Business Segment Information

9 Months Ended

Feb. 28, 2013

Business Segment Information

Business Segment Information

Note 12 — Business Segment Information

Prior to the second quarter of fiscal year 2013, we reported our activities in the following four business segments: Aviation Supply Chain; Government and Defense Services; Maintenance, Repair and Overhaul and Structures and Systems.  During the second quarter, we changed our segment presentation to reflect the way our Chief Executive Officer now evaluates performance and the way we are organized internally.  We now report our activities in the following two business segments:  Aviation Services and Technology Products.  The new Aviation Services segment includes our former Aviation Supply Chain and Maintenance, Repair and Overhaul segments and most of the former Government and Defense Services segment, and the new Technology Products segment represents our former Structures and Systems business segment and our small shelter integration business, which previously was part of the Government and Defense Services segment.  We have recast all prior periods presented to conform to the new segment presentation.

In conjunction with the change in segments, a goodwill impairment test was required to be performed. We used a two-step process to evaluate goodwill for impairment.  In the first step, we compared the fair value of each reporting unit with the carrying value of the reporting unit, including goodwill.  We estimated the fair value of each reporting unit using a valuation technique based on a multiple of earnings or discounted cash flows.  If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to complete a second step to determine the amount of goodwill impairment.  In the second step, we would determine an implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of the assets and liabilities other than goodwill.  We then would compare the implied fair value of goodwill to the carrying amount and recognize the difference as an impairment charge.

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.   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.

Based on the results of the step one impairment test performed as of November 30, 2012, we determined that the estimated fair value of each reporting unit prepared on a pre- and post-segment change basis exceeded its net asset carrying value. Accordingly, there was no indication of impairment and the second step was not performed.

A description of the products and services of our two business segments, Aviation Services, and Technology Products, is as follows.

Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets.  We provide customized inventory supply chain management, performance based logistics programs, aircraft component repair management services, and aircraft modifications.  The segment also includes repair, maintenance and overhaul of aircraft and landing gear and expeditionary airlift services.  Cost of sales consists principally of the cost of product, direct labor, overhead, aircraft maintenance costs, and the cost of lease revenue (primarily depreciation and insurance).

Sales in the Technology Products segment are derived from the engineering, designing and manufacturing of containers, pallets and shelters used to support the U.S. military’s requirements for a mobile and agile force and system integration services for specialized command and control systems.  The segment also manufactures heavy-duty pallets and lightweight cargo containers for the commercial market, in-plane cargo loading and handling systems for commercial and military applications, and steel and composite machined and fabricated parts, components and sub-systems for various aerospace and defense programs.  Cost of sales consists principally of the cost of product, direct labor and overhead.

The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the year ended May 31, 2012.  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.  The expenses and assets related to corporate activities are not allocated to the segments.  Our reportable segments are aligned principally around differences in products and services.

Gross profit is calculated by subtracting cost of sales from sales.  Selected financial information for each reportable segment is as follows:

	Three Months Ended				Nine Months Ended
	February 28/29,				February 28/29,
	2013		2012		2013		2012
Sales:
Aviation Services	$	408.2	$	373.3	$	1,197.2	$	1,146.3
Technology Products	112.0		160.9		386.3		355.4
	$	520.2	$	534.2	$	1,583.5	$	1,501.7

	Three Months Ended				Nine Months Ended
	February 28/29,				February 28/29,
	2013		2012		2013		2012
Gross profit:
Aviation Services	$	59.0	$	58.4	$	187.8	$	185.2
Technology Products	17.2		28.5		66.1		56.0
	$	76.2	$	86.9	$	253.9	$	241.2

The following table reconciles segment gross profit to consolidated income before provision for income taxes.

	Three Months Ended						Nine Months Ended
	February 28/29,						February 28/29,
	2013			2012			2013			2012
Segment gross profit	$	76.2		$	86.9		$	253.9		$	241.2
Selling, general and administrative	(41.8		)	(51.2		)	(145.9		)	(138.9		)
Earnings from joint ventures	3.2			0.1			5.8			0.6
Loss on extinguishment of debt	—			—			(0.3		)	—
Interest expense	(10.2		)	(10.7		)	(31.6		)	(26.0		)
Interest income	0.4			0.5			1.1			0.9
Income before provision for income taxes	$	27.8		$	25.6		$	83.0		$	77.8