AAR(AIR) - 2026 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents AAR CORP.'s unaudited condensed consolidated financial statements and related notes, along with management's discussion and analysis, market risk disclosures, and controls Item 1. Financial Statements This section presents AAR CORP.'s unaudited condensed consolidated financial statements for the quarter ended August 31, 2025, including core financial statements and detailed explanatory notes Condensed Consolidated Balance Sheets This table provides a snapshot of AAR CORP.'s financial position, detailing assets, liabilities, and equity at specific quarter-end dates Condensed Consolidated Balance Sheets (Millions) | Balance Sheet Item | May 31, 2025 (Millions) | August 31, 2025 (Millions) | Change (Millions) | % Change | | :----------------- | :---------------------- | :------------------------- | :---------------- | :------- | | Total Assets | $2,844.6 | $2,929.7 | $85.1 | 3.0% | | Total Liabilities | $1,078.3 | $1,141.9 | $63.6 | 5.9% | | Total Equity | $1,211.6 | $1,249.3 | $37.7 | 3.1% | | Cash & Equivalents | $96.5 | $80.0 | $(16.5) | (17.1%) | | Inventories | $809.2 | $861.5 | $52.3 | 6.5% | | Long-term Debt | $968.0 | $1,022.1 | $54.1 | 5.6% | Condensed Consolidated Statements of Income This table outlines AAR CORP.'s financial performance over the quarter, showing sales, costs, and net income Condensed Consolidated Statements of Income (Millions) | Income Statement Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | % Change | | :-------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Sales | $739.6 | $661.7 | $77.9 | 11.8% | | Cost of Sales | $605.9 | $544.5 | $61.4 | 11.3% | | Gross Profit | $133.7 | $117.2 | $16.5 | 14.1% | | Operating Income | $64.9 | $43.4 | $21.5 | 49.5% | | Net Income | $34.4 | $18.0 | $16.4 | 91.1% | | EPS - Basic | $0.96 | $0.50 | $0.46 | 92.0% | | EPS - Diluted | $0.95 | $0.50 | $0.45 | 90.0% | Condensed Consolidated Statements of Comprehensive Income This table presents AAR CORP.'s total comprehensive income, including net income and other comprehensive income items like currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Millions) | Comprehensive Income Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | % Change | | :------------------------ | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Net Income | $34.4 | $18.0 | $16.4 | 91.1% | | Currency Translation Adj. | $0.4 | $1.5 | $(1.1) | (73.3%) | | Comprehensive Income | $34.8 | $19.5 | $15.3 | 78.5% | Condensed Consolidated Statements of Cash Flows This table details AAR CORP.'s cash inflows and outflows from operating, investing, and financing activities for the quarter Condensed Consolidated Statements of Cash Flows (Millions) | Cash Flow Activity | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :----------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Operating | $(44.9) | $(18.6) | $(26.3) | | Investing | $(23.8) | $(5.3) | $(18.5) | | Financing | $51.1 | $(9.1) | $60.2 | | Net Decrease | $(17.6) | $(33.0) | $15.4 | | Cash, End of Period| $91.6 | $63.1 | $28.5 | Condensed Consolidated Statements of Changes in Equity This table illustrates the changes in AAR CORP.'s equity components, including common stock, retained earnings, and treasury stock, over the quarter Condensed Consolidated Statements of Changes in Equity (Millions) | Equity Component | Balance May 31, 2025 (Millions) | Net Income (Millions) | Stock Option Activity (Millions) | Restricted Stock Activity (Millions) | Other Comprehensive Income (Millions) | Balance Aug 31, 2025 (Millions) | | :--------------- | :------------------------------ | :-------------------- | :------------------------------- | :----------------------------------- | :------------------------------------ | :------------------------------ | | Common Stock | $45.3 | — | — | — | — | $45.3 | | Capital Surplus | $505.2 | — | $2.5 | $(4.2) | — | $503.5 | | Retained Earnings| $969.4 | $34.4 | — | — | — | $1,003.8 | | Treasury Stock | $(302.7) | — | $4.2 | $0.4 | — | $(298.1) | | AOCL | $(5.6) | — | — | — | $0.4 | $(5.2) | | Total Equity | $1,211.6 | $34.4 | $6.7 | $(3.8) | $0.4 | $1,249.3 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the accounting principles and assumptions used in preparing the financial statements - Financial statements are unaudited and prepared under GAAP and SEC rules, with management estimates[27][28] - New ASUs (2023-09 on Income Tax Disclosures and 2024-03 on Expense Disaggregation) are expected to impact disclosures only, not financial condition, results of operations, or cash flows[30][31] Note 2. Acquisitions This note details recent acquisitions, including purchase prices, contingent considerations, and integration activities - Acquired Aerostrat Corp. on August 11, 2025, for a base purchase price of $15.0 million plus up to $5.0 million in contingent consideration. Aerostrat's operations are included in the Integrated Solutions segment[32][33][34] - Finalized purchase price adjustments for Triumph Group's Product Support business, acquired March 1, 2024, resulting in a $2.9 million reduction from the initial $725.0 million. Product Support is reported within the Repair & Engineering segment[36][37] - Integration activities for Product Support include consolidating facility footprint, with $1.0 million in expenses recognized for the three months ended August 31, 2025[39] - Finalized post-closing adjustments for the Trax USA Corp. acquisition (March 2023), with $4.4 million released from escrow in Q4 FY2025 and $5.3 million remaining. Contingent consideration liability for Trax was $8.1 million as of August 31, 2025[41][43] Note 3. Discontinued Operations This note provides information on assets and liabilities related to discontinued business segments - COCO business (Expeditionary Services) reported as discontinued operations since fiscal 2018[45] Discontinued Operations (Millions) | Discontinued Operations | August 31, 2025 (Millions) | May 31, 2025 (Millions) | | :---------------------- | :------------------------- | :---------------------- | | Assets | $5.2 | $6.2 | | Liabilities | $4.9 | $5.8 | Note 4. Revenue Recognition This note explains the company's policies for recognizing revenue, including contract assets and liabilities, and disaggregated sales data - Revenue is recognized when performance obligations are satisfied, either over time (cost-to-cost method) or at a point in time (product sales upon shipment)[47][50][51] - No cumulative catch-up adjustments were recognized for the three months ended August 31, 2025, compared to favorable adjustments of $2.4 million in the prior year period[67] Contract Assets & Liabilities (Millions) | Contract Assets & Liabilities | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :---------------------------- | :------------------------- | :---------------------- | :---------------- | | Net Contract Assets | $139.2 | $122.0 | $17.2 | | Current Contract Assets | $146.7 | $140.3 | $6.4 | | Current Deferred Revenue | $(32.3) | $(40.3) | $8.0 | - Remaining performance obligations (firm backlog) totaled approximately $490 million as of August 31, 2025, with 75% expected to be recognized as revenue over the next 12 months[75] Disaggregation of Revenue (3 Months Ended Aug 31) (Millions) | Disaggregation of Revenue (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :------------------------------------------------ | :-------------- | :-------------- | :------- | | By Segment & Customer Market: | | | | | Parts Supply - Commercial | $254.5 | $210.4 | 20.9% | | Parts Supply - Government and defense | $63.3 | $39.3 | 61.1% | | Repair & Engineering - Commercial | $195.7 | $191.2 | 2.4% | | Repair & Engineering - Government and defense | $18.9 | $26.4 | (28.4%) | | Integrated Solutions - Commercial | $72.4 | $70.0 | 3.4% | | Integrated Solutions - Government and defense | $112.6 | $98.9 | 13.9% | | Expeditionary Services - Commercial | $0.7 | $1.3 | (46.2%) | | Expeditionary Services - Government and defense | $21.5 | $24.2 | (11.2%) | | Consolidated Sales by Geographic Region: | | | | | U.S./Canada | $519.1 | $473.4 | 9.7% | | Europe/Africa | $99.7 | $108.8 | (8.3%) | | Asia/South Pacific | $89.7 | $64.0 | 40.2% | | Other | $31.1 | $15.5 | 100.6% | | Total Consolidated Sales | $739.6 | $661.7 | 11.8% | Note 5. Restricted Cash This note details the components and amounts of cash held under restrictions Restricted Cash Component (Millions) | Restricted Cash Component | August 31, 2025 (Millions) | | :------------------------ | :------------------------- | | Acquisition Escrows | $8.3 | | Receivable Securitization | $3.3 | | Total Restricted Cash | $11.6 | Note 6. Accounts Receivable This note breaks down accounts receivable by customer type, including U.S. Government and other customers Accounts Receivable (Millions) | Accounts Receivable | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :------------------ | :------------------------- | :---------------------- | :---------------- | | U.S. Government | $41.7 | $40.0 | $1.7 | | All Other Customers | $321.8 | $314.8 | $7.0 | | Total | $363.5 | $354.8 | $8.7 | Note 7. Equity This note provides details on stock-based compensation, share grants, and their impact on equity - Granted 85,605 performance-based and 64,795 time-based restricted shares to employees, and 24,178 time-based restricted shares to directors in July 2025[82] Stock-Based Compensation (Millions) | Stock-Based Compensation | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :----------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Restricted Stock Expense | $4.2 | $4.1 | $0.1 | | Stock Option Expense | $1.1 | $0.9 | $0.2 | | Intrinsic Value of Options Exercised | $4.6 | $0.2 | $4.4 | - 64,000 stock options were anti-dilutive and excluded from diluted EPS computation for Q1 FY2026[87] Note 8. Inventories This note categorizes inventory components, including aircraft parts, raw materials, and work-in-process Inventory Category (Millions) | Inventory Category | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :----------------- | :------------------------- | :---------------------- | :---------------- | | Aircraft & Engine Parts | $694.6 | $659.4 | $35.2 | | Raw Materials & Parts | $135.8 | $119.9 | $15.9 | | Work-in-Process | $31.1 | $29.9 | $1.2 | | Total Inventories | $861.5 | $809.2 | $52.3 | Note 9. Supplemental Cash Flow Information This note provides additional details on non-cash investing and financing activities and other cash flow items Supplemental Cash Flow Item (Millions) | Supplemental Cash Flow Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Interest Paid | $8.5 | $9.0 | $(0.5) |\ | Income Taxes Paid | $5.6 | $5.2 | $0.4 |\ | Operating Lease Liabilities | $1.6 | $0.8 | $0.8 | Note 10. Sale of Receivables This note describes the company's accounts receivable financing program and related activities - Maintains a Purchase Agreement with Citibank N.A. for the sale of accounts receivable, with a maximum limit of $150 million[90] Receivable Sale Activity (3 Months Ended Aug 31) (Millions) | Receivable Sale Activity (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | Change (Millions) | | :----------------------------------------------- | :-------------- | :-------------- | :---------------- | | Receivables Sold | $49.2 | $50.9 | $(1.7) | | Discounts on Sale | $0.2 | $0.3 | $(0.1) | - As of August 31, 2025, $21.0 million of the $150 million facility has been utilized, leaving $129.0 million available[91] Note 11. Financing Arrangements This note details the company's debt structure, credit facilities, and compliance with financial covenants Debt Component (Millions) | Debt Component | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :------------- | :------------------------- | :---------------------- | :---------------- | | Senior Notes | $700.0 | $550.0 | $150.0 | | Revolving Credit Facility | $330.0 | $427.0 | $(97.0) | | Total Long-term Debt | $1,022.1 | $968.0 | $54.1 | - Amended Revolving Credit Facility increased aggregate commitments to $825.0 million from $620.0 million, with $485.9 million available as of August 31, 2025[97][99] - Issued an additional $150.0 million aggregate principal amount of 6.75% Senior Notes due 2029 on August 14, 2025, bringing total Senior Notes to $700.0 million[103][107] - The company was in compliance with all financial and other covenants in its financing agreements as of August 31, 2025[110] Note 12. Other Non-current Assets This note provides information on investments in joint ventures and other long-term assets - Holds a 50% ownership interest in ASAS, providing aviation aftermarket supply chain solutions, with sales to ASAS JV of $5.0 million in Q1 FY2026, up from $1.7 million in Q1 FY2025[111][112] - Sold its 40% ownership interest in an Indian joint venture in Q1 FY2025, recognizing a gain of $2.1 million[114] - Holds a 49.9% ownership interest in xCelle Americas, LLC, providing component repair services, and provided a $3.3 million loan to xCelle in March 2025[116][117] Note 13. Defined Benefit Pension Settlement This note outlines the settlement of the U.S. defined benefit retirement plan and its financial impact - Settled all future obligations under its frozen U.S. defined benefit retirement plan in Q1 FY2024, resulting in a non-cash, pre-tax pension settlement charge of $26.7 million ($16.1 million after-tax)[119] - Remaining surplus plan assets of $0.8 million as of August 31, 2025, are expected to be utilized over the next twelve months to fund 401(k) contributions[120] Note 14. Accumulated Other Comprehensive Loss This note details the components of accumulated other comprehensive loss, including currency translation adjustments and pension plan impacts AOCL Component (Millions) | AOCL Component | Balance June 1, 2025 (Millions) | Other Comprehensive Income (Millions) | Balance Aug 31, 2025 (Millions) | | :------------- | :------------------------------ | :------------------------------------ | :------------------------------ | | Currency Translation Adjustments | $(2.4) | $0.4 | $(2.0) | | Pension Plans | $(3.2) | — | $(3.2) | | Total AOCL | $(5.6) | $0.4 | $(5.2) | Note 15. Sale of Landing Gear Overhaul Business This note describes the divestiture of the Landing Gear Overhaul business, including proceeds and recognized loss - Divested the LGO business in Q4 FY2025 for net proceeds of $48.0 million[124] - Recognized a $71.1 million loss on divestiture, including a $63.0 million impairment charge and $14.6 million goodwill reclassified to assets held for sale[122][161] - Recognized a gain of $1.0 million in Q1 FY2026 for the final resolution of purchase price adjustments[124] Note 16. Business Segment Information This note provides financial data disaggregated by the company's operating segments, including sales, costs, and operating income - AAR CORP. operates in four segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[125][129] Segment (3 Months Ended Aug 31, 2025) (Millions) | Segment (3 Months Ended Aug 31, 2025) | Sales (Millions) | Cost of Sales (Millions) | SG&A (Millions) | Operating Income (Millions) | | :------------------------------------ | :--------------- | :----------------------- | :-------------- | :-------------------------- | | Parts Supply | $317.8 | $256.5 | $23.3 | $40.9 | | Repair & Engineering | $214.6 | $172.0 | $22.0 | $20.4 | | Integrated Solutions | $185.0 | $159.3 | $16.2 | $9.7 | | Expeditionary Services | $22.2 | $17.6 | $1.6 | $3.0 | | Total Consolidated | $739.6 | $605.4 | $63.1 | $74.0 | Segment (3 Months Ended Aug 31, 2024) (Millions) | Segment (3 Months Ended Aug 31, 2024) | Sales (Millions) | Cost of Sales (Millions) | SG&A (Millions) | Operating Income (Millions) | | :------------------------------------ | :--------------- | :----------------------- | :-------------- | :-------------------------- | | Parts Supply | $249.7 | $199.7 | $20.3 | $30.1 | | Repair & Engineering | $217.6 | $175.0 | $23.1 | $21.1 | | Integrated Solutions | $168.9 | $144.1 | $17.2 | $7.7 | | Expeditionary Services | $25.5 | $25.7 | $1.5 | $(1.7) | | Total Consolidated | $661.7 | $544.5 | $62.1 | $57.2 | Segment Total Assets (Millions) | Segment Total Assets | August 31, 2025 (Millions) | May 31, 2025 (Millions) | | :------------------- | :------------------------- | :---------------------- | | Parts Supply | $875.0 | $818.8 | | Repair & Engineering | $1,166.1 | $1,155.2 | | Integrated Solutions | $660.0 | $620.8 | | Expeditionary Services | $82.6 | $79.0 | | Corporate & Discontinued | $146.0 | $170.8 | | Total Assets | $2,929.7 | $2,844.6 | Note 17. Legal Proceedings This note details ongoing legal matters, including bankruptcy litigation, performance guarantee claims, and regulatory compliance issues - Russian bankruptcy litigation concluded with a final $1.8 million judgment against the company, which it believes is due to a hostile business environment for foreign companies in Russia[138][139][140] - Faces a performance guarantee claim of at least $32 million related to the A220 Contract, which the company strongly disputes and believes it has numerous defenses against[142][143] - Resolved FCPA violations with the DoJ and SEC, resulting in a $55.6 million charge in Q2 FY2025[147][148] - Convicted in Nepal for public procurement law violations related to previously self-reported FCPA matters, facing a $0.9 million fine and 1.5-year prison sentence (assigned to Mr. Holmes as principal executive), which the company does not intend to pay due to perceived lack of due process[149][151] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of AAR CORP.'s financial condition, operating results, liquidity, and capital resources for the three months ended August 31, 2025 General Overview and Outlook This section provides an overview of AAR CORP.'s business segments, recent restructuring, and future market expectations - AAR CORP. operates in four business segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[153][159] - Executed a restructuring plan in Q1 FY2026, eliminating approximately 60 positions and recognizing $1.0 million in severance charges[154] - Expects long-term strength in aviation products and services, with favorable commercial aftermarket growth trends and continued investment in both commercial and government markets[168] - Expanding Miami and Oklahoma City airframe maintenance facilities, with completion expected in early to mid-to-late calendar 2026[159][160] Discussion of Results of Operations This section analyzes consolidated sales, gross profit, operating expenses, and tax rates for the quarter Financial Metric (3 Months Ended Aug 31) (Millions) | Financial Metric (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------- | :-------------- | :-------------- | :------- | | Consolidated Sales | $739.6 | $661.7 | 11.8% | | Commercial Sales | $523.3 | $472.9 | 10.7% | | Government and Defense Sales | $216.3 | $188.8 | 14.6% | | Consolidated Gross Profit | $133.7 | $117.2 | 14.1% | | Commercial Gross Profit | $89.5 | $92.8 | (3.6%) | | Government and Defense Gross Profit | $44.2 | $24.4 | 81.1% | | Consolidated Gross Profit Margin | 18.1% | 17.7% | | | Commercial Gross Profit Margin | 17.1% | 19.6% | | | Government and Defense Gross Profit Margin | 20.4% | 12.9% | | - Selling, general, and administrative expenses decreased by $4.7 million (6.2%) to $71.2 million, primarily due to the settlement of FCPA matters. As a percentage of sales, SG&A decreased to 9.6% from 11.5%[173] - Interest expense remained consistent at $18.8 million, reflecting lower interest rates offset by higher average borrowings[174] - Effective income tax rate decreased to 26.8% from 27.7%, primarily due to higher tax benefits from stock compensation[175] Operating Segment Results of Operations This section presents a detailed breakdown of financial performance for each of AAR CORP.'s operating segments Parts Supply Segment This section details the financial performance of the Parts Supply segment, including sales and operating income Parts Supply Segment (3 Months Ended Aug 31) (Millions) | Parts Supply Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $317.8 | $249.7 | 27.3% | | Operating income | $40.9 | $30.1 | 35.9% | | Operating margin | 12.9% | 12.1% | | - Sales growth driven by 23.9% increase in new parts Distribution and 32.1% increase in USM activities[176] Repair & Engineering Segment This section details the financial performance of the Repair & Engineering segment, including sales and operating income Repair & Engineering Segment (3 Months Ended Aug 31) (Millions) | Repair & Engineering Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $214.6 | $217.6 | (1.4%) | | Operating income | $20.4 | $21.1 | (3.3%) | | Operating margin | 9.5% | 9.7% | | - Sales decrease primarily due to the divestiture of the LGO business (contributed $19.2 million in prior year sales), partially offset by a $13.2 million increase at airframe maintenance facilities[178] - Operating income and margin decreased due to lower profitability in Component Services activities[179] Integrated Solutions Segment This section details the financial performance of the Integrated Solutions segment, including sales and operating income Integrated Solutions Segment (3 Months Ended Aug 31) (Millions) | Integrated Solutions Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $185.0 | $168.9 | 9.5% | | Operating income | $9.7 | $7.7 | 26.0% | | Operating margin | 5.2% | 4.6% | | - Sales and operating income increases primarily attributable to higher government program activity and a favorable mix of products and services[180][182] - No cumulative catch-up adjustments were recognized in Q1 FY2026, compared to favorable adjustments of $2.4 million in the prior year quarter[181] Expeditionary Services Segment This section details the financial performance of the Expeditionary Services segment, including sales and operating income Expeditionary Services Segment (3 Months Ended Aug 31) (Millions) | Expeditionary Services Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :----------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $22.2 | $25.5 | (12.9%) | | Operating income (loss) | $3.0 | $(1.7) | 276.5% | | Operating margin | 13.5% | (6.7%) | | - Sales decrease primarily due to the termination of the Next Generation Pallet contract in Q1 FY2025 (contributed $9.5 million in prior year sales), partially offset by growth in other product lines[183] - Operating income and margin significantly improved due to the absence of the prior year's $12.7 million equipment and inventory expensing related to the contract termination[184] Liquidity, Capital Resources and Financial Position This section assesses the company's working capital, cash position, credit facilities, and cash flow activities - Working capital was $1,028.4 million and cash was $80.0 million as of August 31, 2025, providing ample liquidity for the foreseeable future[186] - Amended Revolving Credit Facility has $485.9 million available, and the accounts receivable financing program has $129.0 million available[189][195] - Net cash used in operating activities increased to $44.9 million (from $18.6 million in prior year) primarily due to increased inventory investments[200] - Net cash provided by financing activities was $51.1 million (compared to $9.1 million used in prior year), driven by incremental borrowings to fund the Aerostrat acquisition and other investments[202] - Net cash used in investing activities increased to $23.8 million (from $5.3 million in prior year) primarily due to the Aerostrat acquisition[201] - No stock repurchases were made in Q1 FY2026 under the $150 million stock repurchase program, with $107.5 million utilized since inception[199] Critical Accounting Policies and Significant Estimates This section discusses the company's critical accounting policies and significant estimates, noting no material changes - No significant changes to the application of critical accounting policies during the first quarter of fiscal 2026[203] Forward-Looking Statements This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements subject to various risks and uncertainties, including those related to the commercial aviation industry, government contracts, acquisitions, and regulatory compliance[204][205][207] - The company assumes no obligation to update any forward-looking statements[208] Item 3. Quantitative and Qualitative Disclosures About Market Risk AAR CORP.'s market risk exposure includes fluctuating interest rates, foreign exchange rates, and credit losses on accounts receivable, with no material impact from a hypothetical 10% U.S. dollar devaluation or significant changes in interest rate risk during the quarter - Market risk exposure includes fluctuating interest rates, foreign exchange rates, and credit losses on accounts receivable[209] - A hypothetical 10% devaluation of the U.S. dollar would not have a material impact on financial position or continuing operations for the quarter ended August 31, 2025[210] - No significant changes in interest rate risk during the quarter ended August 31, 2025[211] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of August 31, 2025, with no material changes to internal control over financial reporting during the quarter - CEO and CFO concluded that disclosure controls and procedures were effective as of August 31, 2025, providing reasonable assurance of timely and accurate reporting[212] - No material changes in internal control over financial reporting occurred during the quarter ended August 31, 2025[213] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, other information including executive trading plans, and a list of exhibits Item 1. Legal Proceedings This section incorporates by reference the legal proceedings detailed in Note 17, confirming no other material pending legal proceedings - Incorporates by reference the legal proceedings detailed in Note 17, confirming no other material pending legal proceedings[214] Item 1A. Risk Factors There have been no material changes in risk factors from the Annual Report on Form 10-K for the fiscal year ended May 31, 2025 - No material changes in risk factors from the Annual Report on Form 10-K for the fiscal year ended May 31, 2025[215] Item 5. Other Information CEO John M. Holmes adopted a Rule 10b5-1 trading plan for potential stock sales, with no other directors or officers initiating or modifying similar arrangements during the quarter - CEO John M. Holmes adopted a Rule 10b5-1 trading plan on August 6, 2025, for the potential sale of up to 61,539 shares of common stock between November 5, 2025, and February 2, 2026[216] - No other directors or officers adopted, modified, or terminated trading arrangements during the three months ended August 31, 2025[217] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including material contracts, Section 302 and 906 certifications, and Interactive Data Files (Inline XBRL) - Lists exhibits including material contracts (incentive plans, stock agreements), Section 302 and 906 certifications, and Interactive Data Files (Inline XBRL)[219]