Financial Analysis

2. Acquisitions Acquisition of the Aircraft Reconfig Technologies Business On April 24, 2026, we acquired the outstanding shares of Aircraft Reconfig Technologies (ART), a leading aircraft interiors engineering company for $36.0 million subject to customary post-closing adjustments for cash, working capital, and indebtedness. We accounted for the acquisition using the acquisition method and included the results of ARTs operations in our consolidated financial statements from the effective date of the acquisition. ARTs results are reported within our Repair, Engineering, and Software segment. The base purchase price was paid at closing and transaction costs associated with the acquisition of $1.1 million were expensed as incurred during fiscal 2026. The purchase price was allocated to identifiable assets and liabilities based on information available at the date of acquisition. The allocation of the purchase price is preliminary and will potentially change in future periods as fair value estimates of the assets acquired and liabilities assumed are finalized, including those related to working capital, intangible assets, property and equipment, leases, and indemnification assets. The final determination of the fair values will be completed within the one-year measurement period. The preliminary fair value of assets acquired and liabilities assumed is as follows: Accounts receivable $ 2.1 Inventory 17.5 Other assets 0.2 Accounts payable and other liabilities (12.9) Net assets ac …

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12. Commitments 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 $798.8 million in 2027, $275.5 million in 2028, $71.5 million in 2029, $9.5 million in 2030 and $1.3 million in 2031. 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, 2026 was approximately $10.5 million.

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5. Financing Arrangements Debt Outstanding A summary of the carrying amount of our debt is as follows: May 31, 2026 2025 Senior Notes $ 700.0 $ 550.0 Amended Revolving Credit Facility with interest payable monthly 200.0 427.0 Debt premium, net 2.3 Debt issuance costs, net (8.4) (9.0) Long-term debt $ 893.9 $ 968.0 Credit Agreement On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the Credit Agreement) that included an unsecured revolving credit facility (the Revolving Credit Facility) that we can draw upon for working capital and general corporate purposes. In conjunction with the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the 2011 Credit Agreement) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement. On March 1, 2024, we entered into an amendment (the Revolver Amendment) to our Credit Agreement, which governs the Companys existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the Amended Revolving Credit Facility). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620 million under the Revolving Credit Facility, (ii) increased the maximum leverage …

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For the Year Ended May 31, 2026 2025 2024 Parts Supply: Commercial $ 1,153.4 $ 879.2 $ 800.6 Government and defense 334.3 220.4 166.4 $ 1,487.7 $ 1,099.6 $ 967.0 Repair, Engineering, and Software: Commercial $ 990.2 $ 838.4 $ 612.3 Government and defense 90.6 92.6 69.0 $ 1,080.8 $ 931.0 $ 681.3 Government Solutions: Commercial $ 3.3 $ 4.0 $ 6.1 Government and defense 499.0 491.4 445.6 $ 502.3 $ 495.4 $ 451.7 Legacy Commercial Programs: Commercial $ 237.2 $ 254.5 $ 218.9 …

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3. Goodwill and Other Intangible Assets, Net During the fourth quarter of fiscal 2026, our chief operating decision making officer (CODM) implemented changes in how he organizes the business, allocates resources, and assesses performance. Specifically, the business units within our Integrated Solutions segment have been realigned, resulting in the following changes: Combine our government programs activities and our Mobility Systems business, previously reported as Expeditionary Services, into a new operating segment named Government Solutions; Re-position our software platform to our Repair and Engineering segment, which is renamed Repair, Engineering, and Software; and Legacy Commercial Programs, the remaining business unit within the Integrated Solutions segment, will be separately reported as its own operating segment. These changes resulted in the following four operating segments: Parts Supply remains unchanged from the prior structure, primarily consisting of distribution of new parts and sales of used serviceable material, including aircraft, engine and airframe parts and components; Repair, Engineering, and Software primarily consists of Airframe MRO, Component MRO, and our software platforms, including Trax, Aerostrat, Airvoyant, and Airinmar; Government Solutions primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of War (DoW), the U.S. D …

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7. Income Taxes Our income tax expense includes the following components: For the Year Ended May 31, 2026 2025 2024 Current: Federal $ 37.6 $ 20.7 $ 21.0 State 11.3 3.1 4.0 Foreign 12.5 8.1 7.5 61.4 31.9 32.5 Deferred (3.2) (5.5) (20.5) $ 58.2 $ 26.4 $ 12.0 Income (Loss) before income tax expense includes the following components: For the Year Ended May 31, 2026 2025 2024 Domestic $ 184.2 $ (22.5) $ 14.6 Foreign 61.7 61.4 43.7 $ 245.9 $ 38.9 $ 58.3 Our foreign earnings are comprised primarily of the results of our operations in Canada and Thailand. The Company adopted ASU 2023-09, Income Taxes (Topic 740) Improvements To Income Tax Disclosures , on a prospective basis beginning with the year ended May 31, 2026. The following table presents the required disclosure to reconcile the U.S. federal statutory income tax amount and rate to our effective amount and rate for the year ended May 31, 2026 pursuant to the new ASU: Amount Percent Income tax expense at the U.S. federal statutory rate $ 51.6 21.0 % State income taxes, net of federal benefit 9.6 3.9 Foreign tax effects 0.1 Nontaxable or nondeductible items: Bargain purchase gain (6.2) (2.5) Compensation 2.6 1.1 Other 1.9 0.8 Tax benefit from stock-based compensation (1.4) (0.6) $ 58.2 23.7 % State income taxes in Illinois and Florida comprise the majority (greater than 50% ) of the tax effect of this category. The following table presents the required disclosures prior to our adoption of new ASU and reconciles the U.S. federal …

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16. Legal Proceedings and Other Matters We are involved in various claims and legal actions, including environmental matters, arising in the ordinary course of business. 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: Russian Bankruptcy Litigation During calendar years 2016 and 2017, certain subsidiaries of the Company purchased four engines from VIM-AVIA Airlines, LLC (VIM-AVIA), a company organized in Russia. Subsequent to the purchase of the engines, VIM-AVIA declared bankruptcy in Russian courts, and in November 2019, the receiver of the VIM-AVIA bankruptcy estate (Receiver) and one of the major creditors of VIM-AVIA filed a clawback action in the Arbitration Court of the Russian Republic of Tartarstan (the Russian Trial Court) against our subsidiaries alleging that the contracts entered into with VIM-AVIA in the 2016-2017 timeframe are invalid. The clawback action alleged that our subsidiaries owe the VIM-AVIA bankruptcy estate approximately $13 million, the alleged fair market value of the four engines at the time of sale. On March 3, 2023, the Russian Trial Court awarded a $1.8 million judgment against the Company relating to one engine, and dismissed all the other claims against the Company relating to the three remaining engines. The Company recognized a corresponding charge of $1.8 million in the third quarter of fis …

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11. Leases We lease land, 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 Sheets 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. Variable lease costs are expensed in the period in which the obligation for those payments are incurred. ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets. We 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 twelve months or less. 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 wi …

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New Accounting Pronouncement Adopted in Fiscal 2026 In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures . This ASU updates income tax disclosure requirements by requiring specific categories and greater disaggregation within the income tax rate reconciliation and disaggregation of income taxes paid by jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The ASU would be applied on a prospective basis with retrospective application permitted. This ASU was adopted prospectively with no impact on our consolidated financial statements except for expanded income tax-related disclosures. New Accounting Pronouncement Not Yet Adopted In November 2024, the FASB issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses . This ASU includes new disclosure requirements about specific expense categories, including but not limited to, purchases of inventory, employee compensation, depreciation, amortization, and selling expenses that are included in certain expense captions presented on the face of the income statement. The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitte …

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8. Employee Benefit Plans Defined Benefit Plans Prior to January 1, 2000, the pension plan for substantially all domestic salaried and non-union hourly employees (U.S. Retirement Plan) had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted the U.S. Retirement Plan to a cash balance pension plan with the retirement benefit expressed as a dollar amount in an account that grew with annual pay-based credits and interest on the account balance. Effective June 1, 2005, the U.S. Retirement Plan was frozen and the annual pay-based credits were discontinued. Prior to May 31, 2022, our domestic plans also include a defined benefit pension plan for certain union hourly employees in which benefits are based primarily on a fixed amount per year of service (Union Plan). The Union Plan was frozen in fiscal 2018. Effective May 31, 2022, our Union and U.S. Retirement Plans were merged (collectively, the Merged U.S. Plan). During the three-month period ended August 31, 2023, we settled all future obligations under the Merged U.S. Plan. The settlement included a combination of lump-sum payments to participants who elected to receive them and the transfer of the remaining benefit obligations to a third-party insurance company under group annuity contracts. The purchase of the group annuity contracts was funded directly by assets of the Merged U.S. Plan and required no additional cash or asset contributions from us. As a result of the s …

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15. Business Segment Information Our operating segments are comprised of: Parts Supply, primarily consisting of distribution of new parts and sales of used serviceable material, including aircraft, engine and airframe parts and components; Repair, Engineering, and Software primarily consists of Airframe MRO, Component MRO, and our software platforms, including Trax, Aerostrat, Airvoyant, and Airinmar; Government Solutions primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoW, the DoS and foreign governments and the engineering, design, integration, manufacture, and repair of pallets, shelters, and containers; and Legacy Commercial Programs primarily consists of asset-heavy flight hour-based component repair programs for commercial airlines and distribution of consumables and expendables (C&E) inventory. Our CODM is our Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services and are consistent with how our CODM allocates resources, assesses performance, and makes decisions. We have not aggregated operating segments for purposes of identifying reportable segments. Inter-segment sales are recorded at fair value which results in intercompany profit on inter-segment sales that is eliminated i …

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6. Equity Common Stock Offering During the second quarter of fiscal 2026, we sold 3,450,000 shares of our common stock at $83.00 per share in a registered underwritten offering. After deducting underwriting fees and other offering expenses, we received $273.9 million in net proceeds. Stock-Based Compensation We grant stock-based awards under the AAR CORP. 2013 Stock Plan, as Amended and Restated Effective July 13, 2020 (the 2013 Stock Plan) which has been approved by our stockholders. 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 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 per …

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2 . Acquisitions Acquisition of HAECO Americas On November 3, 2025, we acquired the outstanding shares of HAECO Americas, LLC and its subsidiary HAECO Airframe Services, LLC (together, HAECO Americas) from HAECO USA, Inc. for a purchase price of $76.5 million subject to customary post-closing adjustments for cash, working capital, and indebtedness. HAECO Americas provides heavy aircraft maintenance, repair, and overhaul (MRO) and modification services across its hangars located in Greensboro, North Carolina and Lake City, Florida. We accounted for the acquisition using the acquisition method and included the results of HAECO Americas operations in our consolidated financial statements from the effective date of the acquisition. HAECO Americas results are reported within our Repair & Engineering segment. The purchase price was paid at closing and transaction costs associated with the acquisition of $3.0 million were expensed as incurred. The purchase price was allocated to identifiable assets and liabilities based on information available at the date of acquisition. The allocation of the purchase price is preliminary and will potentially change in future periods as fair value estimates of the assets acquired and liabilities assumed are finalized, including those related to working capital, intangible assets, property and equipment, and leases. Based on the preliminary valuation, no goodwill was recognized as the fair value of the net assets acquired agreed to the purchase …

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11. Financing Arrangements A summary of the carrying amount of our debt is as follows: November 30, May 31, 2025 2025 Senior Notes $ 700.0 $ 550.0 Amended Revolving Credit Facility with interest payable monthly 260.0 427.0 Debt premium, net 2.7 Debt issuance costs, net (10.0) (9.0) Long-term debt $ 952.7 $ 968.0 Credit Agreement On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the Credit Agreement) that included an unsecured revolving credit facility (the Revolving Credit Facility) that we can draw upon for working capital and general corporate purposes. In conjunction with the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the 2011 Credit Agreement) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement. On March 1, 2024, we entered into an amendment (the Revolver Amendment) to our Credit Agreement, which governs the Companys existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the Amended Revolving Credit Facility). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620 million under the Revolving Credit Facility, (ii) increased the maximum leverage r …

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Three Months Ended Six Months Ended November 30, November 30, 2025 2024 2025 2024 Parts Supply: Commercial $ 268.1 $ 220.8 $ 522.6 $ 431.2 Government and defense 85.5 52.9 148.8 92.2 $ 353.6 $ 273.7 $ 671.4 $ 523.4 Repair & Engineering: Commercial $ 224.1 $ 206.7 $ 419.8 $ 397.9 Government and defense 20.4 22.1 39.3 48.5 $ 244.5 $ 228.8 $ 459.1 $ 446.4 Integrated Solutions: Commercial $ 73.0 $ 72.0 $ 145.4 $ 142.0 Government and defense 102.8 91.4 215.4 190.3 $ 175.8 $ 163.4 $ 360.8 $ 332.3 Expeditionary Services: Commercial $ 1.2 $ 0.7 $ 1.9 $ 2.0 Government and defense 20.2 19.5 41.7 43.7 $ 21.4 $ 20.2 $ 43.6 $ 45.7 …

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17. Legal Proceedings We are involved in various claims and legal actions, including environmental matters, arising in the ordinary course of business. 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: Russian Bankruptcy Litigation During calendar years 2016 and 2017, certain subsidiaries of the Company purchased four engines from VIM-AVIA Airlines, LLC (VIM-AVIA), a company organized in Russia. Subsequent to the purchase of the engines, VIM-AVIA declared bankruptcy in Russian courts, and shortly thereafter the receiver of the VIM-AVIA bankruptcy estate (Receiver) and one of the major creditors of VIM-AVIA filed a clawback action in the Arbitration Court of the Russian Republic of Tartarstan (the Russian Trial Court) against our subsidiaries alleging that the contracts entered into with VIM-AVIA in the 2016-2017 timeframe are invalid. The clawback action alleged that our subsidiaries owe the VIM-AVIA bankruptcy estate approximately $13 million, the alleged fair market value of the four engines at the time of sale. On March 3, 2023, the Russian Trial Court awarded a $1.8 million judgment against the Company relating to one engine, and dismissed all the other claims against the Company relating to the three remaining engines. The Company recognized a corresponding charge of $1.8 million in the third quarter of fiscal 2023. Further …

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4. Revenue Recognition Revenue is measured based on the 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 contrac …

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16. Business Segment Information Our operating segments are comprised of: Parts Supply, primarily consisting of our sales of used serviceable material (USM), including aircraft, engine and airframe parts and components and distribution of new parts (Distribution); Repair & Engineering, primarily consisting of our MRO services across airframes (Airframe MRO) and components (Component Services); Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (DoD), the U.S. Department of State (DoS) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions, including Trax; and Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations with sales derived from the engineering, design, integration, and manufacture of pallets, shelters, and containers. The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2025. Cost of sales consists principally of the cost of products, including material used in manufacturing operations, direct labor, and overhead. Our Chief Operating Decision M …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

7. Equity Common Stock Offering During the second quarter of fiscal 2026, we sold 3,450,000 shares of our common stock at $83.00 per share in a registered underwritten offering. After deducting underwriting fees and other offering expenses, we received $273.9 million in net proceeds. Stock - Based Compensation In July 2025, as part of our annual long-term stock incentive compensation, we granted 85,605 shares of performance-based restricted stock and 64,795 shares of time-based restricted stock to eligible employees. The grant date fair value per share for these shares was $79.45 (the closing price per share of our common stock on the grant date). We also granted 24,178 shares of time-based restricted stock to members of the Board of Directors with a grant date fair value per share of $61.41 (the closing price per share of our common stock on the grant date). Expenses charged to operations for restricted stock during the t hree-month periods ended November 30, 2025 and 2024 were $3.3 million and $4.1 million, respectively, and during the six - month periods ended November 30, 2025 and 2024 were $7.5 million and $8.2 million, respectively. In July 2025, as part of our annual long-term stock incentive compensation, we granted 154,185 stock options to eligible employees at an exercise price per share of $79.45 and grant date fair value per share of $28.71. The fair value of stock options was estimated using the Black-Scholes option pricing model with the following assumptions: R …

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18. Subsequent Events Pending Acquisition of the Aircraft Reconfig Technologies Business On December 17, 2025, we entered into an agreement to acquire the outstanding shares of Aircraft Reconfig Technologies (ART), a leading aircraft interiors engineering company for $35 million subject to customary post-closing adjustments for cash, working capital, and indebtedness. The acquisition is expected to close in the fourth quarter of fiscal 2026, subject to customary closing conditions, including receipt of certain regulatory approvals. Investment in xCelle Asia Joint Venture In December 2025, we invested $7.1 million for a 49.9% interest in xCelle Asia Limited (xCelle Asia JV) based in Thailand. The xCelle Asia JV is expected to perform nacelle MRO services, including on-wing and on-site inspections and rotable support for next generation aircraft nacelles. Sale of Corporate Headquarters Building In December 2025, we entered into a non-binding letter of intent to sell our corporate headquarters building in Wood Dale, Illinois in connection with our corporate headquarters relocation to Chicago, Illinois. The estimated purchase price for the property is $26.0 million and we expect to leaseback the building for approximately 2.5 years. With the decision to exit the property, we expect to classify the carrying value of the property of approximately $17 million as assets held for sale in the third quarter of fiscal 2026. …

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