10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2020 or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                 to                

Commission file number 1-6263

AAR CORP.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 36-2334820
(I.R.S. Employer Identification No.)

One AAR Place, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (630) 227-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $1.00 par value	AIR	New York Stock Exchange
		Chicago Stock Exchange
Preferred Stock Purchase Rights	AIR	New York Stock Exchange
		Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-Accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period prior to complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ◻  

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ⌧

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

The aggregate market value of the registrant’s voting stock held by nonaffiliates was approximately $1,474 million (based upon the closing price of the Common Stock at November 29, 2019 as reported on the New York Stock Exchange).

On June 30, 2020, there were 35,155,371 shares of Common Stock outstanding.

Documents Incorporated by Reference

Portions of the Company’s proxy statement for the Company’s 2020 Annual Meeting of Stockholders, to be held October 7, 2020, are incorporated by reference in Part III of this report.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15
	Supplemental Item – Executive Officers of the Registrant	16
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	76
Item 9A.	Controls and Procedures	76
Item 9B.	Other Information	79
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	79
Item 11.	Executive Compensation	79
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 13.	Certain Relationships and Related Transactions, and Director Independence	79
Item 14.	Principal Accountant Fees and Services	80
PART IV
Item 15.	Exhibits and Financial Statement Schedules	80
EXHIBIT INDEX
Item 16.	Form 10-K Summary	86
SIGNATURES

PART I

ITEM 1.BUSINESS

General

AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our” unless the context indicates otherwise.  AAR was founded in 1951, organized in 1955 and reincorporated in Delaware in 1966.  We are a diversified provider of products and services to the worldwide aviation and government and defense markets.

Fiscal 2020 began with strategic initiatives focused on growth and execution across all of our activities in the commercial and government markets.  Our momentum from a successful fiscal 2019 carried into the new year as we saw continued strength in our parts supply activities, as well as in government programs.  We also realized the positive impact our efforts to attract and retain talent had in our maintenance, repair and overhaul (“MRO”) activities.

We succeeded in enhancing customer relationships with multiple commercial and government customers.  In fiscal 2020, we were awarded a new $118 million contract from the Naval Air Systems Command in support of the U.S. Marine Corps for the procurement, modification and delivery of two C-40 aircraft.  This award demonstrates the power of our integrated services model by combining the strengths of our parts supply, government programs, MRO, and engineering teams to deliver a creative solution to the U.S. Marine Corps.

We were also awarded new long-term contracts across our parts supply activities including multiple distribution agreements for new parts and our largest commercial agreement in Japan to date covering aftermarket engine components.  Our strategy to exit the capital-intensive Contractor-Owned, Contractor-Operated (“COCO”) business was also completed in fiscal 2020 as all of its assets and contracts were sold.

As we continued to successfully execute on our recent contract awards over the last few years, we achieved strong sales growth through the first nine months of fiscal 2020 and were on track for a record year.  Sales had increased $166.4 million or 11.2% over the prior year period primarily due to an increase in sales of $175.5 million or 12.5% in our Aviation Services segment reflecting the growth from new contract awards and successful execution across our Aviation Services activities.

Upon entering the fourth quarter in March, we began to see the impact of the COVID-19 pandemic on the commercial aviation industry.  In response to the impact from COVID-19, we implemented significant actions to reduce fixed costs and overhead which included a freeze on new hiring, reducing or eliminating all non-essential spend, reducing compensation and benefits, furloughs, a reduction in force, and closure of an airframe maintenance facility.  During the fourth quarter, we also exited underperforming contracts and assets across our operations and decided to exit our joint venture investment in a Malaysian landing gear wheel and brake facility.  Additionally, in June 2020, we decided to sell our composites manufacturing business which is consistent with our multi-year strategy to focus our portfolio on our core services offerings.

We have also taken actions to preserve flexibility in our liquidity.  In the fourth quarter, we elected to draw down our remaining available borrowings under our Revolving Credit Facility with the majority of that additional funding remaining in our cash accounts.  We elected to borrow these additional amounts as a precautionary measure in light of economic and market uncertainty presented by COVID-19.

Over the long-term, we expect to see continued 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 although there is uncertainty in certain fleet types as commercial operators re-evaluate their structure.  Our results of operations are affected by the amount of commercial aircraft flying and flight hours. The current COVID-19 pandemic has decreased the amount of commercial aircraft flying and flight hours and has created significant economic disruption.

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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 2020, 2019, and 2018.  In this segment, we also provide inventory management and distribution services, MRO, and engineering services.  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.

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 types of services provided under these programs include some or all of the following functions: material planning, sourcing, logistics, information and program management, and parts and component repair and overhaul.  We are also an authorized distributor for more than 30 product lines which include parts from over 300 Federal Supply Class codes, which we source 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 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.  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 provide major airframe inspection, maintenance, repair and overhaul, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment, and engineering services and support for many types of commercial and military aircraft.  We also repair and overhaul various components, landing gears, wheels, and brakes for commercial and military aircraft.

We operate six airframe maintenance facilities and one landing gear overhaul facility.  Our landing gear overhaul facility is in Miami, Florida, where we repair and overhaul landing gear, wheels, brakes, and actuators for different types of commercial and military aircraft.  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 the fourth quarter of fiscal 2020, we announced our decision to close our airframe maintenance hangar in Duluth, Minnesota as the facility was only supporting a single customer and its location was not convenient for many of our customers' route networks. We recognized pretax closure costs of $4.3 million in the fourth quarter primarily related to severance costs  and asset impairment charges.  

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. The facility construction is expected to be completed in fiscal 2021.

The majority of our product sales are made pursuant to standard commercial purchase orders.  Government sales are generally made under standard types of government contracts, which can include firm fixed-price contracts, cost plus fixed fee contracts, and time-and-materials contracts.  For cost plus fixed fee contracts, we typically receive reimbursement of our costs, to the extent the costs are allowable under contractual and regulatory provisions, in addition to receiving a fixed fee.  Some of our contracts call for the performance of specified services or the delivery of specified products under indefinite delivery/indefinite quantity (“ID/IQ”) arrangements.  Certain inventory supply and management and performance-based logistics program agreements reflect negotiated terms and conditions.

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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 have ongoing arrangements with OEMs that provide us access to parts, repair manuals, and service bulletins in support of parts manufactured by them.  Although the terms of each arrangement vary, they typically are made on standard OEM terms as to duration, price, and delivery.  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.

Expeditionary Services

The Expeditionary Services segment primarily consists of businesses that provide 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 2020, 2019, and 2018.  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.  The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters.  Shelters include both stationary and vehicle-mounted applications.We also provide engineering, design, and system integration services for specialized command and control systems.

We also design and manufacture advanced composite materials for commercial, business and military aircraft (“Composites”).  On June 23, 2020, we entered into a definitive agreement to sell our Composites business as this divestiture is consistent with our multi-year strategy to focus our portfolio on our core services offerings.  We expect the sale to close in the third quarter of calendar 2020 and will recognize a charge in the first quarter of fiscal 2021 of approximately $20 million in conjunction with the transaction.

Sales in this segment are generally made to customers pursuant to standard commercial purchase orders and contracts.  Government sales are generally made under standard types of government contracts, which can include firm fixed-price contracts, cost plus fixed fee contracts, and time-and-materials contracts.  Some of our contracts call for the performance of specified services or the delivery of specified products under ID/IQ arrangements, however, the majority of our products and services are procured via definite contracts.

Raw Materials

Although we generated approximately 55% of our fiscal 2020 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 purchase raw materials for our manufacturing operations, including steel, aluminum, extrusions, balsa, and other necessary supplies from several vendors.  Where necessary, we have been able to obtain raw materials and other inventory items from numerous sources for each segment at competitive prices, terms, and conditions, and we expect to be able to continue to do so.

Terms of Sale

We generally sell our products and services under standard 30-day payment terms.  On occasion, certain customers will negotiate extended payment terms of 60-90 days.  Except for customary warranty provisions, customers neither have the right to return products nor do they have the right to extended financing.  Our government contracts may extend several years and include one or more base years and one or more option years.  The government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, or modify some contracts at its convenience.

Customers

The principal customers for our products and services in the Aviation Services segment are domestic and foreign passenger airlines, domestic and foreign cargo airlines, regional and commuter airlines, business and general aviation operators, OEMs, aircraft leasing companies, aftermarket aviation support companies, the DoD and its contractors, the DoS, and foreign military organizations or governments.  In the Expeditionary Services segment, our principal customers include the DoD and its contractors, foreign military organizations or governments, defense organizations, and OEMs.

4

Sales of aviation products and services to our commercial airline customers are generally affected by such factors as the number, type and average age of aircraft in service, the levels of aircraft utilization (e.g., frequency of schedules, flying hours, and take-off and landing cycles), the number of airline operators, the general economy, and the level of sales of new and used aircraft. 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.  In certain markets outside of the United States, we rely on foreign sales representatives to assist in the sale of our products and services.

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 $778.8 million (37.6% of consolidated sales), $677.9 million (33.0% of consolidated sales) and $428.9 million (24.5% of consolidated sales) in fiscal 2020, 2019 and 2018, respectively.  Sales to branches, agencies, and departments of the U.S. government and their contractors were $668.2 million (32.2% of consolidated sales), $546.2 million (26.6% of consolidated sales) and $304.3 million (17.4% of consolidated sales) in fiscal 2020, 2019, and 2018, respectively.

Sales to government and defense customers are reported in each of our reportable segments (See Note 14 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.  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.  Our government contracts are also often subject to termination for convenience by the customer; in the event of such a termination, we are contractually entitled to recover all allowable costs incurred by us through the date of termination.

Government Regulation and Certificates

The Federal Aviation Administration (“FAA”) regulates the manufacture, repair, and operation of all aircraft and aircraft parts operated in the United States.  Similar rules and regulatory authorities exist in other countries.  The inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by these regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians.  The FAA requires that various maintenance routines be performed on aircraft engines, certain engine parts, and airframes at regular intervals based on take off and landing cycles or flight time.  Our businesses, which sell defense products and services directly to the U.S. government or through its contractors, can be subject to various laws and regulations governing pricing and other factors.

We have 12 FAA certificated repair stations in the United States, Canada, and Europe.  Of the 12 certificated FAA repair stations, seven are also European Aviation Safety Agency (“EASA”) and three are also Transport Canada Civil Aviation (“TCCA”) certificated repair stations.  Such certificates, which are ongoing in duration, are required for us to perform authorized maintenance, repair, and overhaul services for our customers and are subject to revocation by the government for non-compliance with applicable regulations.  Of the 12 FAA certificated repair stations, 11 are in the Aviation Services segment and one is held by Composites included in our Expeditionary Services segment, which is expected to be sold in third quarter of calendar 2020.  The EASA and TCCA certificated repair stations are in the Aviation Services segment.  We also have a FAR Part 135 certificate to operate aircraft, although the certificate is not active.  We believe that we possess all licenses and certifications that are material to the conduct of our business.

Competition

Competition in each of our markets is based on quality, ability to provide a broad range of products and services, speed of delivery, and price.  Competitors in our Aviation Services segment include OEMs, the service divisions of large commercial airlines, and other independent suppliers of parts, repair, and overhaul services to the commercial and defense markets.  Our Expeditionary Services segment competes with a number of divisions of large corporations and other large and small companies.  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.

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Backlog

Backlog represents the amount of revenue that we expect to derive from unshipped orders or signed 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, 2020. Backlog excludes unexercised contract options and potential orders under contracts such as ID/IQ contracts.

At May 31, 2020, our firm backlog was approximately $1.0 billion and we expect that approximately 50% of this backlog will be recognized as revenue over the next 12 months, with the majority of the remaining balance recognized as revenue over the next three years.

Employees

At May 31, 2020, we employed approximately 5,400 employees worldwide, with approximately 1,200 of these employees on furlough as of that date due to our actions to mitigate the impact from COVID-19.  Approximately 200 of our employees are subject to a collective bargaining agreement.  We also retained approximately 170 contract workers as of May 31, 2020, the majority of whom are located at 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 demand variability with our customers.

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 14 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Our internet address is www.aarcorp.com.  We make available free of charge through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.  Information contained on our web site is not a part of this report.

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ITEM 1A.RISK FACTORS

The following is a description of the principal risks inherent in our business.

We are affected by factors that adversely impact the commercial aviation industry.

As a provider of products and services to the commercial aviation industry, we are greatly affected by overall economic conditions of that industry. The commercial aviation industry is historically cyclical and has been negatively affected in the past by geopolitical events, high fuel and oil prices, lack of capital, and weak economic conditions. As a result of these and other events, from time to time certain of our customers have filed for bankruptcy protection or ceased operation.  The impact of instability in the global financial markets may lead airlines to reduce domestic or international capacity.  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. 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.  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.

Our business, financial condition, results of operations, and growth rates may 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;

● future outbreaks of infectious diseases; and

● acts of God.

The coronavirus pandemic has had a material adverse impact on the Company’s business, operating results, financial condition, and liquidity, and the duration and extent of the pandemic could prolong or increase the adverse impact.

In December 2019, an outbreak of COVID-19 originated in Wuhan, China, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic.  Many countries, including the United States, have declared states of emergency and taken steps to restrict air travel, and many companies have adopted policies prohibiting non-essential business travel by their employees.  Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion has adversely affected travel demand and travel behavior.  Passenger airline traffic has declined significantly since March 2020, and the decrease had a material negative impact on the financial results for the fourth quarter of fiscal 2020.  We expect to continue to see reduced demand in our non-cargo commercial businesses.  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.  Reduced numbers of aircraft flying or flight hours negatively impacts the demand for our services, and any prolonged reduction could materially and adversely affect our business, operating results, financial condition, and liquidity.

7

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. 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. Any of these could have a material adverse effect on our business, financial condition or results of operations.

The Company has taken a number of actions in response to decreased demand. In addition to reducing operating expenditures for fiscal 2021 (including by implementing furloughs, eliminating certain employee and contractor positions, temporarily reducing senior employee and director compensation, consolidating facilities and eliminating non-essential spending), we have taken steps to improve our liquidity, including drawing down our Revolving Credit Facility and seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  Certain subsidiaries of the Company have been approved to receive $57.2 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program under the CARES Act. In connection with the financial assistance these subsidiaries expect to receive under the Payroll Support Program, they will be required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits; the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits  from the signing date of the Payroll Support Program agreement through September 30, 2020. In addition, those subsidiaries and the Company would be subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2021; and limitations on the payment of certain employee compensation through March 24, 2022. These restrictions will materially affect the Company’s operations, and the Company may not be successful in managing these impacts for the duration of the restrictions. In particular, limitations on compensation may adversely impact the Company's ability to attract and retain senior management or attract other key employees during this critical time.  Although the Company has submitted what it believes to be final CARES Act documents to Treasury for counter signature, we can provide no assurance as to the final timing, terms or receipt of any funds.

In addition, we cannot predict the impact that COVID-19 will have on our customers, suppliers, vendors, and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us.  The impact of COVID-19 may also exacerbate other risks discussed in this “Risk Factors” section, any of which could have a material effect on us.

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 $668.2 million (32.2% of consolidated sales) in fiscal 2020 (See Note 14 of Notes to Consolidated Financial Statements).  The majority of our U.S. government sales is for products and services supporting DoD logistics and mobility strategy and DoS flight operations and are, therefore, subject to changes in defense and other governmental agency funding and spending.  Our contracts with the U.S. government and their contractors are typically agreements to provide products and services at a fixed price and have a term of one year or less, frequently subject to extension for one or more additional periods of one year at the option of the government customer. Sales to agencies of the U.S. government and their contractors are subject to a number of factors, including the level of troop deployment worldwide, competitive bidding, U.S. government funding, requirements generated by world events, and budgetary constraints.

U.S. government programs are subject to annual congressional budget authorization and appropriation processes.  In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation, including the statutory limit on the amount of permissible federal debt. These issues could negatively affect the timely collection of our U.S. government invoices.

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.

8

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.  Future budget cuts, including cuts mandated by sequestration, or future procurement decisions could result in reductions, cancellations, and/or delays of existing contracts or programs which could adversely affect our results of operations and financial condition.

In light of COVID-19, and the corresponding decrease in commercial airline activity, we anticipate that the percentage of our revenue that comes from government contracts will increase and become more important to our overall business, which would heighten the adverse effects on our results of operations and financial condition of any reduction in the sales levels of our U.S. government contracts.

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. In the U.S., these laws and regulations include the Federal Acquisition Regulations, Defense Federal Acquisition Regulations, the Truth in Negotiations Act, Cost Accounting Standards, and laws, regulations, and orders restricting the use and dissemination of classified information under the U.S. export control laws and the export of certain products and technical information and safeguarding of contractor information systems.

In addition, we are subject to U.S. government inquiries and investigations, including periodic audits of costs that we determine are reimbursable under government contracts. U.S. government agencies routinely audit government contractors to review performance under contracts, cost structure and compliance with applicable laws, regulations, and standards, as well as the adequacy of and compliance with internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. 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.

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. 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 government inquiry or investigation uncovers improper or illegal activities, we could be subject to civil or criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with government agencies, any of which could materially adversely affect our reputation, business, financial condition and results of operations. See Note 15 of Notes to Consolidated Financial Statements for information about certain pending proceedings.

We use estimates when accounting for long-term contracts and face risks of cost overruns and losses on these contracts.

We sell certain of our products and services to our commercial, government, and defense customers under firm contracts providing for fixed unit prices, regardless of costs incurred by us.  The cost of producing products or providing 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.  Increased costs may result in cost overruns and losses on such contracts, which could adversely affect our results of operations and financial condition.

We recognize revenue on our long-term contracts primarily over time as there is continuous transfer of control to the customer over the duration of the contract as the services are delivered, which generally requires estimates of total costs at completion, fees earned on the contract, or both. This estimation process is complex and involves significant judgment related to assumptions on flight hours, component repair costs, labor hours and rates, and contract penalties and incentives.  Adjustments to estimates are often required as work progresses, experience is gained and additional information becomes known, even though the scope of the work required under the contract may not change. 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.

9

If our subcontractors or suppliers fail to perform their contractual obligations, our contract profitability and our ability to win new contracts may be adversely affected.

We rely on subcontractors to perform a portion of the services we agree to provide our customers, and our suppliers provide necessary inventory and component parts. A failure by one or more of our subcontractors or suppliers to satisfactorily provide on a timely basis the agreed-upon services or supplies may affect our ability to perform our contractual obligations.  Deficiencies in the performance of our subcontractors and/or suppliers could result in liquidated damages or our customer terminating our contract for default. A termination for default could expose us to liability and adversely affect our financial performance and our ability to win new contract awards.

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. Before we sell any of our products that are to be installed in an aircraft, such as engines, engine parts and components, and airframe and accessory parts and components, they must meet certain standards of airworthiness established by the FAA or the equivalent regulatory agencies in certain other countries. We operate repair stations that are licensed by the FAA and the equivalent regulatory agencies in certain other countries, and hold certificates to operate aircraft. Specific regulations vary from country to country; although regulatory requirements in other countries are generally satisfied by compliance with FAA requirements. New and more stringent governmental regulations may be adopted in the future that, if enacted, may have an adverse impact on us.

If any of our material licenses, certificates, authorizations, or approvals were revoked or suspended by the FAA or equivalent regulatory agencies in other countries, our results of operations and financial condition may be adversely affected.

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.  Revenues at these facilities fluctuate based on demand for maintenance which, in turn, is driven by the number of aircraft operating and the extent of outsourcing of maintenance activities by airlines.  In addition, certain airlines operate certain new fleet types and/or newer generation aircraft and we may not have contractual arrangements to service these aircraft nor technicians trained and certified to perform the required airframe maintenance, repair, and overhaul activities.  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.

Our operations would 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. Furthermore, we have a collective bargaining agreement covering approximately 200 employees. Beginning in April 2020, we furloughed a significant portion of our skilled workforce as a result of the negative impact the COVID-19 pandemic has had on the demand for our services. Although we are taking measures to maintain good relationships with our workforce, including by paying the employer and employee portion of the furloughed employees’ health insurance costs, there can be no assurance that the act of furloughing our employees will not damage employee relations or cause employees to seek work elsewhere. Should the demand for skilled personnel return to pre-COVID-19 levels, and if we are unable to quickly reassemble our skilled workforce and subsequently retain a sufficient number of skilled personnel, 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.

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.  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.  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.

10

Our government customers, including the DoD and DoS, may turn to commercial contractors, rather than traditional defense contractors, for certain work, or may utilize set asides such as small business, women-owned, or minority-owned contractors or determine to source work internally rather than use us.  We are also impacted by bid protests from unsuccessful bidders on new program awards and task orders.  Bid protests could result in significant expense for us, contract modifications, or the award decision being overturned and loss of the contract award. Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, and delay earnings.  These competitive pressures, with potential impacts on both our commercial and government business, could adversely affect our results of operations and financial condition.

We are exposed to risks associated with operating internationally.

We conduct our business in a number of foreign countries, some of which are politically unstable or subject to military or civil conflicts.  Consequently, we are subject to a variety of risks that are specific to international operations, including the following:

● military conflicts, civil strife, and political risks;

● export regulations that could erode profit margins or restrict exports;

● compliance with the U.S. Foreign Corrupt Practices Act, United Kingdom (“UK”) Bribery Act 2010, and other anti-bribery and anti-corruption laws; see Note 15 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, including the inability to move personnel out of foreign jurisdictions due 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.

On January 31, 2020, the UK officially exited the European Union (“EU”) and entered a transition period during which it remains bound by EU rules and trade policy. There is significant uncertainty regarding the terms and the future relationship between the UK and the EU following the transition period. Potential adverse consequences of the UK’s exit include global market uncertainty, volatility in currency exchange rates, greater restrictions on imports and exports between the UK and other countries and increased regulatory complexities.

While we have adopted and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of doing business internationally, such measures 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.

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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 few years 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. 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.

Market values for our aviation products fluctuate and we may be unable to recover our costs incurred on engines, rotable components and other aircraft parts.

We make a number of assumptions when determining the recoverability of rotable components, engines, and other assets which are on lease, available for lease, or supporting our long-term programs. These assumptions include historical sales trends, current and expected usage trends, replacement values, current and expected lease rates, residual values, future demand, and future cash flows.  Reductions in demand for these assets or declining market values, as well as differences between actual results and the assumptions utilized by us when determining the recoverability of our aircraft, engines, and other assets, could result in impairment charges in future periods, which would adversely affect our results of operations and financial condition.

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.  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, 2019, and 2018, we recognized impairment charges of $11.8 million, $74.1 million, and $54.2 million, respectively, related to our COCO business which is classified as a discontinued operation.  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. We recognized impairment charges of $11.0 million in fiscal 2020 related to the exit of certain product lines across our operations.

We make a number of assumptions when determining the recoverability of our assets, including historical sales trends, current and expected usage trends, replacement values, current and expected lease rates, residual values, future demand, and future cash flows.  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.  If we are unable to achieve the projected levels of operating results, it may be necessary to record an impairment charge to reduce the carrying value of goodwill and related intangible assets. During the third quarter of fiscal 2018, we recognized a goodwill impairment charge of $9.8 million related to our COCO business.  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.

We are dependent upon continued availability of financing to manage our business and to execute our business strategy, and additional financing may not be available on terms acceptable to us.

Our ability to manage our business and to execute our business strategy is dependent, in part, on the continued availability of debt and equity capital. 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. Our inability to obtain financing on favorable terms could adversely affect our results of operations and financial condition.

12

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. Interest rates under our Revolving Credit Facility (as defined below) are based partly on LIBOR. LIBOR is currently expected to phase out by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. 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.  If the method for calculation of LIBOR changes, if LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our borrowings. Further, we may need to renegotiate our credit facilities or any other borrowings that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established.

Our existing debt and expected government funding includes restrictive and/or financial covenants.

Certain financing arrangements, including our Revolving Credit Facility and our accounts receivable financing program, require us to comply with various restrictive covenants and some contain financial covenants that require us to comply with specified financial ratios and tests.  Our failure to meet these covenants could result in default under these loan and debt agreements and may result in a cross-default under other debt agreements. In the event of a default and our inability to obtain a waiver of the default, all amounts outstanding under our debt agreements could be declared immediately due and payable. Our failure to comply with these covenants could adversely affect our results of operations and financial condition.

In addition, our expected receipt of funding under Payroll Support Program under the CARES Act would require us to comply with certain covenants. If we do not comply with these covenants, the government may require us to repay the support given to us.

We may not be able to pay or maintain dividends, or we may choose not to pay dividends, and the failure to pay or maintain dividends may adversely affect our share price.

On March 17, 2020, our Board of Directors declared a regular quarterly dividend of $0.075 per share, or an aggregate of $2.6 million, which was paid on April 9, 2020 to holders of record on March 30, 2020.  This dividend may not be indicative of the amount of any future quarterly dividends.  Specifically, the Payroll Support Program under the CARES Act prohibits the Company from paying stock dividends through September 30, 2021, accordingly no dividend will be paid by the Company prior to that time assuming the receipt of funding.

After the restrictions on paying the dividend under the CARES Act lapse, our ability to pay, maintain or increase cash dividends to our stockholders is subject to the discretion of our Board of Directors and will depend on many factors, including: our ability to comply with financial covenants, the economic condition of the commercial aviation industry, the level and timing of capital expenditures, principal repayments and other capital needs, maintaining our credit ratings, our results of operations, financial condition and liquidity, and legal restrictions on the payment of dividends, including government imposed restrictions.  In the future, we may choose to not pay dividends or may not be able to pay dividends, maintain our current level of dividends, or increase them over time. The failure to maintain or pay dividends may adversely affect our share price.

Our industry is susceptible to product and other liability claims, and claims not adequately covered by insurance may adversely affect our financial condition.

Our business exposes us to possible claims for property damage and bodily injury or death, which may result if an engine, engine part or component, airframe part or accessory, or any other aviation product that we have sold, manufactured, or repaired fails, or if an aircraft we operated, serviced, or in which our products are installed, has an accident.  We carry substantial liability insurance in amounts that we believe are adequate for our risk exposure and commensurate with industry norms. However, claims may arise in the future, and our insurance coverage may not be adequate to protect us in all circumstances. Additionally, we might not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability claim not covered by adequate insurance could adversely affect our results of operations and financial condition.

13

Our business could be negatively affected by cyber or other security threats or other disruptions.

Our business depends heavily on information technology and computerized systems to communicate and operate effectively. The Company's systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyber threats, ransomware attacks, terrorist acts, natural disasters, power failures or other causes.  These threats arise in some cases as a result of our role as a defense contractor.

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.

The procedures and controls we utilize to monitor and mitigate these threats may not be sufficient to prevent security threats from materializing. If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could have a material adverse effect on our reputation, operating results, and financial condition.

Moreover, expenditures incurred in implementing and maintaining cyber security and other procedures and controls could adversely affect our results of operations and financial condition.

We must comply with extensive environmental requirements, and any exposure to environmental liabilities may adversely affect us.

Federal, state, and local requirements relating to the discharge and emission of substances into the environment, the disposal of hazardous wastes, the remediation and abatement of contaminants, and other activities affecting the environment have had and may continue to have an impact on our operations. Management cannot assess the possible effect of compliance with future environmental requirements or of future environmental claims for which we may not have adequate indemnification or insurance coverage. 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.

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. Actions may be taken in the future by the U.S. government, state governments within the United States, foreign governments, or the International Civil Aviation Organization to regulate the emission of greenhouse gases by the aviation industry. The precise nature of any such requirements and their applicability to us and our customers are difficult to predict, but the impact to us and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits.

We may need to make significant capital expenditures to keep pace with technological developments in our industry.

The industries in which we participate are constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul services will be introduced in the future. We may need to make significant expenditures to purchase new equipment and to train our employees to keep pace with any new technological developments. These expenditures could adversely affect our results of operations and financial condition.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM 2.PROPERTIES

In the Aviation Services segment, we conduct parts supply activities from our headquarters in Wood Dale, Illinois, which we own.  In addition to warehouse space, this facility includes executive, sales and administrative offices.  Our principal maintenance, repair, overhaul, engineering and other service activities for this segment are conducted at U.S. facilities leased by us in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; Medley, Florida; and Rockford, Illinois and at Canadian facilities leased by us in Trois Rivieres, Quebec and Windsor, Ontario.

We also lease facilities in Garden City, New York; Jacksonville, Florida; Palm Bay, Florida; Rockledge, Florida; Brussels, Belgium; London, England; and Crawley, England, and own a building near Schiphol International Airport in the Netherlands to support activities in the Aviation Services segment.

Our principal activities in the Expeditionary Services segment are conducted at facilities we lease in Huntsville, Alabama and Sacramento, California and own in Cadillac, Michigan and Clearwater, Florida.

We also operate sales offices that support all our activities and are leased in London, England; Crawley, England; Paris, France; Rio de Janeiro, Brazil; Tokyo, Japan; Shanghai, China; Singapore, Republic of Singapore; and Dubai, UAE.

We believe that our owned and leased facilities are suitable and adequate for our operational requirements.

ITEM 3.LEGAL PROCEEDINGS

Note 15 of the Notes to our Consolidated Financial Statements for the year ended May 31, 2020 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.  The information in Note 15 is 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 Note 15 to our Consolidated Financial Statements for the year ended May 31, 2020 contained in this Annual Report on Form 10-K.

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.

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Supplemental Item:

EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning each of our executive officers is set forth below:

Name	Age	Present Position with the Company
John M. Holmes	43	Chief Executive Officer and President, Director
Sean M. Gillen	34	Vice President and Chief Financial Officer
Jessica A. Garascia	41	Vice President, General Counsel and Secretary
Chris Jessup	42	Vice President, Chief Commercial Officer
Eric S. Pachapa	47	Vice President, Controller and Chief Accounting Officer

Mr. 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. Holmes served as Group Vice President, Aviation Services – Inventory Management and Distribution from 2012 to 2015, General Manager and Division President of our Allen Asset Management business from 2003 to 2012, and in various other positions since joining the Company in September 2001.  Mr. Holmes has been a director of the Company since 2017.

Mr. 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 spent nine years in investment banking with Goldman Sachs, most recently as a Vice President in their Global Industrials Group.

Ms. Garascia is Vice President, General Counsel and Secretary, having served in that capacity since February 2020.  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.  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. 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. Prior to joining the Company in 2008, Mr. Jessup was Vice President, Sales and Marketing at Avborne Heavy Maintenance, Inc. in Miami, Florida.

Mr. Pachapa is Vice President, Controller and Chief Accounting Officer, having served in that capacity since July 2016.  Mr. 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.  Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment.

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PART II

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, 2020, there were approximately 847 holders of common stock, including participants in security position listings.

Stockholder 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, 2015 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.  The Company’s Fiscal 2020 Proxy Peer Group companies are listed as follows:

Aerojet Rocketdyne Holdings, Inc.	Kaman Corporation
Barnes Group Inc.	Moog Inc.
CACI International Inc	MSC Industrial Direct Co., Inc. (a)
Crane Co.	Teledyne Technologies Incorporated
Cubic Corporation	TriMas Corporation (a)
Curtiss-Wright Corporation	Triumph Group, Inc.
Esterline Technologies Corporation	Wesco Aircraft Holdings, Inc.
Heico Corporation	Woodward, Inc. (a)
Hexcel Corporation

(a)New peer group company added for fiscal 2020 due to its business and financial comparability to the Company.

Three companies were removed from the prior year’s peer group: KLX Inc. was acquired, and Science Applications International Corporation and Engility Holdings, Inc. combined and the resulting company was judged to no longer be a suitable comparator company.

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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. 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 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 any government restrictions.  Specifically, the Payroll Support Program under the CARES Act would prohibit the Company from paying stock dividends through September 30, 2021, accordingly no dividend will be paid by the Company prior to that time assuming receipt of the funds.

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ITEM 6. SELECTED FINANCIAL DATA

(In millions, except per share amounts)

	For the Year Ended May 31,
	2020		2019		2018		2017		2016
RESULTS OF OPERATIONS
Sales 1	$	2,072.0	$	2,051.8	$	1,748.3	$	1,590.8	$	1,525.4
Gross profit		269.2		329.8		294.1		263.6		233.4
Operating income 2		41.3		98.3		86.0		82.3		75.5
Interest expense		9.3		9.5		8.0		5.3		6.4
Income from continuing operations		24.8		84.1		73.7		52.0		45.5
Income (Loss) from discontinued operations 3		(20.4)		(76.6)		(58.1)		4.5		2.2
Net income		4.4		7.5		15.6		56.5		47.7
Share data:
Earnings per share – basic:
Earnings from continuing operations	$	0.71	$	2.42	$	2.14	$	1.53	$	1.30
Earnings (Loss) from discontinued operations		(0.59)		(2.22)		(1.70)		0.13		0.07
Earnings per share – basic	$	0.12	$	0.20	$	0.44	$	1.66	$	1.37
Earnings per share – diluted:
Earnings from continuing operations	$	0.71	$	2.40	$	2.11	$	1.51	$	1.30
Earnings (Loss) from discontinued operations		(0.58)		(2.19)		(1.70)		0.13		0.07
Earnings per share – diluted	$	0.13	$	0.21	$	0.41	$	1.64	$	1.37
Cash dividends declared per share	$	0.30	$	0.30	$	0.30	$	0.30	$	0.30
Weighted average common
shares outstanding – basic		34.8		34.5		34.2		33.9		34.4
Weighted average common
shares outstanding – diluted		35.0		34.9		34.6		34.3		34.6

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	May 31,
	2020		2019		2018		2017		2016
FINANCIAL POSITION
Cash and cash equivalents 4	$	404.7	$	21.3	$	31.1	$	10.3	$	31.2
Working capital		1,055.6		595.0		609.4		553.4		540.3
Total assets 4		2,079.0		1,517.2		1,524.7		1,504.1		1,456.0
Total debt		602.0		142.9		178.9		156.2		145.3
Equity		902.6		905.9		936.3		914.2		865.8
Number of shares outstanding at end of year		35.1		34.8		34.7		34.4		34.5
Book value per share of common stock	$	25.72	$	26.03	$	26.98	$	26.58	$	25.10

Notes:

1At the beginning of fiscal 2019, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) using a modified retrospective method and, as a result, the comparative information for prior years has not been restated and is reported under accounting standards in effect for those years.  See Note 1 of Notes to Consolidated Financial Statements for additional information.

2In fiscal 2020, we recognized contract termination and restructuring charges of $31.3 across certain commercial power-by-the-hour contracts.  The charges included a reduction in revenue of $17.3 million, the establishment of forward loss reserves of $5.4 million, and other related charges of $8.6 million.  During fiscal 2020, we also recognized impairment charges of $11.0 million related to the exit of certain product lines across our operations and $4.9 million related to the closure of two facilities.  To mitigate the impact of COVID-19 on our operations, we reduced our headcount and furloughed employees resulting in the recognition of severance and furlough costs of $5.0 million in fiscal 2020.

3In fiscal 2016, we received contingent consideration from the sale of Telair Cargo Group and recognized a pre-tax gain of $27.7 million.

We recognized pre-tax asset impairment charges related to our Contractor-Owned, Contractor-Operated (“COCO”) business of $11.8 million, $74.1 million, and $64.0 million in fiscal 2020, 2019, and 2018, respectively.

4In the fourth quarter of fiscal 2020, we elected to draw down our Revolving Credit Facility as a precautionary measure in light of economic and market uncertainty presented by COVID-19.  These additional borrowings from our Revolving Credit Facility are largely being maintained in Cash and cash equivalents on our Consolidated Balance Sheet which were $404.7 million at May 31, 2020.

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ITEM 7.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions)

Background and Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as 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, 2019, which provides additional information on comparisons of fiscal 2019 and 2018.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on the beliefs of management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties, including those factors discussed under Item 1A, “Risk Factors,” that could cause actual results to differ materially from those anticipated.  Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.  Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control.  We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General Overview

We report our activities in two business segments:  Aviation Services comprised of supply chain and maintenance, repair and overhaul (“MRO”) activities and Expeditionary Services comprised of manufacturing activities.

The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers.  Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets.  We provide customized inventory supply chain management, performance based logistics programs, customer fleet management and operations, and aircraft component repair management services.  The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components.  Cost of sales consists principally of the cost of product, direct labor, and overhead.

The Expeditionary Services segment consists of 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.  This segment also designs and manufactures advanced composite materials for commercial, business and military aircraft.  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.  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 2020 began with strategic initiatives focused on growth and execution across all of our activities in the commercial and government markets.  Our momentum from a successful fiscal 2019 carried into the new year as we saw continued strength in our parts supply activities, as well as in government programs.  We also realized the positive impact our efforts to attract and retain talent had in our MRO activities.  

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We succeeded in enhancing customer relationships with multiple commercial and government customers.  In fiscal 2020, we were awarded a new $118 million contract from the Naval Air Systems Command in support of the U.S. Marine Corps for the procurement, modification and delivery of two C-40 aircraft.  This award demonstrates the power of our integrated services model by combining the strengths of our parts supply, government programs, MRO, and engineering teams to deliver a creative solution to the U.S. Marine Corps.

We were also awarded new long-term contracts across our parts supply activities including multiple distribution agreements for new parts and our largest commercial agreement in Japan to date covering aftermarket engine components.  Our strategy to exit the capital-intensive Contractor-Owned, Contractor-Operated (“COCO”) business was also completed in fiscal 2020 as all of its assets and contracts were sold.  

As we continued to successfully execute on our recent contract awards over the last few years, we achieved strong sales growth through the first nine months of fiscal 2020 and were on track for a record year.  Sales had increased $166.4 million or 11.2% over the prior year period primarily due to an increase in sales of $175.5 million or 12.5% in our Aviation Services segment reflecting the growth from new contract awards and successful execution across our Aviation Services activities.

Upon entering the fourth quarter in March, we began to see the impact of the COVID-19 pandemic on the commercial aviation industry.  In response to the impact from COVID-19, we implemented significant actions to reduce fixed costs and overhead which included a freeze on new hiring, reducing or eliminating all non-essential spend, reducing compensation and benefits, furloughs, a reduction in force, and closure of an airframe maintenance facility.  During the fourth quarter, we also exited underperforming contracts and assets across our operations and decided to exit our joint venture investment in a Malaysian landing gear wheel and brake facility.  Additionally, in June 2020, we decided to sell our composites manufacturing business which is consistent with our multi-year strategy to focus our portfolio on our core services offerings.

We have also taken actions to preserve flexibility in our liquidity.  In the fourth quarter, we elected to draw down our remaining available borrowings under our Revolving Credit Facility with the majority of that additional funding remaining in our cash accounts.  We elected to borrow these additional amounts as a precautionary measure in light of economic and market uncertainty presented by COVID-19.

Over the long-term, we expect to see continued 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 although there is uncertainty in certain fleet types as commercial operators re-evaluate their structure.  Our results of operations are affected by the amount of commercial aircraft flying and flight hours. The current COVID-19 pandemic has decreased the amount of commercial aircraft flying and flight hours and has created significant economic disruption.

Results of Operations – Fiscal 2020 Compared with Fiscal 2019

Sales and gross profit for our two business segments for the two years ended May 31, 2020 and 2019 were as follows:

	For the Year Ended May 31,
	2020		2019		% Change
Sales:
Aviation Services
Commercial	$	1,268.9	$	1,342.3	(5.5)	%
Government and defense		695.3		578.3	20.2	%
	$	1,964.2	$	1,920.6	2.3	%
Expeditionary Services
Commercial	$	24.3	$	31.6	(23.1)	%
Government and defense		83.5		99.6	(16.2)	%
	$	107.8	$	131.2	(17.8)	%

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	For the Year Ended May 31,
	2020		2019		% Change
Gross Profit (Loss):
Aviation Services
Commercial	$	148.0	$	195.7	(24.4)	%
Government and defense		119.3		117.9	1.2	%
	$	267.3	$	313.6	(14.8)	%
Expeditionary Services
Commercial	$	(3.6)	$	3.0	(220.0)	%
Government and defense		5.5		13.2	(58.3)	%
	$	1.9	$	16.2	(88.3)	%

Aviation Services Segment

Sales in the Aviation Services segment increased $43.6 million or 2.3% over the prior year.  Sales to government and defense customers increased $117.0 million or 20.2% primarily attributable to new contracts awarded recently, including the $118 million contract for the procurement, modification and delivery of two C-40 aircraft we received in early fiscal 2020.

During fiscal 2020, sales in this segment to commercial customers decreased $73.4 million or 5.5% from the prior year.  We experienced an increase in sales to commercial customers of 7.2% over the first nine months of the year primarily due to higher volumes in our MRO activities as our actions to attract and retain the necessary skilled labor allowed us to capture the customer demand for these services.  During the fourth quarter of fiscal 2020, the impact from COVID-19 significantly decreased our commercial sales across the majority of our operations.

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 2020, we recognized favorable and unfavorable cumulative catch-up adjustments of $6.1 million and $2.2 million, respectively, compared to favorable and unfavorable cumulative catch-up adjustments of $8.0 million and $2.1 million, respectively, in fiscal 2019.  When considering these adjustments on a net basis, we recognized favorable cumulative catch-up adjustments of $3.9 million and $5.9 million for fiscal 2020 and 2019, respectively.  These adjustments primarily relate to our long-term programs where we provide component inventory management and/or repair services.

Cost of sales in Aviation Services increased $89.9 million or 5.6% from the prior year which was largely in line with the sales increase of 2.3% discussed above.  Gross profit in the Aviation Services segment decreased $46.3 million or 14.8% from the prior year.  Gross profit in this segment on sales to commercial customers decreased $47.7 million or 24.4% from the prior year primarily driven by contract termination and restructuring charges of $31.3 million across certain power-by-the-hour contracts in fiscal 2020.  The charges included a reduction in revenue of $17.3 million, the establishment of forward loss reserves of $5.4 million, and other related charges of $8.6 million.  During fiscal 2020, we also recognized impairment charges of $6.9 million related to the exit of certain product lines across our operations and $4.3 million related to the closure of our Duluth airframe maintenance facility.

The gross profit margin on sales to commercial customers was 11.7% compared to 14.6% in the prior year with the decreased margin largely attributable to contract termination, restructuring, and impairment charges discussed above.

Gross profit on sales to government and defense customers increased $1.4 million or 1.2% over the prior year.  Gross profit margin on sales to government and defense customers decreased to 17.2% from 20.4% as the gross profit margin on our recent contract awards is lower than our existing government and defense activity.

Expeditionary Services Segment

Sales in the Expeditionary Services segment decreased $23.4 million or 17.8% from the prior year primarily due to delays in contract awards for our mobility products.  Gross profit in the Expeditionary Services segment decreased $14.3 million or 88.3% from the prior year and gross profit margin decreased to 1.8% from 12.3% both primarily as a result of restructuring actions and lower sales volumes.  During fiscal 2020, we consolidated our mobility products operations into one core facility and exited certain product lines as part of the consolidation.  We recognized charges of $2.8 million related to facility closure costs and impairment charges.

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Provision for Doubtful Accounts

Provision for doubtful accounts decreased $10.4 million from the prior year primarily related to fewer bankruptcy charges in fiscal 2020.  In the second quarter of fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer.  The provision included impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.2 million over the prior year.  As a percent of sales, selling, general and administrative expenses remained relatively flat at 10.6% in fiscal 2020 compared to 10.5% in the prior year.

Interest Expense

Interest expense decreased $0.2 million in fiscal 2020 as the impact of higher average borrowings was more than offset by lower average borrowing rates on our Revolving Credit Facility.  

Income Taxes

Our fiscal 2020 effective income tax rate for continuing operations was 18.4% compared to 5.5% in the prior year.  In fiscal 2019, we recognized tax benefits of $5.1 million related to the reversal of certain state valuation allowances based on the recoverability of the net operating losses and other state deferred tax assets.  The effective income tax rate for fiscal 2019 also includes a benefit of $4.7 million related to the recognition of previously unrecognized uncertain tax positions and a tax benefit of $1.8 million related to tax provision to federal income tax return filing differences.

Discontinued Operations

During the third quarter of fiscal 2018, we decided to pursue the sale of our COCO business previously included in our Expeditionary Services segment.  Due to this strategic shift, the assets, liabilities, and results of operations of our COCO business were reported as discontinued operations for all periods presented.  

Loss from discontinued operations was $20.4 million in fiscal 2020 compared to $76.6 million in the prior year.  The reduced loss of $56.2 million was primarily due to lower pre-tax impairment charges of $11.8 million in fiscal 2020 as compared to $74.1 million in fiscal 2019.

Liquidity, Capital Resources and Financial Position

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

We maintain a Revolving Credit Facility with various financial institutions, as lenders, and Bank of America, N.A., as administrative agent for the lenders.  On September 25, 2019, we entered into an amendment to our Revolving Credit Facility which extended the maturity of the Revolving Credit Facility to September 25, 2024, increased the revolving credit commitment by $100 million to $600 million, and modified certain other provisions.  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.  

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Borrowings under the Revolving Credit Facility bear interest at the offered Eurodollar Rate plus 87.5 to 175 basis points based on certain financial measurements if a Eurodollar Rate loan, or at the offered fluctuating Base Rate plus 0 to 75 basis points based on certain financial measurements if a Base Rate loan.

Borrowings outstanding under the Revolving Credit Facility at May 31, 2020 were $579.5 million and there were approximately $19.9 million of outstanding letters of credit, which reduced the availability of this facility to $0.6 million. There are no other terms or covenants limiting the availability of this facility.  In the fourth quarter of fiscal 2020, we elected to draw down our Revolving Credit Facility as a precautionary measure in light of economic and market uncertainty presented by COVID-19.  These additional borrowings from our Revolving Credit Facility are largely being maintained in Cash and cash equivalents on our Consolidated Balance Sheet which was $404.7 million at May 31, 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S. in response to the COVID-19 pandemic. Certain of our subsidiaries expect to receive $57.2 million from the U.S. Treasury Department through the Payroll Support Program under the CARES Act. These funds will be used to pay for the salaries and benefits of certain of those subsidiaries’ employees. Of the $57.2 million total amount we expect to receive, approximately $48.5 million will be a direct grant and approximately $8.7 million will be in the form of a low interest 10-year senior unsecured promissory note.

As of May 31, 2020, 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 the Credit Agreement with the Canadian Imperial Bank of Commerce, as lender.  The Credit Agreement provided a Canadian $31 million term loan with the proceeds used to fund the acquisition of two maintenance, repair, and overhaul facilities in Canada from Premier Aviation.  The term loan is due in full at the expiration of the Credit Agreement on November 1, 2021 unless terminated earlier pursuant to the terms of the Credit Agreement.  Interest is payable monthly on the term loan at the offered fluctuating Canadian Dollar Offer Rate plus 125 to 225 basis points based on certain financial measurements if a Bankers’ Acceptances loan, or at the offered fluctuating Prime Rate plus 25 to 125 basis points based on certain financial measurements, if a Prime Rate loan.

On February 23, 2018, we entered into a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”).  Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell.  The term of the Purchase Agreement runs through February 22, 2021, 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.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser.  We account for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognize the sold receivables from our Consolidated Balance Sheet.

Receivables sold under the Purchase Agreement during fiscal 2020, 2019, and 2018 were $746.4 million, $744.2 million, and $239.6, respectively.  Amounts remitted to the Purchaser on their behalf during fiscal 2020, 2019, and 2018 were $758.3 million, $729.7 million, and $167.9, respectively.  As of May 31, 2020 and May 31, 2019, we had collected cash of $20.0 million and $19.8 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.  

At May 31, 2020, we complied with all financial and other covenants under each of our financing arrangements.

Cash Flows – Fiscal 2020 Compared with Fiscal 2019

Cash Flows from Operating Activities

Net cash used in operating activities–continuing operations was $19.1 million in fiscal 2020 compared to cash provided of $60.5 million in fiscal 2019.  The decrease of $79.6 million was primarily attributable to timing of our cash receipts and disbursements on long-term programs.

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Cash Flows from Investing Activities

Net cash used in investing activities–continuing operations was $24.8 million in fiscal 2020 compared to $18.5 million in fiscal 2019.  The increase from the prior year was primarily related to higher expenditures for property and equipment in the current year.

Cash Flows from Financing Activities

Net cash provided by financing activities–continuing operations was $444.5 million in fiscal 2020 compared to cash used of $47.3 million in fiscal 2019.  In the fourth quarter of fiscal 2020, we elected to draw down our Revolving Credit Facility as a precautionary measure in light of economic and market uncertainty presented by COVID-19.  These additional borrowings from our Revolving Credit Facility are largely being maintained in Cash and cash equivalents on our Consolidated Balance Sheet.

Contractual Obligations and Off-Balance Sheet Arrangements

A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2020 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		2021		2022		2023		2024		2025		2026
On Balance Sheet:
Bank borrowings	$	602.0	$	—	$	22.5	$	—	$	—	$	579.5	$	—
Facilities and equipment operating leases		99.2		16.5		14.5		12.7		10.7		8.3		36.5
Interest1		30.1		7.2		7.0		6.8		6.8		2.3		—
Off Balance Sheet:
Purchase obligations2		366.2		344.8		15.8		5.4		0.1		0.1		—
Pension contribution3		3.1		3.1		—		—		—		—		—

Notes:

1 Interest associated with variable rate debt was determined using the interest rate in effect on May 31, 2020.

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.  For our Netherlands pension plan, our policy is to fund at least the minimum amount required by the local laws and regulations.  We anticipate contributing approximately $3.1 million to our pension plans during fiscal 2021, which includes approximately $1.1 million of the Netherlands’ fiscal 2020 contribution which was deferred to fiscal 2021.  

We routinely issue letters of credit and performance bonds in the ordinary course of business.  These instruments are typically issued in conjunction with insurance contracts or other business requirements.  The total of these instruments outstanding at May 31, 2020 was $31.5 million.

Critical Accounting Policies and Significant Estimates

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

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Goodwill

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

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

In fiscal 2018, we performed an interim goodwill impairment test over our former Airlift reporting unit as a result of a decision to exit our COCO business.  The COCO business was reclassified to discontinued operations and goodwill was allocated to the COCO business based on its relative fair value to the reporting unit.  The fair value of the reporting unit was determined based on a combination of the expected net proceeds upon sale and a discounted cash flow analysis.  As the fair value of the COCO business was below its carrying value, a goodwill impairment charge of $9.8 million was recorded in the third quarter of fiscal 2018.

As of May 31, 2020, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and Maintenance, Repair, and Overhaul) and one comprised of our Expeditionary Services segment.  In fiscal 2019 and 2018, 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.  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.  

In fiscal 2020, we elected to skip the qualitative assessment due to the unprecedented impact of COVID-19 and utilized a quantitative assessment approach for all reporting units.  We estimated the fair value of each reporting unit using primarily an income approach based on discounted cash flows.  The assumptions we used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment in light of the impact of COVID-19.  All three of our reporting units have been impacted by the reduced numbers of commercial aircraft flying and the overall decline in flight hours.  We have incorporated a decline in demand from commercial airline customers for our next fiscal year followed by a multiple year recovery as passenger miles and flight hours progressively increase.

We used discount rates based on our consolidated weighted average cost of capital which is adjusted for each of our reporting units based on their specific risk, size, and industry characteristics. The fair value measurements used for our goodwill impairment testing use significant unobservable inputs, which reflect our own assumptions about the inputs that market participants would use in measuring fair value. 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.

Upon completion of the annual quantitative goodwill impairment analysis as of May 31, 2020 for our reporting units, we concluded the fair value of each reporting unit exceeded its carrying values, and thus no impairment charges were recorded.

We also evaluate the sensitivity of the discounted cash flow valuations by assessing the impact of changes in certain assumptions on the estimated fair value of each reporting unit by increasing the discount rates and/or adjusting our business plan assumptions including slower recovery of sales from COVID-19 and reduced profitability.  All of our reporting units would have had fair values substantially in excess of their carrying values under all our sensitivity scenarios.

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Inventories

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

In conjunction with the decision to exit certain product lines and facilities, we recognized inventory impairment charges of $3.9 million in fiscal 2020.

Revenue Recognition

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

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts.  A performance obligation reflects the distinct good or service that we must transfer to a customer.  At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations.  In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes another good or service or whether the good or service is highly interdependent or interrelated.  If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

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

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

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

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

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

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

We have elected to use certain practical expedients permitted under ASC 606.  Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Consolidated Statements of Income, and are not considered a performance obligation to our customers.  Our reported sales on our Consolidated Statements of Income are net of any sales or related non-income taxes.  We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.

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

Allowance for Doubtful Accounts

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

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

In fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer.  The provision consisted of impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.

In addition, we currently have past due accounts receivable owed by former commercial program customers primarily related to our exit from customer contracts in certain geographies, including Colombia, Peru, and Poland.  Our past due accounts receivable owed by these customers was $10.9 million as of May 31, 2020 which was net of allowance for doubtful accounts of $9.3 million.

Impairment of Long-Lived Assets

We are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.  When applying accounting standards addressing impairment of long-lived assets, we have utilized certain assumptions to estimate future undiscounted cash flows, including current and future sales volumes or lease rates, expected changes to cost structures, lease terms, residual values, market conditions, and trends impacting future demand.  Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of long-lived assets.  We recognized pre-tax asset impairment charges related to our COCO business of $11.8 million, $74.1 million, and $64.0 million in fiscal 2020, 2019, and 2018, respectively, related to assets included in our COCO business, which is classified as a discontinued operation.

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We maintain a significant inventory of rotable parts and equipment to service customer aircraft and components.  Portions of that inventory are used parts that are often exchanged with parts removed from aircraft or components, and are reworked to a useable condition.  We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry.  In conjunction with the decision to exit certain product lines, we recognized rotable asset impairment charges of $1.9 million in fiscal 2020.

Pension Plans

The projected benefit obligation for our benefit plans exceeds our plan assets by $27.3 million as of May 31, 2020.  Our projected benefit obligation exceeds our plan assets for both our U.S. plans and for our Netherlands plan with the U.S. benefit plans underfunded by $14.6 million and the Netherlands plan underfunded by $12.7 million.

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.

AAR uses discount rates to measure our benefit obligation and net periodic benefit cost for our pension plans.  We used a broad population of Aa-rated corporate bonds as of May 31, 2020 to determine the discount rate assumption.  All bonds were denominated in U.S. Dollars, with a minimum outstanding of $50.0 million.  This population of bonds was narrowed from a broader universe of over 500 Moody’s Aa-rated, non-callable (or callable with make-whole provisions) bonds by eliminating the top 10^th percentile and the bottom 40^th percentile to adjust for any pricing anomalies and to represent the bonds we would most likely select if we were to actually annuitize our pension plan liabilities.  This portfolio of bonds was used to generate a yield curve and associated spot rate curve to discount the projected benefit payments for the domestic plans.  The discount rate is the single level rate that produces the same result as the spot rate curve.

We establish the long-term asset return assumption based on a review of historical compound average asset returns, both company-specific and relating to the broad market, as well as analysis of current market and economic information and future expectations.  The current asset return assumption is supported by historical market experience for both our actual and target asset allocation.  In calculating the net pension cost, the expected return on assets is applied to a calculated value on plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years.  The difference between this expected return and the actual return on plan assets is a component of the total net unrecognized gain or loss and is subject to amortization in the future.

New Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASC 842”), which amended the existing accounting standards for lease accounting.  ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet for most lease arrangements, including those classified as operating leases.  In addition, ASC 842 requires new qualitative and quantitative disclosures about our leasing activities.  

We adopted ASC 842 on June 1, 2019 using the modified retrospective transition approach.  Under that approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods.  A discussion of our revised accounting policy for leases is included in Note 11 of Notes to Consolidated Financial Statements.

We have elected the package of practical expedients, which must be elected as a package and applied consistently to all leases.  This package permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than twelve months.

Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $123.2 million and operating lease liabilities of $116.8 million on our Consolidated Balance Sheet.  These amounts included operating lease ROU assets of $26.6 million and operating lease liabilities of $25.3 million related to our discontinued operations.  In addition, we recognized the remaining unamortized deferred gains of $2.5 million, net of tax, associated with sale-leaseback transactions as a cumulative effect adjustment to the opening balance of retained earnings as of June 1, 2019.  

The adoption of ASC 842 did not have a material impact on the Consolidated Statements of Operations or Cash Flows.

30

The impact of the adoption of ASC 842 on our Consolidated Balance Sheet was as follows:

	As of May 31, 2019		ASC 842 Adjustments		As of June 1, 2019
Assets of discontinued operations	$	29.2	$	26.6	$	55.8
Other current assets		36.2		(0.5)		35.7
Intangible assets, net		22.2		(8.5)		13.7
Operating lease ROU assets		—		96.6		96.6
Other non-current assets		77.5		(1.8)		75.7
Accrued liabilities		140.5		10.0		150.5
Liabilities of discontinued operations		29.2		25.3		54.5
Operating lease liabilities		—		77.7		77.7
Other liabilities		28.3		(3.1)		25.2
Retained earnings		709.8		2.5		712.3

In May 2014, the FASB issued ASC 606, which provides guidance for revenue recognition.  ASC 606 superseded the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance.

We adopted ASC 606 on June 1, 2018 using the modified retrospective method.  Under that approach, prior periods were not restated and continue to be reported under the accounting standards in effect for those periods.  We elected to use the practical expedient allowing for the application of ASC 606 only to contracts that were not completed as of June 1, 2018.  We recognized the cumulative effect of initially applying ASC 606 as a decrease of $20.4 million to the opening balance of retained earnings as of June 1, 2018.

The adoption of ASC 606 impacted us in three primary areas.  First, we have certain contracts in which revenue is recognized using the percentage of completion method over the expected term of the contract.  Under ASC 606, the contract term used for revenue recognition purposes was shortened to exclude any unexercised customer option years or incorporate customer rights to terminate the contract without significant penalty as we do not have any enforceable rights or obligations prior to the exercise of the underlying option.  The impact of this change as of June 1, 2018 resulted in the elimination of certain deferred costs and the establishment of accrued liabilities reflecting our estimated obligations under the contracts.  For this change, we recognized a decrease of $22.1 million to the opening balance of retained earnings as of June 1, 2018.

Second, we have contracts under which we perform repair services on customer-owned assets whereby the customer simultaneously receives the benefits of the repair.  These contracts also transitioned to an over time revenue recognition model as of June 1, 2018 compared to our prior policy of recognizing revenue at the time of shipment.  The impact of this change as of June 1, 2018 resulted in the elimination of certain inventory and accounts receivable amounts and the establishment of a contract asset reflecting the over time revenue recognition treatment.  For this change, we recognized an increase of $1.3 million to the opening balance of retained earnings as of June 1, 2018.

Third, we have certain contracts under which we manufacture products with no alternative use as the customer owns the underlying intellectual property and we have an enforceable right to payment from the customer.  As a result, we now recognize revenue for these contracts over time as opposed to at the time of shipment, which was our policy prior to June 1, 2018.  The impact of this change as of June 1, 2018 resulted in the elimination of certain inventory amounts and the establishment of a contract asset reflecting the over time revenue recognition treatment.  For this change, we recognized an increase of $0.4 million to the opening balance of retained earnings as of June 1, 2018.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.  This ASU requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. This ASU also requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast of the collectability of the related financial asset.  We plan to adopt this ASU on June 1, 2020 and the adoption is not expected to have a material impact on our consolidated financial statements.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk includes fluctuating interest rates under our credit agreements, changes in foreign exchange rates, and credit losses on accounts receivable.  See Note 1 of Notes to Consolidated Financial Statements for a discussion on accounts receivable exposure.

We 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 2020.

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.  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 2020.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

AAR CORP.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of AAR CORP. and subsidiaries (the Company) as of May 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three year period ended May 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three year period ended May 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 21, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases effective June 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases, and its method of accounting for revenue recognition as of June 1, 2018, due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

33

Assessment of the write-down of inventories

As discussed in Note 1 to the consolidated financial statements, the inventory balance as of May 31, 2020 was $623.1 million.  The Company records inventory within the Aviation Services segment at the lower of cost or net realizable value. The write-down of slow moving inventory is recorded for excess or obsolete inventory based on certain inputs and assumptions used to determine the net realizable value. These assumptions include the number of days transpiring from the date the inventory was originally received, and the historical sales of inventory to determine recovery rates. Other inputs include current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap recovery rates.

We identified the assessment of the write-down of inventories for a portion of the inventory within the Aviation Services segment as a critical audit matter. The primary inputs and assumptions used in determining the write-down of slow moving inventory include the historical recovery rates, which are based on the number of days transpiring from the date the inventory was originally received, the historical sales of inventory, and the identification of specific inventories used to service customers no longer under contract. The assessment of these inputs required a higher degree of subjective auditor judgment in evaluating the future customer demand for slow moving inventory.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s inventory process, including controls over the Company’s evaluation of the impact on the estimate of net realizable value based on 1) the number of days transpiring from the date the inventory was originally received, 2) historical sales of inventory, and 3) specific inventory used to service customers no longer under contract. We also tested relevant information technology application controls over the determination of the number of days transpiring from the date the inventory was originally received. We evaluated the write-down to determine that it was recorded using the Company’s policy based on the number of days transpiring from the date the inventory was originally received, and the recovery rates of existing inventory based on historical sales. We also assessed that the recovery rates applied to slow moving inventory were consistent with historical sales of these inventory items. We determined that the specific inventory items written down were valued at the lower of cost or net realizable value based on observable market prices.  

Evaluation of the key inputs and assumptions used in the estimation of costs at completion of the performance obligations

As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenue over time upon the satisfaction of component inventory management and repair services performance obligations based on the cost-to-cost input method, which is based on the relationship of costs incurred to date to the estimated total costs at completion of the performance obligation within the Aviation Services segment. The net favorable cumulative catch-up adjustments recognized during fiscal year 2020 associated with the Company’s component inventory management and repair services totaled $3.9 million, which resulted from changes in the estimated costs at completion of the performance obligations.

We identified the evaluation of the key inputs and assumptions used in the estimation of costs at completion of the inventory management and repair services performance obligations for certain contracts within the Aviation Services segment as a critical audit matter. The key inputs and assumptions used in determining the revenue to be recognized include current and future costs to support the program, and future labor costs. The testing of the inputs and assumptions required the application of subjective auditor judgment because of the estimation associated with the inputs and assumptions.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s revenue process, including controls over 1) the assessment of the estimated future costs, 2) actual costs incurred for each performance obligation that are used by the Company in their assessment of the measure of progress, and 3) the approval of costs recorded for each performance obligation to assess the allowability per the contract. We obtained the Company’s forecast for the cost of a selection of component inventory management and repair services and assessed that the measure of progress was determined using actual costs to date plus the estimated future costs to support the satisfaction of performance obligations. We selected a sample of contracts to test fiscal year 2020 program costs. We assessed the Company’s historical estimates to determine the consistency with the Company’s historical projected costs.

	/s/ KPMG LLP
We have served as the Company’s auditor since 1985.
Chicago, Illinois
July 21, 2020

34

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	For the Year Ended May 31,
	2020		2019		2018
	(In millions, except per share data)
Sales:
Sales from products	$	1,090.0	$	1,124.3	$	1,040.7
Sales from services		982.0		927.5		707.6
		2,072.0		2,051.8		1,748.3
Costs and operating expenses:
Cost of products		900.0		915.0		840.5
Cost of services		902.8		807.0		613.7
Provision for doubtful accounts		5.4		15.8		0.5
Selling, general and administrative		220.6		215.4		208.1
		2,028.8		1,953.2		1,662.8
Earnings (Loss) from joint ventures		(1.9)		(0.3)		0.5
Operating income		41.3		98.3		86.0
Other expense, net		(2.1)		(0.8)		(0.9)
Interest expense		(9.3)		(9.5)		(8.0)
Interest income		0.5		1.0		0.1
Income from continuing operations before provision for income taxes		30.4		89.0		77.2
Provision for income taxes		5.6		4.9		3.5
Income from continuing operations		24.8		84.1		73.7
Loss from discontinued operations, net of tax		(20.4)		(76.6)		(58.1)
Net income	$	4.4	$	7.5	$	15.6
Earnings per share - basic:
Earnings from continuing operations	$	0.71	$	2.42	$	2.14
Loss from discontinued operations		(0.59)		(2.22)		(1.70)
Earnings per share - basic	$	0.12	$	0.20	$	0.44
Earnings per share – diluted:
Earnings from continuing operations	$	0.71	$	2.40	$	2.11
Loss from discontinued operations		(0.58)		(2.19)		(1.70)
Earnings per share – diluted	$	0.13	$	0.21	$	0.41

The accompanying notes to consolidated financial statements are an integral part of these statements.

35

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	For the Year Ended May 31,
	2020		2019		2018
	(In millions)
Net income	$	4.4	$	7.5	$	15.6
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax		0.1		(2.4)		2.0
Unrecognized pension and post retirement costs, net of tax expense (benefit) of $(1.0) in 2020, $(1.7) in 2019, and $2.4 in 2018		(3.8)		(6.5)		5.9
Total other comprehensive income (loss), net of tax		(3.7)		(8.9)		7.9
Comprehensive income (loss)	$	0.7	$	(1.4)	$	23.5

The accompanying notes to consolidated financial statements are an integral part of these statements.

36

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

	May 31,
	2020		2019
	(In millions, except share data)
Current assets:
Cash and cash equivalents	$	404.7	$	21.3
Restricted cash		20.0		19.8
Accounts receivable, net		171.9		197.8
Contract assets		49.3		59.2
Inventories		623.1		523.7
Rotable assets and equipment on or available for short-term lease		69.6		65.3
Assets of discontinued operations		22.9		29.2
Other current assets		77.2		36.2
Total current assets		1,438.7		952.5
Property, plant and equipment, at cost:
Land		4.5		4.5
Buildings and improvements		112.4		111.9
Equipment and furniture and fixtures		265.3		248.2
		382.2		364.6
Accumulated depreciation		(246.5)		(231.8)
		135.7		132.8
Other assets:
Goodwill		115.7		116.2
Intangible assets, net		6.0		22.2
Operating lease right-of-use assets, net		89.7		—
Rotable assets supporting long-term programs		211.7		216.0
Other non-current assets		81.5		77.5
		504.6		431.9
	$	2,079.0	$	1,517.2

The accompanying notes to consolidated financial statements are an integral part of these statements.

37

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITY

	May 31,
	2020		2019
	(In millions, except share data)
Current liabilities:
Accounts payable		191.6		187.8
Accrued liabilities		161.6		140.5
Liabilities of discontinued operations		29.9		29.2
Total current liabilities		383.1		357.5
Long-term debt		600.0		141.7
Operating lease liabilities		70.9		—
Deferred revenue on long-term contracts		88.0		83.8
Other liabilities		34.4		28.3
		793.3		253.8
Equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued		—		—
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,300,786 shares at cost		45.3		45.3
Capital surplus		478.6		479.4
Retained earnings		706.0		709.8
Treasury stock, 10,203,437 and 10,512,974 shares at cost, respectively		(282.7)		(287.7)
Accumulated other comprehensive loss		(44.6)		(40.9)
Total equity		902.6		905.9
	$	2,079.0	$	1,517.2

The accompanying notes to consolidated financial statements are an integral part of these statements.

38

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE YEARS ENDED MAY 31, 2020

(In millions)									Accumulated
									Other
	Common		Capital		Retained		Treasury		Comprehensive		Total
	Stock		Surplus		Earnings		Stock		Income (Loss)		Equity
Balance, May 31, 2017	$	45.2	$	460.8	$	727.9	$	(279.8)	$	(39.9)	$	914.2
Net income		—		—		15.6		—		—		15.6
Cash dividends		—		—		(10.3)		—		—		(10.3)
Stock option activity		—		0.9		—		11.2		—		12.1
Restricted stock activity		0.1		8.8		—		1.0		—		9.9
Repurchase of shares		—		—		—		(13.1)		—		(13.1)
Other comprehensive income, net of tax		—		—		—		—		7.9		7.9
Balance, May 31, 2018	$	45.3	$	470.5	$	733.2	$	(280.7)	$	(32.0)	$	936.3
Cumulative effect adjustment upon adoption of ASC 606 on June 1, 2018		—		—		(20.4)		—		—		(20.4)
Net income		—		—		7.5		—		—		7.5
Cash dividends		—		—		(10.5)		—		—		(10.5)
Stock option activity		—		3.5		—		4.1		—		7.6
Restricted stock activity		—		5.4		—		(0.8)		—		4.6
Repurchase of shares		—		—		—		(10.3)		—		(10.3)
Other comprehensive income, net of tax		—		—		—		—		(8.9)		(8.9)
Balance, May 31, 2019	$	45.3	$	479.4	$	709.8	$	(287.7)	$	(40.9)	$	905.9
Cumulative effect adjustment upon adoption of ASC 842 on June 1, 2019		—		—		2.5		—		—		2.5
Net income		—		—		4.4		—		—		4.4
Cash dividends		—		—		(10.7)		—		—		(10.7)
Stock option activity		—		3.1		—		8.3		—		11.4
Restricted stock activity		—		(3.9)		—		0.8		—		(3.1)
Repurchase of shares		—		—		—		(4.1)		—		(4.1)
Other comprehensive loss, net of tax		—		—		—		—		(3.7)		(3.7)
Balance, May 31, 2020	$	45.3	$	478.6	$	706.0	$	(282.7)	$	(44.6)	$	902.6

The accompanying notes to consolidated financial statements are an integral part of these statements.

39

AAR CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)	For the Year Ended May 31,
	2020		2019		2018
Cash flows provided from (used in) operating activities:
Net income	$	4.4	$	7.5	$	15.6
Less: Loss from discontinued operations		(20.4)		(76.6)		(58.1)
Income from continuing operations		24.8		84.1		73.7
Adjustments to reconcile income to net cash provided from (used in) operating activities:
Depreciation and intangible amortization		43.7		42.8		40.5
Amortization of stock-based compensation		7.3		13.5		15.3
Provision for doubtful accounts		5.4		15.8		0.5
Deferred tax provision (benefit)		0.5		(5.0)		(12.9)
Loss (Earnings) from joint ventures		1.9		0.3		(0.5)
Customer contract termination and restructuring costs		31.3		—		—
Impairment charges		8.1		—		—
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable		14.8		(34.4)		35.4
Contract assets		9.9		(9.7)		—
Inventories		(94.5)		(80.9)		(25.8)
Rotable spares and equipment on or available for short-term lease		(4.3)		21.5		(16.6)
Rotable assets supporting long-term programs		(22.1)		(49.2)		(38.5)
Accounts payable		4.1		17.5		1.8
Accrued and other liabilities		0.5		22.9		8.0
Deferred revenue on long-term programs		(14.6)		44.4		(3.4)
Other		(35.9)		(23.1)		(21.7)
Net cash provided from (used in) operating activities—continuing operations		(19.1)		60.5		55.8
Net cash provided from (used in) operating activities—discontinued operations		(17.0)		6.9		8.5
Net cash provided from (used in) operating activities		(36.1)		67.4		64.3
Cash flows used in investing activities:
Property, plant and equipment expenditures		(23.6)		(17.4)		(22.0)
Proceeds from asset disposals		1.6		1.8		8.6
Payments for acquisitions		—		(2.3)		(22.9)
Other		(2.8)		(0.6)		(2.3)
Net cash used in investing activities—continuing operations		(24.8)		(18.5)		(38.6)
Net cash used in investing activities—discontinued operations		—		(0.5)		(4.3)
Net cash used in investing activities		(24.8)		(19.0)		(42.9)
Cash flows provided from (used in) financing activities:
Short-term borrowings (repayments), net		459.5		(10.0)		(1.0)
Proceeds (Repayments) on long-term borrowings		—		(25.0)		24.8
Cash dividends		(10.7)		(10.5)		(10.3)
Purchase of treasury stock		(4.1)		(10.3)		(13.1)
Stock compensation activity		1.1		8.5		11.6
Other		(1.3)		—		(0.3)
Net cash provided from (used in) financing activities—continuing operations		444.5		(47.3)		11.7
Net cash used in financing activities—discontinued operations		—		(1.4)		(1.7)
Net cash provided from (used in) financing activities		444.5		(48.7)		10.0
Effect of exchange rate changes on cash		—		(0.2)		(0.1)
Increase (Decrease) in cash and cash equivalents		383.6		(0.5)		31.3
Cash, cash equivalents, and restricted cash at beginning of year		41.1		41.6		10.3
Cash, cash equivalents, and restricted cash at end of year	$	424.7	$	41.1	$	41.6

The accompanying notes to consolidated financial statements are an integral part of these statements.

40

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies

Description of Business

AAR CORP. (the “Company”) is a diversified provider of services and products to the worldwide commercial aviation and government and defense markets.  Services and products include: aviation supply chain and parts support programs; customer fleet management and operations; maintenance, repair and overhaul of airframes, landing gear, and certain other airframe components; design and manufacture of specialized pallets, shelters, and containers; aircraft modifications and aircraft and engine sales and leasing. We serve commercial, government and defense aircraft fleet operators, original equipment manufacturers, and independent service providers around the world, and various other domestic and foreign military customers.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

New Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASC 842"), which amended the existing accounting standards for lease accounting. ASC 842 requires lessees to recognize a right-of-use ("ROU") asset and lease liability on the balance sheet for most lease arrangements, including those classified as operating leases. In addition, ASC 842 requires new qualitative and quantitative disclosures about our leasing activities.

We adopted ASC 842 on June 1, 2019 using the modified retrospective transition approach. Under that approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 11.

We have elected the package of practical expedients, which must be elected as a package and applied consistently to all leases. This package permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than twelve months.

Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $123.2 million and operating lease liabilities of $116.8 million on our Consolidated Balance Sheet. These amounts included operating lease ROU assets of $26.6 million and operating lease liabilities of $25.3 million related to our discontinued operations. In addition, we recognized the remaining unamortized deferred gains of $2.5 million, net of tax, associated with sale-leaseback transactions as a cumulative effect adjustment to the opening balance of retained earnings as of June 1, 2019.

The adoption of ASC 842 did not have a material impact on the Consolidated Statements of Operations or Cash Flows.

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AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

The impact of the adoption of ASC 842 on our Consolidated Balance Sheet was as follows:

	As of		ASC 842		As of
	May 31, 2019		Adjustments		June 1, 2019
Assets of discontinued operations	$	29.2	$	26.6	$	55.8
Other current assets		36.2		(0.5)		35.7
Intangible assets, net		22.2		(8.5)		13.7
Operating lease ROU assets		—		96.6		96.6
Other non-current assets		77.5		(1.8)		75.7
Accrued liabilities		140.5		10.0		150.5
Liabilities of discontinued operations		29.2		25.3		54.5
Operating lease liabilities		—		77.7		77.7
Other liabilities		28.3		(3.1)		25.2
Retained earnings		709.8		2.5		712.3

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides guidance for revenue recognition.  ASC 606 superseded the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, and most industry-specific guidance.  

We adopted ASC 606 on June 1, 2018 using the modified retrospective method.  Under that approach, prior periods were not restated and continue to be reported under the accounting standards in effect for those periods.  We elected to use the practical expedient allowing for the application of ASC 606 only to contracts that were not completed as of June 1, 2018.  We recognized the cumulative effect of initially applying ASC 606 as a decrease of  $20.4 million to the opening balance of retained earnings as of June 1, 2018.

Revenue Recognition for Fiscal 2020 and 2019

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

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts.  A performance obligation reflects the distinct good or service that we must transfer to a customer.  At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations.  In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes another good or service or whether the good or service is highly interdependent or interrelated.  If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

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

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AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

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

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

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

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

We have elected to use certain practical expedients permitted under ASC 606.  Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Consolidated Statements of Income, and are not considered a performance obligation to our customers.  Our reported sales on our Consolidated Statements of Income are net of any sales or 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.

Revenue Recognition for Fiscal 2018

Sales and related cost of sales for product sales are generally recognized upon shipment of the product to the customer.  Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer.  Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title.  Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer.  Furthermore, serviced units are typically shipped to the customer immediately upon completion of the related services.  Sales and related cost of sales for certain large airframe maintenance contracts and performance-based logistics programs are recognized by the percentage of completion method, based on the relationship of costs incurred to date to the estimated total costs.

43

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution, and maintenance and repair services.  We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services.

Cumulative Catch-up Adjustments

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

Favorable and unfavorable cumulative catch-up adjustments were as follows:

	May 31,
	2020		2019		2018
Favorable cumulative catch-up adjustments	$	6.1	$	8.0	$	11.6
Unfavorable cumulative catch-up adjustments		(2.2)		(2.1)		(8.0)
Net cumulative catch-up adjustments	$	3.9	$	5.9	$	3.6

Contract Assets and Liabilities

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 costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers.  Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract.  These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made.  Contract assets and contract liabilities are determined on a contract-by-contract basis.

Net contract assets and liabilities are as follows:

	May 31,
	2020		2019		Change
Contract assets – current	$	49.3	$	59.2	$	(9.9)
Contract assets – non-current		22.4		17.0		5.4
Deferred revenue – current		(11.2)		(12.6)		1.4
Deferred revenue on long-term contracts		(88.0)		(83.8)		(4.2)
Net contract assets (liabilities)	$	(27.5)	$	(20.2)	$	(7.3)

Contract assets – non-current is reported within Other non-current assets, and Contract liabilities – current is reported within Accrued Liabilities on our Consolidated Balance Sheet.  Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.

44

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

During fiscal 2020, we terminated certain commercial power-by-the-hour (“PBH”) customer contracts and restructured another PBH contract. The restructured contract was deemed a loss contract requiring the establishment of forward loss reserves for the total estimated costs that are in excess of the total estimated consideration over the remainder of the contracts. The impact from these actions resulted in a charge of $31.3 million during fiscal 2020, which included a reduction in revenue of $17.3 million, the establishment of forward loss reserves of $5.4 million, and other related charges of $8.6 million. As of May 31, 2020, our Consolidated Balance Sheet included remaining forward loss reserves of $5.4 million with $3.1 million classified as current in Accrued liabilities and $2.3 million classified as long-term in Other liabilities.

Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows:

	Year ended May 31,
	2020		2019
Deferred revenue at beginning of period	$	(96.4)	$	(44.1)
Revenue deferred		(417.2)		(364.7)
Revenue recognized		410.5		306.6
Other		3.9		5.8
Deferred revenue at end of period	$	(99.2)	$	(96.4)

Remaining Performance Obligations

As of May 31, 2020, we had approximately $1.0 billion of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity contracts. We expect that approximately 50% of this backlog will be recognized as revenue over the next 12 months, with the majority of the remaining balance recognized over the next three years.  The amount of remaining performance obligations, which is expected to be recognized as revenue beyond 12 months, primarily relates to our long-term, power-by-the-hour programs where we provide component inventory management and/or repair services.

Financial Instruments and Concentrations of Market or Credit Risk

Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables.  While our trade receivables are diverse and represent a number of entities and geographic regions, the majority are with the U.S. government and its contractors and entities in the aviation industry.  The composition of our accounts receivable is as follows:

	May 31,
	2020		2019
U.S. Government contracts:
Trade receivables	$	33.9	$	28.7
Unbilled receivables		27.4		31.7
		61.3		60.4
All other customers:
Trade receivables		81.7		92.5
Unbilled receivables		28.9		44.9
		110.6		137.4
	$	171.9	$	197.8

In addition, we currently have past due accounts receivable owed by former commercial program customers primarily related to our exit from customer contracts in certain geographies, including Colombia, Peru, and Poland.  Our past due accounts receivable owed by these customers was $10.9 million as of May 31, 2020 which was net of allowance for doubtful accounts of $9.3 million.

45

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts and trade notes payable approximate fair value because of the short-term maturity of these instruments.  The carrying value of long-term debt bearing a variable interest rate approximates fair value.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Allowance for Doubtful Accounts

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

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

In fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer.  The provision consisted of impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.

The change in our allowance for doubtful accounts was as follows:

	May 31,
	2020		2019		2018
Balance, beginning of year	$	16.0	$	7.5	$	4.9
Provision charged to operations		5.4		15.8		0.5
Recoveries, deductions for accounts written off and other reclassifications		0.7		(7.3)		2.1
Balance, end of year	$	22.1	$	16.0	$	7.5

Goodwill and Other Intangible Assets

In accordance with ASC 350, Intangibles–Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually, on May 31, or more frequently if circumstances indicate that impairment is possible.

As of May 31, 2020, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and Maintenance, Repair, and Overhaul) and one comprised of our Expeditionary Services segment.  In fiscal 2019 and 2018, we utilized the qualitative assessment approach for all reporting units and 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.

46

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

In fiscal 2020, we elected to skip the qualitative assessment due to the unprecedented impact of the COVID-19 pandemic and utilized a quantitative assessment approach for all reporting units.  We estimated the fair value of each reporting unit using primarily an income approach based on discounted cash flows.  The assumptions we used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment in light of the impact of COVID-19.  We used discount rates based on our consolidated weighted average cost of capital which is adjusted for each of our reporting units based on their specific risk, size, and industry characteristics.  The fair value measurements used for our goodwill impairment testing use significant unobservable inputs, which reflect our own assumptions about the inputs that market participants would use in measuring fair value.  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.

Upon completion of the annual quantitative goodwill impairment analysis as of May 31, 2020 for our reporting units, we concluded the fair value of each reporting unit exceeded its carrying values, and thus no impairment charges were recorded.

Changes in the carrying amount of goodwill by segment for fiscal 2020 and 2019 are as follows:

	Aviation		Expeditionary
	Services		Services		Total
Balance as of May 31, 2018	$	99.4	$	19.3	$	118.7
Finalization of purchase price allocation		(1.0)		—		(1.0)
Foreign currency translation adjustments		(1.5)		—		(1.5)
Balance as of May 31, 2019		96.9		19.3		116.2
Foreign currency translation adjustments		(0.5)		—		(0.5)
Balance as of May 31, 2020	$	96.4	$	19.3	$	115.7

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets, other than goodwill, are comprised of the following:

	May 31, 2020
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	21.4	$	(16.5)	$	4.9
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	22.5	$	(16.5)	$	6.0

	May 31, 2019
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	25.5	$	(15.6)	$	9.9
Lease agreements		22.5		(14.0)		8.5
Other		3.4		(0.7)		2.7
		51.4		(30.3)		21.1
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	52.5	$	(30.3)	$	22.2

47

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

In conjunction with the adoption of ASC 842 on June 1, 2019, our intangible assets for lease agreements were re-classified to the ROU asset. During fiscal 2020, we recognized an impairment charge of $5.4 million related to the exit of certain product lines across both our Aviation Services and Expeditionary Services segments.

Customer relationships are being amortized over 5-20 years. Amortization expense recorded during fiscal 2020, 2019 and 2018 was  $2.3 million, $3.9 million, and $4.7 million, respectively. The estimated aggregate amount of amortization expense for intangible assets in each of the next five fiscal years is $1.7 million in 2021, $1.0 million in 2022, $0.5 million in 2023, $0.3 million in 2024 and $0.3 million in 2025.

Foreign Currency

Our foreign subsidiaries utilize the local currency as their functional currency. All balance sheet accounts of foreign subsidiaries transacting business in currencies other than the U.S. dollar are translated at year-end exchange rates. Revenues and expenses are translated at average exchange rates during the year. Translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss until such subsidiaries are liquidated.

Cash

Cash and cash equivalents consist of highly liquid instruments which have original maturities of three months or less when purchased. Restricted cash represents cash on hand required to be set aside by a contractual agreement related to receivable securitization arrangements. Generally, the restrictions related to the receivable securitization arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser.

Inventories

Inventories are valued at the lower of cost or market (estimated net realizable value). Cost is determined by the specific identification, average cost, or first-in, first-out methods. From time-to-time, we purchase aircraft and engines for disassembly to individual parts and components. Costs are assigned to these individual parts and components utilizing list prices from original equipment manufacturers and recent sales history.

The following is a summary of inventories:

	May 31,
	2020		2019
Aircraft and engine parts, components and finished goods	$	556.6	$	467.9
Raw materials and parts		45.9		41.8
Work-in-process		20.6		14.0
	$	623.1	$	523.7

Rotable Assets and Equipment under Leases

The cost of the asset under lease is the original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment. The balance sheet classification of equipment under lease is generally based on lease term, with fixed-term leases less than twelve months generally classified as short-term and all others generally classified as long-term.

Equipment on short-term lease includes aircraft engines and parts on or available for lease to satisfy customers’ immediate short-term requirements. The leases are renewable with fixed terms, which generally vary from one to twelve months.

48

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Property, Plant and Equipment and Other Non-Current Assets

We record property, plant and equipment at cost. Depreciation is computed on the straight-line method over useful lives of 10-40 years for buildings and improvements and 3-10 years for equipment, furniture and fixtures, and capitalized software. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the applicable lease.

Repair and maintenance expenditures are expensed as incurred. Upon sale or disposal, cost and accumulated depreciation are removed from the accounts, and related gains and losses are included in results of operations.

Rotable assets supporting long-term programs consist of rotable component parts used to support long-term supply chain programs. The assets are being depreciated on a straight-line basis over their estimated useful lives.

In accordance with ASC 360, Property, Plant and Equipment, we are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.  We utilize certain assumptions to estimate future undiscounted cash flows, including demand for our services, future market conditions and trends, business development pipeline of opportunities, current and future lease rates, lease terms, and residual values. In conjunction with the decision to exit certain product lines, we recognized rotable asset impairment charges of $1.9 million in fiscal 2020.  

Future rent due to us under non-cancelable leases during each of the next five fiscal years is $12.2 million in 2021, $11.6 million in 2022, $11.4 million in 2023, $11.3 million in 2024, and $11.3 million in 2025.

Investments

Investments where we have the ability to exercise significant influence, but do not control the entity, are accounted for under the equity method of accounting.  Significant influence generally exists if we have a 20% to 50% ownership interest in the investee. Our share of the net earnings or loss of our investees is included in operating income on our Consolidated Statements of Income since the activities of the investees are closely aligned with our operations. Equity investments in entities over which we do not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost.

We evaluate our investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Our investments are classified in Other non-current assets on our Consolidated Balance Sheets. Distributions from joint ventures are classified as operating or investing activities in the Consolidated Statements of Cash Flows based upon an evaluation of the specific facts and circumstances of each distribution.

Restructuring and Other Exit Costs

We recognize charges for restructuring and other exit costs such as product line exits and facility closures at their fair value when incurred.  In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period.

During fiscal 2020, we incurred severance and furlough-related costs of $7.1 million which were included as a component of Cost of sales and services and Selling, general and administrative on our Consolidated Statements of Income.  Our remaining liability for these costs as of May 31, 2020 was $5.5 million which is included in Accrued liabilities on the Consolidated Balance Sheet.

49

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Income Taxes

We are subject to income taxes in the U.S., state, and several foreign jurisdictions. In the ordinary course of business, there can be transactions and calculations where the ultimate tax determination is uncertain. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse.

We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return. Where necessary, we record a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

Supplemental Information on Cash Flows

Supplemental information on cash flows is as follows:

	For the Year Ended
	May 31,
	2020		2019		2018
Interest paid	$	8.6	$	8.8	$	7.2
Income taxes paid		14.3		7.0		17.0
Income tax refunds and interest received		7.0		6.4		0.1

During fiscal 2020, treasury stock decreased $5.0 million reflecting restricted stock activity of $0.8 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $8.3 million partially offset by the repurchase of common shares of $4.1 million.

During fiscal 2019, treasury stock increased $7.0 million reflecting the repurchase of common shares of $10.3 million, restricted stock activity of $0.8 million partially offset by the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $4.1 million.

During fiscal 2018, treasury stock increased $0.9 million reflecting the repurchase of common shares of $13.1 million, restricted stock activity of $1.0 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $11.2 million.

Use of Estimates

We have made estimates and utilized certain assumptions relating to the reporting of assets and liabilities and the disclosures of contingent liabilities to prepare these Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

50

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.  This ASU requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. This ASU also requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast of the collectability of the related financial asset.  We plan to adopt this ASU on June 1, 2020 and the adoption is not expected to have a material impact on our consolidated financial statements.

2.  Discontinued Operations

Our Contractor-Owned, Contractor-Operated (“COCO”) business previously included in our Expeditionary Services segment completed certain contracts in the second quarter of fiscal 2018.  As the aircraft supporting these contracts were not placed on new contracts, combined with the continued decline in operational tempo within the U.S. Department of Defense (“DoD”) and an excess supply of aircraft assets in the market, we determined there was an impairment triggering event and tested the recoverability of our COCO assets.  As a result, we recognized impairment and other charges of $54.2 million in the second quarter of fiscal 2018. The fair value of the aircraft and related assets was based on available market data for similar assets.

During the third quarter of fiscal 2018, we decided to pursue the sale of our COCO business.  Due to this strategic shift, the assets, liabilities, and results of operations of our COCO business have been reported as discontinued operations for all periods presented.  Goodwill was allocated to this business based on its relative fair value to the reporting unit.  The fair value of the reporting unit was determined based on a combination of the expected net proceeds upon sale and a discounted cash flow analysis.  As the fair value of the COCO business was below its carrying value, a goodwill impairment charge of $9.8 million was recorded in the third quarter of fiscal 2018.

During fiscal 2019, we signed an agreement to sell our U.S. Department of Defense ("DoD") contracts and certain assets of our COCO business.  In conjunction with this agreement and other expected asset sales, we recognized an impairment charge in discontinued operations of $74.1 million during the third quarter of fiscal 2019 reflecting the expected net proceeds to be received upon the completion of the sale transactions.

In fiscal 2020, we signed an agreement to sell the remaining operating contract of the COCO business and recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the disposal of the remaining COCO assets. The sale of the DoD contracts and related assets was completed in the second quarter of fiscal 2020 and the sale of the remaining operating contract was completed in the fourth quarter of fiscal 2020 shortly after government approval. Our continuing involvement in the COCO business is limited to the lease of certain aircraft which is an obligation of the acquirer of the non-DoD contract.

No amounts for general corporate overhead or interest expense were allocated to discontinued operations during the periods presented. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to our continuing operations.  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

2.  Discontinued Operations (Continued)

Operating results for discontinued operations were comprised of the following:

	For the Year Ended May 31,
	2020		2019		2018
Sales	$	40.4	$	95.8	$	96.3
Cost of sales		(45.4)		(106.1)		(101.4)
Asset impairments		(11.8)		(74.1)		(65.2)
Selling, general and administrative expenses		(8.6)		(12.1)		(11.8)
Operating loss from discontinued operations		(25.4)		(96.5)		(82.1)
Provision for income taxes		(5.0)		(19.9)		(24.0)
Loss from discontinued operations	$	(20.4)	$	(76.6)	$	(58.1)

The carrying amounts of the major classes of assets and liabilities for our discontinued operations are as follows:

	May 31,
	2020		2019
Accounts receivable, net	$	0.2	$	16.2
Inventory, rotable assets, and equipment		—		7.5
Operating lease ROU assets		21.9		—
Other assets		0.8		5.5
Assets of discontinued operations	$	22.9	$	29.2
Accounts payable and accrued liabilities	$	8.0	$	29.2
Operating lease liabilities		21.9		—
Liabilities of discontinued operations	$	29.9	$	29.2

3.  Sale of Receivables

On February 23, 2018, we entered into a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”).  Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell.  The term of the Purchase Agreement runs through February 22, 2021, 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.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser.  We account for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognize the sold receivables from our Consolidated Balance Sheet.

Receivables sold under the Purchase Agreement during fiscal 2020, 2019, and 2018 were $746.4 million, $744.2 million, and $239.6, respectively.  Amounts remitted to the Purchaser on their behalf during fiscal 2020, 2019, and 2018 were $758.3 million, $729.7 million, and $167.9, respectively.  As of May 31, 2020 and May 31, 2019, we had collected cash of $20.0 million and $19.8 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.

We recognize discounts on the sale of our receivables and other fees related to the Purchase Agreement in Other expense, net on our Consolidated Statements of Income. During fiscal 2020, 2019 and 2018, we incurred discounts on the sale of our receivables and other fees of $1.8 million,  $2.2 million and $0.9 million, respectively.

52

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

4. Financing Arrangements

Debt Outstanding

A summary of the carrying amount of our debt is as follows:

	May 31,
	2020		2019
Revolving Credit Facility expiring September 25, 2024 with interest payable monthly	$	579.5	$	120.0
Term loan due November 1, 2021 with interest payable monthly		22.5		22.9
Total debt		602.0		142.9
Current maturities of debt		—		—
Debt issuance costs, net		(2.0)		(1.2)
Long-term debt	$	600.0	$	141.7

At May 31, 2020, our variable rate debt had a fair value that approximates its carrying value and is classified as Level 2 in the fair value hierarchy.

On October 18, 2017, we entered into a Credit Agreement with the Canadian Imperial Bank of Commerce, as lender (the “Credit Agreement”). The Credit Agreement provided a Canadian $31 million term loan with the proceeds used to fund the acquisition of two maintenance, repair, and overhaul (“MRO”) facilities in Canada from Premier Aviation. The term loan is due in full at the expiration of the Credit Agreement on November 1, 2021 unless terminated earlier pursuant to the terms of the Credit Agreement. Interest is payable monthly on the term loan at the offered fluctuating Canadian Dollar Offer Rate plus 125 to 225 basis points based on certain financial measurements if a Bankers’ Acceptances loan, or at the offered fluctuating Prime Rate plus 25 to 125 basis points based on certain financial measurements, if a Prime Rate loan.

On September 25, 2019, we entered into an amendment to our Revolving Credit Facility that extended the maturity of the Revolving Credit Facility to September 25, 2024, increased the revolving credit commitment to $600 million, and modified certain other provisions. 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.  

Borrowings under the Revolving Credit Facility bear interest at the offered Eurodollar Rate plus 87.5 to 175 basis points based on certain financial measurements if a Eurodollar Rate loan, or at the offered fluctuating Base Rate plus 0 to 75 basis points based on certain financial measurements if a Base Rate loan.

Our financing arrangements also require us to comply with leverage and interest coverage ratios, maintain a minimum net working capital level, and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, payment of indebtedness, cash dividends, taxes and other obligations, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets.  The Revolving Credit Facility also requires our significant domestic subsidiaries, and any subsidiaries that guarantee our other indebtedness, to provide a guarantee of payment under the Revolving Credit Facility.  At May 31, 2020, we were in compliance with the financial and other covenants in our financing agreements.

53

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

4. Financing Arrangements (Continued)

Borrowing activity under the Revolving Credit Facility during fiscal 2020, 2019 and 2018 is as follows:

	For the Year Ended May 31,
	2020			2019			2018
Maximum amount borrowed	$	579.5		$	287.0		$	275.0
Average daily borrowings		280.7			207.8			214.1
Average interest rate during the year		2.62	%		3.41	%		2.52	%

We also have $9.3 million available under foreign lines of credit.

5. Equity

Stock-Based Compensation

We have granted stock-based awards under the AAR CORP. 2013 Stock Plan (the “2013 Stock Plan”) and the AAR CORP. Stock Benefit Plan (“Stock Benefit Plan”) each of which has been approved by our stockholders. No further awards will be made under the Stock Benefit Plan. Under the 2013 Stock Plan, we are authorized to issue stock options to employees and non-employee directors that allow the grant recipients to purchase shares of common stock at a price not less than the fair market value of the common stock on the date of grant. Generally, stock options awarded expire ten years from the date of grant and are exercisable in three annual increments commencing one year after the date of grant. In addition to stock options, the 2013 Stock Plan also provides for the grant of time-based restricted stock awards and performance-based restricted stock awards. The number of performance-based awards earned, subject to vesting, is based on achievement of certain Company-wide or segment financial goals or stock price targets. The 2013 Stock Plan also provides for the grant of stock appreciation units and restricted stock units; however, to date, no such awards have been granted.

Restricted stock grants (whether time-based or performance-based) are designed, among other things, to align employee interests with the interests of stockholders and to encourage the recipient to build a career with us. Restricted stock typically vests over periods of one to five years from the date of grant. Restricted stock grants may be performance-based with vesting to occur over periods of three to five years. All restricted stock that has been granted and, if performance-based, earned according to performance criteria carries full dividend and voting rights, regardless of whether it has vested.

Substantially all stock options and restricted stock are subject to forfeiture prior to vesting if the employee’s employment terminates for any reason other than death, disability or retirement. Since inception, a total of 11,149,000 shares have been granted under the Stock Benefit Plan. We have granted a total of 3,656,000 shares under the 2013 Stock Plan. All future stock awards will be made under the 2013 Stock Plan. There were 646,088 shares available for grant under the 2013 Stock Plan as of May 31, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

5. Equity (Continued)

Stock Options

During fiscal 2020, 2019, and 2018, we granted stock options with respect to 414,460 shares, 300,240 shares and 463,140 shares, respectively. The weighted average fair value per share of stock options granted during fiscal 2020, 2019 and 2018 was $10.30, $13.60 and $9.29, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

	Stock Options Granted
	In Fiscal Year
	2020		2019		2018
Risk-free interest rate	1.9	%	2.7	%	1.8	%
Expected volatility of common stock	32.0	%	30.8	%	31.7	%
Dividend yield	0.8	%	0.6	%	0.9	%
Expected option term in years	4.5		4.5		4.3

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatility of our common stock, and the expected option term represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The dividend yield represents our anticipated cash dividends at the grant date over the expected option term.

A summary of stock option activity for the three years ended May 31, 2020 consisted of the following (shares in thousands):

	2020			2019			2018
		Weighted			Weighted			Weighted
		Average			Average			Average
	Shares	Exercise Price		Shares	Exercise Price		Shares	Exercise Price
Outstanding at beginning of year	1,777	$	30.37	2,082	$	26.72	2,334	$	23.02
Granted	414	$	37.66	300	$	47.84	463	$	35.33
Exercised	(300)	$	24.99	(571)	$	25.56	(704)	$	20.04
Cancelled	(40)	$	36.72	(34)	$	42.02	(11)	$	29.50
Outstanding at end of year	1,851	$	32.74	1,777	$	30.37	2,082	$	26.72
Options exercisable at end of year	1,133	$	28.32	981	$	25.28	883	$	23.81

The total fair value of stock options that vested during fiscal 2020, 2019, and 2018 was $3.7 million, $5.6 million, and $4.9 million, respectively. The total intrinsic value of stock options exercised during fiscal 2020, 2019, and 2018 was $6.2 million, $12.2 million, and $14.2 million, respectively. The aggregate intrinsic value of options outstanding was $0.5 million and $6.7 million as of May 31, 2020 and 2019, respectively. The tax benefit realized from stock options exercised during fiscal 2020, 2019, and 2018 was $2.1 million, $2.7 million, and $2.9 million, respectively. Expense recognized in selling, general and administrative expenses for stock options during fiscal 2020, 2019, and 2018 was $3.9 million, $4.1 million, and $5.1 million, respectively. As of May 31, 2020, we had $4.2 million of unrecognized compensation expense related to stock options that will be amortized over an average period of 1.3 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

5. Equity (Continued)

Restricted Stock

We provide executives and other key employees an opportunity to be awarded performance-based and time- based restricted stock. The performance-based awards are contingent upon the achievement of certain objectives, which generally include cumulative income, average return on capital, and relative total shareholder return over a three-year performance period. During fiscal 2020, 2019, and 2018, we granted 52,475, 43,680, and 108,440 of performance-based restricted shares, respectively. Time-based restricted shares of 56,535, 46,470, and 24,425 were granted to executives and key employees during fiscal 2020, 2019, and 2018, respectively. We also award time-based restricted stock to our non-employee directors as part of their annual compensation. Time-based restricted shares of 44,123, 29,128, and 55,000 were granted to members of the Board of Directors during fiscal 2020, 2019, and 2018, respectively.

The fair value of restricted shares is the market value of our common stock on the date of grant. Expense recognized in selling, general and administrative expenses for all restricted share programs during fiscal 2020, 2019, and 2018 was $3.4 million, $9.4 million, and $10.2 million, respectively.

Restricted share activity during fiscal 2020 was as follows (shares in thousands):

		Weighted Average
	Number of	Fair Value
	Shares	on Grant Date
Nonvested at May 31, 2019	532	$	31.70
Granted	279	$	19.44
Vested	(412)	$	25.27
Forfeited	(14)	$	37.02
Nonvested at May 31, 2020	385	$	31.70

As of May 31, 2020 we had $2.5 million of unearned compensation related to restricted shares that will be amortized to expense over a weighted average period of 1.6 years.

Stockholder Rights Plan

Pursuant to a limited duration stockholder rights plan adopted in 2020, each outstanding share of our common stock carries with it a right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock (a “Preferred Share”) for $100.00 (the “Exercise Price”). The rights become exercisable when certain specified events occur, including the acquisition of 10% (or 20% in the case of passive investors who are eligible to, and do, report their holdings on Schedule 13G with the SEC) or more of the common stock by a person or group (an "Acquiring Person") or the commencement of a tender or exchange offer for 10% or more of the common stock without the approval of the Board of Directors.

In the event that an Acquiring Person acquires 10% or more of the common stock, or if we are the surviving corporation in a merger involving an Acquiring Person or if the Acquiring Person engages in certain types of self-dealing transactions, each right entitles the holder (other than the Acquiring Person) to purchase a Preferred Share for the Exercise Price. Similarly, if we are acquired in a merger or other business combination or 50% or more of our assets or earning power is sold, each right entitles the holder (other than the Acquiring Person) to purchase at the then-current exercise price that number of shares of common stock of the surviving corporation having a market value of two times the exercise price. The rights do not entitle the holder thereof to vote or to receive dividends. The rights will expire on February 28, 2021, and may be redeemed by us for $.0001 per right under certain circumstances.

56

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

6. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted which significantly revised the U.S. corporate income tax system. The Tax Reform Act, among other things, reduced the corporate federal income tax rate to 21% from 35%, changed bonus depreciation regulations and limited deductions for executive compensation. The income tax rate reduction in the Tax Reform Act was effective January 1, 2018 which resulted in a blended federal statutory tax rate of 29.2% in fiscal 2018.

In fiscal 2018, we re-measured our deferred tax assets and liabilities based on the tax rate at which they are expected to reverse in the future, which was either at a federal rate of 29.2% for reversals expected in fiscal 2018 or 21% for reversals in fiscal 2019 and subsequent years. During fiscal 2018, we recognized an income tax benefit of $14.1 million for the re-measurement impact from applying the provisions of the Tax Reform Act.

The provision for income tax on income from continuing operations includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Current:
Federal	$	1.4	$	4.8	$	14.6
State		0.9		0.1		0.1
Foreign		2.8		5.0		1.7
		5.1		9.9		16.4
Deferred		0.5		(5.0)		(12.9)
	$	5.6	$	4.9	$	3.5

The provision for income taxes on pre-tax income differs from the amount computed by applying the U.S. federal statutory income tax rate of 21.0% for fiscal 2020 and 2019, and 29.2% for fiscal 2018 to income from continuing operations before provision for income taxes due to the following:

	For the Year Ended
	May 31,
	2020		2019		2018
Provision for income tax at the federal statutory rate	$	6.4	$	18.7	$	22.5
Deferred tax re-measurement from the Tax Reform Act		—		—		(14.1)
Excess tax benefits from stock-based compensation		(2.1)		(2.7)		(2.9)
State income taxes, net of federal benefit		1.1		1.9		1.5
Change in valuation allowance for state deferred tax assets		(0.1)		(6.9)		(3.4)
Effective settlement of prior tax positions		—		(4.7)		—
Other		0.3		(1.4)		(0.1)
Provision for income tax	$	5.6	$	4.9	$	3.5

Income before provision for income taxes includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Domestic	$	23.6	$	68.9	$	58.7
Foreign		6.8		20.1		18.5
	$	30.4	$	89.0	$	77.2

57

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

6. Income Taxes (Continued)

Deferred tax liabilities and assets result primarily from the differences in the timing of the recognition of transactions for financial reporting and income tax purposes. Our deferred tax liabilities and assets consist of the following components:

	May 31,
	2020		2019
Deferred tax assets:
Operating lease liabilities	$	24.9	$	—
State net operating losses		9.4		9.0
Credits and incentives		8.2		—
Employee benefits		8.0		9.4
Deferred revenue		2.3		7.7
Inventory costs		2.8		4.9
Postretirement benefits		5.3		3.7
Other		4.0		4.8
Total deferred tax assets		64.9		39.5
Valuation allowance		—		(0.1)
Total deferred tax assets net of valuation allowance		64.9		39.4
Deferred tax liabilities:
Tangible and intangible assets		(35.0)		(36.1)
ROU operating lease assets		(26.2)		—
Other		(0.2)		(0.2)
Total deferred tax liabilities		(61.4)		(36.3)
Net deferred tax assets	$	3.5	$	3.1

As of May 31, 2020, we have determined that the realization of our deferred tax assets is more likely than not and that a valuation allowance is not required. Our net operating losses have  carry forward periods that range from 5 to 20 years.  Our history of operating earnings, our expectations for continued future earnings, the nature of certain of our deferred tax assets and the scheduled reversal of deferred tax liabilities, primarily related to depreciation, support the recoverability of the majority of the deferred tax assets. Our net deferred tax assets are included in Other non-current assets on our Consolidated Balance Sheets.

Income tax receivable was $7.9 million and $1.1 million at May 31, 2020 and 2019, respectively, and was included in Other current assets on the Consolidated Balance Sheets.

Our federal income tax returns for fiscal years 2017 and subsequent are open for examination. Various states and foreign jurisdictions also remain open subject to their applicable statute of limitations.

58

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

7. Earnings Per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options and shares issuable upon vesting of restricted stock awards.

In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, our unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares. During periods of net income, the calculation of earnings per share for common stock excludes income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

The following tables provide a reconciliation of the computations of basic and diluted earnings per share information for each of the years in the three-year period ended May 31, 2020 (shares in millions).

	For the Year Ended
	May 31,
	2020		2019		2018
Basic and Diluted EPS:
Income from continuing operations	$	24.8	$	84.1	$	73.7
Less income attributable to participating shares		(0.1)		(0.4)		(0.6)
Income from continuing operations attributable to common stockholders		24.7		83.7		73.1
Loss from discontinued operations attributable to common stockholders		(20.4)		(76.6)		(58.1)
Net income attributable to common stockholders for earnings per share	$	4.3	$	7.1	$	15.0
Weighted average common shares outstanding - basic		34.8		34.5		34.2
Additional shares from assumed exercise of stock options		0.2		0.4		0.4
Weighted average common shares outstanding - diluted		35.0		34.9		34.6
Earnings per share - basic:
Earnings from continuing operations	$	0.71	$	2.42	$	2.14
Loss from discontinued operations		(0.59)		(2.22)		(1.70)
Earnings per share - basic	$	0.12	$	0.20	$	0.44
Earnings per share - diluted:
Earnings from continuing operations	$	0.71	$	2.40	$	2.11
Loss from discontinued operations		(0.58)		(2.19)		(1.70)
Earnings per share - diluted	$	0.13	$	0.21	$	0.41

At May 31, 2020 and 2019 respectively, outstanding options to purchase 669,400 and 273,400 shares of common stock were not included in the computation of diluted earnings per share, because the exercise price of these options was greater than the average market price of the common shares for the year then ended. At May 31, 2018, the average market price of our common shares was in excess of the exercise prices of all of our outstanding options.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for domestic salaried and non-union hourly employees had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted our defined benefit plan for substantially all domestic salaried and certain hourly employees to a cash balance pension plan. Under the cash balance pension plan, the retirement benefit is expressed as a dollar amount in an account that grows with annual pay-based credits and interest on the account balance. The interest crediting rate under our cash balance plan is determined quarterly and is equal to 100% of the average 30-year treasury rate for the second month preceding the applicable quarter published by the Internal Revenue Service. The average interest crediting rate under our cash balance plan for the fiscal year ended May 31, 2020 was 4.46%. Effective June 1, 2005, the existing cash balance plan was frozen and the annual pay-based credits were discontinued. Also effective June 1, 2005, the defined contribution plan was modified to include increased employer contributions and an enhanced profit sharing formula. Defined pension benefits for certain union hourly employees are based primarily on a fixed amount per year of service and the plan was frozen in fiscal 2018.

We also have a defined benefit pension plan covering certain employees in the Netherlands.  Benefit formulas are based generally on years of service and compensation.  

We also have a benefit plan which provides benefits to certain retired outside directors.  In fiscal 2001, we froze the plan for any new members of the Board of Directors and no current directors participate in this plan.

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans was as follows:

	May 31,
	2020		2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	149.2	$	146.5
Service cost		2.8		2.3
Interest cost		3.8		4.3
Participant contributions		0.3		0.4
Net actuarial loss		10.1		6.5
Benefits and administrative payments		(4.9)		(6.9)
Settlements		(2.2)		(0.6)
Foreign currency translation adjustment		—		(3.3)
Projected benefit obligation at end of year	$	159.1	$	149.2
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	129.9	$	134.5
Actual return on plan assets		8.6		2.8
Employer contributions		0.4		2.6
Participant contributions		—		0.4
Benefits and administrative payments, including settlements		(7.1)		(7.5)
Foreign currency translation adjustment		—		(2.9)
Fair value of plan assets at end of year	$	131.8	$	129.9
Funded status at end of year	$	(27.3)	$	(19.3)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans (Continued)

Amounts recognized in the Consolidated Balance Sheets consisted of the following:

	May 31,
	2020		2019
Accrued liabilities	$	(0.4)	$	(0.4)
Other liabilities		(26.9)		(18.9)
Funded status at end of year	$	(27.3)	$	(19.3)
Accumulated other comprehensive loss	$	63.5	$	58.7

For all of our pension plans, both the projected benefit obligation and the accumulated benefit obligation are in excess of the individual plans’ assets.  The accumulated benefit obligation for all pension plans was $151.9 million and $142.4 million at May 31, 2020 and 2019, respectively.

Net Periodic Benefit Cost

Pension expense charged to the Consolidated Statements of Income includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Service cost	$	2.8	$	2.3	$	2.4
Interest cost		3.8		4.3		4.3
Expected return on plan assets		(6.8)		(7.1)		(7.3)
Curtailment		—		—		0.3
Settlements		1.5		0.1		—
Amortization of prior service credit		—		(0.1)		—
Recognized net actuarial loss		2.0		1.8		2.3
	$	3.3	$	1.3	$	2.0

The estimated amount of net actuarial loss to be amortized from accumulated other comprehensive loss into expense during fiscal 2021 is $2.2 million.

Assumptions

The assumptions used in accounting for our plans are estimates of factors including, among other things, the amount and timing of future benefit payments. The following table presents the key weighted-average assumptions used in the measurement of our projected benefit obligations:

	May 31,
	2020		2019
Discount rate:
Domestic plans	2.83	%	3.67	%
International plan	1.20		1.50
Rate of compensation increase:
Domestic plans	n/a		n/a
International plans	3.00	%	3.00	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans (Continued)

A summary of the weighted-average assumptions used to determine net periodic pension expense is as follows:

	For the Year Ended
	May 31,
	2020		2019		2018
Discount rate:
Domestic plans	3.67	%	4.05	%	3.82	%
International plan	1.50		1.90		2.00
Expected long-term rate on plan assets:
Domestic plans	7.25	%	7.25	%	7.25	%
International plan	2.90		3.60		4.00

The discount rate was determined by projecting the expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

Plan Assets

The following table sets forth the actual asset allocation and target allocations for our U.S. pension plans:

	May 31,				Target Asset
	2020		2019		Allocation
Equity securities	60	%	59	%	45 – 75	%
Fixed income securities	20		22		15 – 45	%
Other	20		19		0 – 25	%
	100	%	100	%

The assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974. The investment goals are to provide a total return that, over the long term, optimizes the long-term return on plan assets at an acceptable risk, and to maintain a broad diversification across asset classes and among investment managers. We believe that there are no significant concentrations of risk within our plan assets as of May 31, 2020. The use of derivatives for the purpose of speculation are not permitted. The assets of the U.S. pension plans are invested primarily in equity and fixed income mutual funds, individual common stocks, and fund-of-funds hedge funds. The assets of the non-domestic plan are invested in funds-of-funds where each fund holds a portfolio of equity and fixed income mutual funds.

To develop our expected long-term rate of return assumption on domestic plans, we use long-term historical return information for our targeted asset mix and current market conditions. The expected return for each asset class is weighted based on the target asset allocation to develop the expected long-term rate of return on plan assets assumption. While consideration is given to recent performance, the assumption represents a long-term, prospective rate of return.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans (Continued)

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2020:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.5	$	—	$	—	$	31.5
International mutual funds		7.6		—		—		7.6
Fixed income:
Government securities and corporate bond mutual funds		8.4		4.7		—		13.1
Funds-of-funds		—		54.6		8.5		63.1
Hedge funds		—		—		4.3		4.3
Insurance annuities		—		—		11.7		11.7
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	48.0	$	59.3	$	24.5	$	131.8

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2019:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.1	$	—	$	—	$	31.1
International mutual funds		8.4		—		—		8.4
Fixed income:
Government securities and corporate bond mutual funds		9.0		5.9		—		14.9
Funds-of-funds		—		53.0		7.9		60.9
Hedge funds		—		—		4.2		4.2
Insurance annuities		—		—		9.9		9.9
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	49.0	$	58.9	$	22.0	$	129.9

(1) Quoted prices in active markets for identical assets that we have the ability to access as of the reporting date.

(2) Inputs other than quoted prices included within Level 1 that are directly observable for the asset or indirectly observable through corroboration with observable market data.

(3) Unobservable inputs, such as internally developed pricing models or third party valuations for the asset due to little or no market activity for the asset.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans (Continued)

The following table presents the reconciliation of Level 3 pension assets measured at fair value for the fiscal years ended May 31, 2020 and 2019:

	Hedge Funds		Fund-of-funds		Insurance Annuities		Total
Balance as of May 31, 2018	$	4.4	$	7.7	$	7.8	$	19.9
Purchases		—		—		2.1		2.1
Return on plan assets related to assets still held at May 31, 2019		(0.2)		0.2		—		—
Balance as of May 31, 2019		4.2		7.9		9.9		22.0
Purchases		—		—		1.8		1.8
Sales		(0.1)		—		—		(0.1)
Return on plan assets related to assets still held at May 31, 2020		0.2		0.6		—		0.8
Balance as of May 31, 2020	$	4.3	$	8.5	$	11.7	$	24.5

Valuation Techniques Used to Determine Fair Value

Cash equivalents are investments with maturities of three months or less when purchased. The fair values are based on observable market prices and categorized as Level 1.

With respect to individually held equity securities, including investments in U.S. and international securities, the trustees obtain prices from pricing services, whose prices are obtained from direct feeds from market exchanges, which we are able to independently corroborate. Equity securities held individually are primarily traded on exchanges that contain only actively traded securities, due to the volume trading requirements imposed by these exchanges. Equity securities are valued based on quoted prices in active markets and categorized as Level 1.

Equity and fixed income mutual funds are maintained by investment companies that hold certain investments in accordance with a stated set of fund objectives, which are consistent with our overall investment strategy. The values of some of these funds are publicly quoted. For equity and fixed income mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. As certain of our funds-of-funds investments are also derived from quoted prices in active markets, we have categorized certain funds-of-funds investments as Level 2.

Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. The fair value of hedge funds is determined using net asset value or its equivalent subject to certain restrictions, such as a lock-up period. As we may be limited in our ability to redeem the investments at the measurement date or within a reasonable period of time, the hedge fund investments are categorized as Level 3.  Our other Level 3 investments require the utilization of unobservable inputs resulting in Level 3 treatment in the fair value hierarchy.

Future Benefit Payments and Funding

The following table summarizes our estimated future pension payments by fiscal year:

	Fiscal Year
											2026 to
	2021		2022		2023		2024		2025		2030
Estimated future pension payments	$	6.7	$	6.1	$	6.4	$	5.8	$	6.9	$	35.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

8. Employee Benefit Plans (Continued)

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. For our Netherlands pension plan, our policy is to fund at least the minimum amount required by the local laws and regulations. We anticipate contributing approximately $3.1 million to our pension plans during fiscal 2021, which includes approximately $1.1 million of the Netherlands' fiscal 2020 contribution which was deferred to fiscal 2021.

Postretirement Benefits Other Than Pensions

We provide health and life insurance benefits for certain eligible retirees. The postretirement plan is unfunded and in fiscal 1995, we completed termination of postretirement health and life insurance benefits attributable to future services of collective bargaining and other domestic employees. The unfunded projected benefit obligation for this plan was $0.4 million and $0.4 million as of May 31, 2020 and 2019, respectively. We have omitted substantially all of the required disclosures related to this plan because the plan is not material to our consolidated financial position or results of operations.

Defined Contribution Plan

Our defined contribution plans are intended to qualify as a 401(k) plans under the Internal Revenue Code.  Employees may contribute up to 75% of their pretax compensation, subject to applicable regulatory limits and we may make discretionary matching contributions up to 5% of employee compensation.  We modified the contribution structure in fiscal 2020 to eliminate the profit sharing contribution for future years.  Our contributions vest on a pro-rata basis during the first three years of employment.  We also maintain a non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of Internal Revenue Code limits and provides additional employer contributions for certain executives and key employees to supplement the benefits provided by the defined contribution plans.  

In response to the impact from COVID-19, we temporarily suspended our matching contributions to the defined contribution plans effective June 1, 2020.  Expense charged to the Consolidated Statements of Income for our matching contributions, including profit sharing contributions, was $11.6 million in fiscal 2020, $11.4 million in fiscal 2019 and $9.2 million in fiscal 2018 for these plans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

9.  Accumulated Other Comprehensive Loss

Changes in our accumulated other comprehensive loss (“AOCL”) by component for each of the years in the three-year period ended May 31, 2020 were as follows (all amounts are net of tax):

	Currency
	Translation		Pension
	Adjustments		Plans		Total
Balance as of June 1, 2017	$	(1.7)	$	(38.2)	$	(39.9)
Other comprehensive loss before reclassifications		2.0		4.2		6.2
Amounts reclassified from AOCL		—		1.7		1.7
Total other comprehensive loss		2.0		5.9		7.9
Balance as of May 31, 2018		0.3		(32.3)		(32.0)
Other comprehensive income (loss) before reclassifications		(2.4)		(8.0)		(10.4)
Amounts reclassified from AOCL		—		1.5		1.5
Total other comprehensive income (loss)		(2.4)		(6.5)		(8.9)
Balance as of May 31, 2019		(2.1)		(38.8)		(40.9)
Other comprehensive income before reclassifications		0.1		(5.0)		(4.9)
Amounts reclassified from AOCL		—		1.2		1.2
Total other comprehensive income		0.1		(3.8)		(3.7)
Balance as of May 31, 2020	$	(2.0)	$	(42.6)	$	(44.6)

10. Other Non-current Assets

At May 31, 2020 and 2019, other non-current assets consisted of the following:

	May 31,
	2020		2019
Contract assets	$	22.4	$	17.0
Investments in joint ventures		17.8		12.3
Cash surrender value of life insurance		15.6		15.6
Assets under deferred compensation plan		13.1		10.4
License fees		4.1		7.2
Other		8.5		15.0
	$	81.5	$	77.5

Investments in Joint Ventures

During fiscal 2018, we sold interests in two aircraft joint ventures, which were accounted for under the equity method of accounting.  We received cash proceeds of $7.3 million and recognized a gain on the sale of $0.4 million.  

Under the terms of servicing agreements with certain of our aircraft joint ventures, we provide administrative services and technical advisory services, including aircraft evaluations, oversight and logistical support of the maintenance process and records management.  We also provide evaluation and inspection services prior to the purchase of an aircraft and remarketing services with respect to the divestiture of aircraft by the joint ventures.  During fiscal 2020, 2019, and 2018, we were paid $1.6 million, $0.4 million, and $0.4 million, respectively, for such services.

Our investments in joint ventures include $12.6 million for our 40% ownership interest in a joint venture in India to develop and operate an airframe maintenance facility.  Facility construction is expected to be completed in fiscal 2021.  

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(Dollars in millions, except per share amounts)

10. Other Non-current Assets (Continued)

The investment balance as of May 31, 2020 includes $8.2 million related to the guarantee liability recognized in conjunction with our guarantee of 40% of the Indian joint venture’s debt.  The Indian joint venture is accounted for using the equity method.  In addition, each of the partners in the Indian joint venture have a loan to the joint venture proportionate to its equity ownership.  Our loan to the Indian joint venture under this arrangement was $3.0 million as of May 31, 2020.

In the fourth quarter of fiscal 2020, we decided to exit our joint venture which operates a landing gear wheel and brake repair and overhaul facility in Malaysia.  In conjunction with the decision to exit the joint venture, we recognized an impairment charge of $1.9 million reflecting the anticipated net proceeds from our investment.  The impairment charge is reported in Earnings (Loss) from joint ventures on the Consolidated Statement of Income.

License Fees

In June 2011, we entered into a ten-year agreement with Unison Industries (“Unison”) to be the exclusive worldwide aftermarket distributor for Unison’s electrical components, sensors, switches and other systems for aircraft and industrial uses.  In June 2020, we entered into an extension and expansion of our agreement with Unison including a new termination date of December 31, 2031, an initial $25.0 million license fee paid in June 2020 to Unison, and annual license fees at a fixed percentage of our net sales of Unison products.  The June 2020 payment of $25.0 million was capitalized and will be amortized on a straight-line basis over the term of the new agreement.

11. Leases

We lease facilities, offices, vehicles, and equipment.  We determine at inception whether an arrangement that provides us control over the use of an asset is a lease.  ROU assets and lease liabilities are recognized on the Consolidated Balance Sheet at lease commencement date based on the present value of the future minimum lease payments over the lease term.  Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors.  We estimate our incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.

Our lease costs are allocated over the remaining lease term on a straight-line basis unless another systematic or rational basis is more representative of the pattern in which the underlying asset is expected to be used. ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.

Certain leases include options to renew or extend the terms of the lease, which are included in the determination of the ROU assets and lease liabilities when it is reasonably certain that the option will be exercised. Our leases may also include variable lease payments such as escalation clauses based on consumer price index rates, maintenance costs and utilities. Variable lease payments that depend on an index or a rate are included in the determination of ROU assets and lease liabilities using the index or rate at the lease commencement date, whereas variable lease payments that do not depend on an index or rate are recorded as lease expense in the period incurred.  Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.

The summary of our operating lease cost is as follows:

	Fiscal Year Ended
	May 31, 2020
Operating lease cost	$	18.4
Short-term lease cost		5.3
Variable lease cost		7.4
	$	31.1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

11. Leases (Continued)

Rental expense for facilities and equipment during fiscal years 2019 and 2018 was $25.9 million and $23.5 million, respectively.

As a result of the COVID-19 pandemic, we entered into deferral agreements with our various landlords in the fourth quarter of fiscal 2020.  Under these agreements, certain rent payments will be deferred or modified without penalty for various periods, generally for a minimum of three months.  We have elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications.  As of May 31, 2020, our total rent payments deferred under these arrangements was $0.6 million.

With the exception of a land lease for one of our airframe maintenance facilities that expires in 2108, our operating leases expire at various dates through 2034.  Maturities of our operating lease payments as of May 31, 2020 are as follows:

2021	$	16.5
2022		14.5
2023		12.7
2024		10.7
2025		8.3
Thereafter		36.5
Total undiscounted payments		99.2
Less: Imputed interest		(14.6)
Present value of minimum lease payments		84.6
Less: Operating lease liabilities – current		(13.7)
Operating lease liabilities – non-current	$	70.9

The current portion of operating lease liabilities are presented within Accrued liabilities on our Consolidated Balance Sheet.

As of May 31, 2020, the weighted average remaining lease term and discount rate for our operating leases were approximately 7.9 years and 3.5%, respectively.  

Supplemental cash flow information related to leases for the year ended May 31, 2020 was as follows:

	Fiscal Year Ended
	May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	16.5
Operating lease liabilities arising from obtaining ROU assets		13.0

12. Commitments and Contingencies

We enter into purchase obligations, which 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. The aggregate amount of purchase obligations due in each of the next five fiscal years is $344.8 million in 2021, $15.8 million in 2022, $5.4 million in 2023, $0.1 in 2024 and $0.1 million in 2025.

We routinely issue letters of credit and performance bonds in the ordinary course of our business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at May 31, 2020 was approximately $31.5 million which includes $12.4 million related to a guarantee of 40% of the outstanding debt of our Indian joint venture. We have recognized a current liability of $8.2 million based on the fair value of our guarantee obligation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

12. Commitments and Contingencies (Continued)

We are involved in various claims and legal actions, including environmental matters, arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition or results of operations.

Government Actions to Mitigate COVID-19’s Impact

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S. in response to the COVID-19 pandemic.  The CARES Act includes provisions relating to refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carrybacks, and other areas.  The payroll tax deferral requires that the deferred payroll taxes be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.  During the fourth quarter of fiscal 2020, we deferred $2.5 million of payroll taxes which are included in Other liabilities on our Consolidated Balance Sheet.

Certain subsidiaries of the Company expect to receive $57.2 million from the U.S. Treasury Department through the Payroll Support Program under the CARES Act.  These funds will be used exclusively for the continuation of payment of employee wages, salaries and benefits for employees of those subsidiaries. Of the $57.2 million total amount expected to be received, approximately $48.5 million will be a direct grant and approximately $8.7 million will be in the form of a low interest 10-year senior unsecured promissory note.  We expect that certain corporate restrictions will apply to us and those subsidiaries for approximately the next two years including restrictions on dividends, stock repurchases, employee compensation, and certain workforce actions.

Other countries have enacted similar legislation to provide relief and stimulus measures to assist companies in mitigating the financial impact from COVID-19 and supporting their employees.  During the fourth quarter of fiscal 2020, our foreign subsidiaries recognized employment subsidies of $2.8 million from foreign governments which have been deducted from the related expenses on our Consolidated Statement of Income.

13.  Acquisition

On September 19, 2017, we acquired the outstanding shares of two MRO facilities in Canada owned by Premier Aviation for approximately $24.8 million. The purchase price includes $22.9 million paid at closing with the remaining deferred consideration paid in September 2018. This business is included in our Aviation Services segment. The fair value of assets acquired and liabilities assumed is as follows:

Current assets	$	4.4
Property and equipment		15.1
Intangible assets, including goodwill		14.6
Accounts payable and accrued liabilities		(9.3)
	$	24.8

14. Business Segment Information

Segment Reporting

Consistent with how our chief operating decision making officer (Chief Executive Officer) evaluates performance and the way we are organized internally, we report our activities in two segments:  Aviation Services comprised of supply chain and MRO activities and Expeditionary Services comprised of manufacturing activities.

14. Business Segment Information (Continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers.  Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets.  We provide customized inventory supply chain management, performance-based logistics programs, customer fleet management and operations, and aircraft component repair management services.  The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components.  Cost of sales consists principally of the cost of product, direct labor, and overhead.

The Expeditionary Services segment consists of 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.  This segment also designs and manufactures advanced composite materials for commercial, business and military aircraft.  Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead.

The accounting policies for the segments are the same as those described in Note 1.  Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments and utilizes gross profit as a primary profitability measure.  Gross profit is calculated by subtracting cost of sales from sales.  The assets and certain expenses related to corporate activities are not allocated to the segments.  Our reportable segments are aligned principally around differences in products and services.

Selected financial information for each segment is as follows:

	For the Year Ended May 31,
	2020		2019		2018
Net sales:
Aviation Services	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

	For the Year Ended May 31,
	2020		2019		2018
Gross profit:
Aviation Services	$	267.3	$	313.6	$	274.8
Expeditionary Services		1.9		16.2		19.3
	$	269.2	$	329.8	$	294.1

	May 31,
	2020		2019
Total assets:
Aviation Services	$	1,502.5	$	1,346.8
Expeditionary Services		103.6		94.7
Corporate and discontinued operations		472.9		75.7
	$	2,079.0	$	1,517.2

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

14. Business Segment Information (Continued)

	For the Year Ended May 31,
	2020		2019		2018
Capital expenditures:
Aviation Services	$	16.9	$	15.1	$	18.9
Expeditionary Services		5.4		1.4		1.8
Corporate		1.3		0.9		1.3
Total continuing operations		23.6		17.4		22.0
Discontinued operations		—		0.5		5.0
	$	23.6	$	17.9	$	27.0

	For the Year Ended May 31,
	2020		2019		2018
Depreciation and amortization:1
Aviation Services	$	39.2	$	37.5	$	34.6
Expeditionary Services		3.7		4.1		4.6
Corporate		8.1		14.7		16.6
Total continuing operations		51.0		56.3		55.8
Discontinued operations		—		—		7.3
	$	51.0	$	56.3	$	63.1

1 Includes amortization of stock-based compensation.

The following table reconciles segment gross profit to income from continuing operations before provision for income taxes.

	For the Year Ended May 31,
	2020		2019		2018
Segment gross profit	$	269.2	$	329.8	$	294.1
Provision for doubtful accounts		(5.4)		(15.8)		(0.5)
Selling, general and administrative		(220.6)		(215.4)		(208.1)
Earnings (Loss) from joint ventures		(1.9)		(0.3)		0.5
Other expenses		(2.1)		(0.8)		(0.9)
Interest expense		(9.3)		(9.5)		(8.0)
Interest income		0.5		1.0		0.1
Income from continuing operations before provision for income taxes	$	30.4	$	89.0	$	77.2

The U.S. Department of Defense, U.S. Department of State, other U.S. government agencies and their contractors are our only customers representing 10% or more of total sales in any of the last three fiscal years.  Sales by segment for these customers are as follows:

	For the Year Ended May 31,
	2020			2019			2018
Aviation Services	$	588.7		$	455.9		$	241.3
Expeditionary Services		79.5			90.3			63.0
	$	668.2		$	546.2		$	304.3
Percentage of total sales		32.2	%		26.6	%		17.4	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

14. Business Segment Information (Continued)

Sales across the major customer markets for each of our operating segments for the fiscal years ended May 31, 2020, 2019 and 2018 were as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
Commercial	$	1,268.9	$	1,342.3	$	1,281.9
Government and defense		695.3		578.3		353.9
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
Commercial	$	24.3	$	31.6	$	37.5
Government and defense		83.5		99.6		75.0
	$	107.8	$	131.2	$	112.5

Sales by type of product/service was as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation supply chain	$	1,434.3	$	1,395.2	$	1,082.9
Maintenance, repair and overhaul services		529.9		525.4		552.9
Mobility products		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

72

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

14. Business Segment Information (Continued)

Geographic Data

Sales by geographic region for the fiscal years ended May 31, 2020, 2019 and 2018 were as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
North America	$	1,505.6	$	1,426.8	$	1,131.4
Europe/Africa		330.8		323.4		325.9
Other		127.8		170.4		178.5
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
North America	$	98.4	$	124.1	$	105.3
Europe/Africa		9.0		5.8		6.9
Other		0.4		1.3		0.3
	$	107.8	$	131.2	$	112.5

	May 31,
	2020		2019
Long-lived assets:
United States	$	423.9	$	345.4
Europe		102.1		108.7
Other		114.3		110.6
	$	640.3	$	564.7

Sales to unaffiliated customers in foreign countries (including sales through foreign sales offices of domestic subsidiaries) were approximately $591.8 million (28.6% of total sales), $661.8 million (32.3% of total sales) and $694.0 million (39.7% of total sales) in fiscal 2020, 2019 and 2018, respectively.

15.  Legal Proceedings

We are not a party to any material pending legal proceeding (including any governmental or environmental proceeding) other than routine litigation incidental to our business except for the following:

Department of Justice Investigation

The U.S. Department of Justice (“DoJ”), acting through the U.S. Attorney’s Office for the Southern District of Illinois, is conducting an investigation of AAR Airlift Group, Inc. ("Airlift"), a wholly-owned subsidiary of AAR CORP., under the federal civil False Claims Act (“FCA”).  The investigation relates to Airlift’s performance of several contracts awarded by the U.S. Transportation Command concerning the operations and maintenance of rotary-wing and fixed-wing aircraft in Afghanistan and Africa, as well as several U.S. Navy contracts.  In June 2018, the DoJ informed Airlift that part of the investigation was precipitated by a lawsuit filed under the qui tam provisions of the FCA by a former employee of Airlift.  That lawsuit remains under seal.

73

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

15.  Legal Proceedings (Continued)

Airlift is cooperating with the DoJ investigation. In order to explore whether a negotiated resolution of the matter is possible, and in an effort to minimize continuing legal defense costs, Airlift has entered into settlement discussions with the DoJ. Airlift believes it has meritorious defenses and counter-arguments to the concerns raised by the DoJ; however, there is no assurance that any settlement will be achieved. If no settlement is reached, the DoJ and the qui tam plaintiff could pursue civil litigation under the FCA, which provides for the recovery of, among other amounts, treble damages and penalties.

While we believe that it is probable that we will incur a loss from this matter, we cannot yet reasonably estimate the maximum amount of potential loss, nor can we provide any assurance that the ultimate resolution of the remaining exposure for this matter will not be material.

Self-Reporting of Potential Foreign Corrupt Practices Act Violations

The Company retained outside counsel to investigate possible violations of the Company’s Code of Conduct, the U.S. Foreign Corrupt Practices Act, and other applicable laws, relating to the Company’s activities in Nepal and South Africa.  Based on these investigations, we self-reported these matters to the DoJ, the U.S. Securities and Exchange Commission and the UK Serious Fraud Office.  The Company is fully cooperating with the reviews by these agencies, although we are unable at this time to predict what action, if any, they may take.

16. Sale of Composites Business

On June 23, 2020, we entered into an asset purchase agreement (the “Composites Sale Agreement”) for the sale of our aerostructures and aerospace products operations located in Clearwater, Florida and Sacramento, California (the “Composites”).  The sale of Composites is consistent with our multi-year strategy to focus our portfolio on our core services offerings and the transaction will allow the Company to further prioritize its efforts in its principal businesses. The transaction is expected to close in the third quarter of calendar year 2020 and is subject to the satisfaction of customary closing conditions.  

In connection with the entry into the Composites Sale Agreement, we anticipate recognizing an impairment charge of approximately $20 million in the first quarter of fiscal 2021. The impairment charge reduces the net assets of Composites to the estimated net proceeds we expect to receive, which is comprised of both cash received at closing of the transaction and the fair value of contingent consideration related to achievement of sales targets for Composites over the next three years.

74

AAR CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in millions, except per share amounts)

17. Selected Quarterly Data (Unaudited)

The unaudited selected quarterly data for fiscal years ended May 31, 2020 and 2019 is as follows:

	First		Second		Third		Fourth		Full
Fiscal 2020	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	541.5	$	560.9	$	553.1	$	416.5	$	2,072.0
Operating income (loss) (1)		22.8		28.1		5.3		(14.9)		41.3
Income (Loss) from continuing operations		17.1		20.1		2.6		(15.0)		24.8
Loss from discontinued operations(2)		(12.7)		(5.9)		(0.3)		(1.5)		(20.4)
Net income (loss)		4.4		14.2		2.3		(16.5)		4.4
Earnings (Loss) per share - basic : (3)
Continuing operations		0.49		0.58		0.08		(0.43)		0.71
Discontinued operations		(0.37)		(0.17)		(0.01)		(0.04)		(0.59)
Earnings (Loss) per share - basic		0.12		0.41		0.07		(0.47)		0.12
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.49		0.57		0.07		(0.43)		0.71
Discontinued operations		(0.36)		(0.17)		(0.01)		(0.04)		(0.58)
Earnings (Loss) per share - diluted		0.13		0.40		0.06		(0.47)		0.13

	First		Second		Third		Fourth		Full
Fiscal 2019	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	466.3	$	493.3	$	529.5	$	562.7	$	2,051.8
Operating income		22.4		16.8		29.8		29.3		98.3
Income from continuing operations		18.9		11.2		27.4		26.6		84.1
Loss from discontinued operations (2)		(3.8)		(4.2)		(64.8)		(3.8)		(76.6)
Net income		15.1		7.0		(37.4)		22.8		7.5
Earnings (Loss) per share - basic : (3)
Continuing operations		0.54		0.32		0.79		0.77		2.42
Discontinued operations		(0.11)		(0.12)		(1.87)		(0.11)		(2.22)
Earnings (Loss) per share - basic		0.43		0.20		(1.08)		0.66		0.20
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.54		0.32		0.78		0.76		2.40
Discontinued operations		(0.11)		(0.12)		(1.86)		(0.11)		(2.19)
Earnings (Loss) per share - diluted		0.43		0.20		(1.08)		0.65		0.21

(1) We recognized charges of $24.7 million and $6.6 million during the third and fourth quarters of fiscal 2020, respectively, related to the termination and restructuring of commercial PBH contracts.

In fiscal 2020, we recognized impairment charges of $11.0 million related to the exit of certain product lines across our operations. We also recognized costs of $4.9 million related to the closure of two facilities and $5.0 million for workforce actions including severance and furlough costs in fiscal 2020.

(2) We recognized an impairment charge in discontinued operations of $74.1 million during the third quarter of fiscal 2019 related to our COCO business reflecting the expected net proceeds to be received upon the completion of the sale of our DoD contracts and related assets.  We recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the sale of the remaining COCO operating contract.

(3) The earnings-per-share computation for the year is a separate, annual calculation.  Accordingly, the sum of the quarterly earnings-per-share amounts does not necessarily equal the earnings per share for the year.

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ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”), as of May 31, 2020.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures.  Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of May 31, 2020, ensuring that information required to be disclosed in the reports that are filed under the Act is recorded, processed, summarized and reported in a timely manner.

Management Report on Internal Control Over Financial Reporting

Management of AAR CORP. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Act.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.  Internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems which are determined to be effective provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer and oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of May 31, 2020 based on the criteria for effective internal control over financial reporting described in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As disclosed in Part II, Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019, during the fourth quarter of fiscal 2019 we identified material weaknesses in internal control related to (a) our controls over the existence of inventories included in our inventory cycle counting, (b) information technology general controls (“ITGCs”), and (c) controls over vendor payment information.

During fiscal 2020, management implemented our previously disclosed remediation plan.  During the fourth quarter of 2020, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective.  As a result we have concluded the material weaknesses have been remediated as of May 31, 2020.  Based on our assessment, management concluded that the Company maintained effective internal control over financial reporting as of May 31, 2020.

KPMG LLP, our independent registered public accounting firm, has issued a report on the effectiveness of our internal control over financial reporting.  That report appears below.

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Changes in Internal Control Over Financial Reporting

Effective June 1, 2019, we adopted ASC 842, which amended the existing accounting standards for lease accounting.  We have implemented certain changes to our internal controls over financial reporting to support the reporting and disclosure requirements of the new lease standard.  Other than changes related to our material weakness remediation efforts and the new accounting processes, systems, and controls for lease accounting, there were no other changes in our internal control over financial reporting during fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

77

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
AAR CORP.:

Opinion on Internal Control Over Financial Reporting

We have audited AAR CORP.’s and subsidiaries’ (the Company) internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended May 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated July 21, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

	/s/ KPMG LLP
Chicago, Illinois
July 21, 2020

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ITEM 9B.OTHER INFORMATION

Not applicable.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item regarding the Directors of the Company and nominees for election of the Board is incorporated by reference to the information contained under the caption “Information about Our Director Nominees and Our Continuing Directors” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

The information required by this item regarding the Executive Officers of the Company appears under the caption “Supplemental Item:  Executive Officers of the Registrant” following Part I, Item 4 above.

The information required by this item regarding the compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the information contained under the caption “Delinquent Section 16(a) Reports” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

The information required by this item regarding the identification of the Audit Committee as a separately-designated standing committee of the Board and the status of one or more members of the Audit Committee being an “audit committee financial expert” is incorporated by reference to the information contained under the caption “the Board’s Role and Responsibilities – Role and Responsibilities of the Board Committees” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

The information required by this item regarding our Code of Business Ethics and Conduct applicable to our directors, officers and employees is incorporated by reference to the information contained under the caption “Board Practices and Policies – Code of Business Ethics and Conduct” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

There have been no material changes to the procedures by which stockholders may recommend nominees to the Company’s board of directors.  The information regarding these procedures is incorporated by reference to the information contained under the caption “Our Strategy – Director Nominations and Qualifications” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information contained under the captions ‘‘Executive Compensation” and ‘‘Director Compensation” of our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information contained under the caption “Stock Ownership Information” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

The information required by this item regarding equity compensation plan information is incorporated by reference to the information contained under the caption “Equity Compensation Plan Information” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the information contained under the captions “Our Strategy – Director Independence” and “Board Practices and Policies – Related Person Transaction Policy” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

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ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the information contained under the caption “Independent Registered Public Accounting Firm Fees and Services” in our definitive proxy statement for the 2020 Annual Meeting of Stockholders.

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements

Our consolidated financial statements are as set forth under Item 8 of this report on Form 10-K.

(a) (2) Financial Statement Schedules

All schedules are omitted because they are not applicable, not required, or the information is included in the consolidated financial statements.

(a) (3) Exhibits

Management contracts and compensatory arrangements have been marked with an asterisk (*) on the Exhibit Index which is contained below:

	Index		Exhibits
3.	Articles of Incorporation and By-Laws	3.1	Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004)
		3.2	By-Laws, as amended July 9, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated July 13, 2018)
		3.3	Certificate of Designations for AAR CORP.’s Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated March 30, 2020)
4.	Instruments defining the rights of security holders	4.1	Restated Certificate of Incorporation (see Exhibit 3.1).
		4.2	By-Laws, as amended and restated through July 9, 2008 (See Exhibit 3.2).
		4.3	Description of Capital Stock (filed herewith)
		4.4	Rights Agreement, dated as of March 30, 2020, by and between AAR CORP. and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 30, 2020)
		4.5	Indenture providing for Issuance of Debt Securities between AAR CORP. as Issuer and U.S. Bank

80

Index		Exhibits
		National Association, as Trustee dated as of December 1, 2010 (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2010)
	4.6	Indenture providing for Issuance of Subordinated Debt Securities between AAR CORP. as Issuer and U.S. Bank National Association, as Trustee dated as of December 1, 2010 (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2010)
	4.7	Credit Agreement dated April 12, 2011 among AAR CORP., Bank of America National Association, as administrative agent, and the various financial institutions party thereto, as amended on September 25, 2019 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated September 27, 2019) Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant is not filing certain documents. The Registrant agrees to furnish a copy of each such document upon the request of the Commission.

81

	Index		Exhibits
10.	Material Contracts	10.1*	Amended and Restated AAR CORP. Stock Benefit Plan effective October 1, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2001), as amended June 27, 2003 (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003), as amended May 5, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005), as amended July 12, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006), as amended June 23, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007), as amended January 23, 2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007), as amended January 27, 2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2008), and as amend July 11, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2011)
		10.2*	AAR CORP. Directors’ Retirement Plan, dated April 14, 1992 (incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 1992), amended May 26, 2000 (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2000) and April 10, 2001 (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2001)
		10.3*	AAR CORP. Supplemental Key Employee Retirement Plan, as Amended and Restated effective July 13, 2020 (filed herewith)
		10.4*	AAR CORP. Nonemployee Directors’ Deferred Compensation Plan, as Amended and Restated effective July 10, 2017 (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 2019)
		10.5	Indenture dated October 3, 2003 between AAR Distribution, Inc. and iStar Garden City LLC (incorporated by reference to Exhibit 10.16 to the

82

Index		Exhibits
		Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2003)
	10.6	Lease Agreement dated October 3, 2003 between AAR Allen Services, Inc., as tenant and iStar Garden City LLC, as Landlord, and related Guaranty dated October 3, 2003 from Registrant to iStar Garden City LLC (incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2003)
	10.7	Lease Agreement by and between Indianapolis Airport Authority and AAR Aircraft Services, Inc. dated as of December 19, 2014 (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015)
	10.8*	Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012)
	10.9*	Form of Fiscal 2021 Director Restricted Stock Agreement (filed herewith)
	10.10*	Form of Split Dollar Insurance Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2006)
	10.11*	Form of Directors’ and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2008)
	10.12*	Form of Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2012)
	10.13*	Section 162(m) Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015)
	10.14*	AAR CORP. 2013 Stock Plan (incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015) and as amended July 11, 2016 (incorporated by reference to Exhibit 10 to the

83

Index		Exhibits
		Registrant’s Current Report on Form 8-K dated October 11, 2016)
	10.15*	Form of Severance and Change in Control Agreement (filed herewith)
	10.16	Credit Agreement among AAR CORP., as parent guarantor, AAR Canada Holdings ULC, as borrower, and Canadian Imperial Bank of Commerce, as lender, dated as of October 18, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 18, 2017)
	10.17	Purchase Agreement dated February 23, 2018 by and among AAR CORP., as seller representative and servicer, the sellers time to time party thereto, and Citibank, N.A., as buyer (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 28, 2018)
	10.18	First Amendment to Purchase Agreement dated as of May 22, 2018 by and among AAR CORP., as seller representative and servicer, the sellers time to time party thereto, and Citibank, N.A., as buyer (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 25, 2018)
	10.19*	Retirement Agreement dated May 24, 2018 between AAR CORP. and David P. Storch (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated May 25, 2018)
	10.20*	Post-Retirement Agreement dated May 24, 2018 between AAR CORP. and David P. Storch (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated May 25, 2018), as amended May 31, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 4, 2019) and July 11, 2019 (incorporated by reference to Exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019).
	10.21*	Amended and Restated Employment Agreement dated as of May 24, 2018 between AAR CORP. and John M. Holmes (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated May 25, 2018)
	10.22*	Form of AAR CORP. Fiscal 2020 Short-Term Incentive Plan (incorporated by reference to Exhibit

84

	Index		Exhibits
			10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019)
		10.23*	Form of AAR CORP. Fiscal 2020 Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019)
		10.24*	Form of AAR CORP. Fiscal 2020 Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019)
		10.25*	Form of AAR CORP. Fiscal 2020 Performance Restricted Stock Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019)
		10.26*	Retirement Agreement and Supplemental Release between AAR CORP. and Robert J. Regan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 11, 2019)
21.	Subsidiaries of the Registrant	21.1	Subsidiaries of AAR CORP. (filed herewith)
23.	Consents of experts and counsel	23.1	Consent of Independent Registered Public Accounting Firm (filed herewith)
31.		31.1	Section 302 Certification dated July 21, 2020 of John M. Holmes, President and Chief Executive Officer of Registrant (filed herewith)
		31.2	Section 302 Certification dated July 21, 2020 of Sean M. Gillen, Vice President and Chief Financial Officer of Registrant (filed herewith)
32.		32.1	Section 906 Certification dated July 21, 2020 of John M. Holmes, President and Chief Executive Officer of Registrant (filed herewith)
		32.2	Section 906 Certification dated July 21, 2020 of Sean M. Gillen, Vice President and Chief Financial Officer of Registrant (filed herewith)

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	Index		Exhibits
101.		101	The following materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at May 31, 2020 and 2019, (ii) Consolidated Statements of Income for the fiscal years ended May 31, 2020, 2019, and 2018 , (iii) Consolidated Statements of Comprehensive Income for fiscal years ended May 31, 2020, 2019, and 2018, (iv) Consolidated Statements of Cash Flows for the fiscal years ended May 31, 2020, 2019, and 2018, (v) Consolidated Statement of Changes in Equity for the three years ended May 31, 2020 and (vi) Notes to Consolidated Financial Statements.**

**   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

ITEM 16.FORM 10-K SUMMARY

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	AAR CORP.
	(Registrant)
Date:  July 21, 2020	BY:	/s/ JOHN M. HOLMES
		John M. Holmes
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ JOHN M. HOLMES	President and Chief Executive Officer;
John M. Holmes	Director (Principal Executive Officer)
/s/ SEAN M. GILLEN	Vice President and Chief Financial Officer
Sean M. Gillen	(Principal Financial Officer)
/s/ ERIC S. PACHAPA	Vice President, Controller and Chief Accounting
Eric S. Pachapa	Officer (Principal Accounting Officer)
/s/ DAVID P. STORCH	Chairman of the Board; Director
David P. Storch
/s/ ANTHONY K. ANDERSON	Director
Anthony K. Anderson
/s/ MICHAEL R. BOYCE	Director
Michael R. Boyce
/s/ H. JOHN GILBERTSON, JR.	Director
H. John Gilbertson, Jr.
		July 21, 2020
/s/ JAMES E. GOODWIN	Director
James E. Goodwin
/s/ ROBERT F. LEDUC	Director
Robert F. Leduc
/s/ PATRICK J. KELLY	Director
Patrick J. Kelly
/s/ DUNCAN J. MCNABB	Director
Duncan J. McNabb
/s/ PETER PACE	Director
Peter Pace
/s/ JENNIFER L. VOGEL	Director

87

Signature	Title	Date
Jennifer L. Vogel
/s/ MARC J. WALFISH	Director
Marc J. Walfish
/s/ RONALD B. WOODARD	Director
Ronald B. Woodard

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EX-4.3

Exhibit 4.3

DESCRIPTION OF CAPITAL STOCK

Common Stock

The following is a description of certain terms of our common stock. This description does not purport to be complete and is subject to and qualified in its entirety by reference to the provisions of our restated certificate of incorporation, bylaws and the Delaware General Corporation Law.

Our authorized common stock consists of 100,000,000 shares of common stock, $1.00 par value per share.

Voting. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election.

Dividend Rights. Holders of common stock are entitled to receive dividends when, as and if declared by our board of directors, in its discretion, out of funds legally available for the payment of dividends.

Liquidation Rights. Upon the liquidation, dissolution or winding up of our company, the holders of common stock are entitled to receive ratably the net assets of our company available after the payment of all debts and other liabilities.

Rights Subject to Preferred Stock. The rights, preferences and privileges of holders of common stock are subject to, and maybe adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

No Preeemptive Rights; Redemption. Holders of common stock have no preemptive, subscription, redemption or conversion rights.

Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Computershare Trust Company, N.A., c/o Computershare Investor Services, P.O. Box 505000, Louisville, KY 40233-5000. Its telephone number is 1-877-282-1168.

Certain Charter and By-Law Provisions

General. We have implemented certain measures designed to enhance the board of directors’ ability to protect our stockholders against, among other things, unsolicited attempts to acquire a significant interest in us or to influence our management (whether through open market purchases, tender offers or otherwise) that do not offer an adequate price to all stockholders or that the board of directors otherwise considers not in the best interests of our company and its stockholders.

Certain provisions in our restated certificate of incorporation may have a significant impact on the stockholders’ ability to change the composition of the incumbent board of directors or the ability of a substantial holder of the common stock to acquire control of, or to

remove, the incumbent board of directors, and might discourage certain types of transactions that involve an actual or threatened change of control of us.

The provisions of our restated certificate of incorporation are intended to encourage persons seeking to acquire control of us to initiate such an acquisition through arm’s-length negotiations with our management and board of directors. These provisions could have the effect of discouraging a third party from making a tender offer to or otherwise attempting to obtain control of us, even though such an attempt might be beneficial to our stockholders. At the same time, these provisions help ensure that the board of directors, if confronted by an unsolicited proposal from a third party who recently acquired a block of common stock, will have sufficient time to review the proposal and alternatives to it and to seek better proposals for its stockholders, employees, suppliers, customers and others. These provisions are discussed below.

Preferred Stock. Our restated certificate of incorporation allows the board of directors, without stockholder approval, to issue up to 250,000 shares of preferred stock with voting, liquidation and conversion rights that could be superior to and adversely affect the voting power of holders of common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company.

Classified Board of Directors. Our restated certificate of incorporation provides that our board of directors shall be divided into three classes of directors serving staggered three-year terms. The classification of directors has the effect of making it more difficult for stockholders to change the composition of the board of directors in a relatively short period of time.

Voting Restriction on Certain Business Combinations. An affirmative vote of the holders of a number of the outstanding shares of our capital stock entitled to vote generally in the election of directors equal to (i) all shares held by related parties plus (ii) at least 80% of shares held by other parties is required to adopt certain business combinations, including mergers, consolidations, asset and securities sales, plans of liquidation or dissolution and certain reclassifications, involving any related party. A related party is defined as the beneficial owner, directly or indirectly, of at least 10% of our voting stock.

The 80% affirmative voting requirement is not applicable to business combinations approved by (i) a majority of our board of directors prior to the related party’s acquisition of at least 10% of our voting stock or (ii) a majority of those members of the board of directors who are not related to the related party.

Special Stockholders’ Meeting. Our restated certificate of incorporation and bylaws allow only the Chairman of the board of directors or a majority of the board of directors then in office to call a special meeting of the stockholders.

No Action by Stockholder Consent. Our restated certificate of incorporation prohibits action that is required or permitted to be taken at any annual or special meeting of our stockholders from being taken by the written consent of stockholders without a meeting.

Supermajority Voting. The provisions relating to the classified board, right to call a special meeting and prohibition on stockholder consent, as well as certain other provisions of the restated certificate of incorporation, may be altered, amended, or repealed only by the affirmative

vote of the holders of 80% or more of the outstanding shares of voting stock. Our bylaws may be amended, altered, changed or replaced by the affirmative vote of the holders of at least 80% or more of the outstanding shares of voting stock entitled to vote in the election of directors or by a majority of board of directors then in office.

Delaware Anti-Takeover Law

We are a Delaware corporation that is subject to Section 203 of the General Corporation Law of the State of Delaware. Under Section 203, certain “business combinations” between a Delaware corporation, whose stock generally is publicly traded or held of record by more than 2,000 stockholders, and an “interested stockholder” are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected in its certificate of incorporation not to be governed by Section 203 (we have not made such election), (ii) the business combination was approved by the board of directors of the corporation before the other party to the business combination became an interested stockholder, (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan) or (iv) the business combination is approved by the board of directors of the corporation and ratified by two-thirds of the voting stock not owned by the interested stockholder. The three-year prohibition also does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors. The term “business combination” is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of the corporation or its majority-owned subsidiaries, and transactions that increase an interested stockholder’s percentage ownership of stock. The term “interested stockholder” is defined generally as those stockholders who become beneficial owners of 15% or more of a Delaware corporation’s voting stock, together with the affiliates or associates of that stockholder.

Preferred Stock Purchase Rights

On March 27, 2020, our board of directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock to the stockholders of record on April 9, 2020. New Rights will accompany any new shares of common stock we issue until February 28, 2021, at which time all Rights will expire. For a description of the Rights, please see the Summary of Rights to Purchase Preferred Shares included as Exhibit C to the Rights Agreement dated as of March 30, 2020 by and between AAR CORP. and Computershare Trust Company, N.A., as rights agent, which is filed as an exhibit to this report and incorporated by reference herein.

EX-10.3

Exhibit 10.3

AAR CORP.

SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective July 13, 2020

AAR CORP.
SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective July 13, 2020

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS	1
ARTICLE II	ELIGIBILITY	5
ARTICLE III	SUPPLEMENTAL CONTRIBUTIONS	5
ARTICLE IV	FORFEITURES	13
ARTICLE V	ADMINISTRATION OF THE PLAN	14
ARTICLE VI	AMENDMENT OR TERMINATION	14
ARTICLE VII	GENERAL PROVISIONS	15

-i-

AAR CORP.

SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective July 13, 2020

WHEREAS, the AAR CORP. Supplemental Key Employee Retirement Plan (the “Plan”) was adopted effective June 1, 1994, for designated Executive Officers and Key Employees of AAR CORP. and its Affiliated Companies who participate in the qualified retirement plans from time to time established and maintained by AAR CORP. (the “Company”).  The purpose of the Plan is to ensure that the retirement benefits provided to Executive Officers and Key Employees enhance the overall effectiveness of the Company’s executive compensation program and attract, retain and motivate such individuals; and

WHEREAS, the Company has previously amended the Plan and now desires to further amend and restate the Plan effective July 13, 2020.

NOW, THEREFORE, the Plan is hereby amended and restated, effective July 13, 2020, as set forth below:

ARTICLE I

DEFINITIONS

Wherever used herein the following terms shall have the meanings hereinafter set forth:

1.1       “Additional Supplemental Company Account” means the account maintained by the Company for a Participant under the Plan that is credited with Additional Supplemental Company Contributions.

1.2       “Additional Supplemental Company Contribution” means the contribution made by the Company for the benefit of a Participant pursuant to Section 3.7 of the Plan.

1.3       “Affiliated Company” means a business entity, or predecessor of such entity, if any, which controls, is controlled by, or is under common control with, the Company.

1.4       “Base Salary” means the gross amount of salary paid to a Participant by the Company or an Affiliated Company, prior to any deductions thereto.

1.5       “Board” means the Board of Directors of the Company.

1.6       “Bonus” means the gross amount of cash bonus or bonuses paid to a Participant or by the Company or an Affiliated Company, prior to any deductions thereto.

1.7       “Change in Control” means:

(a)        With respect to a Pre-2005 Benefit the earliest of:

(i)         the time any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), has acquired

(other than directly from the Company) beneficial ownership (as that term is defined in Rule 13d-3 under the Exchange Act), of more than 20% of the outstanding capital stock of the Company entitled to vote for the election of directors;

(ii)        the effective time of (A) a merger or consolidation or other business combination of the Company with one or more other corporations as a result of which the holders of the outstanding voting stock of the Company immediately prior to such business combination hold less than 60% of the voting stock of the surviving or resulting corporation, or (B) a transfer of substantially all of the assets of the Company other than to an entity of which the Company owns at least 80% of the voting stock; or

(iii)      the election, over any period of time, to the Board of Directors of the Company without the recommendation or approval of the incumbent Board of Directors of the Company, of the lesser of (A) three directors, or (B) directors constituting a majority of the number of directors of the Company then in office.

(b)        With respect to a Post-2004 Benefit, the earliest of:

(i)         the time any person (as such term is used in Section 13(d) of the Exchange Act) has acquired (other than directly from the Company) beneficial ownership (as that term is defined in Rule 13(d)-3 under the Exchange Act) of more than 35% of the outstanding capital stock of the Company entitled to vote for the election of directors;

(ii)        the effective time of (A) a merger or consolidation or other business combination of the Company with one or more other corporations as a result of which the holders of the outstanding voting stock of the Company immediately prior to such business combination hold less than 60% of the voting stock of the surviving or resulting corporation, or (B) a transfer of substantially all of the assets of the Company, other than to an entity of which the Company owns at least 50% of the voting stock; or

(iii)      the election, over any period of time, to the Board of Directors of the Company, without the recommendation or approval of the incumbent Board of Directors of the Company, of directors constituting a majority of the number of directors of the Company then in office.

1.8       “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto.

1.9       “Committee” means the committee appointed by the Board to administer the Plan.

1.10     “Company” means AAR CORP., a Delaware corporation, or, to the extent provided in Section 7.9 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company.

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1.11     “Key Employee” means each employee of the Company or an Affiliated Company who may from time to time be designated as such for purposes of the Plan by and in the discretion of the Compensation Committee of the Board.

1.12     “Normal Retirement Date” means the first day of the calendar month coincident with or next following the date a Participant attains age 65.

1.13     “Participant” means any individual who has been designated a Key Employee for purposes of the Plan.

1.14     “Plan” means the AAR CORP. Supplemental Key Employee Retirement Plan.

1.15     “Plan Year” means the calendar year.

1.16     “Post-2004 Benefit” means the portion of a Participant’s Supplemental Accounts that is not a Pre-2005 Benefit.

1.17     “Pre-2005 Benefit” means the portion of a Participant’s Supplemental Accounts determined as of December 31, 2004 to which the Participant would be entitled under the Plan if the Participant’s employment terminated without Cause on December 31, 2004, plus gains and losses attributable to such amount.

1.18     “Qualified Company Account” means the account maintained for a Participant under the Qualified Plan that is credited with Qualified Company Contributions.

1.19     “Qualified Company Contribution” means the Company Contribution made by the Company or an Affiliated Company for the benefit of a Participant under and in accordance with the terms of the Qualified Plan in any Plan Year.

1.20     “Qualified Plan” means the AAR CORP. Retirement Savings Plan, established effective June 1, 1965, and as amended from time to time, and each successor or replacement plan.

1.21     “Qualified Non-Elective Account” means the account maintained for a Participant under the Qualified Plan that is credited with Qualified Non-Elective Contributions.

1.22     “Qualified Non-Elective Contribution” means the non-elective Retirement Benefit Contribution made by the Company or an Affiliated Company for the benefit of a Participant under and in accordance with the terms of the Qualified Plan in any Plan Year.

1.23     “Qualified Performance Account” means the account maintained for a Participant under the Qualified Plan that is credited with Qualified Performance Contributions.

1.24     “Qualified Performance Contribution” means the Performance Contribution made by the Company or an Affiliated Company for the benefit of a Participant under and in accordance with the terms of the Qualified Plan.

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1.25     “Qualified Salary Deferral Contribution” means the Salary Deferral Contribution made by the Company or an Affiliated Company for the benefit of a Participant under and in accordance with the terms of the Qualified Plan in any Plan Year.

1.26     “Supplemental Accounts” means, collectively, the Supplemental Deferral Account, the Supplemental Company Account, the Supplemental Performance Account, the Supplemental Non-Elective Account and the Additional Supplemental Company Account maintained by the Company for a Participant under the Plan.

1.27     “Supplemental Base Salary Deferral Agreement” means a written agreement provided by the Committee and entered into by a Participant pursuant to the provisions of Section 3.2.

1.28     “Supplemental Base Salary Deferral Contribution” means the Base Salary contribution made by the Company for the benefit of a Participant pursuant to Section 3.1 of the Plan in any Plan Year.

1.29     “Supplemental Bonus Deferral Agreement” means a written agreement provided by the Committee and entered into by a Participant pursuant to the provisions of Section 3.3.

1.30     “Supplemental Bonus Deferral Contribution” means the Bonus contribution made by the Company for the benefit of a Participant pursuant to Section 3.1 in any Plan Year.

1.31     “Supplemental Company Account” means the account maintained by the Company for a Participant under the Plan that is credited with Supplemental Company Contributions.

1.32     “Supplemental Company Contribution” means the contribution made by the Company for the benefit of a Participant pursuant to Sections 3.4 and 3.5 of the Plan in any Plan Year.

1.33     “Supplemental Contributions” means, collectively, the Supplemental Base Salary Deferral Contribution, the Supplemental Bonus Deferral Contribution, the Supplemental Company Contribution, the Supplemental Performance Contribution, the Supplemental Non-Elective Contribution and the Additional Supplemental Company Contribution.

1.34     “Supplemental Deferral Account” means the account maintained by the Company for a Participant under the Plan that is credited with Supplemental Base Salary Deferral Contributions and Supplemental Bonus Deferral Contributions.

1.35     “Supplemental Non-Elective Account” means the account maintained by the Company for a Participant under the Plan that is credited with Supplemental Non-Elective Contributions.

1.36     “Supplemental Non-Elective Contribution” means the contribution made by the Company for the benefit of a Participant pursuant to Section 3.6 of the Plan in any Plan Year.

4

1.37     “Supplemental Performance Account” means the account maintained by the Company for a Participant under the Plan that is credited with Supplemental Performance Contributions.

1.38     “Supplemental Performance Contribution” means the contribution made by the Company for the benefit of a Participant pursuant to Section 3.5 of the Plan in any Plan Year.

1.39     “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

Except as otherwise provided in this Article I, (a) all capitalized terms used in the Plan that are defined in the Qualified Plan shall have the same meaning in the Plan as is set forth in the definition in the Qualified Plan, (b) words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context, and (c) any headings used herein are included for ease of reference only and are not to be construed so as to alter the terms hereof.

ARTICLE II

ELIGIBILITY

2.1       Key Employees. Each Key Employee shall be a Participant in the Plan with respect to the Supplemental Contributions as set forth in Article III.

2.2       Participation Determination.  The right of any Participant to receive benefits under the Plan, if any, and the amount and conditions under which such benefits shall be payable, shall be determined in accordance with the provisions of the Plan as in effect on the date of the Participant’s termination of employment with the Company and its Affiliated Companies.

ARTICLE III

SUPPLEMENTAL CONTRIBUTIONS

3.1       Supplemental Base Salary and Supplemental Bonus Deferral Contributions.

(a)        A Participant may elect to defer a portion of Base Salary and Bonus otherwise payable to him for a Plan Year by authorizing Supplemental Base Salary Deferral Contributions and Supplemental Bonus Deferral Contributions on his behalf.  The amount of the Participant’s Supplemental Base Salary Deferral Contributions shall be equal to a designated percentage of Base Salary payable for such Plan Year and the amount of the Participant’s Bonus Deferral Contributions shall be equal to a designated percentage of the Bonus payable to him for the fiscal year beginning in such Plan Year.

(b)        In no event shall the aggregate of the Qualified Salary Deferral Contributions, Supplemental Base Salary Deferral Contributions and Supplemental Bonus Deferral Contributions made for any Plan Year exceed 75% of the Participant’s

5

Compensation for such Plan Year (determined without giving effect to any limitations imposed by the Code on the Qualified Plan).

(c)        If during a Plan Year a Participant changes the amount of Qualified Salary Deferral Contributions made on his behalf under the Qualified Plan, and such change results in a decrease to the Participant’s Supplemental Base Salary Deferral Contributions, the resulting decrease in Supplemental Base Salary Deferral Contributions made under this Plan for the Plan Year cannot exceed an amount equal to the limit set forth in Section 402(g)(1) of the Code.

(d)        The aggregate Supplemental Base Salary Contributions and Supplemental Bonus Deferral Contributions made for the benefit of a Participant shall be calculated as of each pay period (based on Base Salary and Bonus paid for such pay period) and shall be credited to a Supplemental Deferral Account maintained under the Plan in the name of such Participant at the same time as Qualified Salary Deferral Contributions are made for such Plan Year.

3.2       Supplemental Base Salary Deferral Agreement.

(a)        As a condition to the Company’s obligation to make a Supplemental Salary Deferral Contribution for the benefit of a Participant pursuant to Section 3.1, the Participant must execute and deliver to the Committee a Supplemental Salary Deferral Agreement, no later than the December 31^st immediately preceding the Plan Year for which the Agreement is effective.  A Key Employee who becomes a Participant during a Plan Year shall deliver the Supplemental Salary Deferral Agreement to the Committee within 30 days after the date the Participant first becomes eligible to participate, and such Agreement shall be effective with respect to Base Salary related to services to be performed subsequent to the election; provided that such Participant shall not be considered first eligible if, on the date he becomes a Participant, he participates in any other nonqualified account balance plan that is subject to Code Section 409A maintained by the Company or an Affiliated Company.  If the individual referred to in the preceding sentence does not deliver a Supplemental Salary Deferral Agreement to the Committee within such 30 day period, he shall be entitled to deliver to the Committee a Supplemental Salary Deferral Agreement with respect to his Base Salary earned from and after the first day of the Plan Year next following the Plan Year in which the Agreement is delivered.  Any election made pursuant to a Supplemental Salary Deferral Agreement delivered pursuant to the preceding sentences shall continue in effect until revoked by a Participant by notice delivered to the Committee no later than the last day of the Plan Year immediately preceding the first day of the Plan Year in which such election is to become effective, and as of each December 31 the election shall become irrevocable with respect to Base Salary payable with respect to services performed by the Participant in the immediately following calendar year.

(b)        At the time the Participant completes a Supplemental Salary Deferral Agreement, the Participant must designate the time and form of payment of his Supplemental Accounts as described in Section 3.10(d).

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3.3       Supplemental Bonus Deferral Agreement.  As a condition to the Company’s obligation to make a Supplemental Bonus Deferral Contribution for the benefit of a Participant pursuant to Section 3.1, the Participant must execute a Supplemental Bonus Deferral Agreement.  A Supplemental Bonus Deferral Agreement related to a Bonus earned by a Participant during a fiscal year of the Company shall be delivered to the Committee no later than the last day of the preceding fiscal year of the Company and shall continue in effect until revoked by a Participant by notice delivered to the Committee no later than the last day of the fiscal year immediately preceding the first day of the fiscal year for which such election is to become effective, and as of each May 31 the election shall become irrevocable with respect to any Bonus payable with respect to services performed by the Participant in the immediately following calendar year.

3.4       Supplemental Company Contributions. A Participant who has in effect a Supplemental Base Salary Deferral Agreement or Supplemental Bonus Deferral Agreement to defer Base Salary or Bonus during a Plan Year shall be eligible to receive a Supplemental Company Contribution for such Plan Year.  The Supplemental Company Contribution shall be equal to an amount resulting from (a) x (b) – (c):

(a)        The lesser of (i) the average deferral rate, determined by dividing the sum of the Participant’s Supplemental Base Salary Deferral Contributions, Supplemental Bonus Deferral Contributions and Qualified Salary Deferral Contributions by the sum of the Participant’s Base Salary and Bonus; or (ii) the maximum percentage of Earnings that are eligible for Qualified Company Contributions under Section 5.1(a) of the Qualified Plan multiplied by the sum of the Participant’s Base Salary and Bonus.

(b)        The percentage of Qualified Salary Deferral Contributions that are eligible for Qualified Company Contributions as described in Section 5.1(a) of the Qualified Plan.

(c)        The Qualified Company Contribution made on behalf of the Participant.

A Supplemental Company Contribution made for the benefit of a Participant shall be calculated on a pay period basis (based on deferrals made for such pay period and Base Salary and Bonus paid for such pay period) and shall be credited to a Supplemental Company Account maintained under the Plan in the name of such Participant at the same time as Qualified Company Contributions are made for such Plan Year.

As soon as practicable after the end of each Plan Year, the Company shall make an additional Supplemental Company Contribution to the extent necessary so that the Participant’s Supplemental Company Contributions for the Plan Year are not less than the amount that would be credited if the calculation described above were performed as of the end of the Plan Year rather than the end of each pay period.

If the Company suspends making any Qualified Company Contributions under the Qualified Plan, Supplemental Company Contributions under the Plan shall also be suspended to the same extent.

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3.5       Supplemental Performance Contributions. A Participant who has in effect a Supplemental Base Salary Deferral Agreement or Supplemental Bonus Deferral Agreement to defer Base Salary or Bonus during a Plan Year shall be eligible to receive a Supplemental Performance Contribution for the Company’s fiscal year ending in such Plan Year.  The Supplemental Performance Contribution shall be equal to an amount resulting from (a) – (b):

(a)        The Qualified Performance Contribution that would have been allocated to the Qualified Performance Account of the Participant for such fiscal year using a Basic Salary Deferral rate equal to the lesser of (i) the percentage determined by dividing the sum of the Participant’s Supplemental Base Salary Deferral Contributions, Supplemental Bonus Deferral Contributions and Qualified Salary Deferral Contributions by the sum of the Participant’s Base Salary and Bonus or (ii) the maximum percentage of Earnings that are eligible for Qualified Profit Sharing Contributions under Section 5.2(a)(ii)(B) of the Qualified Plan, multiplied by the sum of the Participants Base Salary and Bonus.

(b)        The amount of the Qualified Performance Contribution actually allocated to the Qualified Performance Account of the Participant for such fiscal year.

A Supplemental Performance Contribution made for the benefit of a Participant for any fiscal year of the Company shall be credited to a Supplemental Performance Account maintained under the Plan in the name of such Participant at the same time as Qualified Performance Contributions are made for such Plan Year.

Notwithstanding the foregoing provisions of the Section 4.6, effective as of January 1, 2020, (i) any Supplemental Performance Contribution that would otherwise be made for the Fiscal Year ending May 31, 2020 shall be calculated by taking into account a Participant’s employment and Base Salary and Bonus through December 31, 2019, and (ii) no Supplemental Performance Contributions shall be made for any Fiscal Year beginning on or after June 1, 2020.

3.6       Supplemental Non-Elective Contributions.  A Participant shall be eligible to receive a Supplemental Non-Elective Contribution for each calendar quarter in a Plan Year.  The Supplemental Non-Elective Contribution shall be equal to an amount resulting from (a) – (b):

(a)        The Qualified Non-Elective Contribution that would be allocated to the Qualified Non-Elective Account of the Participant for such calendar quarter based on the Participant’s Base Salary and Bonus received in such calendar quarter and after disregarding the annual compensation limit under Section 401(a)(17) of the Internal Revenue Code.

(b)        The amount of the Qualified Non-Elective Contribution actually allocated to the Qualified Non-Elective Account of the Participant for such calendar quarter.

If the Company suspends making any Qualified Non-Elective Contributions under the Qualified Plan, Supplemental Non-Elective Contributions under the Plan shall also be suspended to the same extent.

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A Supplemental Non-Elective Contribution made for the benefit of a Participant for any calendar quarter shall be credited to a Supplemental Non-Elective Account maintained under the Plan in the name of such Participant at the same time as Qualified Non-Elective Contributions are made for such calendar quarter.

3.7       Additional Supplemental Company Contributions.

(a)        The Compensation Committee of the Board may at any time, in its discretion, designate any Participant to receive an Additional Supplemental Company Contribution, which the Compensation Committee may authorize from time to time for a particular Plan Year.  The amount of any Additional Supplemental Company Contribution that is to be made for a particular Plan Year shall be determined by the Compensation Committee in its sole discretion based on the following percentages of a Participant’s Base Salary and Bonus:

Participant	Contribution
President and Chief Executive Officer	Up to 12%
Other Participants	Up to 10%

(b)        Additional Supplemental Company Contributions made pursuant to this Section 3.5 for a particular Plan Year shall be made prior to the end of such Plan Year based on the Participant’s Base Salary and Bonus payable during such Plan Year; provided that  each Participant eligible for an Additional Supplemental Company Contribution hereunder shall only receive an allocation of such Contribution to his Additional Supplemental Company Account with respect to a Plan Year if, and only if such Participant is a regular full-time Employee on the day immediately preceding the date the Contribution is made.

(c)        Any Additional Supplemental Company Contributions to be made for the benefit of a Participant shall be credited to an Additional Supplemental Company Account maintained under the Plan under the name of such Participant as and when specified in the Compensation Committee resolution authorizing and directing the Additional Supplemental Company Contributions.

3.8       Vesting in Supplemental Contributions.

(a)        A Participant shall vest in his Supplemental Deferral Account, Supplemental Company Account, Supplemental Performance Account and Supplemental Non-Elective Account in accordance with the same vesting provisions that apply to the Qualified Salary Deferral Account, Qualified Company Account, Qualified Performance Account and Qualified Non-Elective Account under the Qualified Plan.

(b)        A Participant shall vest in his Additional Supplemental Company Account as follows:

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(i)         Subject to (b)(ii) below, a Participant shall vest in his Additional Supplemental Company Account according to the vesting schedule described in (A) – (C) below that results in the greatest amount of vested Account balance:

(A)       The Participant shall vest in 50% of the balance of his Additional Supplemental Company Account upon the earlier of (I) the date the Participant has 20 Years of Vested Service or (II) the date the Participant’s age (measured in full years) plus Years of Vested Service equals 65.

(B)       The Participant shall vest in 75% of the balance of his Additional Supplemental Company Account upon the date the Participant’s age (measured in full years) plus Years of Vested Service equals 70.

(C)       The Participant shall vest in 100% of the balance of his Additional Supplemental Company Account on the earlier of (I) the date the Participant attains age 65 or (II) the date the Participant’s age (measured in full years) plus Years of Vested Service equals 75.

(ii)        Notwithstanding the provisions of (b)(i) above, on a Change in Control, any unvested portion of the Additional Supplemental Company Account of each Participant who is actively employed by the Company or an Affiliated Company on the date of such Change in Control shall become fully vested and nonforfeitable on such Change in Control.

Any unvested portion of the Participant’s Additional Supplemental Company Account shall be forfeited upon the Participant’s termination of employment with the Company and its Affiliated Companies.

3.9       Investment of Supplemental Accounts.

(a)        Investments. Amounts credited hereunder to the Supplemental Accounts of a Participant shall be invested in various investment funds that are made available by the Committee from time to time and as are designated by each Participant pursuant to investment directions given.  Such Accounts shall be credited with earnings, gains and losses of the applicable investment funds.  Each Participant shall have the right to modify his investment directions with respect to amounts credited to his Supplemental Accounts.  A Participant’s investment directions shall be made in accordance with procedures established by the Committee.  If a Participant fails to make an investment decision, the Participant’s Supplemental Accounts will be invested in the investment fund designated as the Qualified Default Investment Alternative under the Qualified Plan.

(b)        Investment Funds. Any investments made by the Company or by the Trustee of the Trust Agreement referred to in Section 7.2 to conform to directions made by a Participant pursuant to this Section shall be in investment funds maintained in the name of the Company, or in the name of such Trustee, and no Participant shall at any time have any interest in the assets of any such investment fund.

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3.10     Distributions.

(a)        Termination of Employment Prior to Death.  Following a Participant’s termination of employment with the Company and all Affiliated Companies for any reason other than death, a Participant shall receive a distribution of all vested amounts credited to the Participant’s Supplemental Accounts, including gains and losses credited in accordance with Section 3.9.

(b)        Distribution Due to Death. Each Participant shall have a right to designate, by giving a written designation to the Committee, a beneficiary or beneficiaries to receive any vested amount remaining to be distributed to such Participant in the event that he dies before distribution of the full amount of his Supplemental Accounts.  Successive beneficiary designations may be made, and the last designation received by the Committee prior to the death of the Participant shall be effective and shall revoke all prior designations.  If a designated beneficiary shall die before the Participant, his interest shall terminate and, unless otherwise provided in the Participant’s designation, such interest shall be paid in equal shares to those beneficiaries, if any, who survive the Participant.  If a Participant has not designated a beneficiary, or if no designated beneficiary is living on the date of distribution hereunder, amounts distributable pursuant to this paragraph shall be distributed to those persons or entities entitled to receive distributions of the Participant’s accounts under the Qualified Plan.  Distributions to a beneficiary shall be in the same form and at the same time as elected by the Participant.

(c)        Unforeseeable Emergency Distribution. A Participant shall be entitled to request a distribution from his Supplemental Deferral Account, prior to his termination of employment with the Company and all Affiliated Companies, in order to satisfy an Unforeseeable Emergency.  Such a distribution may also include amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from a distribution.  Except with respect to eligibility for such a distribution, the procedures for requesting and receiving such a distribution shall satisfy the requirements set forth in the Qualified Plan with respect to a hardship distribution.  A request for a distribution pursuant to this paragraph shall be made separate and apart from a request for a distribution under the Qualified Plan, and a request for a hardship distribution under the Qualified Plan shall not automatically be deemed a request for a distribution hereunder.

(d)        Time and Form of Payment of Supplemental Accounts.

(i)         Except as set forth in (d)(ii) below, payment of the balance of a Participant’s Supplemental Accounts shall be paid or commence to be paid to the Participant on the first day of a calendar month and year elected by the Participant (which shall be no earlier than the first day of the seventh month following the date of the Participant’s termination of employment and no later than 15 years after the date of the Participant’s termination of employment).  Such distribution shall be paid or commence to be paid to the Participant in either (i) a single lump sum, or (ii) installments over a number of years (not to exceed 15) payable in monthly, quarterly or annual installments, as elected by the Participant.  If a Participant does not make timely elections with respect to the time or form of

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payment pursuant to the preceding sentences, payment of the Participant’s Supplemental Accounts shall be made to the Participant in a lump sum on the first day of the seventh month following the Participant’s termination of employment.

(ii)        In the case of an individual who was a Participant in the SKERP prior to August 1, 2019, (A) payment of the Participant’s Supplemental Deferral Account and the portion of the Participant’s other Supplemental Accounts not described in (B) below shall be paid as described in (d)(i) above, and (B) payment of the portion of the Supplemental Accounts (other than the Supplemental Deferral Account) that is attributable to (I) Supplemental Company Contributions, Supplemental Performance Contributions, Supplemental Non-Elective Contributions and Additional Supplemental Company Contributions made with respect to Base Salary earned through calendar 2019 and Bonus earned through fiscal 2020 and (II) Bonus Deferral Contributions made with respect to Bonus earned through fiscal 2020 shall be paid to the Participant on the first day of the seventh month following the date of the Participant’s termination of employment with the Company and all Affiliated Companies.

(e)        Notwithstanding any provision in the Plan to the contrary:

(i)         A Participant may elect a distribution of all or any portion of his Pre-2005 Benefit applicable to the amounts credited to his Supplemental Deferral Account, his Supplemental Company Account, and his Supplemental Profit Sharing Account, including gains and losses credited to the date of distribution in accordance with Section 3.9, to be paid or commence to be paid at any time following his termination of employment if he elects such distribution by written instrument delivered to the Committee prior to the date of his termination of employment.  Such distribution shall be made in a method described in Section 3.10(d), as elected by the Participant.

(ii)        A Participant may modify his election as to the form or time of distribution of his Post-2004 Benefit applicable to amounts credited to his Supplemental Accounts, and earnings thereon, if (A) such election does not take effect until at least 12 months after the date on which the election is made, (B) the first payment with respect to which such election is made is deferred for a period of not less than five years from the date on which such payment would otherwise have been made, and (C) any election related to a payment to be made at a specified date is made at least 12 months prior to the date of the first scheduled payment.  Any such election shall apply to the entire portion of the Post-2004 Benefit that is not subject to an election previously made pursuant to this Section 3.10(e).

(iii)      A Participant may change an election with respect to the time and form of payment of such portion of his Post-2004 Benefit, without regard to the restrictions imposed under the preceding paragraph (ii) on or before December 31, 2006; provided that such election (A) applies only to amounts that would not

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otherwise be payable in calendar year 2006, and (B) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year.

(f)         Notwithstanding any provision in the Plan to the contrary, in the event of a potential Change in Control of the Company, as determined solely by the Board in its discretion, the portion of the Pre-2005 Benefit applicable to all amounts credited to each Participant’s Supplemental Salary Account, his Supplemental Company Account, and his Supplemental Profit Sharing Account, including gains and losses credited to the date of distribution in accordance with Section 3.9, shall be distributed to him in a lump sum as soon as practicable following the date of such determination by the Board.

ARTICLE IV

FORFEITURES

4.1       Forfeiture of Additional Supplemental Contribution Account.  Notwithstanding any other provisions of the Plan, including the provisions of Sections 3.8(b)(ii) and 6.3, (a) if the employment of a Participant with the Company and all Affiliated Companies terminates due to Cause, or (b) if a Participant during his employment with the Company and all Affiliated Companies or at any time during the one-year period after the termination of such employment violates the covenant not to compete with the Company and its Affiliated Companies set forth in Section 4.3, all rights of the Participant to the Participant’s Additional Supplemental Contribution Account (including the vested and unvested portions) shall be forfeited and shall be retained by the Company free of any and all claims of the Participant or any other person claiming with respect to the Participant.

4.2       Termination For Cause. For purposes of this Section, a termination for Cause shall mean termination of a Participant’s employment by the Company or any Affiliated Company because of the Participant’s final, non-appealable conviction of a felony that involves bribery or embezzlement or fraud against the Company.

4.3       Covenant Not to Compete. A Participant shall not, during the term of the Participant’s employment with the Company and all Affiliated Companies, and for a period of one year thereafter, without the Company’s express written consent, directly or indirectly, alone or as a member of a partnership, group, or joint stock venture, or as an employee, officer, director or stockholder of any corporation, or in any capacity (a) engage in any activity that is competitive with any of the businesses conducted by the Company or its Affiliated Companies at the time of the Participant’s termination of employment, provided that the foregoing provision shall not be deemed to prohibit the Participant from purchasing for investment any securities or interest in any publicly-owned organization that is competitive with the business of the Company and its Affiliated Companies, so long as the Participant’s investment in such organization does not exceed the lesser of one percent of its total outstanding equity securities or $250,000; (b) solicit in connection with any activity that is competitive with any of the businesses of the Company and its Affiliated Companies at the time of the Participant’s termination of employment, any then current customers or suppliers of the Company and its Affiliated Companies; (c) use the name “AAR” or any variant thereof; or (d) actively solicit, directly or indirectly, any employee or induce any then current customer or supplier of the Company or any

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of its Affiliated Companies to terminate or materially change the employee’s, customer’s or supplier’s relationship with the Company or any Affiliated Company.

4.4       Exception.  In the event of a Participant’s termination of employment with the Company under circumstances that trigger Change in Control employment termination benefits under the change in control provisions of an employment agreement or severance and change in control agreement between the Participant and the Company, the provisions of subsections 4.1, 4.2 and 4.3 above shall be deemed waived by the Company and null and void.

ARTICLE V

ADMINISTRATION OF THE PLAN

5.1       Administration by the Committee. The Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof.

5.2       General Powers of Administration. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the Committee, expenses of administration, and procedures for filing claims, shall also be applicable with respect to the Plan.  The Committee shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Committee with respect to the Plan.

ARTICLE VI

AMENDMENT OR TERMINATION

6.1       Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable.  Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution or such later date as the resolution may expressly state.

6.2       Effect of Amendment or Termination.

(a)        No amendment or termination of the Plan shall directly or indirectly reduce the balance of any Supplemental Account held hereunder as of the effective date of such amendment or termination.

(b)        Upon termination of the Plan, distribution of amounts in the Supplemental Accounts shall be made to Participants or beneficiaries as soon as administratively feasible following the date of Plan termination, and in accordance with regulations issued under Code Section 409A.  If the Plan is terminated in connection with a Change in Control, then immediately prior to such Change in Control, the Supplemental Account of each Participant who is then employed by the Company or an Affiliated Company shall be credited with a pro rata portion of the Supplemental Additional Company Contribution, Supplemental Profit Sharing Contribution and Supplemental Retirement Benefit Contribution made on behalf of the Participant for the immediately preceding Plan Year, with such pro rata amount to be determined by multiplying the entire amount of such Supplemental Contributions for the prior Plan Year by a fraction, the numerator

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of which is the number of full months that have elapsed in the Plan Year in which the Plan is terminated as of the date of such termination and the denominator of which is 12.  Except as set forth in the immediately preceding sentence, no additional credits of Supplemental Contributions shall be made to the accounts of Participants after termination of the Plan, but the Company shall continue to credit gains and losses to accounts pursuant to Section 3.9 until the balances of the Supplemental Accounts have been fully distributed to Participants or their beneficiaries.

6.3       Effect of a Change in Control. Notwithstanding Sections 6.1 and 6.2 above, in the event of a Change in Control, (a) the unvested portion of the Supplemental Account of each Participant who is then employed by the Company or an Affiliated Company shall become fully vested and nonforfeitable, (b) the Plan shall continue in effect as to any Participant who is a Participant immediately prior to a Change in Control, and (c) no amendment to or termination of the Plan shall be effective as to any such Participant to the extent the effect of such amendment or termination would be to reduce such Participant benefits or rights under the Plan from those accrued by such Participant under the Plan immediately prior to any such amendment or termination.

6.4       Termination of Participation. The Company, in its sole discretion, shall have the right to terminate the participation in the Plan or any portion thereof of any Participant.  Upon such termination of participation, distribution of the amounts in the Supplemental Accounts, as applicable, to such Participant, determined as of the date of termination of participation, shall be made to such Participant or beneficiaries either (a) in the manner and at the time described in Article III of the Plan, or (b) in the sole discretion of the Company, only with respect to the part of the Pre-2005 Benefit applicable to such Accounts, in a lump sum payment as soon as practicable following such termination of participation.  No additional credits of Supplemental Contributions shall be made to the Supplemental Accounts of such Participant after termination of his participation in the Plan with respect to such benefits, but the Participant shall continue to vest in his Supplemental Accounts pursuant to Section 3.8, and the Company shall continue to credit earnings, gains and losses to existing Supplemental Accounts of such Participant pursuant to Section 3.9 until the balances of such Supplemental Accounts have been fully distributed to the Participant or his beneficiaries.

ARTICLE VII

GENERAL PROVISIONS

7.1       Participants’ Rights Unsecured. Except as set forth in Section 7.2, the Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company or an Affiliated Company for payment of any benefits hereunder.  The right of a Participant or beneficiary to receive a benefit hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor beneficiary shall have any rights in or against any specific assets of the Company or any Affiliated Company.  All amounts credited to the Supplemental Accounts of Participants shall constitute general assets of the Company.

7.2       Trust Agreement. Notwithstanding the provisions of Section 7.1:

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(a)        The Company has entered into an irrevocable trust agreement (“Trust Agreement”) with a bank or trust company (with a combined capital and surplus in excess of $100 million dollars), located in the Continental United States, as trustee, which agreement is substantially in the form of the model trust agreement set forth in Internal Revenue Service Revenue Procedure 92-64, or any subsequent Internal Revenue Service Revenue Procedure, and includes provisions required in such model trust agreement that all assets of the Trust shall be subject to the creditors of the Company in the event of insolvency.

(b)        The Company shall make contributions to the Trust for the purpose of accumulating assets sufficient to fully fund Participants’ vested and unvested Supplemental Accounts.  The Trust Agreement shall include such provisions as are applicable with respect to the investment and reinvestment of Supplemental Contributions and Supplemental Accounts pursuant to directions given by Participants to the Company and transmitted by the Company to the Trustee pursuant to subsection 3.9(f).

7.3       General Conditions. Except as otherwise expressly provided in the Plan, (a) all terms and conditions of the Qualified Plan applicable to a Qualified Salary Deferral Contribution, a Qualified Company Contribution, Qualified Non-Elective Contribution or a Qualified Performance Contribution, including the vesting provisions, shall also be applicable to the respective Supplemental Salary Deferral Contribution, Supplemental Company Contribution, Supplemental Non-Elective Contribution, and Supplemental Performance Contribution to be made hereunder, and (b) the Additional Supplemental Company Contribution shall be subject to the same terms and conditions of the Qualified Plan as is the Supplemental Company Contribution.

7.4       No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company, any Affiliated Company, or any other person or entity that the assets of the Company or any Affiliated Company will be sufficient to pay any benefit hereunder.  No Participant or beneficiary shall have any right to receive a benefit or a distribution of contributions under the Plan except in accordance with the terms of the Plan.

7.5       No Enlargement of Employee Rights. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of the Company or any Affiliated Company.

7.6       Spendthrift Provision. No interest of any person or entity in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a distribution be taken, either voluntarily or involuntarily for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.

7.7       Applicable Law. The Plan shall be construed and administered under the laws of the State of Illinois, except to the extent preempted by federal law.

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7.8       Incapacity of Recipient. If any person entitled to a payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person.  Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor.

7.9       Corporate Successors. The Plan shall be continued, following a transfer or sale of assets of the Company, or following the merger or consolidation of the Company into or with any other corporation or entity, by the transferee, purchaser or successor entity, unless the Plan has been terminated by the Company pursuant to the provisions of Article VI prior to the effective date of such transaction.

7.10     Unclaimed Benefit. Each Participant or beneficiary shall keep the Company informed of his current address.  The Company shall not be obligated to search for the whereabouts of any person.  If the location of a Participant is not made known to the Company within three years after the date on which payment of the Participant’s benefits under the Plan may first be made, payment may be made as though the Participant had died at the end of the three-year period.  If, within one additional year after such three-year period has elapsed, or within three years after the actual death of a Participant, the Company is unable to locate any beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or beneficiary or any other person and such benefit shall be irrevocably forfeited.

7.11     Disputed Benefits; Limitations on Liability. If there is a dispute as to whether a Participant (or the Participant’s beneficiary) is due a benefit under Article III of the Plan, and the Participant prevails in the dispute, the Company shall reimburse the Participant for all reasonable expenses, including legal fees, incurred by the Participant in connection with such dispute. Such reimbursement shall be made within 30 days of the Participant’s submission of an invoice following resolution of the dispute.  If not already included, the Company shall pay interest on any deferred payment of Plan benefits to the Participant, based on the 10-year Treasury bond rate in effect on the date the dispute is resolved, from the date that payment(s) of Plan benefits should have been made or commenced.  Subject to the preceding sentence, none of the Company, any Affiliated Company, any member of the Committee, nor any individual acting as an employee or agent of the Company, any Affiliated Company or the Committee, shall be liable to any Participant or any other beneficiary or other person for any claim, loss, liability or expense incurred by such Participant or other beneficiary or other person in connection with the Plan.

7.12     Tax Savings.  Notwithstanding anything to the contrary contained in the Plan, (a) if the Internal Revenue Service prevails in a claim by it that amounts credited to a Participant’s Supplemental Accounts, and/or earnings thereon, constitute taxable income to the Participant or his beneficiary for any taxable year of his prior to the taxable year in which such credits and/or earnings are distributed to him or (b) legal counsel satisfactory to the Company and the applicable Participant or his beneficiary renders an opinion that the Internal Revenue Service would likely prevail in such a claim, (i) the balance of such Participant’s Supplemental

17

Accounts that are part of his Pre-2005 Benefit, to the extent constituting taxable income, and (ii) the balance of such Participants Supplemental Accounts that are part of his Post-2004 Benefit, to the extent constituting taxable income pursuant to Code Section 409A and guidance and regulations thereunder, shall be immediately distributed to the Participant or his beneficiary.  For purposes of this paragraph, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by_. a court of final jurisdiction, or if the Company, or a Participant or beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction, within the appropriate time period.

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EX-10.9

Exhibit 10.9

Fiscal 2021 Form

AAR CORP.

Director Restricted Stock Agreement

(the “Agreement”)

Subject to the provisions of the AAR CORP. 2013 Stock Plan (the “Plan”), the terms of which are hereby incorporated by reference herein, and in consideration of the agreements of the Grantee herein provided, AAR CORP. a Delaware corporation (“Company”), hereby grants to Grantee a restricted stock award (“Award”), effective __________________, 2020 (“Date of Award”), of ___________ shares of common stock (“Common Stock”) of the Company, $1.00 par value (“Award Shares”), subject to the forfeiture and nontransferability provisions hereof and the other terms and conditions set forth herein:

1.Acceptance By Grantee.  The Award is conditioned upon the acceptance by the Grantee of the terms and conditions of the Award as set forth in this Agreement. The Grantee must confirm acceptance of the Award and this Agreement on Morgan Stanley’s web site (www.stockplanconnect.com).  The Company will accept the Award on the Grantee’s behalf.  By acceptance of this Agreement, you irrevocably agree to be bound by the terms hereof.

2.Restrictions.  The Grantee represents that he is accepting the Award Shares without a view toward distribution of said Award Shares and that he will not sell, assign, transfer, pledge or otherwise encumber the Award Shares during the period commencing on the Date of Award and ending on the date the restrictions applicable to such Award Shares are released pursuant to paragraph 3 of this Agreement (“Restrictive Period”).

3.Release of Restrictions.  Subject to the provisions of paragraph 4 below, the restrictions described in paragraph 2 above shall be released with respect to the Award Shares on the first anniversary of the Date of Award, except as follows:

(a)In General.  If the Grantee’s membership on the Company’s Board of Directors terminates prior to the last day of the Restrictive Period for any reason other than Retirement, death or Disability, the Grantee shall forfeit to the Company all Award Shares not previously released from the restrictions of paragraph 2 hereof.

(b)Retirement.  If the Grantee’s membership on the Company’s Board of Directors terminates by reason of Retirement prior to the last day of the Restrictive Period, the Restrictive Period shall terminate in accordance with the restriction release schedule set forth above in the first clause of this paragraph 3 as to the Award Shares not previously released; provided, however, that if the Grantee dies after Retirement and prior to the last day of the Restrictive Period, the Grantee’s date of death will be treated as the date on which his membership on the Company’s Board of Directors has terminated, and the provisions of paragraph 3(c) shall apply in determining the release of restrictions as to the Award Shares not previously released. For purposes of this Agreement, “Retirement” means the Grantee’s voluntary termination of membership on the Company’s Board of Directors at or after attaining age 65 with five or more consecutive years of service as a non-employee member of the Company’s Board of Directors.

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(c)Death or Disability.  If the Grantee’s membership on the Company’s Board of Directors terminates by reason of death or Disability, the Restrictive Period shall terminate on the date of such death or Disability. For this purpose, “Disability” means the inability of the Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(d)Restrictive Covenant.  If at any time prior to the Award Shares’ release from the restrictions hereunder, the Grantee, without the Company’s express written consent, directly or indirectly, alone or as a member of a partnership, group, or joint venture or as an employee, officer, director, or greater than 1% stockholder of any corporation, or in any capacity engages in any activity which is competitive with any of the businesses conducted by the Company or its affiliated companies at any time during the Grantee’s membership on the Company’s Board of Directors, the Grantee shall forfeit to the Company all Award Shares not previously released from the restrictions of paragraph 2 hereof.

4.Change in Control.  In the event of a Change in Control of the Company, and the Grantee’s membership on the Company’s Board of Directors ends on or after the Change in Control but prior to the last day of the Restrictive Period, then notwithstanding any conditions or restrictions contained in this Agreement, the Restrictive Period shall terminate as to all Award Shares not previously released.

5.Change in Outstanding Shares.  In the event of any change in the outstanding shares of Common Stock occurring through stock splits, stock dividends, stock consolidations, spin-offs, other distributions of assets to stockholders or assumption or conversion of outstanding Awards due to an acquisition after the Date of Award, the Award Shares shall be treated in the same manner in any such transaction as other shares of Common Stock. Any additional shares of Common Stock received by the Grantee with respect to the Award Shares in any such transaction shall be subject to the same restrictions as are then applicable to those Award Shares for which the additional shares have been issued.

6.Rights of Grantee.  As the holder of the Award Shares, the Grantee is entitled to all of the rights of a stockholder of AAR CORP. with respect to any of the Award Shares, when issued, including, but not limited to, the right to receive dividends declared and payable since the Date of Award.

7.Shares.  Award Shares shall be held by the Company in electronic book entry form on the records of the Company’s Transfer Agent for the account of the Grantee until such restrictions are released pursuant to the terms hereof, or such Award Shares are forfeited to the Company as provided by the Plan or this Agreement. The Grantee shall be entitled to the Award Shares as to which such restrictions have been released, and the Company agrees to issue such Award Shares in electronic form on the records of the Transfer Agent. Upon request by the Grantee, the Transfer Agent will transfer such released Award Shares in electronic form to the Grantee’s broker for the Grantee’s account or issue certificates in the name of the Grantee representing the Award Shares for which restrictions have been released.

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AAR Director Restricted Stock Agreement

Fiscal 2021

8.Legend.  The Company may, in its discretion, place a legend or legends on any electronic shares or certificates representing Award Shares issued to the Grantee that the Company believes is required to comply with any law or regulation.

9.Committee Powers.  The Committee may subject the Award Shares to such conditions, limitations or restrictions as the Committee determines to be necessary or desirable to comply with any law or regulation or with the requirements of any securities exchange. At any time during the Restrictive Period, the Committee may reduce or terminate the Restrictive Period otherwise applicable to all or any portion of the Award Shares.

10.Postponement of Distribution.  Notwithstanding anything herein to the contrary, the distribution of any portion of the Award Shares shall be subject to action by the Board taken at any time in its sole discretion (i) to effect, amend or maintain any necessary registration of the Plan or the Award Shares distributable in satisfaction of this Award under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (ii) to permit any action to be taken in order to (a) list such Award Shares on a stock exchange if the Common Stock is then listed on such exchange or (b) comply with restrictions or regulations incident to the maintenance of a public market for its Shares of Common Stock, including any rules or regulations of any stock exchange on which the Award Shares are listed, or (iii) to determine that such Award Shares and the Plan are exempt from such registration or that no action of the kind referred to in (ii)(b) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of this Award or any provision of this Agreement or the Plan to issue or release the Award Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not shorten the term of any restriction attached to the Award Shares and neither the Company nor its directors or officers shall have any obligation or liability to the Grantee or to any other person as to which issuance under the Award Shares was delayed.

11.Miscellaneous.

(a)The Award and this Agreement shall be construed, administered and governed in all respects under and by the laws of the State of Illinois.

(b)Capitalized terms used herein and not defined herein will have the meanings set forth in the Plan.

(c)This Agreement has been examined by the parties hereto, and accordingly the rule of construction that ambiguities be construed against a party which causes a document to be drafted shall have no application in the construction or interpretation hereof. If any part of this Agreement is held invalid for any reason, the remainder hereof shall nevertheless remain in full force and effect.

(d)This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and any prior understanding or representation of any kind antedating this Agreement concerning such subject matter shall not be binding upon either party except to the extent incorporated herein. No consent, waiver, modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver,

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AAR Director Restricted Stock Agreement

Fiscal 2021

modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.

(e)This Agreement shall be construed consistent with the provisions of the Plan and in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control and any terms of this Agreement which conflict with Plan terms shall be void.

Questions concerning the provisions of this Agreement should be directed to the Company’s Corporate Secretary: 630/227-2060; fax 630/227-2058.

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AAR Director Restricted Stock Agreement

Fiscal 2021

EX-10.15

Exhibit 10.15

FORM OF

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

This Severance and Change in Control Agreement (“Agreement”) is made and entered into as of the [__] day of [_______], 20[__], by and between AAR CORP., a Delaware corporation (the “Company”), and [_________] (“Employee”).

WHEREAS, the Company employs Employee in the capacity of [_______________]; and

WHEREAS, the Company and Employee desire to enter into an Agreement as herein set forth to reflect certain mutually agreed terms and conditions thereof.

NOW, THEREFORE, in consideration of the mutual agreements herein set forth and other good and valuable consideration, the parties hereto agree as follows:

1.           Employment.  Employee will continue employment with the Company as an at-will employee subject to the terms and conditions hereinafter set forth.

2.           Duties.  During the continuation of Employee’s employment, Employee shall:

(a)         Well and faithfully serve the Company and do and perform assigned duties and responsibilities in the ordinary course of Employee’s employment and the business of the Company (within such limits as the Company may from time to time prescribe), professionally, faithfully and diligently.

(b)         Devote Employee’s full time, energy and skill to the business of the Company and Employee’s assigned duties and responsibilities, and to the promotion of the best interests of the Company; provided that Employee shall not (to the extent not inconsistent with Section 5 below) be prevented from (a) serving as a director of any corporation consented to in advance in writing by the Company, (b) engaging in charitable, religious, civic or other non-profit community activities, or (c) investing his personal assets in such form or manner as will not require any substantial services on Employee’s part in the operation or affairs of the business in which such investments are made or which would detract from or interfere or cause a conflict of interest with performance of Employee’s duties hereunder.

(c)         Observe all policies and procedures of the Company in effect from time to time applicable to employees of the Company including, without limitation, policies with respect to employee loyalty and prohibited conflicts of interest.

3.           Benefits.  Employee shall be entitled to participate, according to the eligibility provisions of each, in such welfare plans (including but not limited to medical, dental, life, accident and disability insurance programs), vacation, retirement plans and other fringe benefits as may be in effect from time to time and available to other officers of the Company during Employee’s employment term.  Employee shall also be entitled to participate in such additional executive fringe benefits as may be authorized from time to time by the President and Chief Executive Officer

of the Company.  Employee shall be eligible to participate in the Company’s Supplemental Key Employee Retirement Plan (the “SKERP”).

4.           Confidential Information, Assignment of Inventions.

(a)         Employee acknowledges that the trade secrets, confidential information, secret processes and know-how developed and acquired by AAR CORP. and its affiliates or subsidiaries (together the “Affiliated Companies”) are among their most valuable assets and that the value of such information may be destroyed by unauthorized disclosure.  All such trade secrets, confidential information, secret processes and know-how imparted to or learned by Employee in the course of his employment with respect to the business of the Affiliated Companies (whether acquired before or after the date hereof) will be deemed to be confidential and will not be used or disclosed by Employee, except to the extent necessary to perform Employee’s duties and, in no event, disclosed to anyone outside the employ of the Affiliated Companies and their authorized consultants and advisors, unless (i) such information is or has been made generally available to the public, (ii) disclosure of such information is required by law in the opinion of Employee’s counsel (provided that written notice thereof is given to Company as soon as possible but not less than 24 hours prior to such disclosure), or (iii) express written authorization to use or disclose such information has been given by the Company.  If Employee ceases to be employed by the Company for any reason, Employee shall not take any electronically stored data, documents or other papers containing or reflecting trade secrets, confidential information, secret processes, know-how, or computer software programs from Company.  Employee acknowledges that Employee’s employment hereunder will place Employee in a position of utmost confidence and that Employee will have access to confidential information concerning the operation of the business of the Affiliated Companies, including, but not limited to, manufacturing methods, developments, secret processes, know-how, computer software programs, costs, prices and pricing methods, sources of supply and customer names and relations.  All such information is in the nature of a trade secret and is the sole and exclusive property of the Affiliated Companies and shall be deemed confidential information for the purposes of this paragraph.  Nothing herein shall prohibit Employee from (i) reporting a suspected violation of law to any governmental or regulatory agency and cooperating with such agency, or from receiving a monetary recovery for information provided to such agency, (ii) testifying truthfully under oath pursuant to subpoena or other legal process or (iii) making disclosures that are otherwise protected under applicable law or regulation.  However, if Employee is required by subpoena or other legal process to disclose confidential information, Employee first shall notify the Company promptly upon receipt of the subpoena or other notice, unless otherwise required by law.

(b)         Employee hereby assigns to the Company all rights that Employee may have as author, designer, inventor or otherwise as creator of any written or graphic material, design, invention, improvement, or any other idea or thing whatever that Employee may write, draw, design, conceive, perfect, or

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reduce to practice during employment with the Company or within 120 days after termination of such employment, whether done during or outside of normal work hours, and whether done alone or in conjunction with others (“Intellectual Property”), provided, however, that Employee reserves all rights in anything done or developed entirely by Employee on Employee’s own personal time and without the use of any Company equipment, supplies, facilities or information, or the participation of any other Company employee, unless it relates to the Company’s business or reasonably anticipated business, or grows out of any work performed by Employee for the Company.  Employee will promptly disclose all such Intellectual Property developed by Employee to the Company, and fully cooperate at the Company’s request and expense in any efforts by the Company or its assignees to secure protection for such Intellectual Property by way of domestic or foreign patent, copyright, trademark or service mark registration or otherwise, including executing specific assignments or such other documents or taking such further action as may be considered necessary to vest title in Company or its assignees and obtain patents or copyrights in any and all countries.

5.           Non-Compete; Severance.

(a)         Employee agrees that during Employee’s continuation of employment with the Company and for one (1) year thereafter so long as the Company makes severance payments to Employee pursuant to subsections 5(b) or 5(c) below, Employee shall not, without the express written consent of the Company, either alone or as a consultant to, or partner, employee, officer, director, or stockholder of any organization, entity or business, (i) take or convert for Employee’s personal gain or benefit or for the benefit of any third party, any business opportunities which may be of interest to the Company or any Affiliated Company which Employee becomes aware of during the term of his employment; (ii) engage in direct or indirect competition with the Company or any Affiliated Company within 100 miles of any location within the United States of America or any other country where the Company or any Affiliated Company does business from time to time during the term hereof; (iii) solicit in connection with any activity which is competitive with any of the businesses of the Company or any Affiliated Company, any customers of the Company or any Affiliated Company; (iv) solicit for employment any sales, marketing or management employee of Company or any Affiliated Company or induce or attempt to induce any customer or supplier of the Company or any Affiliated Company to terminate or materially change such relationship.  Company and Employee acknowledge the reasonableness of the foregoing covenants not to compete and non-solicitation, including but not limited to the geographic area and duration of time which are a part hereof, and further, that the restrictions stated in this Section 5 are reasonably necessary for the protection of Employer’s legitimate proprietary interests.  This covenant not to compete may be enforced with respect to any geographic area in which the Company or any Affiliated Company does business during the term hereof.  Nothing herein shall prohibit Employee from being the legal or equitable holder, solely for investment purposes, of less than 5% of the

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capital stock of any publicly held corporation which may be in direct or indirect competition with the Company or any Affiliated Company.

(b)         The Company will pay Employee, upon termination of Employee’s employment by the Company prior to a Change in Control (as defined in 7(c)(i) below) for any reason other than Cause (as defined in 7(c)(iv) below), severance each month for 12 months, in an amount (subject to applicable withholding) equal to 1/12 of Employee’s then current base salary; and further, if the Company pays discretionary bonuses to its officers for the fiscal year in which Employee’s employment is terminated, Employee will be paid a bonus in a lump sum at the time any such bonuses are paid to other officers or at such time as the severance period is complete, whichever is later (with interest at prime rate plus one percentage point from the earlier of such dates), for the completed fiscal year preceding termination if such bonus has not been paid prior to termination, and for the fiscal year in which employment is terminated, prorata for the period prior to termination of employment based on Employee’s performance during such period; provided, however, that all such monthly payment obligations shall terminate immediately upon Employee obtaining full time employment in a comparable position in terms of salary level, and all such payment obligations shall terminate or lapse immediately upon any breach by Employee of Section 4 or 5(a) of this Agreement.

(c)         If Employee terminates Employee’s employment or Employee’s employment is terminated by the Company for Cause (as defined below), the Company may elect (but is not required to), by written notice thereof to Employee, within five (5) days of any such termination of Employee’s employment with the Company prior to a Change in Control (as defined below), to pay Employee severance as provided in and subject to the provisions of subsection 5(b) above.

(d)         Employee may terminate this Severance and Change in Control Agreement effective immediately upon notice thereof in writing to Company at any time while still employed within a sixty (60) calendar day period immediately following the effective date of any reduction by Company in (i) Employee’s level of responsibility or position from that held by Employee on the effective date of this Agreement, or (ii) Employee’s level of compensation, including retirement benefits in effect immediately prior to any such change.

(e)         The Employee acknowledges and agrees that the Company would be irreparably harmed by violations of Section 4 or Section 5(a) above, and in recognition thereof, the Company shall be entitled to an injunction or other decree of specific performance with respect to any violation thereof (without any bond or other security being required) in addition to other available legal and equitable remedies.

6.           Termination of Employment.  Upon and after termination of employment howsoever arising, Employee shall, upon request by Company:

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(a)         immediately return to the Company all correspondence, documents, business calendars/diaries, or other property belonging to the Company which is in Employee’s possession;

(b)         immediately resign from any office Employee holds with the Company or any Affiliated Company; and

(c)         cooperate fully and in good faith with the Company in the resolution of all matters Employee worked on or was involved in during Employee’s employment with the Company.  Employee’s cooperation will include reasonable consultation by telephone.  Further, in connection therewith, Employee will, at Company’s request upon reasonable advance notice and subject to Employee’s availability, make Employee available to Company in person at Company’s premises, for testimony in court, or elsewhere; provided, however, that in such event, Company shall reimburse all Employee’s reasonable expenses and pay Employee a reasonable per diem or hourly stipend.

7.           Change in Control.

(a)         In the event a Change in Control of the Company occurs, and at any time during the eighteen (18) month period commencing on the date of the Change in Control either the Company terminates Employee’s employment for other than Cause or Disability, or Employee terminates Employee’s employment for Good Reason, in either case by written notice to the other party (including the particulars thereof), and having given the other party the opportunity to be heard with respect thereto, then:

(i)          The Company shall, within thirty (30) days following such termination of employment, pay to Employee, in a lump sum, a cash payment in an amount equal to the sum of (A) all base salary earned through the date of termination, (B) any annual cash bonus earned by Employee for the fiscal year of the Company most recently ended prior to the date of termination to the extend unpaid on the date of termination, (C) a prorata portion of the annual cash bonus, including the value of any restricted stock grant in lieu of annual cash bonus, Employee would have earned had Employee been employed by the Company on the last day of the fiscal year in which the date of termination occurs (as if all performance goals have been met at target level or, in the event the bonus is of the “discretionary” type, the bonus shall be based on a percentage of base salary which is not less than percentage of base salary received as bonus for the preceding fiscal year) that is applicable to the period commencing on the first day of such fiscal year and ending on the date of termination, and (D) any and all other benefits and amounts earned by Employee prior to the date of termination to the extent unpaid, all subject to applicable withholding.

(ii)         The Company shall, within thirty (30) days following such termination of employment, pay to Employee in a lump sum, a cash payment in an amount equal to two times Employee’s total

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compensation (base salary plus annual cash bonus) for either the fiscal year of the Company most recently ended prior to the date of termination, or the preceding fiscal year, whichever is the highest total compensation, subject to applicable withholding.

(iii)        Employee and Employee’s dependents shall continue to be covered by, and receive employee welfare and executive fringe benefits (including but not limited to medical, dental, life, accident and disability insurance available to officers of the Company and additional executive retirement and other fringe benefits approved by the President and CEO of the Company) in accordance with the terms of the Company’s benefit plans and executive fringe benefit programs, for two (2) years following the date of termination, and at no less than the levels Employee and Employee’s dependents were receiving immediately prior to the Change in Control.  Employee’s dependents shall be entitled to continued benefits coverage pursuant to the preceding sentence for the balance of such two (2) year period in the event of Employee’s death during such period.  The period during which Employee and Employee’s dependents are entitled to continuation of group health plan coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, and Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended, shall commence on the date next following the expiration of the aforementioned two (2) year period.

(iv)        Notwithstanding any conditions or restrictions related to any Award granted to Employee under the AAR CORP. 2013 Stock Plan (or successor plan), (A) all performance opportunity restricted stock shares and units eligible for award hereunder shall be immediately awarded based on the higher of target or actual performance through the employment termination date using the latest data then available to determine goals applicable for the partial performance period, and all restrictions thereon shall be immediately released, and (B) all outstanding option grants, stock appreciation rights, restricted stock and restricted stock units granted or awarded under the Plan which have not then become vested or exercisable or which remain restricted, shall immediately become vested or exercisable and restrictions will lapse, as the case may be, and any such options shall remain exercisable for the full remaining life of the option(s).

(v)         The Company, at its expense, shall provide Employee with outplacement services of a nationally recognized outplacement firm of the Employee’s choosing until the earlier of (A) the Employee’s attainment of employment, or (B) the date eighteen (18) months from the date of Employee’s termination of employment; provided, however, that the cost of such outplacement services shall not exceed 3.5% of the cash payment due to Employee pursuant to subsection 7(a) (ii) above.

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The amounts paid to Employee under this Change in Control provision applicable to Employee shall be considered severance pay in consideration of past service Employee has rendered to the Company and in consideration of Employee’s continued service from the date hereof to entitlement of those payments.

(b)         In the event that a Change in Control occurs, the Company will continue to provide SKERP retirement benefits to Employee and Employee’s spouse at no less than the level they are receiving or entitled to receive under the SKERP as it was in effect immediately prior to the Change in Control.

(c)         For purposes of this Agreement

(i)          “Change in Control” means the earliest of:

(A)        any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), has acquired (other than directly from the Company) beneficial ownership (as that term is defined in Rule 13d-3 under the Exchange Act), of more than 20% of the outstanding capital stock of the Company entitled to vote for the election of directors; or

(B)        the effective time of (I) a merger or consolidation or other business combination of the Company with one or more other corporations as a result of which the holders of the outstanding voting stock of the Company immediately prior to such business combination hold less than 60% of the voting stock of the surviving or resulting corporation, or (II) a transfer of substantially all of the assets of the Company other than to an entity of which the Company owns at least 80% of the voting stock; or

(C)        the election over any period of time to the Board of Directors of the Company without the recommendation or approval of the incumbent Board of Directors of the Company, of the lesser of (I) three (3) directors, or (II) directors constituting a majority of the number of directors of the Company then in office.

(ii)         “Good Reason” means:

(A)        a material reduction in the nature or scope of Employee’s duties, responsibilities, authority, power or functions from those enjoyed by Employee immediately prior to the Change in Control, or a material reduction in Employee’s compensation (including benefits), occurring after the Change in Control; or

(B)        a relocation of the primary place of employment of at least 50 miles.

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(iii)        “Disability” means a physical or mental condition which has prevented Employee from substantially performing Employee’s assigned duties for a period of 180 consecutive days and which is expected to continue to render Employee unable to substantially perform Employee’s duties on a full-time basis and otherwise meets the benefit eligibility requirements of the Company’s Long Term Disability Welfare Benefit Plan or any executive program in which Employee was a participant at the time of a Change in Control.  The Company will make reasonable accommodation for any disability of Employee as may be required by applicable law.  In the event of termination by the Company for Disability after a Change in Control, a good faith determination of the existence of a Disability shall be made by resolution of the Compensation Committee of the Board of Directors of the Company, in its sole discretion, setting forth the particulars of the Disability which shall be final and binding upon the Employee.  The Company may require the submission of such medical evidence as to the condition of the Employee as it may deem necessary in order to arrive at its determination of the occurrence of a Disability, and Employee will cooperate in providing any such information.  Employee will be provided with reasonable opportunity to present additional medical evidence as to the medical condition of Employee for consideration prior to the Board making its determination of the occurrence of a Disability.  Upon termination of Employment by Company for Disability after a Change in Control, Employee will receive Disability payments pursuant to the Company’s short and long term Disability welfare benefit plans then in effect according to the terms of such plans and  continue to be eligible to participate in the Company’s medical, dental and life insurance programs then in effect and available to officers of the Company in accordance with their terms for a period of three (3) years from the date of such termination of this Agreement.

(iv)        “Cause” means:

(A)        Employee engages, during the performance of Employee’s duties hereunder, in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance;

(B)        Employee intentionally disobeys or disregards a lawful and proper direction of the Board or the Company; or

(C)        Employee materially breaches the Agreement and such breach by its nature, is incapable of being cured, or such breach remains uncured for more than ten (10) days following receipt by Employee of written notice from the Company specifying the nature of the breach and demanding the cure thereof.  For purposes of this clause (C), a material breach of the Agreement that involves inattention by Employee to Employee’s duties under the Agreement shall be deemed a breach capable of cure.

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Without limiting the generality of the foregoing, the following shall not constitute Cause for the termination of employment of Employee or the modification or diminution of any of Employee’s authority hereunder:

(X)any personal or policy disagreement between Employee and the Company or any member of the Board;

(Y)any action taken by Employee in connection with Employee’s duties hereunder, or any failure to act, if Employee acted or failed to act in good faith and in a manner Employee reasonably believed to be in and not opposed to the best interest of the Company and Employee had no reasonable cause to believe Employee’s conduct was unlawful; or

(Z)termination of Employee’s employment for overall unsatisfactory performance (including, but not limited to, failure to meet financial goals).

Termination for Cause shall be limited to a good faith finding by resolution of the Compensation Committee of the Board, setting forth the particulars thereof.  Any such action shall be taken at a regular or specially called meeting of the Compensation Committee of the Board, after a minimum ten (10) days’ notice thereof to Employee, with termination of Employee’s employment with the Company for Cause listed as an agenda item.  Employee will be given a reasonable opportunity to be heard at such meeting with counsel present if Employee desires.  Any such resolution shall be final and binding.

Upon termination of employment by Company for Cause, no further compensation or benefits shall accrue or be payable to Employee by the Company, except for any compensation, bonus or other benefits which have accrued to Employee prior to the date of any such termination.

Nothing herein shall be construed to prevent the Company from terminating Employee’s employment at any time for any reason or for no reason.

(d)         The Company will pay reasonable legal/attorney’s fees (including court costs and other costs of litigation) incurred by Employee in connection with enforcement of any right or benefit under this Agreement.

(e)         If in connection with the Change in Control or other event Employee would be or is subject to an excise tax under Section 4999 of the Internal Revenue Code (an “Excise Tax”) with respect to any cash, benefits or other property received, or any acceleration of vesting of any benefit or award (the “Change in Control Benefits”), Employee may elect to have the Change in Control Benefits otherwise payable under this Agreement reduced to the

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largest amount payable without resulting in the imposition of such Excise Tax. Within 15 days after the occurrence of the event that triggers the Excise Tax, a nationally recognized accounting firm selected by the Company shall make a determination as to whether any Excise Tax would be reported with respect to the Change in Control Benefits and, if so, the amount of the Excise Tax, the total net after-tax amount of the Change in Control Benefits (after taking into account federal, state and local income and employment taxes and the Excise Tax) and the amount of reduction to the Change in Control Benefits necessary to avoid such Excise Tax. Any reduction to the Change in Control Benefits shall first be made from any cash benefits payable pursuant to this Agreement, if any, and thereafter, as determined by Employee, and the Company shall provide Employee with such information as is necessary to make such determination. The Company shall be responsible for all fees and expenses connected with the determinations by the accounting firm pursuant to this Section 10(e). Employee agrees to notify the Company in the event of any audit or other proceeding by the IRS or any taxing authority in which the IRS or other taxing authority asserts that any Excise Tax should be assessed against Employee and to cooperate with the Company in contesting any such proposed assessment with respect to such Excise Tax (a “Proposed Assessment”). Employee agrees not to settle any Proposed Assessment without the consent of the Company. If the Company does not consent to allow Employee to settle the Proposed Assessment, within 30 days following such demand therefor, the Company shall indemnify and hold harmless Employee with respect to any additional taxes, interest and/or penalties that Employee is required to pay by reason of the delay in finally resolving Employee’s tax liability (such indemnification to be made as soon as practicable, but in no event later than the end of the calendar year following the calendar year in which Employee makes such remittance).

8.           Changes in Business.  The Company, acting through its Board of Directors, will at all times have complete control over the Company’s business and retirement and other employee health and welfare benefit plans (“Plans”).  Without limiting the generality of the foregoing, the Company may at any time or times change or discontinue any or all of its present or future operations or Plans (subject to their terms), may close or move any one or more of its divisions or offices, may undertake any new servicing or sales operation, may sell any one or more of its divisions or offices to any company not controlled, directly or indirectly, by the Company or may take any and all other steps which its Board of Directors, in its exclusive judgment, shall deem desirable, and Employee shall have no claim or recourse against the Company, its officers, directors or employees by reason of such action except for enforcement of the provisions of Sections 5 and 7 of this Agreement.

9.           Severance Payment as Sole Obligation.  Except as expressly provided in Sections 5 and 7 above, no further compensation, payments, liabilities or benefits shall accrue or be payable to Employee upon or as a result of termination of Employee’s employment for any reason whatsoever except for any compensation, bonus or other benefits which accrued to Employee prior to the date of employment termination.

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The amounts paid to the Employee under Section 5 and 7 of this Agreement shall be considered severance pay in consideration of past services Employee has rendered to the Company and in consideration of Employee’s continued service from the date hereof to entitlement to those payments.

10.         Notices.  Any notice or other instrument or thing required or permitted to be given, served or delivered to any of the parties hereto shall be delivered personally, or via United States mail, overnight delivery or facsimile transmission to the addresses listed below:

(a)         If to the Company, to:

AAR CORP.

1100 N. Wood Dale Road

Wood Dale, Illinois 60191

Attention: Chief Executive Officer

With a copy to:

AAR CORP.

1100 N. Wood Dale Road

Wood Dale, Illinois 60191

Attention: General Counsel

Fax No.: 630-227-2058

(b)         If to Employee, to:

or to such other address as either party may from time to time designate by notice to the other.  Each notice shall be effective when such notice and any required copy are delivered to the applicable address.

11.         Non-Assignment.

(a)         The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of Employee, and any attempted unpermitted assignment shall be null and void and without further effect; provided, however, that, upon the sale or transfer of all or substantially all of the assets of the Company, or upon the merger by the Company into or the combination with another corporation or other business entity, or upon the liquidation or dissolution of the Company, this Agreement will inure to the benefit of and be binding upon the person, firm or corporation purchasing such assets, or the corporation surviving such merger or consolidation, or the shareholder effecting such liquidation or dissolution, as the case may be.  After any such transaction, the term Company in this Agreement shall refer to the entity which conducts the business now conducted by the Company.  The provisions of this Agreement shall be binding upon and inure to the benefit of the estate and

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beneficiaries of Employee and upon and to the benefit of the permitted successors and assigns of the parties hereto.

(b)         The Employee agrees on behalf of Employee, Employee’s heirs, executors and administrators, and any other person or person claiming any benefit under Employee by virtue of this Agreement, that this Agreement and all rights, interests and benefits hereunder shall not be assigned, transferred, pledged or hypothecated in any way by the Employee or by any beneficiary, heir, executor, administrator or other person claiming under the Employee by virtue of this Agreement and shall not be subject to execution, attachment or similar process.  Any attempted assigned, transfer, pledge or hypothecation or any other disposition of this Agreement or of such rights, interests and benefits contrary to the foregoing provisions or the levy or any execution, attachment or similar process thereon shall be null and void and without further effect.

12.         Severability.  If any term, clause or provision contained herein is declared or held invalid by any court of competent jurisdiction, such declaration or holding shall not affect the validity of any other term, clause or provision herein contained.

13.         Construction.  Careful scrutiny has been given to this Agreement by the Company, Employee, and their respective legal counsel.  Accordingly, the rule of construction that the ambiguities of the contract shall be resolved against the party which caused the contract to be drafted shall have no application in the construction or interpretation of this Agreement or any clause or provision hereof.

14.         Entire Agreement. This Agreement as amended and restated herein and the other agreements referred to herein set forth the entire understanding of the parties and supersede all prior agreements, arrangements and communications, whether oral or written, pertaining to the subject matter hereof.

15.         Waiver.  No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing signed by Employee and an authorized officer of the Company.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

16.         Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its conflicts of law principles.

17.         Execution.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and which shall constitute but one and the same Agreement.

18.         Provisions Regarding Code §409A.

(a)         If at the time of Employee’s termination of employment for reasons other than death he is a “Key Employee” as determined in accordance with the

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procedures set forth in Treas. Reg. § 1.409A-1(i), any amounts payable to Employee pursuant to this Agreement that are subject to Section 409A of the Internal Revenue Code shall not be paid or commence to be paid until six months following Employee’s termination of employment, or if earlier, Employee’s subsequent death.

(b)         Reimbursements or in-kind benefits provided under this Agreement that are subject to Section 409A of the Internal Revenue Code are subject to the following restrictions:  (i) the amount of expenses eligible for reimbursements, or in-kind benefits provided, to Employee during a calendar year shall not affect the expenses eligible for reimbursement or the in-kind benefits provided in any other calendar year, and (ii) reimbursement of an eligible expense shall be made as soon as practicable, but in no event later than the last day of the calendar year following the calendar year in which the expense was incurred.

(c)         Employee’s right to receive installment payments pursuant to this Agreement shall be treated as the right to receive a series of separate and distinct payments.

WITNESS the due execution of this Agreement by the parties hereto as of the day and year first above written.

Employer:

AAR CORP.

By:

Title:

Employee:

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EX-21.1

Exhibit 21.1

AAR CORP.

Subsidiaries, Affiliated Companies, and Joint Ventures

Name(1)	Place of Incorporation	Ownership %(2)
AAR CORP.	Delaware
AAR do Brasil Ltda.	Brazil	0.1%
Rags of Honor, LLC	Illinois	10%
AAR Aircraft & Engine Sales & Leasing, Inc. (3)	Illinois
AAR Asset Management, LLC	Delaware
AAR International Financial Services, L.L.C.	Illinois	10%
Windy City 737-400 Holdings LLC (Joint Venture)	Delaware	50%
Windy City XI LLC	Delaware
Windy City XII LLC	Delaware
Windy City XIV LLC	Delaware
Windy City XV LLC	Delaware
Windy City XVII LLC	Delaware
AAR Aircraft Services, Inc. (4)	Illinois
Aviation Maintenance Staffing, Inc.	Delaware
Aeronautica Corporation(5)	Illinois
AAR Airlift Group, Inc. (6)	Florida
AAR Airlift Group Afghanistan Inc. Logistic Services(7)	Afghanistan	50%
AAR Airlift Pakistan (Private) Limited	Pakistan	50%
AAR Airlift S.A.S.	Colombia
Wide Open Sky General Trading & Services, LLC	Iraq
AAR Government Services, Inc.	Illinois
AAR Airlift Cyprus Limited	Cyprus
AAR Airlift Panama, Inc.	Panama
AAR Airlift Group Peru S.A.C.	Peru	0.1%
AAR Airlift Group Peru S.A.C.	Peru	99.9%
AAR International, Inc. (8)	Illinois
AAR (25262) LLC	Delaware
AAR Airlift Group Afghanistan Inc. Logistic Services(7)	Afghanistan	50%
AAR Airlift Pakistan (Private) Limited	Pakistan	50%
AAR Australia, L.L.C.	Illinois
AAR Canada Holdings ULC	British Columbia
AAR Aircraft Services – Windsor ULC(9)	British Columbia
AAR Aircraft Services – Trois Rivieres ULC(10)	British Columbia
AAR Aviation Maintenance Staffing Canada ULC	British Columbia
AAR do Brasil Ltda.	Brazil	99.9%
AAR Global Services – Australia Pty Ltd(11)	Australia
AAR International Financial Services, L.L.C.	Illinois	90%
AARIFS (561) LLC	Illinois
AARIFS (662) LLC	Delaware
AARIFS (25092) LLC	Delaware
AARIFS (25093) LLC	Delaware

1

Name(1)	Place of Incorporation	Ownership %(2)
AAR Indamer Technics Private Limited (Joint Venture)	India	40%
EAVF Aircraft Holdco Limited (Joint Venture)	Bermuda	2%
EAVF Aircraft Holdco 2 Limited (Joint Venture)	Ireland	5%
Primat Capital LLC (Joint Venture)	Delaware	10%
Primat Capital 2019-I LLC	Delaware
Primat Capital 2019-OO LLC	Ireland
Primat Capital MSN 1957 DAC	Ireland
Primat Capital MSN 2318 DAC	Ireland
Osprey 737-300 Leasing LLC	Delaware
TN-AR Holdings LLC (Joint Venture)	Delaware	99.9%
AAR Landing Gear Services Sdn. Bhd. (Joint Venture)	Malaysia	49%
AAR Ireland Limited(12)	Ireland
AAR Japan, Inc.	Illinois
AAR Russia Limited (Joint Venture)	Cyprus	50%
Airinmar Limited	United Kingdom
Technisch Handelskantoor Lloyd B.V.	Netherlands
Allen Airmotive Properties B.V.	Netherlands
AAR Manufacturing, Inc. (13)	Illinois
Brown International Corporation(14)	Alabama
EP Aviation, LLC	Delaware
AAR Supply Chain, Inc. (15)	Illinois
AAR Allen Services, Inc. (16)	Illinois
AAR Landing Gear LLC (17)	Florida

(1) An italicized name means the entity is a subsidiary of the entity appearing in bold above it.  An indentation means the entity is a subsidiary of the entity above.

(2) Where not wholly owned by AAR CORP. and/or one of its affiliated companies.  Joint ventures are so noted.

(3) Also does business under the name AAR Aircraft Advisory Services.

(4) Also does business under the names AAR Aircraft Services — Indianapolis, AAR Aircraft Services — Oklahoma, AAR Aircraft Services —Duluth, AAR Aircraft Services — Rockford, AAR Aircraft Services – Miami, and AAR Engineering Services.

(5) Also does business under the name Aeronautica.

(6) Also does business under the names AAR Airlift, AAR Airlift Group, AAR Aircraft Services —Melbourne and AAR Rotorcraft Services.

(7) Also does business under the name AAR Defense Systems & Logistics.

(8) Also does business under the names AAR Aircraft Component Services International, AAR Engineering Services — Asia, Allen Asset Management, and AAR International Inc. — Dubai.

(9) Also does business under the name AAR MRO Services-Canada, Windsor (ON).

(10) Also does business under the name AAR MRO Services-Canada, Trois Rivieres (QC).

(11) Also does business under the name AAR Defense Systems and Logistics (AU).

(12) Also does business under the name AAR Aircraft Turbine Center.

(13) Also does business under the names AAR Cargo Systems, AAR Composites, AAR Craig Systems, AAR Mobility Systems, and AAR Mobility Systems — Sacramento.

2

(14) Also does business under the name AAR Integrated Technologies.

(15) Also does business under the names AAR Aircraft Turbine Center, AAR Defense Systems & Logistics, Allen Asset Management, AAR Distribution, and Airinmar.

(16) Also does business under the names AAR Aircraft Component Services, AAR Hermetic, and AAR Petrotech.

(17) Also does business under the names AAR Landing Gear Services and AAR Wheels and Brakes Services.

3

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
AAR CORP.:

We consent to the incorporation by reference in the registration statements (Nos. 333-214445, 333-191915, 333-152594, 333-26093, and 333-219376) on Form S-8 of AAR CORP. of our reports dated July 21, 2020, with respect to the consolidated balance sheets of AAR CORP. and subsidiaries (the Company) as of May 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended May 31, 2020, and the related notes (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of May 31, 2020, which reports appear in the May 31, 2020 annual report on Form 10-K of AAR CORP.

Our report dated July 21, 2020, on the consolidated financial statements, refers to the Company’s change in its method of accounting for leases effective June 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases, and its method of accounting for revenue recognition as of June 1, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.

/s/ KPMG LLP

Chicago, Illinois
July 21, 2020

EX-31.1

Exhibit 31.1

CERTIFICATION

I, John M. Holmes, certify that:

1.     I have reviewed this Annual Report on Form 10-K of AAR CORP. (the “Registrant”);

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and  material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE:  July 21, 2020

/s/ JOHN M. HOLMES

John M. Holmes

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Sean M. Gillen, certify that:

1.     I have reviewed this Annual Report on Form 10-K of AAR CORP. (the “Registrant”);

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and  material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE:  July 21, 2020

/s/ SEAN M. GILLEN

Sean M. Gillen

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the AAR CORP. (the "Company") Annual Report on Form 10-K for the period ended May 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John M. Holmes, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.            The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 21, 2020	/s/ JOHN M. HOLMES
	John M. Holmes
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the AAR CORP. (the "Company") Annual Report on Form 10-K for the period ended May 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sean M. Gillen, Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.            The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 21, 2020	/s/ SEAN M. GILLEN
	Sean M. Gillen
	Vice President and Chief Financial Officer

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	Jun. 30, 2020	Nov. 29, 2019
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	May 31, 2020
Entity File Number	1-6263
Entity Registrant Name	AAR CORP
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-2334820
Entity Address, Address Line One	One AAR Place
Entity Address, Address Line Two	1100 N. Wood Dale Road
Entity Address, City or Town	Wood Dale
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60191
City Area Code	630
Local Phone Number	227-2000
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 1,474
Entity Common Stock, Shares Outstanding		35,155,371
Entity Central Index Key	0000001750
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--05-31
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2020
Amendment Flag	false
Common Stock | NEW YORK STOCK EXCHANGE, INC.
Title of 12(b) Security	Common Stock, $1.00 par value
Trading Symbol	AIR
Security Exchange Name	NYSE
Common Stock | CHICAGO STOCK EXCHANGE, INC
Title of 12(b) Security	Common Stock, $1.00 par value
Trading Symbol	AIR
Security Exchange Name	CHX
Preferred Stock Purchase Rights | NEW YORK STOCK EXCHANGE, INC.
Title of 12(b) Security	Preferred Stock Purchase Rights
Trading Symbol	AIR
Security Exchange Name	NYSE
Preferred Stock Purchase Rights | CHICAGO STOCK EXCHANGE, INC
Title of 12(b) Security	Preferred Stock Purchase Rights
Trading Symbol	AIR
Security Exchange Name	CHX

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Sales:
Sales	$ 2,072.0	$ 2,051.8	$ 1,748.3
Cost and operating expenses:
Provision for doubtful accounts	5.4	15.8	0.5
Selling, general and administrative	220.6	215.4	208.1
Total cost and operating expenses	2,028.8	1,953.2	1,662.8
Earnings (Loss) from joint ventures	(1.9)	(0.3)	0.5
Operating income	41.3	98.3	86.0
Other expense, net	2.1	0.8	0.9
Interest expense	(9.3)	(9.5)	(8.0)
Interest income	0.5	1.0	0.1
Income from continuing operations before provision for income taxes	30.4	89.0	77.2
Provision for income taxes	5.6	4.9	3.5
Income from continuing operations	24.8	84.1	73.7
Loss from discontinued operations, net of tax	(20.4)	(76.6)	(58.1)
Net income	$ 4.4	$ 7.5	$ 15.6
Earnings per share - basic:
Earnings from continuing operations	$ 0.71	$ 2.42	$ 2.14
Loss from discontinued operations	(0.59)	(2.22)	(1.70)
Earnings per share - basic	0.12	0.20	0.44
Earnings per share - diluted:
Earnings from continuing operations	0.71	2.40	2.11
Loss from discontinued operations	(0.58)	(2.19)	(1.70)
Earnings per share - diluted	$ 0.13	$ 0.21	$ 0.41
Products
Sales:
Sales	$ 1,090.0	$ 1,124.3	$ 1,040.7
Cost and operating expenses:
Cost	900.0	915.0	840.5
Services
Sales:
Sales	982.0	927.5	707.6
Cost and operating expenses:
Cost	$ 902.8	$ 807.0	$ 613.7

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income	$ 4.4	$ 7.5	$ 15.6
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax	0.1	(2.4)	2.0
Unrecognized pension and post retirement costs, net of tax expense (benefit) of $(1.0) in 2020, $(1.7) in 2019, and $2.4 in 2018	3.8	6.5	(5.9)
Total other comprehensive income (loss), net of tax	(3.7)	(8.9)	7.9
Comprehensive income (loss)	$ 0.7	$ (1.4)	$ 23.5

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unrecognized pension and post retirement costs, tax expense (benefit)	$ (1.0)	$ (1.7)	$ 2.4

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	May 31, 2020	May 31, 2019
Current assets:
Cash and cash equivalents	$ 404.7	$ 21.3
Restricted cash	20.0	19.8
Accounts receivable, net	171.9	197.8
Contract assets	49.3	59.2
Inventories	623.1	523.7
Rotable assets and equipment on or available for short-term lease	69.6	65.3
Assets of discontinued operations	22.9	29.2
Other current assets	77.2	36.2
Total current assets	1,438.7	952.5
Property, plant and equipment, at cost:
Land	4.5	4.5
Buildings and improvements	112.4	111.9
Equipment and furniture and fixtures	265.3	248.2
Property, plant and equipment, gross	382.2	364.6
Accumulated depreciation	(246.5)	(231.8)
Property, plant and equipment, net of accumulated depreciation	135.7	132.8
Other assets:
Goodwill	115.7	116.2
Intangible assets, net	6.0	22.2
Operating lease right-of-use assets, net	89.7
Rotable assets supporting long-term programs	211.7	216.0
Other non-current assets	81.5	77.5
Total other assets	504.6	431.9
Total assets	2,079.0	1,517.2
Current liabilities:
Accounts payable	191.6	187.8
Accrued liabilities	161.6	140.5
Liabilities of discontinued operations	29.9	29.2
Total current liabilities	383.1	357.5
Long-term debt	600.0	141.7
Operating lease liabilities	70.9
Deferred revenue on long-term contracts	88.0	83.8
Other liabilities	34.4	28.3
Total noncurrent liabilities	793.3	253.8
Equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 45,300,786 shares at cost	45.3	45.3
Capital surplus	478.6	479.4
Retained earnings	706.0	709.8
Treasury stock, 10,203,437 and 10,512,974 shares at cost, respectively	(282.7)	(287.7)
Accumulated other comprehensive loss	(44.6)	(40.9)
Total equity	902.6	905.9
Total liabilities and equity	$ 2,079.0	$ 1,517.2

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	May 31, 2020	May 31, 2019
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, authorized shares	250,000	250,000
Preferred stock, issued shares	0	0
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, authorized shares	100,000,000	100,000,000
Common stock, issued shares	45,300,786	45,300,786
Treasury stock, shares	10,203,437	10,512,974

XML

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Millions	Common Stock	Capital Surplus	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Total Equity	Total
Balance at May. 31, 2017	$ 45.2	$ 460.8	$ 727.9	$ (279.8)	$ (39.9)	$ 914.2
Increase (Decrease) in Stockholders' Equity
Net income			15.6			15.6	$ 15.6
Cash dividends			(10.3)			(10.3)
Stock option activity		0.9		11.2		12.1
Restricted stock activity	0.1	8.8		1.0		9.9
Repurchase of shares				(13.1)		(13.1)
Other comprehensive income (loss), net of tax					7.9	7.9	7.9
Balance at May. 31, 2018	45.3	470.5	733.2	(280.7)	(32.0)	936.3
Increase (Decrease) in Stockholders' Equity
Net income			7.5			7.5	7.5
Cash dividends			(10.5)			(10.5)
Stock option activity		3.5		4.1		7.6
Restricted stock activity		5.4		(0.8)		4.6
Repurchase of shares				(10.3)		(10.3)
Other comprehensive income (loss), net of tax					(8.9)	(8.9)	(8.9)
Balance at May. 31, 2019	45.3	479.4	709.8	(287.7)	(40.9)	905.9	905.9
Increase (Decrease) in Stockholders' Equity
Cumulative effect adjustment upon adoption of ASC | ASC 606			(20.4)			(20.4)
Net income			4.4			4.4	4.4
Cash dividends			(10.7)			(10.7)
Stock option activity		3.1		8.3		11.4	8.3
Restricted stock activity		(3.9)		0.8		(3.1)
Repurchase of shares				(4.1)		(4.1)	(4.1)
Other comprehensive income (loss), net of tax					(3.7)	(3.7)	(3.7)
Balance at May. 31, 2020	$ 45.3	$ 478.6	706.0	$ (282.7)	$ (44.6)	902.6	$ 902.6
Increase (Decrease) in Stockholders' Equity
Cumulative effect adjustment upon adoption of ASC | ASC 842			$ 2.5			$ 2.5

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Cash flows provided from (used in) operating activities:
Net income	$ 4.4	$ 7.5	$ 15.6
Loss from discontinued operations, net of tax	(20.4)	(76.6)	(58.1)
Income from continuing operations	24.8	84.1	73.7
Adjustments to reconcile income to net cash provided from (used in) operating activities:
Depreciation and intangible amortization	43.7	42.8	40.5
Amortization of stock-based compensation	7.3	13.5	15.3
Provision for doubtful accounts	5.4	15.8	0.5
Deferred tax provision (benefit)	0.5	(5.0)	(12.9)
Loss (Earnings) from joint ventures	1.9	0.3	(0.5)
Customer contract termination and restructuring costs	31.3
Impairment charges	8.1
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable	14.8	(34.4)	35.4
Contract assets	9.9	(9.7)
Inventories	(94.5)	(80.9)	(25.8)
Rotable spares and equipment on or available for short-term lease	(4.3)	21.5	(16.6)
Rotable assets supporting long-term programs	(22.1)	(49.2)	(38.5)
Accounts payable	4.1	17.5	1.8
Accrued and other liabilities	0.5	22.9	8.0
Deferred revenue on long-term programs	(14.6)	44.4	(3.4)
Other	(35.9)	(23.1)	(21.7)
Net cash provided from (used in) operating activities - continuing operations	(19.1)	60.5	55.8
Net cash provided from (used in) operating activities-discontinued operations	(17.0)	6.9	8.5
Net cash provided from (used in) operating activities	(36.1)	67.4	64.3
Cash flows used in investing activities:
Property, plant and equipment expenditures	(23.6)	(17.4)	(22.0)
Proceeds from asset disposals	1.6	1.8	8.6
Payments for acquisitions		(2.3)	(22.9)
Other	(2.8)	(0.6)	(2.3)
Net cash used in investing activities - continuing operations	(24.8)	(18.5)	(38.6)
Net cash used in investing activities-discontinued operations		(0.5)	(4.3)
Net cash used in investing activities	(24.8)	(19.0)	(42.9)
Cash flows provided from (used in) financing activities:
Short-term borrowings (repayments), net	459.5	(10.0)	(1.0)
Proceeds from long-term borrowings			24.8
Repayments of long-term borrowings		(25.0)
Cash dividends	(10.7)	(10.5)	(10.3)
Purchase of treasury stock	(4.1)	(10.3)	(13.1)
Stock compensation activity	1.1	8.5	11.6
Other	(1.3)		(0.3)
Net cash provided from (used in) financing activities-continuing operations	444.5	(47.3)	11.7
Net cash used in financing activities-discontinued operations		(1.4)	(1.7)
Net cash provided from (used in) financing activities	444.5	(48.7)	10.0
Effect of exchange rate changes on cash		(0.2)	(0.1)
Increase (Decrease) in cash and cash equivalents	383.6	(0.5)	31.3
Cash, cash equivalents, and restricted cash at beginning of year	41.1	41.6	10.3
Cash, cash equivalents, and restricted cash at end of year	$ 424.7	$ 41.1	$ 41.6

XML

Summary of Significant Accounting Policies

12 Months Ended

May 31, 2020

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Description of Business

AAR CORP. (the “Company”) is a diversified provider of services and products to the worldwide commercial aviation and government and defense markets.  Services and products include: aviation supply chain and parts support programs; customer fleet management and operations; maintenance, repair and overhaul of airframes, landing gear, and certain other airframe components; design and manufacture of specialized pallets, shelters, and containers; aircraft modifications and aircraft and engine sales and leasing. We serve commercial, government and defense aircraft fleet operators, original equipment manufacturers, and independent service providers around the world, and various other domestic and foreign military customers.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

New Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASC 842"), which amended the existing accounting standards for lease accounting. ASC 842 requires lessees to recognize a right-of-use ("ROU") asset and lease liability on the balance sheet for most lease arrangements, including those classified as operating leases. In addition, ASC 842 requires new qualitative and quantitative disclosures about our leasing activities.

We adopted ASC 842 on June 1, 2019 using the modified retrospective transition approach. Under that approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 11.

We have elected the package of practical expedients, which must be elected as a package and applied consistently to all leases. This package permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than twelve months.

Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $123.2 million and operating lease liabilities of $116.8 million on our Consolidated Balance Sheet. These amounts included operating lease ROU assets of $26.6 million and operating lease liabilities of $25.3 million related to our discontinued operations. In addition, we recognized the remaining unamortized deferred gains of $2.5 million, net of tax, associated with sale-leaseback transactions as a cumulative effect adjustment to the opening balance of retained earnings as of June 1, 2019.

The adoption of ASC 842 did not have a material impact on the Consolidated Statements of Operations or Cash Flows.

1. Summary of Significant Accounting Policies (Continued)

The impact of the adoption of ASC 842 on our Consolidated Balance Sheet was as follows:

	As of		ASC 842		As of
	May 31, 2019		Adjustments		June 1, 2019
Assets of discontinued operations	$	29.2	$	26.6	$	55.8
Other current assets		36.2		(0.5)		35.7
Intangible assets, net		22.2		(8.5)		13.7
Operating lease ROU assets		—		96.6		96.6
Other non-current assets		77.5		(1.8)		75.7
Accrued liabilities		140.5		10.0		150.5
Liabilities of discontinued operations		29.2		25.3		54.5
Operating lease liabilities		—		77.7		77.7
Other liabilities		28.3		(3.1)		25.2
Retained earnings		709.8		2.5		712.3

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides guidance for revenue recognition.  ASC 606 superseded the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, and most industry-specific guidance.  

We adopted ASC 606 on June 1, 2018 using the modified retrospective method.  Under that approach, prior periods were not restated and continue to be reported under the accounting standards in effect for those periods.  We elected to use the practical expedient allowing for the application of ASC 606 only to contracts that were not completed as of June 1, 2018.  We recognized the cumulative effect of initially applying ASC 606 as a decrease of  $20.4 million to the opening balance of retained earnings as of June 1, 2018.

Revenue Recognition for Fiscal 2020 and 2019

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

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts.  A performance obligation reflects the distinct good or service that we must transfer to a customer.  At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations.  In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes another good or service or whether the good or service is highly interdependent or interrelated.  If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

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

1. Summary of Significant Accounting Policies (Continued)

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

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

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

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

We have elected to use certain practical expedients permitted under ASC 606.  Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Consolidated Statements of Income, and are not considered a performance obligation to our customers.  Our reported sales on our Consolidated Statements of Income are net of any sales or 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.

Revenue Recognition for Fiscal 2018

Sales and related cost of sales for product sales are generally recognized upon shipment of the product to the customer.  Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer.  Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title.  Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer.  Furthermore, serviced units are typically shipped to the customer immediately upon completion of the related services.  Sales and related cost of sales for certain large airframe maintenance contracts and performance-based logistics programs are recognized by the percentage of completion method, based on the relationship of costs incurred to date to the estimated total costs.

1. Summary of Significant Accounting Policies (Continued)

Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution, and maintenance and repair services.  We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services.

Cumulative Catch-up Adjustments

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

Favorable and unfavorable cumulative catch-up adjustments were as follows:

	May 31,
	2020		2019		2018
Favorable cumulative catch-up adjustments	$	6.1	$	8.0	$	11.6
Unfavorable cumulative catch-up adjustments		(2.2)		(2.1)		(8.0)
Net cumulative catch-up adjustments	$	3.9	$	5.9	$	3.6

Contract Assets and Liabilities

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 costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers.  Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract.  These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made.  Contract assets and contract liabilities are determined on a contract-by-contract basis.

Net contract assets and liabilities are as follows:

	May 31,
	2020		2019		Change
Contract assets – current	$	49.3	$	59.2	$	(9.9)
Contract assets – non-current		22.4		17.0		5.4
Deferred revenue – current		(11.2)		(12.6)		1.4
Deferred revenue on long-term contracts		(88.0)		(83.8)		(4.2)
Net contract assets (liabilities)	$	(27.5)	$	(20.2)	$	(7.3)

Contract assets – non-current is reported within Other non-current assets, and Contract liabilities – current is reported within Accrued Liabilities on our Consolidated Balance Sheet.  Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.

1. Summary of Significant Accounting Policies (Continued)

During fiscal 2020, we terminated certain commercial power-by-the-hour (“PBH”) customer contracts and restructured another PBH contract. The restructured contract was deemed a loss contract requiring the establishment of forward loss reserves for the total estimated costs that are in excess of the total estimated consideration over the remainder of the contracts. The impact from these actions resulted in a charge of $31.3 million during fiscal 2020, which included a reduction in revenue of $17.3 million, the establishment of forward loss reserves of $5.4 million, and other related charges of $8.6 million. As of May 31, 2020, our Consolidated Balance Sheet included remaining forward loss reserves of $5.4 million with $3.1 million classified as current in Accrued liabilities and $2.3 million classified as long-term in Other liabilities.

Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows:

	Year ended May 31,
	2020		2019
Deferred revenue at beginning of period	$	(96.4)	$	(44.1)
Revenue deferred		(417.2)		(364.7)
Revenue recognized		410.5		306.6
Other		3.9		5.8
Deferred revenue at end of period	$	(99.2)	$	(96.4)

Remaining Performance Obligations

As of May 31, 2020, we had approximately $1.0 billion of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity contracts. We expect that approximately 50% of this backlog will be recognized as revenue over the next 12 months, with the majority of the remaining balance recognized over the next three years.  The amount of remaining performance obligations, which is expected to be recognized as revenue beyond 12 months, primarily relates to our long-term, power-by-the-hour programs where we provide component inventory management and/or repair services.

Financial Instruments and Concentrations of Market or Credit Risk

Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables.  While our trade receivables are diverse and represent a number of entities and geographic regions, the majority are with the U.S. government and its contractors and entities in the aviation industry.  The composition of our accounts receivable is as follows:

	May 31,
	2020		2019
U.S. Government contracts:
Trade receivables	$	33.9	$	28.7
Unbilled receivables		27.4		31.7
		61.3		60.4
All other customers:
Trade receivables		81.7		92.5
Unbilled receivables		28.9		44.9
		110.6		137.4
	$	171.9	$	197.8

In addition, we currently have past due accounts receivable owed by former commercial program customers primarily related to our exit from customer contracts in certain geographies, including Colombia, Peru, and Poland.  Our past due accounts receivable owed by these customers was $10.9 million as of May 31, 2020 which was net of allowance for doubtful accounts of $9.3 million.

1. Summary of Significant Accounting Policies (Continued)

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts and trade notes payable approximate fair value because of the short-term maturity of these instruments.  The carrying value of long-term debt bearing a variable interest rate approximates fair value.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Allowance for Doubtful Accounts

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

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

In fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer.  The provision consisted of impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.

The change in our allowance for doubtful accounts was as follows:

	May 31,
	2020		2019		2018
Balance, beginning of year	$	16.0	$	7.5	$	4.9
Provision charged to operations		5.4		15.8		0.5
Recoveries, deductions for accounts written off and other reclassifications		0.7		(7.3)		2.1
Balance, end of year	$	22.1	$	16.0	$	7.5

Goodwill and Other Intangible Assets

In accordance with ASC 350, Intangibles–Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually, on May 31, or more frequently if circumstances indicate that impairment is possible.

As of May 31, 2020, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and Maintenance, Repair, and Overhaul) and one comprised of our Expeditionary Services segment.  In fiscal 2019 and 2018, we utilized the qualitative assessment approach for all reporting units and 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.

1. Summary of Significant Accounting Policies (Continued)

In fiscal 2020, we elected to skip the qualitative assessment due to the unprecedented impact of the COVID-19 pandemic and utilized a quantitative assessment approach for all reporting units.  We estimated the fair value of each reporting unit using primarily an income approach based on discounted cash flows.  The assumptions we used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment in light of the impact of COVID-19.  We used discount rates based on our consolidated weighted average cost of capital which is adjusted for each of our reporting units based on their specific risk, size, and industry characteristics.  The fair value measurements used for our goodwill impairment testing use significant unobservable inputs, which reflect our own assumptions about the inputs that market participants would use in measuring fair value.  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.

Upon completion of the annual quantitative goodwill impairment analysis as of May 31, 2020 for our reporting units, we concluded the fair value of each reporting unit exceeded its carrying values, and thus no impairment charges were recorded.

Changes in the carrying amount of goodwill by segment for fiscal 2020 and 2019 are as follows:

	Aviation		Expeditionary
	Services		Services		Total
Balance as of May 31, 2018	$	99.4	$	19.3	$	118.7
Finalization of purchase price allocation		(1.0)		—		(1.0)
Foreign currency translation adjustments		(1.5)		—		(1.5)
Balance as of May 31, 2019		96.9		19.3		116.2
Foreign currency translation adjustments		(0.5)		—		(0.5)
Balance as of May 31, 2020	$	96.4	$	19.3	$	115.7

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets, other than goodwill, are comprised of the following:

	May 31, 2020
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	21.4	$	(16.5)	$	4.9
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	22.5	$	(16.5)	$	6.0

	May 31, 2019
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	25.5	$	(15.6)	$	9.9
Lease agreements		22.5		(14.0)		8.5
Other		3.4		(0.7)		2.7
		51.4		(30.3)		21.1
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	52.5	$	(30.3)	$	22.2

1. Summary of Significant Accounting Policies (Continued)

In conjunction with the adoption of ASC 842 on June 1, 2019, our intangible assets for lease agreements were re-classified to the ROU asset. During fiscal 2020, we recognized an impairment charge of $5.4 million related to the exit of certain product lines across both our Aviation Services and Expeditionary Services segments.

Customer relationships are being amortized over 5-20 years. Amortization expense recorded during fiscal 2020, 2019 and 2018 was  $2.3 million, $3.9 million, and $4.7 million, respectively. The estimated aggregate amount of amortization expense for intangible assets in each of the next five fiscal years is $1.7 million in 2021, $1.0 million in 2022, $0.5 million in 2023, $0.3 million in 2024 and $0.3 million in 2025.

Foreign Currency

Our foreign subsidiaries utilize the local currency as their functional currency. All balance sheet accounts of foreign subsidiaries transacting business in currencies other than the U.S. dollar are translated at year-end exchange rates. Revenues and expenses are translated at average exchange rates during the year. Translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss until such subsidiaries are liquidated.

Cash

Cash and cash equivalents consist of highly liquid instruments which have original maturities of three months or less when purchased. Restricted cash represents cash on hand required to be set aside by a contractual agreement related to receivable securitization arrangements. Generally, the restrictions related to the receivable securitization arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser.

Inventories

Inventories are valued at the lower of cost or market (estimated net realizable value). Cost is determined by the specific identification, average cost, or first-in, first-out methods. From time-to-time, we purchase aircraft and engines for disassembly to individual parts and components. Costs are assigned to these individual parts and components utilizing list prices from original equipment manufacturers and recent sales history.

The following is a summary of inventories:

	May 31,
	2020		2019
Aircraft and engine parts, components and finished goods	$	556.6	$	467.9
Raw materials and parts		45.9		41.8
Work-in-process		20.6		14.0
	$	623.1	$	523.7

Rotable Assets and Equipment under Leases

The cost of the asset under lease is the original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment. The balance sheet classification of equipment under lease is generally based on lease term, with fixed-term leases less than twelve months generally classified as short-term and all others generally classified as long-term.

Equipment on short-term lease includes aircraft engines and parts on or available for lease to satisfy customers’ immediate short-term requirements. The leases are renewable with fixed terms, which generally vary from one to twelve months.

1. Summary of Significant Accounting Policies (Continued)

Property, Plant and Equipment and Other Non-Current Assets

We record property, plant and equipment at cost. Depreciation is computed on the straight-line method over useful lives of 10-40 years for buildings and improvements and 3-10 years for equipment, furniture and fixtures, and capitalized software. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the applicable lease.

Repair and maintenance expenditures are expensed as incurred. Upon sale or disposal, cost and accumulated depreciation are removed from the accounts, and related gains and losses are included in results of operations.

Rotable assets supporting long-term programs consist of rotable component parts used to support long-term supply chain programs. The assets are being depreciated on a straight-line basis over their estimated useful lives.

In accordance with ASC 360, Property, Plant and Equipment, we are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.  We utilize certain assumptions to estimate future undiscounted cash flows, including demand for our services, future market conditions and trends, business development pipeline of opportunities, current and future lease rates, lease terms, and residual values. In conjunction with the decision to exit certain product lines, we recognized rotable asset impairment charges of $1.9 million in fiscal 2020.  

Future rent due to us under non-cancelable leases during each of the next five fiscal years is $12.2 million in 2021, $11.6 million in 2022, $11.4 million in 2023, $11.3 million in 2024, and $11.3 million in 2025.

Investments

Investments where we have the ability to exercise significant influence, but do not control the entity, are accounted for under the equity method of accounting.  Significant influence generally exists if we have a 20% to 50% ownership interest in the investee. Our share of the net earnings or loss of our investees is included in operating income on our Consolidated Statements of Income since the activities of the investees are closely aligned with our operations. Equity investments in entities over which we do not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost.

We evaluate our investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Our investments are classified in Other non-current assets on our Consolidated Balance Sheets. Distributions from joint ventures are classified as operating or investing activities in the Consolidated Statements of Cash Flows based upon an evaluation of the specific facts and circumstances of each distribution.

Restructuring and Other Exit Costs

We recognize charges for restructuring and other exit costs such as product line exits and facility closures at their fair value when incurred.  In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period.

During fiscal 2020, we incurred severance and furlough-related costs of $7.1 million which were included as a component of Cost of sales and services and Selling, general and administrative on our Consolidated Statements of Income.  Our remaining liability for these costs as of May 31, 2020 was $5.5 million which is included in Accrued liabilities on the Consolidated Balance Sheet.

1. Summary of Significant Accounting Policies (Continued)

Income Taxes

We are subject to income taxes in the U.S., state, and several foreign jurisdictions. In the ordinary course of business, there can be transactions and calculations where the ultimate tax determination is uncertain. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse.

We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return. Where necessary, we record a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

Supplemental Information on Cash Flows

Supplemental information on cash flows is as follows:

	For the Year Ended
	May 31,
	2020		2019		2018
Interest paid	$	8.6	$	8.8	$	7.2
Income taxes paid		14.3		7.0		17.0
Income tax refunds and interest received		7.0		6.4		0.1

During fiscal 2020, treasury stock decreased $5.0 million reflecting restricted stock activity of $0.8 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $8.3 million partially offset by the repurchase of common shares of $4.1 million.

During fiscal 2019, treasury stock increased $7.0 million reflecting the repurchase of common shares of $10.3 million, restricted stock activity of $0.8 million partially offset by the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $4.1 million.

During fiscal 2018, treasury stock increased $0.9 million reflecting the repurchase of common shares of $13.1 million, restricted stock activity of $1.0 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $11.2 million.

Use of Estimates

We have made estimates and utilized certain assumptions relating to the reporting of assets and liabilities and the disclosures of contingent liabilities to prepare these Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

1. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.  This ASU requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. This ASU also requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast of the collectability of the related financial asset.  We plan to adopt this ASU on June 1, 2020 and the adoption is not expected to have a material impact on our consolidated financial statements.

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Discontinued Operations

12 Months Ended

May 31, 2020

Discontinued Operations

Discontinued Operations

2.  Discontinued Operations

Our Contractor-Owned, Contractor-Operated (“COCO”) business previously included in our Expeditionary Services segment completed certain contracts in the second quarter of fiscal 2018.  As the aircraft supporting these contracts were not placed on new contracts, combined with the continued decline in operational tempo within the U.S. Department of Defense (“DoD”) and an excess supply of aircraft assets in the market, we determined there was an impairment triggering event and tested the recoverability of our COCO assets.  As a result, we recognized impairment and other charges of $54.2 million in the second quarter of fiscal 2018. The fair value of the aircraft and related assets was based on available market data for similar assets.

During the third quarter of fiscal 2018, we decided to pursue the sale of our COCO business.  Due to this strategic shift, the assets, liabilities, and results of operations of our COCO business have been reported as discontinued operations for all periods presented.  Goodwill was allocated to this business based on its relative fair value to the reporting unit.  The fair value of the reporting unit was determined based on a combination of the expected net proceeds upon sale and a discounted cash flow analysis.  As the fair value of the COCO business was below its carrying value, a goodwill impairment charge of $9.8 million was recorded in the third quarter of fiscal 2018.

During fiscal 2019, we signed an agreement to sell our U.S. Department of Defense ("DoD") contracts and certain assets of our COCO business.  In conjunction with this agreement and other expected asset sales, we recognized an impairment charge in discontinued operations of $74.1 million during the third quarter of fiscal 2019 reflecting the expected net proceeds to be received upon the completion of the sale transactions.

In fiscal 2020, we signed an agreement to sell the remaining operating contract of the COCO business and recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the disposal of the remaining COCO assets. The sale of the DoD contracts and related assets was completed in the second quarter of fiscal 2020 and the sale of the remaining operating contract was completed in the fourth quarter of fiscal 2020 shortly after government approval. Our continuing involvement in the COCO business is limited to the lease of certain aircraft which is an obligation of the acquirer of the non-DoD contract.

No amounts for general corporate overhead or interest expense were allocated to discontinued operations during the periods presented. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to our continuing operations.  

2.  Discontinued Operations (Continued)

Operating results for discontinued operations were comprised of the following:

	For the Year Ended May 31,
	2020		2019		2018
Sales	$	40.4	$	95.8	$	96.3
Cost of sales		(45.4)		(106.1)		(101.4)
Asset impairments		(11.8)		(74.1)		(65.2)
Selling, general and administrative expenses		(8.6)		(12.1)		(11.8)
Operating loss from discontinued operations		(25.4)		(96.5)		(82.1)
Provision for income taxes		(5.0)		(19.9)		(24.0)
Loss from discontinued operations	$	(20.4)	$	(76.6)	$	(58.1)

The carrying amounts of the major classes of assets and liabilities for our discontinued operations are as follows:

	May 31,
	2020		2019
Accounts receivable, net	$	0.2	$	16.2
Inventory, rotable assets, and equipment		—		7.5
Operating lease ROU assets		21.9		—
Other assets		0.8		5.5
Assets of discontinued operations	$	22.9	$	29.2
Accounts payable and accrued liabilities	$	8.0	$	29.2
Operating lease liabilities		21.9		—
Liabilities of discontinued operations	$	29.9	$	29.2

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Sale of Receivables

12 Months Ended

May 31, 2020

Sale of Receivables

Sale of Receivables

3.  Sale of Receivables

On February 23, 2018, we entered into a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”).  Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell.  The term of the Purchase Agreement runs through February 22, 2021, 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.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser.  We account for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognize the sold receivables from our Consolidated Balance Sheet.

Receivables sold under the Purchase Agreement during fiscal 2020, 2019, and 2018 were $746.4 million, $744.2 million, and $239.6, respectively.  Amounts remitted to the Purchaser on their behalf during fiscal 2020, 2019, and 2018 were $758.3 million, $729.7 million, and $167.9, respectively.  As of May 31, 2020 and May 31, 2019, we had collected cash of $20.0 million and $19.8 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.

We recognize discounts on the sale of our receivables and other fees related to the Purchase Agreement in Other expense, net on our Consolidated Statements of Income. During fiscal 2020, 2019 and 2018, we incurred discounts on the sale of our receivables and other fees of $1.8 million,  $2.2 million and $0.9 million, respectively.

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Financing Arrangements

12 Months Ended

May 31, 2020

Financing Arrangements

Financing Arrangements

4. Financing Arrangements

Debt Outstanding

A summary of the carrying amount of our debt is as follows:

	May 31,
	2020		2019
Revolving Credit Facility expiring September 25, 2024 with interest payable monthly	$	579.5	$	120.0
Term loan due November 1, 2021 with interest payable monthly		22.5		22.9
Total debt		602.0		142.9
Current maturities of debt		—		—
Debt issuance costs, net		(2.0)		(1.2)
Long-term debt	$	600.0	$	141.7

At May 31, 2020, our variable rate debt had a fair value that approximates its carrying value and is classified as Level 2 in the fair value hierarchy.

On October 18, 2017, we entered into a Credit Agreement with the Canadian Imperial Bank of Commerce, as lender (the “Credit Agreement”). The Credit Agreement provided a Canadian $31 million term loan with the proceeds used to fund the acquisition of two maintenance, repair, and overhaul (“MRO”) facilities in Canada from Premier Aviation. The term loan is due in full at the expiration of the Credit Agreement on November 1, 2021 unless terminated earlier pursuant to the terms of the Credit Agreement. Interest is payable monthly on the term loan at the offered fluctuating Canadian Dollar Offer Rate plus 125 to 225 basis points based on certain financial measurements if a Bankers’ Acceptances loan, or at the offered fluctuating Prime Rate plus 25 to 125 basis points based on certain financial measurements, if a Prime Rate loan.

On September 25, 2019, we entered into an amendment to our Revolving Credit Facility that extended the maturity of the Revolving Credit Facility to September 25, 2024, increased the revolving credit commitment to $600 million, and modified certain other provisions. 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.  

Borrowings under the Revolving Credit Facility bear interest at the offered Eurodollar Rate plus 87.5 to 175 basis points based on certain financial measurements if a Eurodollar Rate loan, or at the offered fluctuating Base Rate plus 0 to 75 basis points based on certain financial measurements if a Base Rate loan.

Our financing arrangements also require us to comply with leverage and interest coverage ratios, maintain a minimum net working capital level, and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, payment of indebtedness, cash dividends, taxes and other obligations, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets.  The Revolving Credit Facility also requires our significant domestic subsidiaries, and any subsidiaries that guarantee our other indebtedness, to provide a guarantee of payment under the Revolving Credit Facility.  At May 31, 2020, we were in compliance with the financial and other covenants in our financing agreements.

4. Financing Arrangements (Continued)

Borrowing activity under the Revolving Credit Facility during fiscal 2020, 2019 and 2018 is as follows:

	For the Year Ended May 31,
	2020			2019			2018
Maximum amount borrowed	$	579.5		$	287.0		$	275.0
Average daily borrowings		280.7			207.8			214.1
Average interest rate during the year		2.62	%		3.41	%		2.52	%

We also have $9.3 million available under foreign lines of credit.

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Equity

12 Months Ended

May 31, 2020

Equity

Equity

5. Equity

Stock-Based Compensation

We have granted stock-based awards under the AAR CORP. 2013 Stock Plan (the “2013 Stock Plan”) and the AAR CORP. Stock Benefit Plan (“Stock Benefit Plan”) each of which has been approved by our stockholders. No further awards will be made under the Stock Benefit Plan. Under the 2013 Stock Plan, we are authorized to issue stock options to employees and non-employee directors that allow the grant recipients to purchase shares of common stock at a price not less than the fair market value of the common stock on the date of grant. Generally, stock options awarded expire ten years from the date of grant and are exercisable in three annual increments commencing one year after the date of grant. In addition to stock options, the 2013 Stock Plan also provides for the grant of time-based restricted stock awards and performance-based restricted stock awards. The number of performance-based awards earned, subject to vesting, is based on achievement of certain Company-wide or segment financial goals or stock price targets. The 2013 Stock Plan also provides for the grant of stock appreciation units and restricted stock units; however, to date, no such awards have been granted.

Restricted stock grants (whether time-based or performance-based) are designed, among other things, to align employee interests with the interests of stockholders and to encourage the recipient to build a career with us. Restricted stock typically vests over periods of one to five years from the date of grant. Restricted stock grants may be performance-based with vesting to occur over periods of three to five years. All restricted stock that has been granted and, if performance-based, earned according to performance criteria carries full dividend and voting rights, regardless of whether it has vested.

Substantially all stock options and restricted stock are subject to forfeiture prior to vesting if the employee’s employment terminates for any reason other than death, disability or retirement. Since inception, a total of 11,149,000 shares have been granted under the Stock Benefit Plan. We have granted a total of 3,656,000 shares under the 2013 Stock Plan. All future stock awards will be made under the 2013 Stock Plan. There were 646,088 shares available for grant under the 2013 Stock Plan as of May 31, 2020.

5. Equity (Continued)

Stock Options

During fiscal 2020, 2019, and 2018, we granted stock options with respect to 414,460 shares, 300,240 shares and 463,140 shares, respectively. The weighted average fair value per share of stock options granted during fiscal 2020, 2019 and 2018 was $10.30, $13.60 and $9.29, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

	Stock Options Granted
	In Fiscal Year
	2020		2019		2018
Risk-free interest rate	1.9	%	2.7	%	1.8	%
Expected volatility of common stock	32.0	%	30.8	%	31.7	%
Dividend yield	0.8	%	0.6	%	0.9	%
Expected option term in years	4.5		4.5		4.3

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatility of our common stock, and the expected option term represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The dividend yield represents our anticipated cash dividends at the grant date over the expected option term.

A summary of stock option activity for the three years ended May 31, 2020 consisted of the following (shares in thousands):

	2020			2019			2018
		Weighted			Weighted			Weighted
		Average			Average			Average
	Shares	Exercise Price		Shares	Exercise Price		Shares	Exercise Price
Outstanding at beginning of year	1,777	$	30.37	2,082	$	26.72	2,334	$	23.02
Granted	414	$	37.66	300	$	47.84	463	$	35.33
Exercised	(300)	$	24.99	(571)	$	25.56	(704)	$	20.04
Cancelled	(40)	$	36.72	(34)	$	42.02	(11)	$	29.50
Outstanding at end of year	1,851	$	32.74	1,777	$	30.37	2,082	$	26.72
Options exercisable at end of year	1,133	$	28.32	981	$	25.28	883	$	23.81

The total fair value of stock options that vested during fiscal 2020, 2019, and 2018 was $3.7 million, $5.6 million, and $4.9 million, respectively. The total intrinsic value of stock options exercised during fiscal 2020, 2019, and 2018 was $6.2 million, $12.2 million, and $14.2 million, respectively. The aggregate intrinsic value of options outstanding was $0.5 million and $6.7 million as of May 31, 2020 and 2019, respectively. The tax benefit realized from stock options exercised during fiscal 2020, 2019, and 2018 was $2.1 million, $2.7 million, and $2.9 million, respectively. Expense recognized in selling, general and administrative expenses for stock options during fiscal 2020, 2019, and 2018 was $3.9 million, $4.1 million, and $5.1 million, respectively. As of May 31, 2020, we had $4.2 million of unrecognized compensation expense related to stock options that will be amortized over an average period of 1.3 years.

5. Equity (Continued)

Restricted Stock

We provide executives and other key employees an opportunity to be awarded performance-based and time- based restricted stock. The performance-based awards are contingent upon the achievement of certain objectives, which generally include cumulative income, average return on capital, and relative total shareholder return over a three-year performance period. During fiscal 2020, 2019, and 2018, we granted 52,475, 43,680, and 108,440 of performance-based restricted shares, respectively. Time-based restricted shares of 56,535, 46,470, and 24,425 were granted to executives and key employees during fiscal 2020, 2019, and 2018, respectively. We also award time-based restricted stock to our non-employee directors as part of their annual compensation. Time-based restricted shares of 44,123, 29,128, and 55,000 were granted to members of the Board of Directors during fiscal 2020, 2019, and 2018, respectively.

The fair value of restricted shares is the market value of our common stock on the date of grant. Expense recognized in selling, general and administrative expenses for all restricted share programs during fiscal 2020, 2019, and 2018 was $3.4 million, $9.4 million, and $10.2 million, respectively.

Restricted share activity during fiscal 2020 was as follows (shares in thousands):

		Weighted Average
	Number of	Fair Value
	Shares	on Grant Date
Nonvested at May 31, 2019	532	$	31.70
Granted	279	$	19.44
Vested	(412)	$	25.27
Forfeited	(14)	$	37.02
Nonvested at May 31, 2020	385	$	31.70

As of May 31, 2020 we had $2.5 million of unearned compensation related to restricted shares that will be amortized to expense over a weighted average period of 1.6 years.

Stockholder Rights Plan

Pursuant to a limited duration stockholder rights plan adopted in 2020, each outstanding share of our common stock carries with it a right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock (a “Preferred Share”) for $100.00 (the “Exercise Price”). The rights become exercisable when certain specified events occur, including the acquisition of 10% (or 20% in the case of passive investors who are eligible to, and do, report their holdings on Schedule 13G with the SEC) or more of the common stock by a person or group (an "Acquiring Person") or the commencement of a tender or exchange offer for 10% or more of the common stock without the approval of the Board of Directors.

In the event that an Acquiring Person acquires 10% or more of the common stock, or if we are the surviving corporation in a merger involving an Acquiring Person or if the Acquiring Person engages in certain types of self-dealing transactions, each right entitles the holder (other than the Acquiring Person) to purchase a Preferred Share for the Exercise Price. Similarly, if we are acquired in a merger or other business combination or 50% or more of our assets or earning power is sold, each right entitles the holder (other than the Acquiring Person) to purchase at the then-current exercise price that number of shares of common stock of the surviving corporation having a market value of two times the exercise price. The rights do not entitle the holder thereof to vote or to receive dividends. The rights will expire on February 28, 2021, and may be redeemed by us for $.0001 per right under certain circumstances.

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Income Taxes

12 Months Ended

May 31, 2020

Income Taxes

Income Taxes

6. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted which significantly revised the U.S. corporate income tax system. The Tax Reform Act, among other things, reduced the corporate federal income tax rate to 21% from 35%, changed bonus depreciation regulations and limited deductions for executive compensation. The income tax rate reduction in the Tax Reform Act was effective January 1, 2018 which resulted in a blended federal statutory tax rate of 29.2% in fiscal 2018.

In fiscal 2018, we re-measured our deferred tax assets and liabilities based on the tax rate at which they are expected to reverse in the future, which was either at a federal rate of 29.2% for reversals expected in fiscal 2018 or 21% for reversals in fiscal 2019 and subsequent years. During fiscal 2018, we recognized an income tax benefit of $14.1 million for the re-measurement impact from applying the provisions of the Tax Reform Act.

The provision for income tax on income from continuing operations includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Current:
Federal	$	1.4	$	4.8	$	14.6
State		0.9		0.1		0.1
Foreign		2.8		5.0		1.7
		5.1		9.9		16.4
Deferred		0.5		(5.0)		(12.9)
	$	5.6	$	4.9	$	3.5

The provision for income taxes on pre-tax income differs from the amount computed by applying the U.S. federal statutory income tax rate of 21.0% for fiscal 2020 and 2019, and 29.2% for fiscal 2018 to income from continuing operations before provision for income taxes due to the following:

	For the Year Ended
	May 31,
	2020		2019		2018
Provision for income tax at the federal statutory rate	$	6.4	$	18.7	$	22.5
Deferred tax re-measurement from the Tax Reform Act		—		—		(14.1)
Excess tax benefits from stock-based compensation		(2.1)		(2.7)		(2.9)
State income taxes, net of federal benefit		1.1		1.9		1.5
Change in valuation allowance for state deferred tax assets		(0.1)		(6.9)		(3.4)
Effective settlement of prior tax positions		—		(4.7)		—
Other		0.3		(1.4)		(0.1)
Provision for income tax	$	5.6	$	4.9	$	3.5

Income before provision for income taxes includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Domestic	$	23.6	$	68.9	$	58.7
Foreign		6.8		20.1		18.5
	$	30.4	$	89.0	$	77.2

6. Income Taxes (Continued)

Deferred tax liabilities and assets result primarily from the differences in the timing of the recognition of transactions for financial reporting and income tax purposes. Our deferred tax liabilities and assets consist of the following components:

	May 31,
	2020		2019
Deferred tax assets:
Operating lease liabilities	$	24.9	$	—
State net operating losses		9.4		9.0
Credits and incentives		8.2		—
Employee benefits		8.0		9.4
Deferred revenue		2.3		7.7
Inventory costs		2.8		4.9
Postretirement benefits		5.3		3.7
Other		4.0		4.8
Total deferred tax assets		64.9		39.5
Valuation allowance		—		(0.1)
Total deferred tax assets net of valuation allowance		64.9		39.4
Deferred tax liabilities:
Tangible and intangible assets		(35.0)		(36.1)
ROU operating lease assets		(26.2)		—
Other		(0.2)		(0.2)
Total deferred tax liabilities		(61.4)		(36.3)
Net deferred tax assets	$	3.5	$	3.1

As of May 31, 2020, we have determined that the realization of our deferred tax assets is more likely than not and that a valuation allowance is not required. Our net operating losses have  carry forward periods that range from 5 to 20 years.  Our history of operating earnings, our expectations for continued future earnings, the nature of certain of our deferred tax assets and the scheduled reversal of deferred tax liabilities, primarily related to depreciation, support the recoverability of the majority of the deferred tax assets. Our net deferred tax assets are included in Other non-current assets on our Consolidated Balance Sheets.

Income tax receivable was $7.9 million and $1.1 million at May 31, 2020 and 2019, respectively, and was included in Other current assets on the Consolidated Balance Sheets.

Our federal income tax returns for fiscal years 2017 and subsequent are open for examination. Various states and foreign jurisdictions also remain open subject to their applicable statute of limitations.

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Earnings Per Share

12 Months Ended

May 31, 2020

Earnings Per Share

Earnings Per Share

7. Earnings Per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options and shares issuable upon vesting of restricted stock awards.

In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, our unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares. During periods of net income, the calculation of earnings per share for common stock excludes income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

The following tables provide a reconciliation of the computations of basic and diluted earnings per share information for each of the years in the three-year period ended May 31, 2020 (shares in millions).

	For the Year Ended
	May 31,
	2020		2019		2018
Basic and Diluted EPS:
Income from continuing operations	$	24.8	$	84.1	$	73.7
Less income attributable to participating shares		(0.1)		(0.4)		(0.6)
Income from continuing operations attributable to common stockholders		24.7		83.7		73.1
Loss from discontinued operations attributable to common stockholders		(20.4)		(76.6)		(58.1)
Net income attributable to common stockholders for earnings per share	$	4.3	$	7.1	$	15.0
Weighted average common shares outstanding - basic		34.8		34.5		34.2
Additional shares from assumed exercise of stock options		0.2		0.4		0.4
Weighted average common shares outstanding - diluted		35.0		34.9		34.6
Earnings per share - basic:
Earnings from continuing operations	$	0.71	$	2.42	$	2.14
Loss from discontinued operations		(0.59)		(2.22)		(1.70)
Earnings per share - basic	$	0.12	$	0.20	$	0.44
Earnings per share - diluted:
Earnings from continuing operations	$	0.71	$	2.40	$	2.11
Loss from discontinued operations		(0.58)		(2.19)		(1.70)
Earnings per share - diluted	$	0.13	$	0.21	$	0.41

At May 31, 2020 and 2019 respectively, outstanding options to purchase 669,400 and 273,400 shares of common stock were not included in the computation of diluted earnings per share, because the exercise price of these options was greater than the average market price of the common shares for the year then ended. At May 31, 2018, the average market price of our common shares was in excess of the exercise prices of all of our outstanding options.

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Employee Benefit Plans

12 Months Ended

May 31, 2020

Employee Benefit Plans

Employee Benefit Plans

8. Employee Benefit Plans

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for domestic salaried and non-union hourly employees had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted our defined benefit plan for substantially all domestic salaried and certain hourly employees to a cash balance pension plan. Under the cash balance pension plan, the retirement benefit is expressed as a dollar amount in an account that grows with annual pay-based credits and interest on the account balance. The interest crediting rate under our cash balance plan is determined quarterly and is equal to 100% of the average 30-year treasury rate for the second month preceding the applicable quarter published by the Internal Revenue Service. The average interest crediting rate under our cash balance plan for the fiscal year ended May 31, 2020 was 4.46%. Effective June 1, 2005, the existing cash balance plan was frozen and the annual pay-based credits were discontinued. Also effective June 1, 2005, the defined contribution plan was modified to include increased employer contributions and an enhanced profit sharing formula. Defined pension benefits for certain union hourly employees are based primarily on a fixed amount per year of service and the plan was frozen in fiscal 2018.

We also have a defined benefit pension plan covering certain employees in the Netherlands.  Benefit formulas are based generally on years of service and compensation.  

We also have a benefit plan which provides benefits to certain retired outside directors.  In fiscal 2001, we froze the plan for any new members of the Board of Directors and no current directors participate in this plan.

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans was as follows:

	May 31,
	2020		2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	149.2	$	146.5
Service cost		2.8		2.3
Interest cost		3.8		4.3
Participant contributions		0.3		0.4
Net actuarial loss		10.1		6.5
Benefits and administrative payments		(4.9)		(6.9)
Settlements		(2.2)		(0.6)
Foreign currency translation adjustment		—		(3.3)
Projected benefit obligation at end of year	$	159.1	$	149.2
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	129.9	$	134.5
Actual return on plan assets		8.6		2.8
Employer contributions		0.4		2.6
Participant contributions		—		0.4
Benefits and administrative payments, including settlements		(7.1)		(7.5)
Foreign currency translation adjustment		—		(2.9)
Fair value of plan assets at end of year	$	131.8	$	129.9
Funded status at end of year	$	(27.3)	$	(19.3)

8. Employee Benefit Plans (Continued)

Amounts recognized in the Consolidated Balance Sheets consisted of the following:

	May 31,
	2020		2019
Accrued liabilities	$	(0.4)	$	(0.4)
Other liabilities		(26.9)		(18.9)
Funded status at end of year	$	(27.3)	$	(19.3)
Accumulated other comprehensive loss	$	63.5	$	58.7

For all of our pension plans, both the projected benefit obligation and the accumulated benefit obligation are in excess of the individual plans’ assets.  The accumulated benefit obligation for all pension plans was $151.9 million and $142.4 million at May 31, 2020 and 2019, respectively.

Net Periodic Benefit Cost

Pension expense charged to the Consolidated Statements of Income includes the following components:

	For the Year Ended
	May 31,
	2020		2019		2018
Service cost	$	2.8	$	2.3	$	2.4
Interest cost		3.8		4.3		4.3
Expected return on plan assets		(6.8)		(7.1)		(7.3)
Curtailment		—		—		0.3
Settlements		1.5		0.1		—
Amortization of prior service credit		—		(0.1)		—
Recognized net actuarial loss		2.0		1.8		2.3
	$	3.3	$	1.3	$	2.0

The estimated amount of net actuarial loss to be amortized from accumulated other comprehensive loss into expense during fiscal 2021 is $2.2 million.

Assumptions

The assumptions used in accounting for our plans are estimates of factors including, among other things, the amount and timing of future benefit payments. The following table presents the key weighted-average assumptions used in the measurement of our projected benefit obligations:

	May 31,
	2020		2019
Discount rate:
Domestic plans	2.83	%	3.67	%
International plan	1.20		1.50
Rate of compensation increase:
Domestic plans	n/a		n/a
International plans	3.00	%	3.00	%

8. Employee Benefit Plans (Continued)

A summary of the weighted-average assumptions used to determine net periodic pension expense is as follows:

	For the Year Ended
	May 31,
	2020		2019		2018
Discount rate:
Domestic plans	3.67	%	4.05	%	3.82	%
International plan	1.50		1.90		2.00
Expected long-term rate on plan assets:
Domestic plans	7.25	%	7.25	%	7.25	%
International plan	2.90		3.60		4.00

The discount rate was determined by projecting the expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

Plan Assets

The following table sets forth the actual asset allocation and target allocations for our U.S. pension plans:

	May 31,				Target Asset
	2020		2019		Allocation
Equity securities	60	%	59	%	45 – 75	%
Fixed income securities	20		22		15 – 45	%
Other	20		19		0 – 25	%
	100	%	100	%

The assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974. The investment goals are to provide a total return that, over the long term, optimizes the long-term return on plan assets at an acceptable risk, and to maintain a broad diversification across asset classes and among investment managers. We believe that there are no significant concentrations of risk within our plan assets as of May 31, 2020. The use of derivatives for the purpose of speculation are not permitted. The assets of the U.S. pension plans are invested primarily in equity and fixed income mutual funds, individual common stocks, and fund-of-funds hedge funds. The assets of the non-domestic plan are invested in funds-of-funds where each fund holds a portfolio of equity and fixed income mutual funds.

To develop our expected long-term rate of return assumption on domestic plans, we use long-term historical return information for our targeted asset mix and current market conditions. The expected return for each asset class is weighted based on the target asset allocation to develop the expected long-term rate of return on plan assets assumption. While consideration is given to recent performance, the assumption represents a long-term, prospective rate of return.

8. Employee Benefit Plans (Continued)

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2020:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.5	$	—	$	—	$	31.5
International mutual funds		7.6		—		—		7.6
Fixed income:
Government securities and corporate bond mutual funds		8.4		4.7		—		13.1
Funds-of-funds		—		54.6		8.5		63.1
Hedge funds		—		—		4.3		4.3
Insurance annuities		—		—		11.7		11.7
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	48.0	$	59.3	$	24.5	$	131.8

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2019:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.1	$	—	$	—	$	31.1
International mutual funds		8.4		—		—		8.4
Fixed income:
Government securities and corporate bond mutual funds		9.0		5.9		—		14.9
Funds-of-funds		—		53.0		7.9		60.9
Hedge funds		—		—		4.2		4.2
Insurance annuities		—		—		9.9		9.9
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	49.0	$	58.9	$	22.0	$	129.9

(1) Quoted prices in active markets for identical assets that we have the ability to access as of the reporting date.

(2) Inputs other than quoted prices included within Level 1 that are directly observable for the asset or indirectly observable through corroboration with observable market data.

(3) Unobservable inputs, such as internally developed pricing models or third party valuations for the asset due to little or no market activity for the asset.

8. Employee Benefit Plans (Continued)

The following table presents the reconciliation of Level 3 pension assets measured at fair value for the fiscal years ended May 31, 2020 and 2019:

	Hedge Funds		Fund-of-funds		Insurance Annuities		Total
Balance as of May 31, 2018	$	4.4	$	7.7	$	7.8	$	19.9
Purchases		—		—		2.1		2.1
Return on plan assets related to assets still held at May 31, 2019		(0.2)		0.2		—		—
Balance as of May 31, 2019		4.2		7.9		9.9		22.0
Purchases		—		—		1.8		1.8
Sales		(0.1)		—		—		(0.1)
Return on plan assets related to assets still held at May 31, 2020		0.2		0.6		—		0.8
Balance as of May 31, 2020	$	4.3	$	8.5	$	11.7	$	24.5

Valuation Techniques Used to Determine Fair Value

Cash equivalents are investments with maturities of three months or less when purchased. The fair values are based on observable market prices and categorized as Level 1.

With respect to individually held equity securities, including investments in U.S. and international securities, the trustees obtain prices from pricing services, whose prices are obtained from direct feeds from market exchanges, which we are able to independently corroborate. Equity securities held individually are primarily traded on exchanges that contain only actively traded securities, due to the volume trading requirements imposed by these exchanges. Equity securities are valued based on quoted prices in active markets and categorized as Level 1.

Equity and fixed income mutual funds are maintained by investment companies that hold certain investments in accordance with a stated set of fund objectives, which are consistent with our overall investment strategy. The values of some of these funds are publicly quoted. For equity and fixed income mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. As certain of our funds-of-funds investments are also derived from quoted prices in active markets, we have categorized certain funds-of-funds investments as Level 2.

Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. The fair value of hedge funds is determined using net asset value or its equivalent subject to certain restrictions, such as a lock-up period. As we may be limited in our ability to redeem the investments at the measurement date or within a reasonable period of time, the hedge fund investments are categorized as Level 3.  Our other Level 3 investments require the utilization of unobservable inputs resulting in Level 3 treatment in the fair value hierarchy.

Future Benefit Payments and Funding

The following table summarizes our estimated future pension payments by fiscal year:

	Fiscal Year
											2026 to
	2021		2022		2023		2024		2025		2030
Estimated future pension payments	$	6.7	$	6.1	$	6.4	$	5.8	$	6.9	$	35.4

8. Employee Benefit Plans (Continued)

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. For our Netherlands pension plan, our policy is to fund at least the minimum amount required by the local laws and regulations. We anticipate contributing approximately $3.1 million to our pension plans during fiscal 2021, which includes approximately $1.1 million of the Netherlands' fiscal 2020 contribution which was deferred to fiscal 2021.

Postretirement Benefits Other Than Pensions

We provide health and life insurance benefits for certain eligible retirees. The postretirement plan is unfunded and in fiscal 1995, we completed termination of postretirement health and life insurance benefits attributable to future services of collective bargaining and other domestic employees. The unfunded projected benefit obligation for this plan was $0.4 million and $0.4 million as of May 31, 2020 and 2019, respectively. We have omitted substantially all of the required disclosures related to this plan because the plan is not material to our consolidated financial position or results of operations.

Defined Contribution Plan

Our defined contribution plans are intended to qualify as a 401(k) plans under the Internal Revenue Code.  Employees may contribute up to 75% of their pretax compensation, subject to applicable regulatory limits and we may make discretionary matching contributions up to 5% of employee compensation.  We modified the contribution structure in fiscal 2020 to eliminate the profit sharing contribution for future years.  Our contributions vest on a pro-rata basis during the first three years of employment.  We also maintain a non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of Internal Revenue Code limits and provides additional employer contributions for certain executives and key employees to supplement the benefits provided by the defined contribution plans.  

In response to the impact from COVID-19, we temporarily suspended our matching contributions to the defined contribution plans effective June 1, 2020.  Expense charged to the Consolidated Statements of Income for our matching contributions, including profit sharing contributions, was $11.6 million in fiscal 2020, $11.4 million in fiscal 2019 and $9.2 million in fiscal 2018 for these plans.

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Accumulated Other Comprehensive Loss

12 Months Ended

May 31, 2020

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

9.  Accumulated Other Comprehensive Loss

Changes in our accumulated other comprehensive loss (“AOCL”) by component for each of the years in the three-year period ended May 31, 2020 were as follows (all amounts are net of tax):

	Currency
	Translation		Pension
	Adjustments		Plans		Total
Balance as of June 1, 2017	$	(1.7)	$	(38.2)	$	(39.9)
Other comprehensive loss before reclassifications		2.0		4.2		6.2
Amounts reclassified from AOCL		—		1.7		1.7
Total other comprehensive loss		2.0		5.9		7.9
Balance as of May 31, 2018		0.3		(32.3)		(32.0)
Other comprehensive income (loss) before reclassifications		(2.4)		(8.0)		(10.4)
Amounts reclassified from AOCL		—		1.5		1.5
Total other comprehensive income (loss)		(2.4)		(6.5)		(8.9)
Balance as of May 31, 2019		(2.1)		(38.8)		(40.9)
Other comprehensive income before reclassifications		0.1		(5.0)		(4.9)
Amounts reclassified from AOCL		—		1.2		1.2
Total other comprehensive income		0.1		(3.8)		(3.7)
Balance as of May 31, 2020	$	(2.0)	$	(42.6)	$	(44.6)

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Other Non-current Assets

12 Months Ended

May 31, 2020

Other Non-current Assets

Other Non-current Assets

10. Other Non-current Assets

At May 31, 2020 and 2019, other non-current assets consisted of the following:

	May 31,
	2020		2019
Contract assets	$	22.4	$	17.0
Investments in joint ventures		17.8		12.3
Cash surrender value of life insurance		15.6		15.6
Assets under deferred compensation plan		13.1		10.4
License fees		4.1		7.2
Other		8.5		15.0
	$	81.5	$	77.5

Investments in Joint Ventures

During fiscal 2018, we sold interests in two aircraft joint ventures, which were accounted for under the equity method of accounting.  We received cash proceeds of $7.3 million and recognized a gain on the sale of $0.4 million.  

Under the terms of servicing agreements with certain of our aircraft joint ventures, we provide administrative services and technical advisory services, including aircraft evaluations, oversight and logistical support of the maintenance process and records management.  We also provide evaluation and inspection services prior to the purchase of an aircraft and remarketing services with respect to the divestiture of aircraft by the joint ventures.  During fiscal 2020, 2019, and 2018, we were paid $1.6 million, $0.4 million, and $0.4 million, respectively, for such services.

Our investments in joint ventures include $12.6 million for our 40% ownership interest in a joint venture in India to develop and operate an airframe maintenance facility.  Facility construction is expected to be completed in fiscal 2021.  

10. Other Non-current Assets (Continued)

The investment balance as of May 31, 2020 includes $8.2 million related to the guarantee liability recognized in conjunction with our guarantee of 40% of the Indian joint venture’s debt.  The Indian joint venture is accounted for using the equity method.  In addition, each of the partners in the Indian joint venture have a loan to the joint venture proportionate to its equity ownership.  Our loan to the Indian joint venture under this arrangement was $3.0 million as of May 31, 2020.

In the fourth quarter of fiscal 2020, we decided to exit our joint venture which operates a landing gear wheel and brake repair and overhaul facility in Malaysia.  In conjunction with the decision to exit the joint venture, we recognized an impairment charge of $1.9 million reflecting the anticipated net proceeds from our investment.  The impairment charge is reported in Earnings (Loss) from joint ventures on the Consolidated Statement of Income.

License Fees

In June 2011, we entered into a ten-year agreement with Unison Industries (“Unison”) to be the exclusive worldwide aftermarket distributor for Unison’s electrical components, sensors, switches and other systems for aircraft and industrial uses.  In June 2020, we entered into an extension and expansion of our agreement with Unison including a new termination date of December 31, 2031, an initial $25.0 million license fee paid in June 2020 to Unison, and annual license fees at a fixed percentage of our net sales of Unison products.  The June 2020 payment of $25.0 million was capitalized and will be amortized on a straight-line basis over the term of the new agreement.

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Leases

12 Months Ended

May 31, 2020

Leases

Leases

11. Leases

We lease facilities, offices, vehicles, and equipment.  We determine at inception whether an arrangement that provides us control over the use of an asset is a lease.  ROU assets and lease liabilities are recognized on the Consolidated Balance Sheet at lease commencement date based on the present value of the future minimum lease payments over the lease term.  Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors.  We estimate our incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.

Our lease costs are allocated over the remaining lease term on a straight-line basis unless another systematic or rational basis is more representative of the pattern in which the underlying asset is expected to be used. ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.

Certain leases include options to renew or extend the terms of the lease, which are included in the determination of the ROU assets and lease liabilities when it is reasonably certain that the option will be exercised. Our leases may also include variable lease payments such as escalation clauses based on consumer price index rates, maintenance costs and utilities. Variable lease payments that depend on an index or a rate are included in the determination of ROU assets and lease liabilities using the index or rate at the lease commencement date, whereas variable lease payments that do not depend on an index or rate are recorded as lease expense in the period incurred.  Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.

The summary of our operating lease cost is as follows:

	Fiscal Year Ended
	May 31, 2020
Operating lease cost	$	18.4
Short-term lease cost		5.3
Variable lease cost		7.4
	$	31.1

11. Leases (Continued)

Rental expense for facilities and equipment during fiscal years 2019 and 2018 was $25.9 million and $23.5 million, respectively.

As a result of the COVID-19 pandemic, we entered into deferral agreements with our various landlords in the fourth quarter of fiscal 2020.  Under these agreements, certain rent payments will be deferred or modified without penalty for various periods, generally for a minimum of three months.  We have elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications.  As of May 31, 2020, our total rent payments deferred under these arrangements was $0.6 million.

With the exception of a land lease for one of our airframe maintenance facilities that expires in 2108, our operating leases expire at various dates through 2034.  Maturities of our operating lease payments as of May 31, 2020 are as follows:

2021	$	16.5
2022		14.5
2023		12.7
2024		10.7
2025		8.3
Thereafter		36.5
Total undiscounted payments		99.2
Less: Imputed interest		(14.6)
Present value of minimum lease payments		84.6
Less: Operating lease liabilities – current		(13.7)
Operating lease liabilities – non-current	$	70.9

The current portion of operating lease liabilities are presented within Accrued liabilities on our Consolidated Balance Sheet.

As of May 31, 2020, the weighted average remaining lease term and discount rate for our operating leases were approximately 7.9 years and 3.5%, respectively.  

Supplemental cash flow information related to leases for the year ended May 31, 2020 was as follows:

	Fiscal Year Ended
	May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	16.5
Operating lease liabilities arising from obtaining ROU assets		13.0

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Commitments and Contingencies

12 Months Ended

May 31, 2020

Commitments and Contingencies

Commitments and Contingencies

12. Commitments and Contingencies

We enter into purchase obligations, which 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. The aggregate amount of purchase obligations due in each of the next five fiscal years is $344.8 million in 2021, $15.8 million in 2022, $5.4 million in 2023, $0.1 in 2024 and $0.1 million in 2025.

We routinely issue letters of credit and performance bonds in the ordinary course of our business. These instruments are typically issued in conjunction with insurance contracts or other business requirements. The total of these instruments outstanding at May 31, 2020 was approximately $31.5 million which includes $12.4 million related to a guarantee of 40% of the outstanding debt of our Indian joint venture. We have recognized a current liability of $8.2 million based on the fair value of our guarantee obligation.

12. Commitments and Contingencies (Continued)

We are involved in various claims and legal actions, including environmental matters, arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition or results of operations.

Government Actions to Mitigate COVID-19’s Impact

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S. in response to the COVID-19 pandemic.  The CARES Act includes provisions relating to refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carrybacks, and other areas.  The payroll tax deferral requires that the deferred payroll taxes be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.  During the fourth quarter of fiscal 2020, we deferred $2.5 million of payroll taxes which are included in Other liabilities on our Consolidated Balance Sheet.

Certain subsidiaries of the Company expect to receive $57.2 million from the U.S. Treasury Department through the Payroll Support Program under the CARES Act.  These funds will be used exclusively for the continuation of payment of employee wages, salaries and benefits for employees of those subsidiaries. Of the $57.2 million total amount expected to be received, approximately $48.5 million will be a direct grant and approximately $8.7 million will be in the form of a low interest 10-year senior unsecured promissory note.  We expect that certain corporate restrictions will apply to us and those subsidiaries for approximately the next two years including restrictions on dividends, stock repurchases, employee compensation, and certain workforce actions.

Other countries have enacted similar legislation to provide relief and stimulus measures to assist companies in mitigating the financial impact from COVID-19 and supporting their employees.  During the fourth quarter of fiscal 2020, our foreign subsidiaries recognized employment subsidies of $2.8 million from foreign governments which have been deducted from the related expenses on our Consolidated Statement of Income.

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Acquisition

12 Months Ended

May 31, 2020

Acquisition

Acquisition

13.  Acquisition

On September 19, 2017, we acquired the outstanding shares of two MRO facilities in Canada owned by Premier Aviation for approximately $24.8 million. The purchase price includes $22.9 million paid at closing with the remaining deferred consideration paid in September 2018. This business is included in our Aviation Services segment. The fair value of assets acquired and liabilities assumed is as follows:

Current assets	$	4.4
Property and equipment		15.1
Intangible assets, including goodwill		14.6
Accounts payable and accrued liabilities		(9.3)
	$	24.8

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Business Segment Information

12 Months Ended

May 31, 2020

Business Segment Information

Business Segment Information

14. Business Segment Information

Segment Reporting

Consistent with how our chief operating decision making officer (Chief Executive Officer) evaluates performance and the way we are organized internally, we report our activities in two segments:  Aviation Services comprised of supply chain and MRO activities and Expeditionary Services comprised of manufacturing activities.

14. Business Segment Information (Continued)

The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers.  Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets.  We provide customized inventory supply chain management, performance-based logistics programs, customer fleet management and operations, and aircraft component repair management services.  The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components.  Cost of sales consists principally of the cost of product, direct labor, and overhead.

The Expeditionary Services segment consists of 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.  This segment also designs and manufactures advanced composite materials for commercial, business and military aircraft.  Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead.

The accounting policies for the segments are the same as those described in Note 1.  Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments and utilizes gross profit as a primary profitability measure.  Gross profit is calculated by subtracting cost of sales from sales.  The assets and certain expenses related to corporate activities are not allocated to the segments.  Our reportable segments are aligned principally around differences in products and services.

Selected financial information for each segment is as follows:

	For the Year Ended May 31,
	2020		2019		2018
Net sales:
Aviation Services	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

	For the Year Ended May 31,
	2020		2019		2018
Gross profit:
Aviation Services	$	267.3	$	313.6	$	274.8
Expeditionary Services		1.9		16.2		19.3
	$	269.2	$	329.8	$	294.1

	May 31,
	2020		2019
Total assets:
Aviation Services	$	1,502.5	$	1,346.8
Expeditionary Services		103.6		94.7
Corporate and discontinued operations		472.9		75.7
	$	2,079.0	$	1,517.2

14. Business Segment Information (Continued)

	For the Year Ended May 31,
	2020		2019		2018
Capital expenditures:
Aviation Services	$	16.9	$	15.1	$	18.9
Expeditionary Services		5.4		1.4		1.8
Corporate		1.3		0.9		1.3
Total continuing operations		23.6		17.4		22.0
Discontinued operations		—		0.5		5.0
	$	23.6	$	17.9	$	27.0

	For the Year Ended May 31,
	2020		2019		2018
Depreciation and amortization:1
Aviation Services	$	39.2	$	37.5	$	34.6
Expeditionary Services		3.7		4.1		4.6
Corporate		8.1		14.7		16.6
Total continuing operations		51.0		56.3		55.8
Discontinued operations		—		—		7.3
	$	51.0	$	56.3	$	63.1

1 Includes amortization of stock-based compensation.

The following table reconciles segment gross profit to income from continuing operations before provision for income taxes.

	For the Year Ended May 31,
	2020		2019		2018
Segment gross profit	$	269.2	$	329.8	$	294.1
Provision for doubtful accounts		(5.4)		(15.8)		(0.5)
Selling, general and administrative		(220.6)		(215.4)		(208.1)
Earnings (Loss) from joint ventures		(1.9)		(0.3)		0.5
Other expenses		(2.1)		(0.8)		(0.9)
Interest expense		(9.3)		(9.5)		(8.0)
Interest income		0.5		1.0		0.1
Income from continuing operations before provision for income taxes	$	30.4	$	89.0	$	77.2

The U.S. Department of Defense, U.S. Department of State, other U.S. government agencies and their contractors are our only customers representing 10% or more of total sales in any of the last three fiscal years.  Sales by segment for these customers are as follows:

	For the Year Ended May 31,
	2020			2019			2018
Aviation Services	$	588.7		$	455.9		$	241.3
Expeditionary Services		79.5			90.3			63.0
	$	668.2		$	546.2		$	304.3
Percentage of total sales		32.2	%		26.6	%		17.4	%

14. Business Segment Information (Continued)

Sales across the major customer markets for each of our operating segments for the fiscal years ended May 31, 2020, 2019 and 2018 were as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
Commercial	$	1,268.9	$	1,342.3	$	1,281.9
Government and defense		695.3		578.3		353.9
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
Commercial	$	24.3	$	31.6	$	37.5
Government and defense		83.5		99.6		75.0
	$	107.8	$	131.2	$	112.5

Sales by type of product/service was as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation supply chain	$	1,434.3	$	1,395.2	$	1,082.9
Maintenance, repair and overhaul services		529.9		525.4		552.9
Mobility products		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

14. Business Segment Information (Continued)

Geographic Data

Sales by geographic region for the fiscal years ended May 31, 2020, 2019 and 2018 were as follows:

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
North America	$	1,505.6	$	1,426.8	$	1,131.4
Europe/Africa		330.8		323.4		325.9
Other		127.8		170.4		178.5
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
North America	$	98.4	$	124.1	$	105.3
Europe/Africa		9.0		5.8		6.9
Other		0.4		1.3		0.3
	$	107.8	$	131.2	$	112.5

	May 31,
	2020		2019
Long-lived assets:
United States	$	423.9	$	345.4
Europe		102.1		108.7
Other		114.3		110.6
	$	640.3	$	564.7

Sales to unaffiliated customers in foreign countries (including sales through foreign sales offices of domestic subsidiaries) were approximately $591.8 million (28.6% of total sales), $661.8 million (32.3% of total sales) and $694.0 million (39.7% of total sales) in fiscal 2020, 2019 and 2018, respectively.

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Legal Proceedings

12 Months Ended

May 31, 2020

Legal Proceedings

Legal Proceedings

15.  Legal Proceedings

We are not a party to any material pending legal proceeding (including any governmental or environmental proceeding) other than routine litigation incidental to our business except for the following:

Department of Justice Investigation

The U.S. Department of Justice (“DoJ”), acting through the U.S. Attorney’s Office for the Southern District of Illinois, is conducting an investigation of AAR Airlift Group, Inc. ("Airlift"), a wholly-owned subsidiary of AAR CORP., under the federal civil False Claims Act (“FCA”).  The investigation relates to Airlift’s performance of several contracts awarded by the U.S. Transportation Command concerning the operations and maintenance of rotary-wing and fixed-wing aircraft in Afghanistan and Africa, as well as several U.S. Navy contracts.  In June 2018, the DoJ informed Airlift that part of the investigation was precipitated by a lawsuit filed under the qui tam provisions of the FCA by a former employee of Airlift.  That lawsuit remains under seal.

15.  Legal Proceedings (Continued)

Airlift is cooperating with the DoJ investigation. In order to explore whether a negotiated resolution of the matter is possible, and in an effort to minimize continuing legal defense costs, Airlift has entered into settlement discussions with the DoJ. Airlift believes it has meritorious defenses and counter-arguments to the concerns raised by the DoJ; however, there is no assurance that any settlement will be achieved. If no settlement is reached, the DoJ and the qui tam plaintiff could pursue civil litigation under the FCA, which provides for the recovery of, among other amounts, treble damages and penalties.

While we believe that it is probable that we will incur a loss from this matter, we cannot yet reasonably estimate the maximum amount of potential loss, nor can we provide any assurance that the ultimate resolution of the remaining exposure for this matter will not be material.

Self-Reporting of Potential Foreign Corrupt Practices Act Violations

The Company retained outside counsel to investigate possible violations of the Company’s Code of Conduct, the U.S. Foreign Corrupt Practices Act, and other applicable laws, relating to the Company’s activities in Nepal and South Africa.  Based on these investigations, we self-reported these matters to the DoJ, the U.S. Securities and Exchange Commission and the UK Serious Fraud Office.  The Company is fully cooperating with the reviews by these agencies, although we are unable at this time to predict what action, if any, they may take.

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Sale of Composites Business

12 Months Ended

May 31, 2020

Sale of Composites Business

Sale of Composites Business

16. Sale of Composites Business

On June 23, 2020, we entered into an asset purchase agreement (the “Composites Sale Agreement”) for the sale of our aerostructures and aerospace products operations located in Clearwater, Florida and Sacramento, California (the “Composites”).  The sale of Composites is consistent with our multi-year strategy to focus our portfolio on our core services offerings and the transaction will allow the Company to further prioritize its efforts in its principal businesses. The transaction is expected to close in the third quarter of calendar year 2020 and is subject to the satisfaction of customary closing conditions.  

In connection with the entry into the Composites Sale Agreement, we anticipate recognizing an impairment charge of approximately $20 million in the first quarter of fiscal 2021. The impairment charge reduces the net assets of Composites to the estimated net proceeds we expect to receive, which is comprised of both cash received at closing of the transaction and the fair value of contingent consideration related to achievement of sales targets for Composites over the next three years.

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Selected Quarterly Data (Unaudited)

12 Months Ended

May 31, 2020

Selected Quarterly Data (Unaudited)

Selected Quarterly Data (Unaudited)

17. Selected Quarterly Data (Unaudited)

The unaudited selected quarterly data for fiscal years ended May 31, 2020 and 2019 is as follows:

	First		Second		Third		Fourth		Full
Fiscal 2020	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	541.5	$	560.9	$	553.1	$	416.5	$	2,072.0
Operating income (loss) (1)		22.8		28.1		5.3		(14.9)		41.3
Income (Loss) from continuing operations		17.1		20.1		2.6		(15.0)		24.8
Loss from discontinued operations(2)		(12.7)		(5.9)		(0.3)		(1.5)		(20.4)
Net income (loss)		4.4		14.2		2.3		(16.5)		4.4
Earnings (Loss) per share - basic : (3)
Continuing operations		0.49		0.58		0.08		(0.43)		0.71
Discontinued operations		(0.37)		(0.17)		(0.01)		(0.04)		(0.59)
Earnings (Loss) per share - basic		0.12		0.41		0.07		(0.47)		0.12
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.49		0.57		0.07		(0.43)		0.71
Discontinued operations		(0.36)		(0.17)		(0.01)		(0.04)		(0.58)
Earnings (Loss) per share - diluted		0.13		0.40		0.06		(0.47)		0.13

	First		Second		Third		Fourth		Full
Fiscal 2019	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	466.3	$	493.3	$	529.5	$	562.7	$	2,051.8
Operating income		22.4		16.8		29.8		29.3		98.3
Income from continuing operations		18.9		11.2		27.4		26.6		84.1
Loss from discontinued operations (2)		(3.8)		(4.2)		(64.8)		(3.8)		(76.6)
Net income		15.1		7.0		(37.4)		22.8		7.5
Earnings (Loss) per share - basic : (3)
Continuing operations		0.54		0.32		0.79		0.77		2.42
Discontinued operations		(0.11)		(0.12)		(1.87)		(0.11)		(2.22)
Earnings (Loss) per share - basic		0.43		0.20		(1.08)		0.66		0.20
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.54		0.32		0.78		0.76		2.40
Discontinued operations		(0.11)		(0.12)		(1.86)		(0.11)		(2.19)
Earnings (Loss) per share - diluted		0.43		0.20		(1.08)		0.65		0.21

(1) We recognized charges of $24.7 million and $6.6 million during the third and fourth quarters of fiscal 2020, respectively, related to the termination and restructuring of commercial PBH contracts.

In fiscal 2020, we recognized impairment charges of $11.0 million related to the exit of certain product lines across our operations. We also recognized costs of $4.9 million related to the closure of two facilities and $5.0 million for workforce actions including severance and furlough costs in fiscal 2020.

(2) We recognized an impairment charge in discontinued operations of $74.1 million during the third quarter of fiscal 2019 related to our COCO business reflecting the expected net proceeds to be received upon the completion of the sale of our DoD contracts and related assets.  We recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the sale of the remaining COCO operating contract.

(3) The earnings-per-share computation for the year is a separate, annual calculation.  Accordingly, the sum of the quarterly earnings-per-share amounts does not necessarily equal the earnings per share for the year.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

May 31, 2020

Summary of Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

New Accounting Pronouncements Adopted

New Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASC 842"), which amended the existing accounting standards for lease accounting. ASC 842 requires lessees to recognize a right-of-use ("ROU") asset and lease liability on the balance sheet for most lease arrangements, including those classified as operating leases. In addition, ASC 842 requires new qualitative and quantitative disclosures about our leasing activities.

We adopted ASC 842 on June 1, 2019 using the modified retrospective transition approach. Under that approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods. A discussion of our revised accounting policy for leases is included in Note 11.

We have elected the package of practical expedients, which must be elected as a package and applied consistently to all leases. This package permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the practical expedients to not separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than twelve months.

Upon adoption of ASC 842 on June 1, 2019, we recognized operating lease ROU assets of $123.2 million and operating lease liabilities of $116.8 million on our Consolidated Balance Sheet. These amounts included operating lease ROU assets of $26.6 million and operating lease liabilities of $25.3 million related to our discontinued operations. In addition, we recognized the remaining unamortized deferred gains of $2.5 million, net of tax, associated with sale-leaseback transactions as a cumulative effect adjustment to the opening balance of retained earnings as of June 1, 2019.

The adoption of ASC 842 did not have a material impact on the Consolidated Statements of Operations or Cash Flows.

1. Summary of Significant Accounting Policies (Continued)

The impact of the adoption of ASC 842 on our Consolidated Balance Sheet was as follows:

	As of		ASC 842		As of
	May 31, 2019		Adjustments		June 1, 2019
Assets of discontinued operations	$	29.2	$	26.6	$	55.8
Other current assets		36.2		(0.5)		35.7
Intangible assets, net		22.2		(8.5)		13.7
Operating lease ROU assets		—		96.6		96.6
Other non-current assets		77.5		(1.8)		75.7
Accrued liabilities		140.5		10.0		150.5
Liabilities of discontinued operations		29.2		25.3		54.5
Operating lease liabilities		—		77.7		77.7
Other liabilities		28.3		(3.1)		25.2
Retained earnings		709.8		2.5		712.3

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides guidance for revenue recognition.  ASC 606 superseded the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, and most industry-specific guidance.  

We adopted ASC 606 on June 1, 2018 using the modified retrospective method.  Under that approach, prior periods were not restated and continue to be reported under the accounting standards in effect for those periods.  We elected to use the practical expedient allowing for the application of ASC 606 only to contracts that were not completed as of June 1, 2018.  We recognized the cumulative effect of initially applying ASC 606 as a decrease of  $20.4 million to the opening balance of retained earnings as of June 1, 2018.

Revenue Recognition for Fiscal 2020 and 2019

Revenue Recognition for Fiscal 2020 and 2019

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

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts.  A performance obligation reflects the distinct good or service that we must transfer to a customer.  At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations.  In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes another good or service or whether the good or service is highly interdependent or interrelated.  If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

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

1. Summary of Significant Accounting Policies (Continued)

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

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

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

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

We have elected to use certain practical expedients permitted under ASC 606.  Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Consolidated Statements of Income, and are not considered a performance obligation to our customers.  Our reported sales on our Consolidated Statements of Income are net of any sales or 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.

Revenue Recognition for Fiscal 2018

Sales and related cost of sales for product sales are generally recognized upon shipment of the product to the customer.  Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer.  Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title.  Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer.  Furthermore, serviced units are typically shipped to the customer immediately upon completion of the related services.  Sales and related cost of sales for certain large airframe maintenance contracts and performance-based logistics programs are recognized by the percentage of completion method, based on the relationship of costs incurred to date to the estimated total costs.

1. Summary of Significant Accounting Policies (Continued)

Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution, and maintenance and repair services.  We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services.

Cumulative Catch-up Adjustments

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

Favorable and unfavorable cumulative catch-up adjustments were as follows:

	May 31,
	2020		2019		2018
Favorable cumulative catch-up adjustments	$	6.1	$	8.0	$	11.6
Unfavorable cumulative catch-up adjustments		(2.2)		(2.1)		(8.0)
Net cumulative catch-up adjustments	$	3.9	$	5.9	$	3.6

Contract Assets and Liabilities

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 costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers.  Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract.  These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made.  Contract assets and contract liabilities are determined on a contract-by-contract basis.

Net contract assets and liabilities are as follows:

	May 31,
	2020		2019		Change
Contract assets – current	$	49.3	$	59.2	$	(9.9)
Contract assets – non-current		22.4		17.0		5.4
Deferred revenue – current		(11.2)		(12.6)		1.4
Deferred revenue on long-term contracts		(88.0)		(83.8)		(4.2)
Net contract assets (liabilities)	$	(27.5)	$	(20.2)	$	(7.3)

Contract assets – non-current is reported within Other non-current assets, and Contract liabilities – current is reported within Accrued Liabilities on our Consolidated Balance Sheet.  Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.

1. Summary of Significant Accounting Policies (Continued)

During fiscal 2020, we terminated certain commercial power-by-the-hour (“PBH”) customer contracts and restructured another PBH contract. The restructured contract was deemed a loss contract requiring the establishment of forward loss reserves for the total estimated costs that are in excess of the total estimated consideration over the remainder of the contracts. The impact from these actions resulted in a charge of $31.3 million during fiscal 2020, which included a reduction in revenue of $17.3 million, the establishment of forward loss reserves of $5.4 million, and other related charges of $8.6 million. As of May 31, 2020, our Consolidated Balance Sheet included remaining forward loss reserves of $5.4 million with $3.1 million classified as current in Accrued liabilities and $2.3 million classified as long-term in Other liabilities.

Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows:

	Year ended May 31,
	2020		2019
Deferred revenue at beginning of period	$	(96.4)	$	(44.1)
Revenue deferred		(417.2)		(364.7)
Revenue recognized		410.5		306.6
Other		3.9		5.8
Deferred revenue at end of period	$	(99.2)	$	(96.4)

Remaining Performance Obligations

As of May 31, 2020, we had approximately $1.0 billion of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity contracts. We expect that approximately 50% of this backlog will be recognized as revenue over the next 12 months, with the majority of the remaining balance recognized over the next three years.  The amount of remaining performance obligations, which is expected to be recognized as revenue beyond 12 months, primarily relates to our long-term, power-by-the-hour programs where we provide component inventory management and/or repair services.

Financial Instruments and Concentrations of Market or Credit Risk

Financial Instruments and Concentrations of Market or Credit Risk

Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables.  While our trade receivables are diverse and represent a number of entities and geographic regions, the majority are with the U.S. government and its contractors and entities in the aviation industry.  The composition of our accounts receivable is as follows:

	May 31,
	2020		2019
U.S. Government contracts:
Trade receivables	$	33.9	$	28.7
Unbilled receivables		27.4		31.7
		61.3		60.4
All other customers:
Trade receivables		81.7		92.5
Unbilled receivables		28.9		44.9
		110.6		137.4
	$	171.9	$	197.8

In addition, we currently have past due accounts receivable owed by former commercial program customers primarily related to our exit from customer contracts in certain geographies, including Colombia, Peru, and Poland.  Our past due accounts receivable owed by these customers was $10.9 million as of May 31, 2020 which was net of allowance for doubtful accounts of $9.3 million.

1. Summary of Significant Accounting Policies (Continued)

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts and trade notes payable approximate fair value because of the short-term maturity of these instruments.  The carrying value of long-term debt bearing a variable interest rate approximates fair value.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

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

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

In fiscal 2019, we recognized a provision for doubtful accounts of $12.4 million related to the bankruptcy of a European airline customer.  The provision consisted of impairment of non-current contract assets of $7.6 million, allowance for doubtful accounts of $3.3 million, and other liabilities of $1.5 million.

The change in our allowance for doubtful accounts was as follows:

	May 31,
	2020		2019		2018
Balance, beginning of year	$	16.0	$	7.5	$	4.9
Provision charged to operations		5.4		15.8		0.5
Recoveries, deductions for accounts written off and other reclassifications		0.7		(7.3)		2.1
Balance, end of year	$	22.1	$	16.0	$	7.5

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

In accordance with ASC 350, Intangibles–Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually, on May 31, or more frequently if circumstances indicate that impairment is possible.

As of May 31, 2020, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and Maintenance, Repair, and Overhaul) and one comprised of our Expeditionary Services segment.  In fiscal 2019 and 2018, we utilized the qualitative assessment approach for all reporting units and 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.

1. Summary of Significant Accounting Policies (Continued)

In fiscal 2020, we elected to skip the qualitative assessment due to the unprecedented impact of the COVID-19 pandemic and utilized a quantitative assessment approach for all reporting units.  We estimated the fair value of each reporting unit using primarily an income approach based on discounted cash flows.  The assumptions we used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment in light of the impact of COVID-19.  We used discount rates based on our consolidated weighted average cost of capital which is adjusted for each of our reporting units based on their specific risk, size, and industry characteristics.  The fair value measurements used for our goodwill impairment testing use significant unobservable inputs, which reflect our own assumptions about the inputs that market participants would use in measuring fair value.  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.

Upon completion of the annual quantitative goodwill impairment analysis as of May 31, 2020 for our reporting units, we concluded the fair value of each reporting unit exceeded its carrying values, and thus no impairment charges were recorded.

Changes in the carrying amount of goodwill by segment for fiscal 2020 and 2019 are as follows:

	Aviation		Expeditionary
	Services		Services		Total
Balance as of May 31, 2018	$	99.4	$	19.3	$	118.7
Finalization of purchase price allocation		(1.0)		—		(1.0)
Foreign currency translation adjustments		(1.5)		—		(1.5)
Balance as of May 31, 2019		96.9		19.3		116.2
Foreign currency translation adjustments		(0.5)		—		(0.5)
Balance as of May 31, 2020	$	96.4	$	19.3	$	115.7

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets, other than goodwill, are comprised of the following:

	May 31, 2020
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	21.4	$	(16.5)	$	4.9
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	22.5	$	(16.5)	$	6.0

	May 31, 2019
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	25.5	$	(15.6)	$	9.9
Lease agreements		22.5		(14.0)		8.5
Other		3.4		(0.7)		2.7
		51.4		(30.3)		21.1
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	52.5	$	(30.3)	$	22.2

1. Summary of Significant Accounting Policies (Continued)

In conjunction with the adoption of ASC 842 on June 1, 2019, our intangible assets for lease agreements were re-classified to the ROU asset. During fiscal 2020, we recognized an impairment charge of $5.4 million related to the exit of certain product lines across both our Aviation Services and Expeditionary Services segments.

Customer relationships are being amortized over 5-20 years. Amortization expense recorded during fiscal 2020, 2019 and 2018 was  $2.3 million, $3.9 million, and $4.7 million, respectively. The estimated aggregate amount of amortization expense for intangible assets in each of the next five fiscal years is $1.7 million in 2021, $1.0 million in 2022, $0.5 million in 2023, $0.3 million in 2024 and $0.3 million in 2025.

Foreign Currency

Foreign Currency

Our foreign subsidiaries utilize the local currency as their functional currency. All balance sheet accounts of foreign subsidiaries transacting business in currencies other than the U.S. dollar are translated at year-end exchange rates. Revenues and expenses are translated at average exchange rates during the year. Translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss until such subsidiaries are liquidated.

Cash

Cash

Cash and cash equivalents consist of highly liquid instruments which have original maturities of three months or less when purchased. Restricted cash represents cash on hand required to be set aside by a contractual agreement related to receivable securitization arrangements. Generally, the restrictions related to the receivable securitization arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser.

Inventories

Inventories

Inventories are valued at the lower of cost or market (estimated net realizable value). Cost is determined by the specific identification, average cost, or first-in, first-out methods. From time-to-time, we purchase aircraft and engines for disassembly to individual parts and components. Costs are assigned to these individual parts and components utilizing list prices from original equipment manufacturers and recent sales history.

The following is a summary of inventories:

	May 31,
	2020		2019
Aircraft and engine parts, components and finished goods	$	556.6	$	467.9
Raw materials and parts		45.9		41.8
Work-in-process		20.6		14.0
	$	623.1	$	523.7

Rotable Assets and Equipment under Leases

Rotable Assets and Equipment under Leases

The cost of the asset under lease is the original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment. The balance sheet classification of equipment under lease is generally based on lease term, with fixed-term leases less than twelve months generally classified as short-term and all others generally classified as long-term.

Equipment on short-term lease includes aircraft engines and parts on or available for lease to satisfy customers’ immediate short-term requirements. The leases are renewable with fixed terms, which generally vary from one to twelve months.

Property, Plant and Equipment and Other Non-Current Assets

Property, Plant and Equipment and Other Non-Current Assets

We record property, plant and equipment at cost. Depreciation is computed on the straight-line method over useful lives of 10-40 years for buildings and improvements and 3-10 years for equipment, furniture and fixtures, and capitalized software. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the applicable lease.

Repair and maintenance expenditures are expensed as incurred. Upon sale or disposal, cost and accumulated depreciation are removed from the accounts, and related gains and losses are included in results of operations.

Rotable assets supporting long-term programs consist of rotable component parts used to support long-term supply chain programs. The assets are being depreciated on a straight-line basis over their estimated useful lives.

In accordance with ASC 360, Property, Plant and Equipment, we are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.  We utilize certain assumptions to estimate future undiscounted cash flows, including demand for our services, future market conditions and trends, business development pipeline of opportunities, current and future lease rates, lease terms, and residual values. In conjunction with the decision to exit certain product lines, we recognized rotable asset impairment charges of $1.9 million in fiscal 2020.  

Future rent due to us under non-cancelable leases during each of the next five fiscal years is $12.2 million in 2021, $11.6 million in 2022, $11.4 million in 2023, $11.3 million in 2024, and $11.3 million in 2025.

Investments

Investments

Investments where we have the ability to exercise significant influence, but do not control the entity, are accounted for under the equity method of accounting.  Significant influence generally exists if we have a 20% to 50% ownership interest in the investee. Our share of the net earnings or loss of our investees is included in operating income on our Consolidated Statements of Income since the activities of the investees are closely aligned with our operations. Equity investments in entities over which we do not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost.

We evaluate our investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Our investments are classified in Other non-current assets on our Consolidated Balance Sheets. Distributions from joint ventures are classified as operating or investing activities in the Consolidated Statements of Cash Flows based upon an evaluation of the specific facts and circumstances of each distribution.

Income Taxes

Income Taxes

We are subject to income taxes in the U.S., state, and several foreign jurisdictions. In the ordinary course of business, there can be transactions and calculations where the ultimate tax determination is uncertain. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse.

We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return. Where necessary, we record a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

Supplemental Information on Cash Flows

Supplemental Information on Cash Flows

Supplemental information on cash flows is as follows:

	For the Year Ended
	May 31,
	2020		2019		2018
Interest paid	$	8.6	$	8.8	$	7.2
Income taxes paid		14.3		7.0		17.0
Income tax refunds and interest received		7.0		6.4		0.1

During fiscal 2020, treasury stock decreased $5.0 million reflecting restricted stock activity of $0.8 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $8.3 million partially offset by the repurchase of common shares of $4.1 million.

During fiscal 2019, treasury stock increased $7.0 million reflecting the repurchase of common shares of $10.3 million, restricted stock activity of $0.8 million partially offset by the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $4.1 million.

During fiscal 2018, treasury stock increased $0.9 million reflecting the repurchase of common shares of $13.1 million, restricted stock activity of $1.0 million and the re-issuance of shares upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations, of $11.2 million.

Use of Estimates

Use of Estimates

We have made estimates and utilized certain assumptions relating to the reporting of assets and liabilities and the disclosures of contingent liabilities to prepare these Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

New Accounting Pronouncements Not Yet Adopted

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.  This ASU requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. This ASU also requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast of the collectability of the related financial asset.  We plan to adopt this ASU on June 1, 2020 and the adoption is not expected to have a material impact on our consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

May 31, 2020

New Accounting Pronouncements or Change in Accounting Principle

Schedule of favorable and unfavorable cumulative catch-up adjustments

	May 31,
	2020		2019		2018
Favorable cumulative catch-up adjustments	$	6.1	$	8.0	$	11.6
Unfavorable cumulative catch-up adjustments		(2.2)		(2.1)		(8.0)
Net cumulative catch-up adjustments	$	3.9	$	5.9	$	3.6

Schedule of net contract assets and liabilities

	May 31,
	2020		2019		Change
Contract assets – current	$	49.3	$	59.2	$	(9.9)
Contract assets – non-current		22.4		17.0		5.4
Deferred revenue – current		(11.2)		(12.6)		1.4
Deferred revenue on long-term contracts		(88.0)		(83.8)		(4.2)
Net contract assets (liabilities)	$	(27.5)	$	(20.2)	$	(7.3)

Schedule of changes in deferred revenue, after adoption of ASC 606

Changes in our deferred revenue, after adoption of ASC 606 on June 1, 2018, were as follows:

	Year ended May 31,
	2020		2019
Deferred revenue at beginning of period	$	(96.4)	$	(44.1)
Revenue deferred		(417.2)		(364.7)
Revenue recognized		410.5		306.6
Other		3.9		5.8
Deferred revenue at end of period	$	(99.2)	$	(96.4)

Schedule of composition of accounts receivable

	May 31,
	2020		2019
U.S. Government contracts:
Trade receivables	$	33.9	$	28.7
Unbilled receivables		27.4		31.7
		61.3		60.4
All other customers:
Trade receivables		81.7		92.5
Unbilled receivables		28.9		44.9
		110.6		137.4
	$	171.9	$	197.8

Schedule of change in our allowance for doubtful accounts

The change in our allowance for doubtful accounts was as follows:

	May 31,
	2020		2019		2018
Balance, beginning of year	$	16.0	$	7.5	$	4.9
Provision charged to operations		5.4		15.8		0.5
Recoveries, deductions for accounts written off and other reclassifications		0.7		(7.3)		2.1
Balance, end of year	$	22.1	$	16.0	$	7.5

Schedule of goodwill by reportable segment

	Aviation		Expeditionary
	Services		Services		Total
Balance as of May 31, 2018	$	99.4	$	19.3	$	118.7
Finalization of purchase price allocation		(1.0)		—		(1.0)
Foreign currency translation adjustments		(1.5)		—		(1.5)
Balance as of May 31, 2019		96.9		19.3		116.2
Foreign currency translation adjustments		(0.5)		—		(0.5)
Balance as of May 31, 2020	$	96.4	$	19.3	$	115.7

Schedule of intangible assets, other than goodwill

	May 31, 2020
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	21.4	$	(16.5)	$	4.9
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	22.5	$	(16.5)	$	6.0

	May 31, 2019
			Accumulated
Amortizable intangible assets:	Gross		Amortization		Net
Customer relationships	$	25.5	$	(15.6)	$	9.9
Lease agreements		22.5		(14.0)		8.5
Other		3.4		(0.7)		2.7
		51.4		(30.3)		21.1
Unamortized intangible assets:
Trademarks		1.1		—		1.1
	$	52.5	$	(30.3)	$	22.2

Summary of inventories

	May 31,
	2020		2019
Aircraft and engine parts, components and finished goods	$	556.6	$	467.9
Raw materials and parts		45.9		41.8
Work-in-process		20.6		14.0
	$	623.1	$	523.7

Schedule of supplemental information on cash flows

	For the Year Ended
	May 31,
	2020		2019		2018
Interest paid	$	8.6	$	8.8	$	7.2
Income taxes paid		14.3		7.0		17.0
Income tax refunds and interest received		7.0		6.4		0.1

ASC 842

New Accounting Pronouncements or Change in Accounting Principle

Schedule of impact of the adoption of new ASC

	As of		ASC 842		As of
	May 31, 2019		Adjustments		June 1, 2019
Assets of discontinued operations	$	29.2	$	26.6	$	55.8
Other current assets		36.2		(0.5)		35.7
Intangible assets, net		22.2		(8.5)		13.7
Operating lease ROU assets		—		96.6		96.6
Other non-current assets		77.5		(1.8)		75.7
Accrued liabilities		140.5		10.0		150.5
Liabilities of discontinued operations		29.2		25.3		54.5
Operating lease liabilities		—		77.7		77.7
Other liabilities		28.3		(3.1)		25.2
Retained earnings		709.8		2.5		712.3

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Discontinued Operations (Tables)

12 Months Ended

May 31, 2020

Discontinued Operations

Schedule of operating results for discontinued operations

	For the Year Ended May 31,
	2020		2019		2018
Sales	$	40.4	$	95.8	$	96.3
Cost of sales		(45.4)		(106.1)		(101.4)
Asset impairments		(11.8)		(74.1)		(65.2)
Selling, general and administrative expenses		(8.6)		(12.1)		(11.8)
Operating loss from discontinued operations		(25.4)		(96.5)		(82.1)
Provision for income taxes		(5.0)		(19.9)		(24.0)
Loss from discontinued operations	$	(20.4)	$	(76.6)	$	(58.1)

Schedule of carrying amounts of the major classes and liabilities for our discontinued operations

	May 31,
	2020		2019
Accounts receivable, net	$	0.2	$	16.2
Inventory, rotable assets, and equipment		—		7.5
Operating lease ROU assets		21.9		—
Other assets		0.8		5.5
Assets of discontinued operations	$	22.9	$	29.2
Accounts payable and accrued liabilities	$	8.0	$	29.2
Operating lease liabilities		21.9		—
Liabilities of discontinued operations	$	29.9	$	29.2

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Financing Arrangements (Tables)

12 Months Ended

May 31, 2020

Financing Arrangements

Summary of carrying amount of debt

	May 31,
	2020		2019
Revolving Credit Facility expiring September 25, 2024 with interest payable monthly	$	579.5	$	120.0
Term loan due November 1, 2021 with interest payable monthly		22.5		22.9
Total debt		602.0		142.9
Current maturities of debt		—		—
Debt issuance costs, net		(2.0)		(1.2)
Long-term debt	$	600.0	$	141.7

Schedule of borrowing activity under the Credit Agreement

	For the Year Ended May 31,
	2020			2019			2018
Maximum amount borrowed	$	579.5		$	287.0		$	275.0
Average daily borrowings		280.7			207.8			214.1
Average interest rate during the year		2.62	%		3.41	%		2.52	%

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Equity (Tables)

12 Months Ended

May 31, 2020

Equity

Schedule of assumptions used in the Black-Scholes option pricing model to estimate the fair value of stock option grant

	Stock Options Granted
	In Fiscal Year
	2020		2019		2018
Risk-free interest rate	1.9	%	2.7	%	1.8	%
Expected volatility of common stock	32.0	%	30.8	%	31.7	%
Dividend yield	0.8	%	0.6	%	0.9	%
Expected option term in years	4.5		4.5		4.3

Summary of stock option activity

A summary of stock option activity for the three years ended May 31, 2020 consisted of the following (shares in thousands):

	2020			2019			2018
		Weighted			Weighted			Weighted
		Average			Average			Average
	Shares	Exercise Price		Shares	Exercise Price		Shares	Exercise Price
Outstanding at beginning of year	1,777	$	30.37	2,082	$	26.72	2,334	$	23.02
Granted	414	$	37.66	300	$	47.84	463	$	35.33
Exercised	(300)	$	24.99	(571)	$	25.56	(704)	$	20.04
Cancelled	(40)	$	36.72	(34)	$	42.02	(11)	$	29.50
Outstanding at end of year	1,851	$	32.74	1,777	$	30.37	2,082	$	26.72
Options exercisable at end of year	1,133	$	28.32	981	$	25.28	883	$	23.81

Schedule of restricted share activity

Restricted share activity during fiscal 2020 was as follows (shares in thousands):

		Weighted Average
	Number of	Fair Value
	Shares	on Grant Date
Nonvested at May 31, 2019	532	$	31.70
Granted	279	$	19.44
Vested	(412)	$	25.27
Forfeited	(14)	$	37.02
Nonvested at May 31, 2020	385	$	31.70

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Income Taxes (Tables)

12 Months Ended

May 31, 2020

Income Taxes

Schedule of components of provision for income tax on income from continuing operations

	For the Year Ended
	May 31,
	2020		2019		2018
Current:
Federal	$	1.4	$	4.8	$	14.6
State		0.9		0.1		0.1
Foreign		2.8		5.0		1.7
		5.1		9.9		16.4
Deferred		0.5		(5.0)		(12.9)
	$	5.6	$	4.9	$	3.5

Schedule of difference between the provision for income taxes on pre-tax income from the amount computed by applying the U.S. federal statutory tax rate

	For the Year Ended
	May 31,
	2020		2019		2018
Provision for income tax at the federal statutory rate	$	6.4	$	18.7	$	22.5
Deferred tax re-measurement from the Tax Reform Act		—		—		(14.1)
Excess tax benefits from stock-based compensation		(2.1)		(2.7)		(2.9)
State income taxes, net of federal benefit		1.1		1.9		1.5
Change in valuation allowance for state deferred tax assets		(0.1)		(6.9)		(3.4)
Effective settlement of prior tax positions		—		(4.7)		—
Other		0.3		(1.4)		(0.1)
Provision for income tax	$	5.6	$	4.9	$	3.5

Schedule of income before provision for income taxes

	For the Year Ended
	May 31,
	2020		2019		2018
Domestic	$	23.6	$	68.9	$	58.7
Foreign		6.8		20.1		18.5
	$	30.4	$	89.0	$	77.2

Schedule of components of deferred tax liabilities and assets

	May 31,
	2020		2019
Deferred tax assets:
Operating lease liabilities	$	24.9	$	—
State net operating losses		9.4		9.0
Credits and incentives		8.2		—
Employee benefits		8.0		9.4
Deferred revenue		2.3		7.7
Inventory costs		2.8		4.9
Postretirement benefits		5.3		3.7
Other		4.0		4.8
Total deferred tax assets		64.9		39.5
Valuation allowance		—		(0.1)
Total deferred tax assets net of valuation allowance		64.9		39.4
Deferred tax liabilities:
Tangible and intangible assets		(35.0)		(36.1)
ROU operating lease assets		(26.2)		—
Other		(0.2)		(0.2)
Total deferred tax liabilities		(61.4)		(36.3)
Net deferred tax assets	$	3.5	$	3.1

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Earnings Per Share (Tables)

12 Months Ended

May 31, 2020

Earnings Per Share

Schedule of reconciliation of computations of basic and diluted earnings per share information

The following tables provide a reconciliation of the computations of basic and diluted earnings per share information for each of the years in the three-year period ended May 31, 2020 (shares in millions).

	For the Year Ended
	May 31,
	2020		2019		2018
Basic and Diluted EPS:
Income from continuing operations	$	24.8	$	84.1	$	73.7
Less income attributable to participating shares		(0.1)		(0.4)		(0.6)
Income from continuing operations attributable to common stockholders		24.7		83.7		73.1
Loss from discontinued operations attributable to common stockholders		(20.4)		(76.6)		(58.1)
Net income attributable to common stockholders for earnings per share	$	4.3	$	7.1	$	15.0
Weighted average common shares outstanding - basic		34.8		34.5		34.2
Additional shares from assumed exercise of stock options		0.2		0.4		0.4
Weighted average common shares outstanding - diluted		35.0		34.9		34.6
Earnings per share - basic:
Earnings from continuing operations	$	0.71	$	2.42	$	2.14
Loss from discontinued operations		(0.59)		(2.22)		(1.70)
Earnings per share - basic	$	0.12	$	0.20	$	0.44
Earnings per share - diluted:
Earnings from continuing operations	$	0.71	$	2.40	$	2.11
Loss from discontinued operations		(0.58)		(2.19)		(1.70)
Earnings per share - diluted	$	0.13	$	0.21	$	0.41

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Employee Benefit Plans (Tables)

12 Months Ended

May 31, 2020

Employee Benefit Plans

Schedule of change to the entity's projected benefit obligation and the fair value of plan assets for pension plans

	May 31,
	2020		2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	149.2	$	146.5
Service cost		2.8		2.3
Interest cost		3.8		4.3
Participant contributions		0.3		0.4
Net actuarial loss		10.1		6.5
Benefits and administrative payments		(4.9)		(6.9)
Settlements		(2.2)		(0.6)
Foreign currency translation adjustment		—		(3.3)
Projected benefit obligation at end of year	$	159.1	$	149.2
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	129.9	$	134.5
Actual return on plan assets		8.6		2.8
Employer contributions		0.4		2.6
Participant contributions		—		0.4
Benefits and administrative payments, including settlements		(7.1)		(7.5)
Foreign currency translation adjustment		—		(2.9)
Fair value of plan assets at end of year	$	131.8	$	129.9
Funded status at end of year	$	(27.3)	$	(19.3)

Schedule of amounts recognized in the Consolidated Balance Sheets

	May 31,
	2020		2019
Accrued liabilities	$	(0.4)	$	(0.4)
Other liabilities		(26.9)		(18.9)
Funded status at end of year	$	(27.3)	$	(19.3)
Accumulated other comprehensive loss	$	63.5	$	58.7

Schedule of components of pension expense charged to the consolidated statement of income

	For the Year Ended
	May 31,
	2020		2019		2018
Service cost	$	2.8	$	2.3	$	2.4
Interest cost		3.8		4.3		4.3
Expected return on plan assets		(6.8)		(7.1)		(7.3)
Curtailment		—		—		0.3
Settlements		1.5		0.1		—
Amortization of prior service credit		—		(0.1)		—
Recognized net actuarial loss		2.0		1.8		2.3
	$	3.3	$	1.3	$	2.0

Schedule of key weighted-average assumptions used in the measurement of the entity's projected benefit obligations

	May 31,
	2020		2019
Discount rate:
Domestic plans	2.83	%	3.67	%
International plan	1.20		1.50
Rate of compensation increase:
Domestic plans	n/a		n/a
International plans	3.00	%	3.00	%

Schedule of the weighted average assumptions used to determine net periodic pension expense

	For the Year Ended
	May 31,
	2020		2019		2018
Discount rate:
Domestic plans	3.67	%	4.05	%	3.82	%
International plan	1.50		1.90		2.00
Expected long-term rate on plan assets:
Domestic plans	7.25	%	7.25	%	7.25	%
International plan	2.90		3.60		4.00

Schedule of actual asset allocation and target allocations

	May 31,				Target Asset
	2020		2019		Allocation
Equity securities	60	%	59	%	45 – 75	%
Fixed income securities	20		22		15 – 45	%
Other	20		19		0 – 25	%
	100	%	100	%

Schedule of fair value of pension plan assets

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2020:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.5	$	—	$	—	$	31.5
International mutual funds		7.6		—		—		7.6
Fixed income:
Government securities and corporate bond mutual funds		8.4		4.7		—		13.1
Funds-of-funds		—		54.6		8.5		63.1
Hedge funds		—		—		4.3		4.3
Insurance annuities		—		—		11.7		11.7
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	48.0	$	59.3	$	24.5	$	131.8

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2019:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Equity securities:
U.S. mutual funds	$	31.1	$	—	$	—	$	31.1
International mutual funds		8.4		—		—		8.4
Fixed income:
Government securities and corporate bond mutual funds		9.0		5.9		—		14.9
Funds-of-funds		—		53.0		7.9		60.9
Hedge funds		—		—		4.2		4.2
Insurance annuities		—		—		9.9		9.9
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	49.0	$	58.9	$	22.0	$	129.9

(1) Quoted prices in active markets for identical assets that we have the ability to access as of the reporting date.

(2) Inputs other than quoted prices included within Level 1 that are directly observable for the asset or indirectly observable through corroboration with observable market data.

(3) Unobservable inputs, such as internally developed pricing models or third party valuations for the asset due to little or no market activity for the asset.

Schedule of reconciliation of Level 3 pension assets measured at fair value

	Hedge Funds		Fund-of-funds		Insurance Annuities		Total
Balance as of May 31, 2018	$	4.4	$	7.7	$	7.8	$	19.9
Purchases		—		—		2.1		2.1
Return on plan assets related to assets still held at May 31, 2019		(0.2)		0.2		—		—
Balance as of May 31, 2019		4.2		7.9		9.9		22.0
Purchases		—		—		1.8		1.8
Sales		(0.1)		—		—		(0.1)
Return on plan assets related to assets still held at May 31, 2020		0.2		0.6		—		0.8
Balance as of May 31, 2020	$	4.3	$	8.5	$	11.7	$	24.5

Schedule of estimated future pension payments

	Fiscal Year
											2026 to
	2021		2022		2023		2024		2025		2030
Estimated future pension payments	$	6.7	$	6.1	$	6.4	$	5.8	$	6.9	$	35.4

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Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

May 31, 2020

Accumulated Other Comprehensive Loss

Schedule of changes in accumulated other comprehensive loss ("AOCL") by component

	Currency
	Translation		Pension
	Adjustments		Plans		Total
Balance as of June 1, 2017	$	(1.7)	$	(38.2)	$	(39.9)
Other comprehensive loss before reclassifications		2.0		4.2		6.2
Amounts reclassified from AOCL		—		1.7		1.7
Total other comprehensive loss		2.0		5.9		7.9
Balance as of May 31, 2018		0.3		(32.3)		(32.0)
Other comprehensive income (loss) before reclassifications		(2.4)		(8.0)		(10.4)
Amounts reclassified from AOCL		—		1.5		1.5
Total other comprehensive income (loss)		(2.4)		(6.5)		(8.9)
Balance as of May 31, 2019		(2.1)		(38.8)		(40.9)
Other comprehensive income before reclassifications		0.1		(5.0)		(4.9)
Amounts reclassified from AOCL		—		1.2		1.2
Total other comprehensive income		0.1		(3.8)		(3.7)
Balance as of May 31, 2020	$	(2.0)	$	(42.6)	$	(44.6)

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Other Non-current Assets (Tables)

12 Months Ended

May 31, 2020

Other Non-current Assets

Schedule of other non-current assets

	May 31,
	2020		2019
Contract assets	$	22.4	$	17.0
Investments in joint ventures		17.8		12.3
Cash surrender value of life insurance		15.6		15.6
Assets under deferred compensation plan		13.1		10.4
License fees		4.1		7.2
Other		8.5		15.0
	$	81.5	$	77.5

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Leases (Tables)

12 Months Ended

May 31, 2020

Leases

Summary of operating lease cost

The summary of our operating lease cost is as follows:

	Fiscal Year Ended
	May 31, 2020
Operating lease cost	$	18.4
Short-term lease cost		5.3
Variable lease cost		7.4
	$	31.1

Supplemental cash flow information related to leases for the year ended May 31, 2020 was as follows:

	Fiscal Year Ended
	May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	16.5
Operating lease liabilities arising from obtaining ROU assets		13.0

Schedule of maturities of our lease payments

With the exception of a land lease for one of our airframe maintenance facilities that expires in 2108, our operating leases expire at various dates through 2034.  Maturities of our operating lease payments as of May 31, 2020 are as follows:

2021	$	16.5
2022		14.5
2023		12.7
2024		10.7
2025		8.3
Thereafter		36.5
Total undiscounted payments		99.2
Less: Imputed interest		(14.6)
Present value of minimum lease payments		84.6
Less: Operating lease liabilities – current		(13.7)
Operating lease liabilities – non-current	$	70.9

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Acquisition (Tables)

12 Months Ended

May 31, 2020

MRO facilities acquired in Quebec and Ontario, Canada owned by Premier Aviation

Acquisition of Premier Aviation

Schedule of fair value of assets acquired and liabilities assumed

Current assets	$	4.4
Property and equipment		15.1
Intangible assets, including goodwill		14.6
Accounts payable and accrued liabilities		(9.3)
	$	24.8

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Business Segment Information (Tables)

12 Months Ended

May 31, 2020

Business Segment Information

Schedule of selected financial information for each reportable segment

	For the Year Ended May 31,
	2020		2019		2018
Net sales:
Aviation Services	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

	For the Year Ended May 31,
	2020		2019		2018
Gross profit:
Aviation Services	$	267.3	$	313.6	$	274.8
Expeditionary Services		1.9		16.2		19.3
	$	269.2	$	329.8	$	294.1

	May 31,
	2020		2019
Total assets:
Aviation Services	$	1,502.5	$	1,346.8
Expeditionary Services		103.6		94.7
Corporate and discontinued operations		472.9		75.7
	$	2,079.0	$	1,517.2

14. Business Segment Information (Continued)

	For the Year Ended May 31,
	2020		2019		2018
Capital expenditures:
Aviation Services	$	16.9	$	15.1	$	18.9
Expeditionary Services		5.4		1.4		1.8
Corporate		1.3		0.9		1.3
Total continuing operations		23.6		17.4		22.0
Discontinued operations		—		0.5		5.0
	$	23.6	$	17.9	$	27.0

	For the Year Ended May 31,
	2020		2019		2018
Depreciation and amortization:1
Aviation Services	$	39.2	$	37.5	$	34.6
Expeditionary Services		3.7		4.1		4.6
Corporate		8.1		14.7		16.6
Total continuing operations		51.0		56.3		55.8
Discontinued operations		—		—		7.3
	$	51.0	$	56.3	$	63.1

1 Includes amortization of stock-based compensation.

Schedule of reconciles segment gross profit to income from continuing operations before provision for income taxes

	For the Year Ended May 31,
	2020		2019		2018
Segment gross profit	$	269.2	$	329.8	$	294.1
Provision for doubtful accounts		(5.4)		(15.8)		(0.5)
Selling, general and administrative		(220.6)		(215.4)		(208.1)
Earnings (Loss) from joint ventures		(1.9)		(0.3)		0.5
Other expenses		(2.1)		(0.8)		(0.9)
Interest expense		(9.3)		(9.5)		(8.0)
Interest income		0.5		1.0		0.1
Income from continuing operations before provision for income taxes	$	30.4	$	89.0	$	77.2

Schedule of sales to the U.S. Department of Defense, other U.S. government agencies and their contractors by segment

	For the Year Ended May 31,
	2020			2019			2018
Aviation Services	$	588.7		$	455.9		$	241.3
Expeditionary Services		79.5			90.3			63.0
	$	668.2		$	546.2		$	304.3
Percentage of total sales		32.2	%		26.6	%		17.4	%

Schedule of disaggregation of revenue from major customer markets

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
Commercial	$	1,268.9	$	1,342.3	$	1,281.9
Government and defense		695.3		578.3		353.9
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
Commercial	$	24.3	$	31.6	$	37.5
Government and defense		83.5		99.6		75.0
	$	107.8	$	131.2	$	112.5

Schedule of sales by type of product/service

	For the Year Ended May 31,
	2020		2019		2018
Aviation supply chain	$	1,434.3	$	1,395.2	$	1,082.9
Maintenance, repair and overhaul services		529.9		525.4		552.9
Mobility products		107.8		131.2		112.5
	$	2,072.0	$	2,051.8	$	1,748.3

Schedule of geographic data

	For the Year Ended May 31,
	2020		2019		2018
Aviation Services:
North America	$	1,505.6	$	1,426.8	$	1,131.4
Europe/Africa		330.8		323.4		325.9
Other		127.8		170.4		178.5
	$	1,964.2	$	1,920.6	$	1,635.8
Expeditionary Services:
North America	$	98.4	$	124.1	$	105.3
Europe/Africa		9.0		5.8		6.9
Other		0.4		1.3		0.3
	$	107.8	$	131.2	$	112.5

	May 31,
	2020		2019
Long-lived assets:
United States	$	423.9	$	345.4
Europe		102.1		108.7
Other		114.3		110.6
	$	640.3	$	564.7

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Selected Quarterly Data (Unaudited) (Tables)

12 Months Ended

May 31, 2020

Selected Quarterly Data (Unaudited)

Schedule of unaudited selected quarterly data

	First		Second		Third		Fourth		Full
Fiscal 2020	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	541.5	$	560.9	$	553.1	$	416.5	$	2,072.0
Operating income (loss) (1)		22.8		28.1		5.3		(14.9)		41.3
Income (Loss) from continuing operations		17.1		20.1		2.6		(15.0)		24.8
Loss from discontinued operations(2)		(12.7)		(5.9)		(0.3)		(1.5)		(20.4)
Net income (loss)		4.4		14.2		2.3		(16.5)		4.4
Earnings (Loss) per share - basic : (3)
Continuing operations		0.49		0.58		0.08		(0.43)		0.71
Discontinued operations		(0.37)		(0.17)		(0.01)		(0.04)		(0.59)
Earnings (Loss) per share - basic		0.12		0.41		0.07		(0.47)		0.12
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.49		0.57		0.07		(0.43)		0.71
Discontinued operations		(0.36)		(0.17)		(0.01)		(0.04)		(0.58)
Earnings (Loss) per share - diluted		0.13		0.40		0.06		(0.47)		0.13

	First		Second		Third		Fourth		Full
Fiscal 2019	Quarter		Quarter		Quarter		Quarter		Year
Sales	$	466.3	$	493.3	$	529.5	$	562.7	$	2,051.8
Operating income		22.4		16.8		29.8		29.3		98.3
Income from continuing operations		18.9		11.2		27.4		26.6		84.1
Loss from discontinued operations (2)		(3.8)		(4.2)		(64.8)		(3.8)		(76.6)
Net income		15.1		7.0		(37.4)		22.8		7.5
Earnings (Loss) per share - basic : (3)
Continuing operations		0.54		0.32		0.79		0.77		2.42
Discontinued operations		(0.11)		(0.12)		(1.87)		(0.11)		(2.22)
Earnings (Loss) per share - basic		0.43		0.20		(1.08)		0.66		0.20
Earnings (Loss) per share - diluted : (3)
Continuing operations		0.54		0.32		0.78		0.76		2.40
Discontinued operations		(0.11)		(0.12)		(1.86)		(0.11)		(2.19)
Earnings (Loss) per share - diluted		0.43		0.20		(1.08)		0.65		0.21

(1) We recognized charges of $24.7 million and $6.6 million during the third and fourth quarters of fiscal 2020, respectively, related to the termination and restructuring of commercial PBH contracts.

In fiscal 2020, we recognized impairment charges of $11.0 million related to the exit of certain product lines across our operations. We also recognized costs of $4.9 million related to the closure of two facilities and $5.0 million for workforce actions including severance and furlough costs in fiscal 2020.

(2) We recognized an impairment charge in discontinued operations of $74.1 million during the third quarter of fiscal 2019 related to our COCO business reflecting the expected net proceeds to be received upon the completion of the sale of our DoD contracts and related assets.  We recognized an impairment charge of $11.8 million in the first quarter of fiscal 2020 related to the sale of the remaining COCO operating contract.

(3) The earnings-per-share computation for the year is a separate, annual calculation.  Accordingly, the sum of the quarterly earnings-per-share amounts does not necessarily equal the earnings per share for the year.

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions		3 Months Ended								12 Months Ended
	Jun. 01, 2018	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018	Jun. 01, 2019
New accounting pronouncements adopted
Revenue, practical expedient application of ASC 606	true
Assets of discontinued operations						$ 29.2					$ 29.2		$ 55.8
Other current assets		$ 77.2				36.2				$ 77.2	36.2		35.7
Intangible assets, net		6.0				22.2				6.0	22.2		13.7
Operating lease ROU assets		89.7								89.7			96.6
Other non-current assets		81.5				77.5				81.5	77.5		75.7
Accrued liabilities		161.6				140.5				161.6	140.5		150.5
Liabilities of discontinued operations		29.9				29.2				29.9	29.2		54.5
Operating lease liabilities		70.9								70.9			77.7
Other liabilities		34.4				28.3				34.4	28.3		25.2
Retained earnings		706.0				709.8				706.0	709.8		712.3
Unamortized deferred gains													2.5
Inventories		623.1				523.7				623.1	523.7
Contract assets - current		49.3				59.2				49.3	59.2
Sales		416.5	$ 553.1	$ 560.9	$ 541.5	562.7	$ 529.5	$ 493.3	$ 466.3	2,072.0	2,051.8	$ 1,748.3
Operating income (loss)		(14.9)	5.3	28.1	22.8	29.3	29.8	16.8	22.4	41.3	98.3	86.0
Provision for income taxes										5.6	4.9	3.5
Income (Loss) from continuing operations		(15.0)	2.6	20.1	17.1	26.6	27.4	11.2	18.9	24.8	84.1	73.7
Net Cash Provided by (Used in) Operating Activities, Continuing Operations [Abstract]
Net income										4.4	7.5	15.6
Income (Loss) from continuing operations		$ (15.0)	$ 2.6	$ 20.1	$ 17.1	$ 26.6	$ 27.4	$ 11.2	$ 18.9	24.8	84.1	73.7
Accounts receivable										14.8	(34.4)	35.4
Contract assets										9.9	(9.7)
Inventories										(94.5)	(80.9)	(25.8)
Other										$ (35.9)	$ (23.1)	$ (21.7)
ASC 606 | ASC 606 Adjustments
New accounting pronouncements adopted
Retained earnings	$ (20.4)
ASC 842
New accounting pronouncements adopted
Assets of discontinued operations													26.6
Other current assets													(0.5)
Intangible assets, net													(8.5)
Operating lease ROU assets													96.6
Other non-current assets													(1.8)
Accrued liabilities													10.0
Liabilities of discontinued operations													25.3
Operating lease liabilities													77.7
Other liabilities													(3.1)
Retained earnings													2.5
ASC 842 | Right of use including discontinued operations
New accounting pronouncements adopted
Operating lease ROU assets													123.2
Operating lease liabilities													116.8
ASC 842 | Held for sale or Disposed
New accounting pronouncements adopted
Operating lease ROU assets													26.6
Operating lease liabilities													$ 25.3

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Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Revenue Recognition
Practical Expedient, Incremental costs of obtaining a contract	true
Practical Expedient, Remaining performance obligations	true
Favorable cumulative catch-up adjustments	$ 6.1	$ 8.0	$ 11.6
Unfavorable cumulative catch-up adjustments	(2.2)	(2.1)	(8.0)
Net cumulative catch-up adjustments	$ 3.9	$ 5.9	$ 3.6

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Summary of Significant Accounting Policies - Contract Assets and Liabilities and Remaining Performance Obligations (Details) - USD ($) $ in Millions	3 Months Ended		12 Months Ended
	May 31, 2020	Feb. 29, 2020	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017
Contract Assets and Liabilities
Contract assets - current	$ 49.3		$ 49.3	$ 59.2
Contract assets - non-current	22.4		22.4	17.0
Deferred revenue - current	(11.2)		(11.2)	(12.6)
Deferred revenue on long-term contracts	(88.0)		(88.0)	(83.8)
Net contract liabilities	(27.5)		(27.5)	(20.2)
Change in contract assets - current			(9.9)
Change in contract assets - non-current			5.4
Change in contract liabilities - current			1.4
Change in contract liabilities - non-current			(4.2)
Net contract liabilities			(7.3)
Contracts charge			31.3
Forward loss reserves	22.1		22.1	16.0	$ 7.5	$ 4.9
Change in Contract with Customer, Liability
Deferred revenue at beginning of period			(96.4)	(44.1)
Revenue deferred			(417.2)	(364.7)
Revenue recognized			410.5	306.6
Other			3.9	5.8
Deferred revenue at end of period	(99.2)		(99.2)	$ (96.4)
Remaining Performance Obligations
Remaining performance obligation	$ 1,000.0		$ 1,000.0
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-05-31
Remaining Performance Obligations
Remaining performance obligation (as a percent)	50.00%		50.00%
Expected timing of satisfaction of remaining performance obligation	12 months		12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-05-31
Remaining Performance Obligations
Remaining performance obligation (as a percent)	60.00%		60.00%
Expected timing of satisfaction of remaining performance obligation	3 years		3 years
PBH contracts
Contract Assets and Liabilities
Contracts charge	$ 6.6	$ 24.7	$ 31.3
Reduction in revenue due to contract termination and restructuring			17.3
Forward loss reserves	5.4		5.4
Other related charges			8.6
Forward loss reserves classified as current in accrued liabilities	3.1		3.1
Forward loss reserves classified as long-term in other liabilities	$ 2.3		$ 2.3

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Summary of Significant Accounting Policies - Financial Instruments (Details) - USD ($) $ in Millions	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017
Accounts receivable, net	$ 171.9	$ 197.8
Allowance for doubtful accounts	22.1	16.0	$ 7.5	$ 4.9
U.S. Government
Unbilled receivables	27.4	31.7
Accounts receivable, net	61.3	60.4
U.S. Government | Trade receivables
Accounts receivable	33.9	28.7
All other customers
Unbilled receivables	28.9	44.9
Accounts receivable, net	110.6	137.4
All other customers | Trade receivables
Accounts receivable	81.7	$ 92.5
Accounts receivable | Former commercial program customers
Past due accounts receivable	10.9
Allowance for doubtful accounts	$ 9.3

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Summary of Significant Accounting Policies - Allowance for Doubtful Accounts (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018	Jun. 01, 2019
Allowance for Doubtful Accounts
Other liabilities	$ 34.4	$ 28.3		$ 25.2
Balance, beginning of year	16.0	7.5	$ 4.9
Provision charged to operations	5.4	15.8	0.5
Recoveries, deductions for accounts written off and other reclassifications	0.7	(7.3)	2.1
Balance, end of year	22.1	16.0	$ 7.5
European airline customer
Allowance for Doubtful Accounts
Impairment of non-current contract assets		7.6
Other liabilities		1.5
Balance, beginning of year	$ 3.3
Provision charged to operations		12.4
Balance, end of year		$ 3.3

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Summary of Significant Accounting Policies - Goodwill (Details) $ in Millions	12 Months Ended
	May 31, 2020 USD ($) item	May 31, 2019 USD ($)
Goodwill by reportable segment
Number of reporting units | item	3
Goodwill impairment charges	$ 0.0
Goodwill, Beginning Balance	116.2	$ 118.7
Finalization of purchase price allocation		(1.0)
Foreign currency translation adjustments	(0.5)	(1.5)
Goodwill, Ending Balance	$ 115.7	116.2
Aviation Services
Goodwill by reportable segment
Number of reporting units | item	2
Goodwill, Beginning Balance	$ 96.9	99.4
Finalization of purchase price allocation		(1.0)
Foreign currency translation adjustments	(0.5)	(1.5)
Goodwill, Ending Balance	$ 96.4	96.9
Expeditionary Services
Goodwill by reportable segment
Number of reporting units | item	1
Goodwill, Beginning Balance	$ 19.3	19.3
Goodwill, Ending Balance	$ 19.3	$ 19.3

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Summary of Significant Accounting Policies - Intangibles (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018	Jun. 01, 2019
Amortizable intangible assets:
Gross carrying amount		$ 51.4
Accumulated Amortization	$ (16.5)	(30.3)
Net carrying amount		21.1
Unamortized intangible assets:
Trademarks	1.1	1.1
Intangible Assets, Gross (Excluding Goodwill)	22.5	52.5
Intangible Assets, Net (Excluding Goodwill), Total	6.0	22.2		$ 13.7
Impairment charge related to exit of certain product line	5.4
Amortization expense	2.3	3.9	$ 4.7
Estimated aggregate amortization expense for intangible assets in each of the next five fiscal years
2021	1.7
2022	1.0
2023	0.5
2024	0.3
2025	0.3
Customer relationships
Amortizable intangible assets:
Gross carrying amount	21.4	25.5
Accumulated Amortization	(16.5)	(15.6)
Net carrying amount	$ 4.9	9.9
Lease agreements
Amortizable intangible assets:
Gross carrying amount		22.5
Accumulated Amortization		(14.0)
Net carrying amount		8.5
Other
Amortizable intangible assets:
Gross carrying amount		3.4
Accumulated Amortization		(0.7)
Net carrying amount		$ 2.7
Minimum | Customer relationships
Unamortized intangible assets:
Useful life	5 years
Maximum | Customer relationships
Unamortized intangible assets:
Useful life	20 years

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Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Millions	May 31, 2020	May 31, 2019
Inventories
Aircraft and engine parts, components and finished goods	$ 556.6	$ 467.9
Raw materials and parts	45.9	41.8
Work-in-process	20.6	14.0
Total inventories	$ 623.1	$ 523.7

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Summary of Significant Accounting Policies - Rotable Assets and Equipment under Leases (Details)	12 Months Ended
	May 31, 2020
Minimum
Rotable Assets and Equipment under leases
Period of short-term leases	1 month
Maximum
Rotable Assets and Equipment under leases
Period of short-term leases	12 months

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Summary of Significant Accounting Policies - Property, Plant and Equipment and Investments (Details) $ in Millions	12 Months Ended
	May 31, 2020 USD ($)
Investments
Rotable asset impairment charges	$ 8.1
Future rent due to us under non-cancelable leases
2021	12.2
2022	11.6
2023	11.4
2024	11.3
2025	$ 11.3
Minimum
Future rent due to us under non-cancelable leases
Ownership interest in investee (as a percent)	20.00%
Maximum
Future rent due to us under non-cancelable leases
Ownership interest in investee (as a percent)	50.00%
Building and improvements | Minimum
Property, Plant and Equipment
Useful life	10 years
Building and improvements | Maximum
Property, Plant and Equipment
Useful life	40 years
Equipment | Minimum
Property, Plant and Equipment
Useful life	3 years
Equipment | Maximum
Property, Plant and Equipment
Useful life	10 years
Furniture and fixtures | Minimum
Property, Plant and Equipment
Useful life	3 years
Furniture and fixtures | Maximum
Property, Plant and Equipment
Useful life	10 years
Capitalized software | Minimum
Property, Plant and Equipment
Useful life	3 years
Capitalized software | Maximum
Property, Plant and Equipment
Useful life	10 years
Rotable assets
Investments
Rotable asset impairment charges	$ 1.9

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Summary of Significant Accounting Policies - Restructuring and Other Exit Costs, Supplemental Information on Cash Flows (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Supplemental Information on Cash Flows
Interest paid	$ 8.6	$ 8.8	$ 7.2
Income taxes paid	14.3	7.0	17.0
Income tax refunds and interest received	7.0	$ 6.4	$ 0.1
Cost of sales and services and Selling, general and administrative
Restructuring and Other Exit Costs
Severance and furlough-related costs	7.1
Accrued liabilities
Restructuring and Other Exit Costs
Remaining liability for severance and furlough-related costs	$ 5.5

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Summary of Significant Accounting Policies - Treasury Stock (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Total increase (decrease) in treasury stock	$ (5.0)
Repurchase of treasury shares	4.1
Re-issuance of treasury stock upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations	8.3
Treasury Stock
Total increase (decrease) in treasury stock		$ 7.0	$ 0.9
Repurchase of treasury shares	4.1	10.3	13.1
Restricted stock activity	0.8	(0.8)	1.0
Re-issuance of treasury stock upon exercise of stock options, net of shares withheld to satisfy statutory tax obligations	$ 8.3	$ 4.1	$ 11.2

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Discontinued Operations (Details) - USD ($) $ in Millions	3 Months Ended										12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	Feb. 28, 2018	Nov. 30, 2017	May 31, 2020	May 31, 2019	May 31, 2018	Jun. 01, 2019
Discontinued Operations
Goodwill impairment charge											$ 11.0
Interest expense											9.3	$ 9.5	$ 8.0
Operating results for discontinued operations
Asset impairments											(8.1)
Loss from discontinued operations	$ (1.5)	$ (0.3)	$ (5.9)	$ (12.7)	$ (3.8)	$ (64.8)	$ (4.2)	$ (3.8)			(20.4)	(76.6)	(58.1)
Carrying amounts of the major classes of assets and liabilities for our discontinued operations
Assets of discontinued operations	22.9				29.2						22.9	29.2
Liabilities of discontinued operations	29.9				29.2						29.9	29.2		$ 54.5
Discontinued operations
Operating results for discontinued operations
Sales											40.4	95.8	96.3
Cost of sales											(45.4)	(106.1)	(101.4)
Asset impairments											(11.8)	(74.1)	(65.2)
Selling, general and administrative expenses											(8.6)	(12.1)	(11.8)
Operating loss from discontinued operations											(25.4)	(96.5)	(82.1)
Provision for income taxes											(5.0)	(19.9)	(24.0)
Loss from discontinued operations											(20.4)	(76.6)	(58.1)
Carrying amounts of the major classes of assets and liabilities for our discontinued operations
Accounts receivable, net	0.2				16.2						0.2	16.2
Inventory, rotable assets, and equipment					7.5							7.5
Operating lease ROU assets	21.9										21.9
Other assets	0.8				5.5						0.8	5.5
Assets of discontinued operations	22.9				29.2						22.9	29.2
Accounts payable and accrued liabilities	8.0				29.2						8.0	29.2
Operating lease liabilities	21.9										21.9
Liabilities of discontinued operations	$ 29.9				$ 29.2						29.9	29.2
COCO
Discontinued Operations
Impairment and other charges										$ 54.2
Goodwill impairment charge									$ 9.8
COCO | Held for sale or Disposed
Discontinued Operations
Goodwill impairment charge				$ 11.8		$ 74.1
General corporate overhead											0.0	0.0	0.0
Interest expense											$ 0.0	$ 0.0	$ 0.0

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Sale of Receivables (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018	Feb. 23, 2018
Sale of Receivables
Restricted cash	$ 20.0	$ 19.8
Purchase Agreement
Sale of Receivables
Retained interests	0.0
Sale of receivables	746.4	744.2	$ 239.6
Remitted receivables	758.3	729.7	167.9
Amount collected	20.0	19.8
Maximum | Purchase Agreement
Sale of Receivables
Sale of receivables				$ 150.0
Other expense, net | Purchase Agreement
Sale of Receivables
Discount and other fees	$ 1.8	$ 2.2	$ 0.9

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Financing Arrangements (Details) $ in Millions			12 Months Ended
	Oct. 18, 2017 USD ($) facility	Sep. 19, 2017 facility	May 31, 2020 USD ($)	May 31, 2019 USD ($)	May 31, 2018 USD ($)	Sep. 25, 2019 USD ($)
Financing Arrangements
Total debt			$ 602.0	$ 142.9
Debt issuance costs, net			(2.0)	(1.2)
Long-term debt			600.0	141.7
Long-term debt			600.0	141.7
Term loan due November 1, 2021 with interest payable monthly
Financing Arrangements
Total debt			22.5	22.9
Maximum borrowing capacity	$ 31.0
Revolving Credit Facility expiring September 25, 2024 with interest payable monthly
Financing Arrangements
Total debt			579.5	120.0
Foreign Line of Credit
Financing Arrangements
Amount outstanding			$ 9.3
CDOR | Minimum
Financing Arrangements
Basis spread on variable rate (as a percent)	1.25%
CDOR | Maximum
Financing Arrangements
Basis spread on variable rate (as a percent)	2.25%
Eurodollar rate | Revolving Credit Facility expiring September 25, 2024 with interest payable monthly | Minimum
Financing Arrangements
Debt Instrument Basis Spread On Variable Rate After Amendment			0.875%
Eurodollar rate | Revolving Credit Facility expiring September 25, 2024 with interest payable monthly | Maximum
Financing Arrangements
Debt Instrument Basis Spread On Variable Rate After Amendment			1.75%
Base rate | Revolving Credit Facility expiring September 25, 2024 with interest payable monthly | Minimum
Financing Arrangements
Debt Instrument Basis Spread On Variable Rate After Amendment			0.00%
Base rate | Revolving Credit Facility expiring September 25, 2024 with interest payable monthly | Maximum
Financing Arrangements
Debt Instrument Basis Spread On Variable Rate After Amendment			0.75%
Prime Rate | Minimum
Financing Arrangements
Basis spread on variable rate (as a percent)	0.25%
Prime Rate | Maximum
Financing Arrangements
Basis spread on variable rate (as a percent)	1.25%
Revolving credit facility
Financing Arrangements
Maximum borrowing capacity						$ 600.0
Maximum amount borrowed			$ 579.5	287.0	$ 275.0
Average daily borrowings			$ 280.7	$ 207.8	$ 214.1
Average interest rate during the year			2.62%	3.41%	2.52%
Revolving credit facility | Revolving credit facility
Financing Arrangements
Line Of Credit Facility Additional Borrowing Capacity			$ 300.0
Line Of Credit Facility Maximum And Additional Borrowing Capacity			$ 900.0
MRO facilities acquired in Canada owned by Premier Aviation
Financing Arrangements
Number of facilities acquired | facility	2	2

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Equity (Details) $ / shares in Units, $ in Millions	12 Months Ended
	May 31, 2020 USD ($) item $ / shares shares	May 31, 2019 USD ($) $ / shares shares	May 31, 2018 USD ($) $ / shares shares
Stock-Based Compensation
Total number of shares granted since inception	11,149,000
2013 Stock Plan
Stock-Based Compensation
Shares available for future grant	646,088
Stock options
Stock-Based Compensation
Expiration term	10 years
First number of equal annual increments in which stock options are exercisable | item	3
Commencement period after the date of grant for annual increments of stock options becoming exercisable	1 year
Weighted average fair value of stock options granted (in dollars per share) | $ / shares	$ 10.30	$ 13.60	$ 9.29
Assumptions used in the Black-Scholes option pricing models to estimate the fair value of each stock option grant
Risk-free interest rate	1.90%	2.70%	1.80%
Expected volatility of common stock	32.00%	30.80%	31.70%
Dividend yield	0.80%	0.60%	0.90%
Expected option term in years	4 years 6 months	4 years 6 months	4 years 3 months 18 days
Shares
Outstanding at beginning of year (in shares)	1,777,000	2,082,000	2,334,000
Granted (in shares)	414,460	300,240	463,140
Exercised (in shares)	(300,000)	(571,000)	(704,000)
Cancelled (in shares)	(40,000)	(34,000)	(11,000)
Outstanding at end of year (in shares)	1,851,000	1,777,000	2,082,000
Options exercisable at end of year (in shares)	1,133,000	981,000	883,000
Weighted Average Exercise Price
Outstanding at beginning of year (in dollars per share) | $ / shares	$ 30.37	$ 26.72	$ 23.02
Granted (in dollars per share) | $ / shares	37.66	47.84	35.33
Exercised (in dollars per share) | $ / shares	24.99	25.56	20.04
Cancelled (in dollars per share) | $ / shares	36.72	42.02	29.50
Outstanding at end of year (in dollars per share) | $ / shares	32.74	30.37	26.72
Options exercisable at end of year (in dollars per share) | $ / shares	$ 28.32	$ 25.28	$ 23.81
Stock options, additional disclosures
Total fair value of stock options vested | $	$ 3.7	$ 5.6	$ 4.9
Total intrinsic value of stock options exercised | $	6.2	12.2	14.2
Aggregate intrinsic value of options outstanding | $	0.5	6.7
Tax benefit realized from stock options exercised | $	2.1	2.7	2.9
Unearned compensation not yet recognized | $	$ 4.2
Average remaining amortization period of unearned compensation	1 year 3 months 18 days
Stock options | Selling, general and administrative expenses
Stock options, additional disclosures
Compensation expense | $	$ 3.9	4.1	5.1
Restricted stock
Stock-Based Compensation
Granted (in shares)	279,000
Stock options, additional disclosures
Unearned compensation not yet recognized | $	$ 2.5
Average remaining amortization period of unearned compensation	1 year 7 months 6 days
Restricted stock | Selling, general and administrative expenses
Stock options, additional disclosures
Compensation expense | $	$ 3.4	$ 9.4	$ 10.2
Restricted stock | 2013 Stock Plan
Stock-Based Compensation
Granted (in shares)	3,656,000
Restricted stock | Minimum
Stock-Based Compensation
Vesting period	1 year
Restricted stock | Maximum
Stock-Based Compensation
Vesting period	5 years
Performance Based Restricted Stock | Minimum
Stock-Based Compensation
Vesting period	3 years
Performance Based Restricted Stock | Maximum
Stock-Based Compensation
Vesting period	5 years

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Equity - Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Restricted stock
Number of Shares
Nonvested at the beginning of the period ( in shares)	532,000
Granted (in shares)	279,000
Vested (in shares)	(412,000)
Forfeited (in shares)	(14,000)
Nonvested at the end of the period (in shares)	385,000	532,000
Weighted Average Fair Value on Grant Date
Nonvested at the beginning of the period (in dollars per share)	$ 31.70
Granted (in dollars per share)	19.44
Vested (in dollars per share)	25.27
Forfeited (in dollars per share)	37.02
Nonvested at the end of the period (in dollars per share)	$ 31.70	$ 31.70
Unearned compensation not yet recognized	$ 2.5
Average remaining amortization period of unearned compensation	1 year 7 months 6 days
Restricted stock | Selling, general and administrative expenses
Restricted Stock
Compensation expense	$ 3.4	$ 9.4	$ 10.2
Performance Based Restricted Stock | Executives and other key employees
Number of Shares
Granted (in shares)	52,475	43,680	108,440
Time Based Restricted Stock | Board of Directors
Number of Shares
Granted (in shares)	44,123	29,128	55,000
Time Based Restricted Stock | Executives and other key employees
Number of Shares
Granted (in shares)	56,535	46,470	24,425

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Equity - Additional Information (Details) - Stockholder Rights Plan - Series A Junior Participating Preferred Share	May 31, 2020 $ / shares shares
Class of Warrant or Right [Line Items]
Number of shares, right to purchase | shares	0.001
Exercise price (in dollars per share)	$ 100.00
Redemption price per right	$ 0.0001

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Income Taxes (Details) - USD ($) $ in Thousands	5 Months Ended	12 Months Ended
	May 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017
Current:
U.S. federal statutory income tax rate (as a percent)	21.00%	21.00%	21.00%	29.20%	35.00%
Income tax benefit for the re-measurement impact				$ 14,100
Federal		$ 1,400	$ 4,800	14,600
State		900	100	100
Foreign		2,800	5,000	1,700
Total current		5,100	9,900	16,400
Deferred		500	(5,000)	(12,900)
Provision for income tax		5,600	4,900	3,500
Reasons for difference between the provision for income taxes on pre-tax income from the amount computed by applying the U.S. federal statutory tax rate
Provision for income tax at the federal statutory rate		6,400	18,700	22,500
Deferred tax re-measurement from the Tax Reform Act				(14,100)
Excess tax benefits from stock-based compensation		(2,100)	(2,700)	(2,900)
State income taxes, net of federal benefit and refunds		1,100	1,900	1,500
Change in valuation allowance for state deferred tax assets		(100)	(6,900)	(3,400)
Effective settlement of prior tax positions			(4,700)
Other		300	(1,400)	(100)
Provision for income tax		5,600	4,900	3,500
Income before provision for income taxes		30,400	89,000	77,200
Deferred tax assets:
Operating lease liabilities		24,900
State net operating losses		9,400	9,000
Credits and incentives		8,200
Employee benefits		8,000	9,400
Deferred revenue		2,300	7,700
Inventory costs		2,800	4,900
Postretirement benefits		5,300	3,700
Other		4,000	4,800
Total deferred tax assets		64,900	39,500
Valuation allowance			(100)
Total deferred tax assets net of valuation allowance		64,900	39,400
Deferred tax liabilities:
Tangible and intangible assets		(35,000)	(36,100)
ROU operating lease assets		26,200
Other		(200)	(200)
Total deferred tax liabilities		(61,400)	(36,300)
Net deferred tax assets		$ 3,500	3,100
Minimum
Deferred tax liabilities:
Period for net operating losses carry forward (in years)		5 years
Maximum
Deferred tax liabilities:
Period for net operating losses carry forward (in years)		20 years
Other Current Assets
Deferred tax liabilities:
Income tax receivable		$ 7,900	1,100
Domestic
Reasons for difference between the provision for income taxes on pre-tax income from the amount computed by applying the U.S. federal statutory tax rate
Income before provision for income taxes		23,600	68,900	58,700
Foreign
Reasons for difference between the provision for income taxes on pre-tax income from the amount computed by applying the U.S. federal statutory tax rate
Income before provision for income taxes		$ 6,800	$ 20,100	$ 18,500

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018
Earnings Per Share
Effect to the participating securities as result of net loss									$ 0.0
Basic and Diluted EPS:
Income (Loss) from continuing operations	$ (15.0)	$ 2.6	$ 20.1	$ 17.1	$ 26.6	$ 27.4	$ 11.2	$ 18.9	24.8	$ 84.1	$ 73.7
Less income attributable to participating shares									(0.1)	(0.4)	(0.6)
Income from continuing operations attributable to common stockholders									24.7	83.7	73.1
Loss from discontinued operations attributable to common stockholders									(20.4)	(76.6)	(58.1)
Net income attributable to common stockholders for earnings per share									$ 4.3	$ 7.1	$ 15.0
Weighted Average Shares:
Weighted average common shares outstanding - basic									34,800,000	34,500,000	34,200,000
Additional shares from the assumed exercise of stock options									200,000	400,000	400,000
Weighted average common shares outstanding - diluted									35,000,000.0	34,900,000	34,600,000
Earnings per share - basic:
Earnings from continuing operations	$ (0.43)	$ 0.08	$ 0.58	$ 0.49	$ 0.77	$ 0.79	$ 0.32	$ 0.54	$ 0.71	$ 2.42	$ 2.14
Loss from discontinued operations	(0.04)	(0.01)	(0.17)	(0.37)	(0.11)	(1.87)	(0.12)	(0.11)	(0.59)	(2.22)	(1.70)
Earnings per share - basic	(0.47)	0.07	0.41	0.12	0.66	(1.08)	0.20	0.43	0.12	0.20	0.44
Earnings per share - diluted:
Earnings from continuing operations	(0.43)	0.07	0.57	0.49	0.76	0.78	0.32	0.54	0.71	2.40	2.11
Loss from discontinued operations	(0.04)	(0.01)	(0.17)	(0.36)	(0.11)	(1.86)	(0.12)	(0.11)	(0.58)	(2.19)	(1.70)
Earnings per share - diluted	$ (0.47)	$ 0.06	$ 0.40	$ 0.13	$ 0.65	$ (1.08)	$ 0.20	$ 0.43	$ 0.13	$ 0.21	$ 0.41
Antidilutive shares excluded from the computation of diluted earnings per share (in shares)									669,400	273,400

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Employee Benefit Plans (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Estimated amounts that will be amortized from accumulated other comprehensive loss into expense over the next fiscal year
Estimated amount of net actuarial loss		$ 2.2
Cash balance pension plan
Employee benefit plans
Interest crediting rate as a percentage of average 30-year treasury rate	100.00%
Average period of treasury rate used in determination of interest crediting rate	30 years
Average interest crediting rate (as a percent)	4.46%
Defined Benefit Pension Plans
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$ 149.2	146.5
Service cost	2.8	2.3
Interest cost	3.8	4.3
Participant contributions	0.3	0.4
Net actuarial loss	10.1	6.5
Benefits and administrative payments	(4.9)	(6.9)
Settlements	(2.2)	(0.6)
Foreign currency translation adjustment		(3.3)
Projected benefit obligation at end of year	159.1	149.2	$ 146.5
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	129.9	134.5
Actual return on plan assets	8.6	2.8
Employer contributions	0.4	2.6
Participant contributions	0.3	0.4
Benefits and administrative payments, including settlements	(7.1)	(7.5)
Foreign currency translation adjustment		(2.9)
Fair value of plan assets at end of year	131.8	129.9	134.5
Funded status at end of year	(27.3)	(19.3)
Amounts recognized in the Consolidated Balance Sheets
Accrued liabilities	(0.4)	(0.4)
Other liabilities	(26.9)	(18.9)
Funded status at end of year	(27.3)	(19.3)
Accumulated other comprehensive loss	63.5	58.7
Accumulated benefit obligation in excess of plan assets
Accumulated benefit obligation	151.9	142.4
Net Periodic Benefit Cost
Service cost	2.8	2.3	2.4
Interest cost	3.8	4.3	4.3
Expected return on plan assets	(6.8)	(7.1)	(7.3)
Curtailment			0.3
Settlements	1.5	0.1
Amortization of prior service credit		(0.1)
Recognized net actuarial loss	2.0	1.8	2.3
Total	$ 3.3	$ 1.3	$ 2.0
Domestic plans
Key weighted-average assumptions used in the measurement of the company's projected benefit obligations
Discount rate (as a percent)	2.83%	3.67%
Weighted-average assumptions used to determine net periodic pension expense
Discount rate: (as a percent)	3.67%	4.05%	3.82%
Expected long-term rate on plan assets: (as a percent)	7.25%	7.25%	7.25%
Plan Assets
Actual asset allocation (as a percent)	100.00%	100.00%
Domestic plans | Equity securities
Plan Assets
Actual asset allocation (as a percent)	60.00%	59.00%
Domestic plans | Fixed income securities
Plan Assets
Actual asset allocation (as a percent)	20.00%	22.00%
Domestic plans | Other
Plan Assets
Actual asset allocation (as a percent)	20.00%	19.00%
Domestic plans | Minimum | Equity securities
Plan Assets
Target Asset Allocation (as a percent)	45.00%
Domestic plans | Minimum | Fixed income securities
Plan Assets
Target Asset Allocation (as a percent)	15.00%
Domestic plans | Minimum | Other
Plan Assets
Target Asset Allocation (as a percent)	0.00%
Domestic plans | Maximum | Equity securities
Plan Assets
Target Asset Allocation (as a percent)	75.00%
Domestic plans | Maximum | Fixed income securities
Plan Assets
Target Asset Allocation (as a percent)	45.00%
Domestic plans | Maximum | Other
Plan Assets
Target Asset Allocation (as a percent)	25.00%
International plans
Key weighted-average assumptions used in the measurement of the company's projected benefit obligations
Discount rate (as a percent)	1.20%	1.50%
Rate of compensation increase (as a percent)	3.00%	3.00%
Weighted-average assumptions used to determine net periodic pension expense
Discount rate: (as a percent)	1.50%	1.90%	2.00%
Expected long-term rate on plan assets: (as a percent)	2.90%	3.60%	4.00%

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Employee Benefit Plans - Reconciliation of Pension Assets (Details) - Defined Benefit Pension Plans - USD ($) $ in Millions	May 31, 2020	May 31, 2019	May 31, 2018
Employee benefit plans
Fair value of plan assets	$ 131.8	$ 129.9	$ 134.5
Total
Employee benefit plans
Fair value of plan assets	131.8	129.9
U.S. mutual funds | Total
Employee benefit plans
Fair value of plan assets	31.5	31.1
International mutual funds | Total
Employee benefit plans
Fair value of plan assets	7.6	8.4
Government securities and corporate bond mutual funds | Total
Employee benefit plans
Fair value of plan assets	13.1	14.9
Funds-of-funds | Total
Employee benefit plans
Fair value of plan assets	63.1	60.9
Hedge Funds | Total
Employee benefit plans
Fair value of plan assets	4.3	4.2
Insurance Annuities | Total
Employee benefit plans
Fair value of plan assets	11.7	9.9
Cash and cash equivalents | Total
Employee benefit plans
Fair value of plan assets	0.5	0.5
Quoted prices in active markets (Level 1)
Employee benefit plans
Fair value of plan assets	48.0	49.0
Quoted prices in active markets (Level 1) | U.S. mutual funds
Employee benefit plans
Fair value of plan assets	31.5	31.1
Quoted prices in active markets (Level 1) | International mutual funds
Employee benefit plans
Fair value of plan assets	7.6	8.4
Quoted prices in active markets (Level 1) | Government securities and corporate bond mutual funds
Employee benefit plans
Fair value of plan assets	8.4	9.0
Quoted prices in active markets (Level 1) | Cash and cash equivalents
Employee benefit plans
Fair value of plan assets	0.5	0.5
Significant other observable inputs (Level 2)
Employee benefit plans
Fair value of plan assets	59.3	58.9
Significant other observable inputs (Level 2) | Government securities and corporate bond mutual funds
Employee benefit plans
Fair value of plan assets	4.7	5.9
Significant other observable inputs (Level 2) | Funds-of-funds
Employee benefit plans
Fair value of plan assets	54.6	53.0
Significant other unobservable inputs (Level 3)
Employee benefit plans
Fair value of plan assets	24.5	22.0	19.9
Significant other unobservable inputs (Level 3) | Funds-of-funds
Employee benefit plans
Fair value of plan assets	8.5	7.9	7.7
Significant other unobservable inputs (Level 3) | Hedge Funds
Employee benefit plans
Fair value of plan assets	4.3	4.2	4.4
Significant other unobservable inputs (Level 3) | Insurance Annuities
Employee benefit plans
Fair value of plan assets	$ 11.7	$ 9.9	$ 7.8

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Employee Benefit Plans - Reconciliation of Level 3 Pension Assets (Details) - Defined Benefit Pension Plans - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$ 129.9	$ 134.5
Fair value of plan assets at end of year	131.8	129.9
Significant other unobservable inputs (Level 3)
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	22.0	19.9
Purchases	1.8	2.1
Sales	(0.1)
Return on plan assets related to assets still held May 31	0.8
Fair value of plan assets at end of year	24.5	22.0
Significant other unobservable inputs (Level 3) | Hedge Funds
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	4.2	4.4
Sales	(0.1)
Return on plan assets related to assets still held May 31	0.2	(0.2)
Fair value of plan assets at end of year	4.3	4.2
Significant other unobservable inputs (Level 3) | Funds-of-funds
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	7.9	7.7
Return on plan assets related to assets still held May 31	0.6	0.2
Fair value of plan assets at end of year	8.5	7.9
Significant other unobservable inputs (Level 3) | Insurance Annuities
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	9.9	7.8
Purchases	1.8	2.1
Fair value of plan assets at end of year	$ 11.7	$ 9.9

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Employee Benefit Plans - Future Benefit Payments and Defined Contribution Plan (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Defined Contribution Plan
Vesting period	3 years
Expense charged to statement of income	$ 11.6	$ 11.4	$ 9.2
Maximum
Defined Contribution Plan
Maximum percentage of pretax compensation that can be contributed by employees' for 401 (k) defined contribution plan	75.00%
Maximum matching contribution of employer for 401 (k) defined contribution plan (as a percent)	5.00%
Defined Benefit Pension Plans
Estimated future pension payments
2021	$ 6.7
2022	6.1
2023	6.4
2024	5.8
2025	6.9
2026 to 2030	35.4
Funded status
Unfunded projected benefit obligation	27.3	19.3
Domestic plans
Estimated future pension payments
Anticipated contribution in next fiscal year	3.1
Netherlands plan
Estimated future pension payments
Anticipated contribution in next fiscal year	1.1
Postretirement Benefits Other Than Pensions
Funded status
Unfunded projected benefit obligation	$ 0.4	$ 0.4

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Accumulated Other Comprehensive Loss
Balance at beginning of the period	$ (40.9)	$ (32.0)	$ (39.9)
Other comprehensive income (loss) before reclassifications	(4.9)	(10.4)	6.2
Amounts reclassified from AOCL	1.2	1.5	1.7
Total other comprehensive income (loss), net of tax	(3.7)	(8.9)	7.9
Balance at end of the period	(44.6)	(40.9)	(32.0)
Currency Translation Adjustments
Accumulated Other Comprehensive Loss
Balance at beginning of the period	(2.1)	0.3	(1.7)
Other comprehensive income (loss) before reclassifications	0.1	(2.4)	2.0
Total other comprehensive income (loss), net of tax	0.1	(2.4)	2.0
Balance at end of the period	(2.0)	(2.1)	0.3
Pensions Plans
Accumulated Other Comprehensive Loss
Balance at beginning of the period	(38.8)	(32.3)	(38.2)
Other comprehensive income (loss) before reclassifications	(5.0)	(8.0)	4.2
Amounts reclassified from AOCL	1.2	1.5	1.7
Total other comprehensive income (loss), net of tax	(3.8)	(6.5)	5.9
Balance at end of the period	$ (42.6)	$ (38.8)	$ (32.3)

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Other Non-current Assets (Details) - USD ($) $ in Millions	May 31, 2020	Jun. 01, 2019	May 31, 2019
Other Non-current Assets
Contract assets	$ 22.4		$ 17.0
Investments in joint ventures	17.8		12.3
Cash surrender value of life insurance	15.6		15.6
Assets under deferred compensation plan	13.1		10.4
License fees	4.1		7.2
Other	8.5		15.0
Other non-current assets	$ 81.5	$ 75.7	$ 77.5

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Other Non-current Assets - Investments in Joint Ventures (Details)	1 Months Ended		3 Months Ended	12 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2011	May 31, 2020 USD ($)	May 31, 2020 USD ($)	May 31, 2019 USD ($)	May 31, 2018 USD ($)
Investments in Joint Ventures
Investments in joint ventures			$ 17,800,000	$ 17,800,000	$ 12,300,000
Owned Through Joint Ventures
Investments in Joint Ventures
Investments in joint ventures			$ 12,600,000	$ 12,600,000
Ownership interest (as a percent)			40.00%	40.00%
fair value of guarantee obligation			$ 8,200,000	$ 8,200,000
Percentage on outstanding debt			40.00%	40.00%
Loan to joint venture			$ 3,000,000.0	$ 3,000,000.0
Impairment charge			$ 1,900,000
Aircraft | Owned Through Joint Ventures
Investments in Joint Ventures
Number of aircraft sold by joint ventures						2
Net cash proceeds from sale of aircraft by joint ventures						$ 7,300,000
Gain from sale of aircraft by joint venture partners						400,000
Payment of evaluation and inspection services				$ 1,600,000	$ 400,000	$ 400,000
Unison Industries
Investments in Joint Ventures
Agreement period (in years)		10 years
Payment of License fee	$ 25,000,000.0
License fee capitalized	$ 25,000,000.0

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Leases (Details) $ in Millions	12 Months Ended
	May 31, 2020 USD ($)
Operating lease cost
Operating lease cost	$ 18.4
Short-term lease cost	5.3
Variable lease cost	7.4
Total operating lease cost	$ 31.1

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Leases - Facilities and equipment (Details) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Leases
Term of Deferred rent payments	3 months
Deferred Rent Credit	$ 0.6
Facilities and Equipment
Leases
Rental expense		$ 25.9	$ 23.5

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Leases - Maturities (Details) - USD ($) $ in Millions	May 31, 2020	Jun. 01, 2019
Future minimum payments under operating leases
2021	$ 16.5
2022	14.5
2023	12.7
2024	10.7
2025	8.3
Thereafter	36.5
Total undiscounted payments	99.2
Less: Imputed interest	(14.6)
Present value of minimum lease payments	$ 84.6
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued Liabilities, Current
Operating lease liabilities - non-current	$ 70.9	$ 77.7

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Leases - Supplemental cash flow information (Details) $ in Millions	12 Months Ended
	May 31, 2020 USD ($)
Leases
Weighted-average remaining lease term (years)	7 years 10 months 24 days
Weighted-average discount rate	3.50%
Cash paid for amounts included in the measurement of lease liabilities	$ 16.5
Operating lease liabilities arising from obtaining ROU assets	$ 13.0

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Commitments and Contingencies (Details) - USD ($) $ in Millions		3 Months Ended
	Mar. 27, 2020	May 31, 2020
Aggregate amount of purchase obligations due in each of the next five fiscal years
2021		$ 344.8
2022		15.8
2023		5.4
2024		0.1
2025		0.1
Letters of credit and performance bonds outstanding		31.5
Deferred payroll taxes		2.5
Payroll Support Program, funding expected to be received	$ 57.2
Payroll Support Program, funding through direct grants	$ 48.5
Expected period for corporate restrictions	2 years
Employment subsidies from foreign governments		2.8
Owned Through Joint Ventures
Aggregate amount of purchase obligations due in each of the next five fiscal years
Letters of credit and performance bonds outstanding		$ 12.4
Percentage on outstanding debt		40.00%
fair value of guarantee obligation		$ 8.2
Low interest 10-year senior unsecured promissory note
Aggregate amount of purchase obligations due in each of the next five fiscal years
Face amount of the debt	$ 8.7
Term of the debt	10 years

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Acquisition (Details) - MRO facilities acquired in Canada owned by Premier Aviation $ in Millions	Oct. 18, 2017 facility	Sep. 19, 2017 USD ($) facility
Acquisitions
Number of facilities acquired | facility	2	2
Total consideration		$ 24.8
Purchase price		22.9
Fair value of net assets acquired
Current assets		4.4
Property and equipment		15.1
Intangible assets, including goodwill		14.6
Accounts payable and accrued liabilities		(9.3)
Net assets acquired		$ 24.8

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Business Segment Information - Segment reporting (Details) $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020 USD ($)	Feb. 29, 2020 USD ($)	Nov. 30, 2019 USD ($)	Aug. 31, 2019 USD ($)	May 31, 2019 USD ($)	Feb. 28, 2019 USD ($)	Nov. 30, 2018 USD ($)	Aug. 31, 2018 USD ($)	May 31, 2020 USD ($) segment	May 31, 2019 USD ($)	May 31, 2018 USD ($)
Business Segment Information
Number of business segments | segment									2
Net sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3	$ 2,072.0	$ 2,051.8	$ 1,748.3
Gross profit									269.2	329.8	294.1
Total assets	2,079.0				1,517.2				2,079.0	1,517.2
Capital expenditures									23.6	17.9	27.0
Depreciation and amortization, including amortization of stock-based compensation, Net									51.0	56.3	63.1
Continuing operations
Business Segment Information
Capital expenditures									23.6	17.4	22.0
Depreciation and amortization, including amortization of stock-based compensation, Gross									51.0	56.3	55.8
Discontinued operations
Business Segment Information
Capital expenditures										0.5	5.0
Depreciation and amortization, including amortization of stock-based compensation, Gross											7.3
Aviation Services
Business Segment Information
Net sales									1,964.2	1,920.6	1,635.8
Gross profit									267.3	313.6	274.8
Total assets	1,502.5				1,346.8				1,502.5	1,346.8
Aviation Services | Continuing operations
Business Segment Information
Capital expenditures									16.9	15.1	18.9
Depreciation and amortization, including amortization of stock-based compensation, Gross									39.2	37.5	34.6
Expeditionary Services
Business Segment Information
Net sales									107.8	131.2	112.5
Gross profit									1.9	16.2	19.3
Total assets	103.6				94.7				103.6	94.7
Expeditionary Services | Continuing operations
Business Segment Information
Capital expenditures									5.4	1.4	1.8
Depreciation and amortization, including amortization of stock-based compensation, Gross									3.7	4.1	4.6
Corporate | Continuing operations
Business Segment Information
Capital expenditures									1.3	0.9	1.3
Depreciation and amortization, including amortization of stock-based compensation, Gross									8.1	14.7	$ 16.6
Corporate | Discontinued operations
Business Segment Information
Total assets	$ 472.9				$ 75.7				$ 472.9	$ 75.7

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Business Segment Information - Reconciles of Segment Gross Profit to Income (Details) - USD ($) $ in Millions	12 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2018
Reconciles segment gross profit to income from continuing operations before provision for income taxes
Segment gross profit	$ 269.2	$ 329.8	$ 294.1
Provision for doubtful accounts	(5.4)	(15.8)	(0.5)
Selling, general and administrative	(220.6)	(215.4)	(208.1)
Earnings (Loss) from joint ventures	(1.9)	(0.3)	0.5
Other expenses	(2.1)	(0.8)	(0.9)
Interest expense	(9.3)	(9.5)	(8.0)
Interest income	0.5	1.0	0.1
Income from continuing operations before provision for income taxes	$ 30.4	$ 89.0	$ 77.2

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Business Segment Information - Customers Percentage of Sales (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018
Business Segment Information
Net sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3	$ 2,072.0	$ 2,051.8	$ 1,748.3
U.S. Department of Defense, other U.S. government agencies and their contractors
Business Segment Information
Net sales									$ 668.2	$ 546.2	$ 304.3
Percentage of total sales									32.20%	26.60%	17.40%
Aviation Services
Business Segment Information
Net sales									$ 1,964.2	$ 1,920.6	$ 1,635.8
Aviation Services | U.S. Department of Defense, other U.S. government agencies and their contractors
Business Segment Information
Net sales									588.7	455.9	241.3
Expeditionary Services
Business Segment Information
Net sales									107.8	131.2	112.5
Expeditionary Services | U.S. Department of Defense, other U.S. government agencies and their contractors
Business Segment Information
Net sales									$ 79.5	$ 90.3	$ 63.0

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Business Segment Information - Major customer markets (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018
Disaggregation of revenue by major customer markets
Sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3	$ 2,072.0	$ 2,051.8	$ 1,748.3
Aviation Services
Disaggregation of revenue by major customer markets
Sales									1,964.2	1,920.6	1,635.8
Aviation Services | Commercial
Disaggregation of revenue by major customer markets
Sales									1,268.9	1,342.3	1,281.9
Aviation Services | Government and defense
Disaggregation of revenue by major customer markets
Sales									695.3	578.3	353.9
Expeditionary Services
Disaggregation of revenue by major customer markets
Sales									107.8	131.2	112.5
Expeditionary Services | Commercial
Disaggregation of revenue by major customer markets
Sales									24.3	31.6	37.5
Expeditionary Services | Government and defense
Disaggregation of revenue by major customer markets
Sales									$ 83.5	$ 99.6	$ 75.0

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Business Segment Information - Sales by Product and Services (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018
Net sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3	$ 2,072.0	$ 2,051.8	$ 1,748.3
Aviation supply chain
Net sales									1,434.3	1,395.2	1,082.9
Maintenance, repair and overhaul services
Net sales									529.9	525.4	552.9
Mobility products
Net sales									$ 107.8	$ 131.2	$ 112.5

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Business Segment Information - Geographic Data (Details) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2020	May 31, 2019	May 31, 2018
Business Segment Information
Net sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3	$ 2,072.0	$ 2,051.8	$ 1,748.3
Long-lived assets	640.3				564.7				640.3	564.7
United States
Business Segment Information
Long-lived assets	423.9				345.4				423.9	345.4
Europe/Africa
Business Segment Information
Long-lived assets	102.1				108.7				102.1	108.7
Other
Business Segment Information
Long-lived assets	$ 114.3				$ 110.6				114.3	110.6
Foreign countries
Business Segment Information
Net sales									$ 591.8	$ 661.8	$ 694.0
Foreign countries | Total sales | Geographic concentration
Business Segment Information
Percentage of total sales									28.60%	32.30%	39.70%
Aviation Services
Business Segment Information
Net sales									$ 1,964.2	$ 1,920.6	$ 1,635.8
Aviation Services | North America
Business Segment Information
Net sales									1,505.6	1,426.8	1,131.4
Aviation Services | Europe/Africa
Business Segment Information
Net sales									330.8	323.4	325.9
Aviation Services | Other
Business Segment Information
Net sales									127.8	170.4	178.5
Expeditionary Services
Business Segment Information
Net sales									107.8	131.2	112.5
Expeditionary Services | North America
Business Segment Information
Net sales									98.4	124.1	105.3
Expeditionary Services | Europe/Africa
Business Segment Information
Net sales									9.0	5.8	6.9
Expeditionary Services | Other
Business Segment Information
Net sales									$ 0.4	$ 1.3	$ 0.3

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Sale of Composites Business (Details) - Composites business $ in Millions	3 Months Ended
	Aug. 31, 2020 USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Anticipated impairment charge	$ 20
Contingent consideration, Period for achievement of sales targets	3 years

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Selected Quarterly Data (Unaudited) (Details) $ / shares in Units, $ in Millions	3 Months Ended									12 Months Ended
	May 31, 2020 USD ($) $ / shares	Feb. 29, 2020 USD ($) $ / shares	Nov. 30, 2019 USD ($) $ / shares	Aug. 31, 2019 USD ($) $ / shares	May 31, 2019 USD ($) $ / shares	Feb. 28, 2019 USD ($) $ / shares	Nov. 30, 2018 USD ($) $ / shares	Aug. 31, 2018 USD ($) $ / shares	Feb. 28, 2018 USD ($)	May 31, 2020 USD ($) facility $ / shares	May 31, 2019 USD ($) $ / shares	May 31, 2018 USD ($) $ / shares
Sales	$ 416.5	$ 553.1	$ 560.9	$ 541.5	$ 562.7	$ 529.5	$ 493.3	$ 466.3		$ 2,072.0	$ 2,051.8	$ 1,748.3
Operating income (loss)	(14.9)	5.3	28.1	22.8	29.3	29.8	16.8	22.4		41.3	98.3	86.0
Income (Loss) from continuing operations	(15.0)	2.6	20.1	17.1	26.6	27.4	11.2	18.9		24.8	84.1	73.7
Loss from discontinued operations	(1.5)	(0.3)	(5.9)	(12.7)	(3.8)	(64.8)	(4.2)	(3.8)		(20.4)	(76.6)	(58.1)
Net income (loss)	$ (16.5)	$ 2.3	$ 14.2	$ 4.4	$ 22.8	$ (37.4)	$ 7.0	$ 15.1		$ 4.4	$ 7.5	$ 15.6
Earnings (Loss) per share - basic:
Continuing operations | $ / shares	$ (0.43)	$ 0.08	$ 0.58	$ 0.49	$ 0.77	$ 0.79	$ 0.32	$ 0.54		$ 0.71	$ 2.42	$ 2.14
Discontinued operations | $ / shares	(0.04)	(0.01)	(0.17)	(0.37)	(0.11)	(1.87)	(0.12)	(0.11)		(0.59)	(2.22)	(1.70)
Earnings (Loss) per share - basic | $ / shares	(0.47)	0.07	0.41	0.12	0.66	(1.08)	0.20	0.43		0.12	0.20	0.44
Earnings (Loss) per share - diluted:
Continuing operations | $ / shares	(0.43)	0.07	0.57	0.49	0.76	0.78	0.32	0.54		0.71	2.40	2.11
Discontinued operations | $ / shares	(0.04)	(0.01)	(0.17)	(0.36)	(0.11)	(1.86)	(0.12)	(0.11)		(0.58)	(2.19)	(1.70)
Earnings (Loss) per share - diluted | $ / shares	$ (0.47)	$ 0.06	$ 0.40	$ 0.13	$ 0.65	$ (1.08)	$ 0.20	$ 0.43		$ 0.13	$ 0.21	$ 0.41
Contracts charge										$ 31.3
Impairment charges										11.0
Closure costs										$ 4.9
Number of facilities closed | facility										2
Workforce actions including severance and furlough costs										$ 5.0
COCO
Earnings (Loss) per share - diluted:
Impairment charges									$ 9.8
PBH contracts
Earnings (Loss) per share - diluted:
Contracts charge	$ 6.6	$ 24.7								$ 31.3
Held for sale or Disposed | COCO
Earnings (Loss) per share - diluted:
Impairment charges				$ 11.8		$ 74.1