Note 12 – Business Segment Information

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 operating segments: Aviation Services comprised of supply chain and MRO activities and Expeditionary Services comprised of manufacturing activities.

In the first quarter of fiscal 2019, we re-aligned the composition of our operating segments to leverage the full breadth of our operational expertise in Aviation Services. Our government-owned, contractor-operated business, which includes the INL/A WASS program, was previously included in our Expeditionary Services segment and is now reported within our Aviation Services segment for all periods presented.

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 of Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the year ended May 31, 2018 except for our revised accounting policy for revenue recognition. We adopted ASC 606 on June 1, 2018 and our revised accounting policy is further described in Note 3.

Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the operating 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.

Selected financial information for each segment is as follows:


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2018		2017		2018		2017
Sales:
Aviation Services	$	462.9	$	391.7	$	901.3	$	763.0
Expeditionary Services		30.4		28.9		58.3		55.5
	$	493.3	$	420.6	$	959.6	$	818.5


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2018		2017		2018		2017
Gross profit:
Aviation Services	$	74.9	$	66.0	$	142.0	$	123.8
Expeditionary Services		3.4		4.7		7.5		8.5
	$	78.3	$	70.7	$	149.5	$	132.3

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


	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2018		2017		2018		2017
Segment gross profit	$	78.3	$	70.7	$	149.5	$	132.3
Selling, general and administrative		(49.1)		(48.8)		(97.3)		(93.1)
Provision for doubtful accounts		(12.4)		(0.1)		(13.0)		(0.3)
Other income (expense), net		(0.2)		—		0.2		—
Interest expense		(2.5)		(1.9)		(4.6)		(3.6)
Interest income		0.1		0.1		0.6		0.1
Income from continuing operations before provision for income taxes	$	14.2	$	20.0	$	35.4	$	35.4