal 2022 and 2021, respectively. These adjustments primarily relate to our long-term programs where we provide component inventory management, supply chain logistics programs and/or repair services.
In fiscal 2023, we recognized net favorable cumulative catch-up adjustments of $8.3 million compared to net favorable cumulative catch-up adjustments of $10.0 million in fiscal 2022. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services to commercial customers as well as certain long-term government programs.
The timing and amount of repurchases are subject to prevailing market conditions and other considerations, including our liquidity and acquisition and other investment opportunities. During fiscal 2022, we repurchased 1.0 million shares for $42.4 million. We plan to fully utilize the authorization by December 31, 2023.
No repurchases were made during the three-month period ended May 31, 2023. Since inception of the renewal authorization, we have repurchased 2.2 million shares for an aggregate purchase price of $92.4 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.
At May 31, 2022, we complied with all financial and other covenants under each of our financing arrangements. On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program in which we may repurchase up to $150 million of our common stock with no expiration date.
On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date. During fiscal 2023, we repurchased 1.2 million shares for an aggregate purchase price of $50.1 million.
Allowance for Credit Losses We maintain an allowance for credit losses to reflect the expected uncollectibility of accounts receivable based on past collection history and specific risks identified among uncollected accounts. In determining the required allowance, we consider factors such as general and industry-specific economic conditions, customer credit history, and our customers’ current and expected future financial performance.
Contract assets and contract liabilities are determined on a contract-by-contract basis. Allowance for Credit Losses We maintain an allowance for credit losses to reflect the expected uncollectibility of accounts receivable based on past collection history and specific risks identified among uncollected accounts.
Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of long-lived assets. We recognized a pre-tax asset impairment charge of $11.8 million in fiscal 2020 related to assets included in our COCO business, which is classified as a discontinued operation.
Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result 28 Table of Contents in future impairments of long-lived assets. In our Expeditionary Services segment, we consolidated manufacturing facilities and recognized impairment and related charges of $2.6 million during fiscal 2021.
Our sales to commercial customers in fiscal 2022 increased by $277.4 million, or 34.4%, over the prior year as we were successful in driving sales growth through the uneven recovery from COVID-19. 20 Table of Contents We were also successful in winning new long-term agreements in both our commercial and government markets.
Our sales to government customers in fiscal 2023 decreased by $74.5 million, or 10.1%, from the prior year as we completed certain government programs, including our Afghanistan contracts. We were also successful in winning new long-term agreements in both our commercial and government markets.
Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract.
The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers.
We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer. 28 Table of Contents The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period.
Our reported sales on our Consolidated Statements of Income include sales and related non-income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.
The increase in cash used from the prior period was primarily related to proceeds of $10.0 million from the termination of split-dollar life insurance policies in the prior year. Cash Flows from Financing Activities Net cash used in financing activities–continuing operations was $59.8 million in fiscal 2022 compared to $469.5 million in fiscal 2021.
Cash Flows from Investing Activities Net cash used in investing activities was $138.0 million in fiscal 2023 compared to $16.5 million in fiscal 2022. The increase in cash used from the prior period was primarily related to our acquisition of Trax in the fourth quarter of fiscal 2023.
As a percent of sales, selling, general and administrative expenses increased slightly to 11.1% from 11.0% in the prior year as the benefit from our actions over the last two years to reduce both our fixed and variable cost structure largely offset the investments to support sales growth.
These investments include $7.0 million of acquisition and amortization expenses for Trax which was acquired in the fourth quarter of fiscal 2023. As a percent of sales, selling, general and administrative expenses increased to 11.6% from 11.1% in the prior year largely due to our investments to support sales growth.
Gross profit on sales to government and defense customers decreased $9.8 million, or 7.7%, from the prior year primarily driven by the mix of products and services provided on long-term government programs.
Gross profit on sales to government and defense customers decreased $10.3 million, or 8.8%, from the prior year with the gross profit margin increasing to 18.5% from 17.6%.
Changes in estimates and assumptions related to our programs accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. In fiscal 2022, we recognized favorable and unfavorable cumulative catch-up adjustments of $15.0 million and $5.0 million, respectively, compared to favorable and unfavorable cumulative catch-up adjustments of $16.1 million and $4.1 million, respectively, in fiscal 2021.
The decrease in sales to government and defense customers was primarily attributable to the completion of certain government programs, including Afghanistan contracts. Changes in estimates and assumptions related to our programs accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting.
We are expecting to terminate the Merged U.S. Plan in the next 12-18 months upon the completion of regulatory approvals and the anticipated transfer of the Merged U.S. Plan’s obligations and assets to a third-party. The Merged U.S. Plan is in an overfunded position of $8.9 million and we do not anticipate making any contributions to the Merged U.S.
Plan is in an overfunded position of $8.7 million and we do not anticipate making any contributions to the Merged U.S. Plan in conjunction with the termination. We expect to recognize a non-cash pension settlement charge related to the actuarial losses in Accumulated other comprehensive loss, upon settlement of the obligations of the Merged U.S. Plan.
Pension Plans Our pension plan assets exceed our total projected benefit obligation by $6.0 million as of May 31, 2022. This overfunded position is driven by our U.S. plans where their plan assets exceed their obligations by $5.2 million. Effective May 31, 2022, our Union and U.S. Retirement Plans were merged (collectively, the “Merged U.S. Plan”).
This charge is expected to occur in fiscal 2024, with the specific timing and final amounts dependent upon several factors. Our total pension plan assets exceed our total projected benefit obligation by $4.6 million as of May 31, 2023 with the overfunded position primarily attributable to the Merged U.S. Plan.
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. Business Trends and Outlook Fiscal 2022 began with our focus centered on continuing to navigate the unprecedented decline in commercial passenger flight hours.
The assets and certain expenses related to corporate activities are not allocated to the segments. Our operating segments are aligned principally around differences in products and services. Change in Operating Segments During the first quarter of fiscal 2024, our CODM implemented changes in how he evaluates the business, allocates resources, and assesses performance.
Gross profit in this segment on sales to commercial customers increased $44.1 million, or 32.4%, over the prior year primarily due to the COVID-19 impact discussed above. In addition, gross profit was unfavorably impacted in fiscal 2021 by contract termination, restructuring and loss provision charges of $9.3 million and asset impairment charges of $8.4 million.
Gross profit in this segment on sales to commercial customers increased $67.9 million, or 37.7%, over the prior year primarily due to the COVID-19 recovery discussed above. Gross profit margin on sales to commercial customers increased to 18.8% from 16.7% in the prior year period primarily from our actions to reduce both our fixed and variable cost structure.
Under certain circumstances, we have the ability to request, but our lenders are not required to grant, an increase to the revolving credit commitment by an aggregate amount of up to $300 million, not to exceed $900 million in total.
The Credit Agreement provides for a $620 million unsecured revolving credit facility (the “Revolving Credit Facility”) that we can draw upon for working capital and general corporate purposes. 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 $920 million in total.
Interest Expense Interest expense decreased $2.6 million in fiscal 2022 reflecting the impact of lower average borrowings partially offset by higher average borrowing rates on our Revolving Credit Facility during fiscal 2022. 23 Table of Contents Income Taxes Our fiscal 2022 effective income tax rate for continuing operations was 25.3% compared to 28.2% in the prior year.
Income Taxes Our fiscal 2023 effective income tax rate for continuing operations was 25.9% compared to 25.3% in the prior year.
Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. At May 31, 2022, our liquidity and capital resources included working capital of $659.0 million inclusive of cash of $53.5 million.
Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. In addition to operations, our current capital resources include an unsecured revolving credit facility under the Credit Agreement referred to below and an accounts receivable financing program.
This $365 million, ten-year contract provides for F-16 depot work as well as Service Life Extension Program modifications and maintenance. During fiscal 2022, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $89.8 million.
During fiscal 2023, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $23.8 million which included significant investments in inventory, rotable assets, and licensing arrangements to support further growth.
Removed
We maintained our strategy of leveraging our efficiency gains, optimized portfolio and strong balance sheet to drive growth and margin expansion through the recovery in our commercial markets from the impact of COVID-19.
Added
Specifically, this new structure results in the separation of our Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering and Integrated Solutions.
Removed
We were awarded an exclusive distribution agreement with Collins Aerospace’s Goodrich De-Icing & Specialty Heating Systems business. Under the agreement, we provide airlines, business jet and other aircraft operators as well as MROs globally with de-icers and supporting products.
Added
Beginning with the first quarter of fiscal 2024, we will report under this new structure using the following four operating segments: ● Parts Supply, primarily consisting of our sales of used serviceable engine and airframe parts and components and distribution of new parts; ● Repair & Engineering, primarily consisting of our maintenance, repair, and overhaul services across airframes and components, including landing gear; ● Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S.
Removed
We also were awarded a five-year renewal of our power-by-the-hour component pool and repair support program for flydubai’s fleet of 33 Boeing 737NG aircraft. Our sales to government customers in fiscal 2022 decreased by $109.7 million, or 13.0%, from the prior year as we were impacted by the U.S. exit from Afghanistan and certain programs coming to a natural completion.
Added
Department of Defense (“DoD”) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions including Trax; and ● Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.
Removed
The operations related to our activities in Afghanistan contributed revenue of $67 million and $43 million in fiscal 2021 and fiscal 2022, respectively. During fiscal 2022, we were awarded a firm fixed price, indefinite delivery/indefinite quantity contract from the Air Force to support United States Air Forces in Europe (“USAFE”) F-16 aircraft.
Added
In conjunction with the re-alignment, our CODM will evaluate each segment’s performance based on operating income instead of gross profit as the CODM believes operating income is a more comprehensive profitability measure for each operating segment.
Removed
Borrowings outstanding under the Revolving Credit Facility were $100.0 million at May 31, 2022 with an availability on the facility of $488.6 million. Our long-term strategy also emphasizes the return of capital to shareholders. In December 2021, our Board of Directors authorized a renewal of our stock repurchase program.
Added
These changes will be initially reflected in our condensed consolidated financial statements for the quarterly period ended August 31, 2023 and are not reflected herein. Business Trends and Outlook In fiscal 2023, we established new partnerships, expanded our service offerings, and enhanced our approach to safety to best serve our customers across the world.
Removed
The authorization has no expiration date and permits the Company to repurchase up to $150 million of our common stock. We were able to return capital to shareholders through common stock repurchases of $42.4 million during fiscal 2022 and expect to fully utilize the authorization by the end of calendar 2023.
Added
The global recovery in air travel drove an increased demand for our services, enabling us to achieve strong results across our portfolio, particularly in used serviceable material and new parts distribution. Our actions to reduce costs and improve operating efficiency were reflected in our improved profitability during fiscal 2023.
Removed
Aviation Services Segment Sales in the Aviation Services segment increased $192.1 million, or 12.4%, over the prior year due to a $287.7 million, or 36.2%, increase in sales to commercial customers.
Added
Our sales to commercial customers in fiscal 2023 increased by $245.0 million, or 22.6%, over the prior year reflecting the recovery in commercial air travel following the height of the impact of COVID-19 as well as growth from recently awarded new parts distribution contracts.
Removed
The decrease in sales to government and defense customers was primarily attributable to the timing of activities for the C-40 aircraft we are delivering to the Naval Air Systems Command in support of the U.S. Marine Corps.
Added
We were awarded a significant expansion of our exclusive agreement with Unison Industries which broadens our distribution of select Unison ignitor plugs, ignition leads, harnesses, and related spare parts. We also extended our distribution relationship with Leach International Corp to supply electromechanical and solid-state switch gears to the electronics end-market.
Removed
The prior year included sales of $39.5 million related to the installation of engines on the aircraft while no engine installation activities occurred in fiscal 2022. The remainder of the decrease in sales from the prior year relates to the natural completion of certain programs, including Afghanistan contracts, partially offset by growth from new programs.
Added
In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with flydubai for their growing Boeing 737 MAX fleet. 21 Table of Contents In our government market, we were awarded a firm-fixed price contract from the U.S.
Removed
These items were more than offset by a benefit in fiscal 2021 of $53.8 million in government workforce subsidies from the Payroll Support Program in the CARES Act and other subsidies provided by foreign governments.
Added
Air Force to produce Next Generation All Aluminum Cargo Pallets with a total contract value, including option periods, of $173.5 million. We were also awarded a contract from the Norwegian Defence Logistics Organisation to provide commercial common parts for the Royal Norwegian Air Force P-8A fleet. During the fourth quarter of fiscal 2023, we acquired Trax USA Corp.
Removed
Gross profit margin on sales to commercial customers decreased to 16.7% from 17.2% in the prior year period primarily due to the impact of the subsidies in the prior year period more than offsetting the volume recovery in fiscal 2022.
Added
(“Trax”), a leading independent provider of aircraft MRO and fleet management software which was founded in 1999. The acquisition price was $120 million in cash, plus up to a $20 million earn-out payment based on adjusted revenue in calendar year 2023 and 2024.
Removed
In addition, we divested our composites manufacturing business in the first quarter of fiscal 2021 and the business contributed sales of $6.7 million in fiscal 2021 prior to the sale.

… 50 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+1 added−1 removed1 unchanged
Biggest changeWe are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. A 10 percent increase in the average interest rate affecting our financial instruments, including the average outstanding balance of our debt obligations would not have had a significant impact on our pre-tax income during fiscal 2022.
Biggest changeA 10 percent increase in the average interest rate affecting our financial instruments, including the average outstanding balance of our debt obligations would not have had a significant impact on our pre-tax income during fiscal 2023. 29 Table of Contents Revenues and expenses of our foreign operations are translated at average exchange rates during the year, and balance sheet accounts are translated at year-end exchange rates.
A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations during fiscal 2022. ​ 30 Table of Contents
Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations during fiscal 2023. ​ 30 Table of Contents
Removed
Revenues and expenses of our foreign operations are translated at average exchange rates during the year, and balance sheet accounts are translated at year-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss.
Added
We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates.

Other AIR 10-K year-over-year comparisons