This document is printed using soy-based inks using FSC and Green
Seal™ certified paper that contains recycled post-consumer fiber.
Revenues were $424.1 million in 2014 compared to
$471.6 million in 2013. Our revenues decreased by
approximately $48 million or 10% for 2014 as compared
to 2013. The decrease in revenues is primarily
attributable to the completion of our Treasury Seized
Assets program in March 2014, resulting in a decrease
of $27 million; a decrease of $12 million from our U.S.
Army Reserve program; a decrease in our IT, Energy,
and Management Consulting Group of approximately
$14 million; and a decrease in our International Group
Foreign Military Sales (FMS) program of approximately
$9 million. These decreases were partially offset by
a revenue increase in our Supply Chain Management
Group of approximately $18 million.
Operating income was $36.9 million in 2014 compared
to $44.1 million in 2013. The decrease resulted
primarily from our revenue decline. These decreases
were partially offset by an increase in operating
income in our Supply Chain Management Group of
approximately $2.4 million or 9% as compared to the
prior year. We recorded charges related to our WBI
earn-out obligation that reduced our Supply Chain
Management Group operating income by approximately
$3.1 million in 2014. Additionally, we recorded expenses
of approximately $1.1 million related to the acquisition
of our aviation businesses. Net income was $19.4
million for 2014, or $3.61 per diluted share, compared
to $22.9 million, or $4.28 per diluted share for 2013.
Bookings were $391 million and revenue was
$424 million for 2014. Bookings were $501 million and
revenue was $472 million for 2013. Funded contract
backlog at December 31, 2014 was $195 million,
compared to $194 million at September 30, 2014 and
$236 million at December 31, 2013. The addition of our
acquired aviation businesses and growth of our Supply
Chain Management Group revenues are expected
to cause our federal government contract revenues
to represent a smaller percentage of our aggregate
revenues in the future. Consequently, bookings and
backlog may become less indicative of our future
revenues.
Operational and Contract Highlights in 2014
�
In December 2014 we signed a definitive
agreement to acquire four businesses from
Killick Aerospace Group, consisting of Prime
Turbines (including both U.S. and Germany-based
operations), CT Aerospace, Kansas Aviation
of Independence and Air Parts & Supply Co.
The companies specialize in parts supply and
maintenance, repair and overhaul (MRO) services
for corporate and regional aircraft engines and
engine accessories. The initial purchase price paid
2014 Highlights
at the closing was approximately $189 million
in cash. The purchase agreement also includes
potential post-closing payments of up to $40 million
if the companies surpass certain thresholds of
earnings before interest, taxes, depreciation and
amortization (“EBITDA”) during the first two years
after the closing and one additional post closing
payment of $5 million if such companies surpass a
certain EBITDA threshold during any 12-consecutive
month period in 2014 and 2015. The four
businesses have approximately 196 employees
and will operate under the recently established
subsidiary VSE Aviation, Inc.
� Revenues of our WBI subsidiary increased
�
approximately $18 million or 11% for 2014, as
compared to the prior year which was 8% higher
than the previous year. The increase was primarily
attributable to: an increase in WBI’s USPS Managed
Inventory Program (MIP) revenues; additional
revenues associated with other projects performed
for the USPS, including an award to deliver 10,000
engineered shelving kits for use in the USPS
Long Life Vehicles (LLVs); and revenues from new
commercial customers.
In December 2014 legislation was passed allowing
the transfer of certain decommissioned U.S. Naval
vessels to selected foreign nations, which we expect
to provide future FMS Program revenue increases.
The revenues associated with these transfers
will take time to ramp up, and we expect to begin
realizing these revenues in late 2015 and in 2016.
� Our International Group received several delivery
orders totaling more than $65 million in 2014 to
continue work under its Foreign Military Sales (FMS)
Naval Ship Transfer and Repair (N*STAR) contract
through the Naval Sea Systems Command (NAVSEA)
International Fleet Support Program.
� Our Akimeka, LLC subsidiary will continue providing
Systems Operation Support Services (SOSS) to the
Social Security Administration (SSA) under General
Services Administration (GSA) Schedule 70 as a
subcontractor under a contract awarded to Koniag
Technology Services, Inc. in 2014. This Firm Fixed
Price (FFP) contract has a one-year base period of
performance, plus five one-year options, and has an
estimated value of up to $48 million to Akimeka.
� Our Federal Group was awarded a Time and
Materials (T&M)/Firm Fixed Price (FFP) task order to
support base operations and logistics at Red River
Army Depot (RRAD) under the Field Installation
Readiness Support Team (FIRST) contract. This
task has a total contract value of $14.3 million,
and includes a one-year base period valued at $5.4
million and two one-year option periods.
3
INTEGRITY • AGILITY • VALUE Stockholder Inquiries
VSE is a publicly owned company and its shares are
traded on the NASDAQ Global Select Market under
the symbol VSEC. Inquiries about stock ownership,
dividends, and stockholder changes of address may
be directed to our Transfer Agent: Continental Stock
Transfer & Trust, 17 Battery Place, 8th Floor, New York,
NY 10004, or to VSE at 6348 Walker Lane, Alexandria,
VA 22310, Attention: Corporate Secretary, Telephone
(703) 329-4770.
Further information about VSE and its subsidiaries is
available at www.vsecorp.com, www.wheelerfleet.com,
www.akimeka.com, www.energetics.com,
www.ctaerospace.com, www.primeturbines.com,
www.kansasaviation.com, and www.apscomiami.com.
� Our Wheeler Bros., Inc. subsidiary was recognized
by the U.S. Postal Service as a winner of a 2013
Postal Service Supplier Performance Award. This
recognition marks the seventh Postal Service
Supplier Performance award for WBI.
Corporate Profile
We conduct our business operations in more than 100
locations world-wide. VSE’s offerings include:
� Fleet Sustainment Services
Supply Chain Management—We provide
sourcing, acquisition, scheduling, transportation,
shipping, logistics, data management, and other
services to assist our clients with supply chain
management solutions.
Maintenance Repair & Overhaul (MRO)
and Engineering—We provide MRO services
for vehicles, ships and aircraft, including
refurbishment, corrosion abatement, and fleet
sustainment services. We also provide reverse
engineering for parts, engineering and technical
support for equipment and vehicles, and ship
maintenance, overhaul and follow-on technical
support.
� IT, Energy and Management Consulting
IT Services—We provide complete enterprise
architecture, data mining, public protection/
security, and technical/software engineering for
systems, assessments and reviews in medical
logistics, e-health, information assurance and
product and process improvement. These
competencies are primarily performed by our
Akimeka, LLC subsidiary.
Technical and Management Consulting—
We provide professional competencies in
technology roadmaps and solutions, policy
impacts, analysis, cyber-security, infrastructure
protection and mitigation measurements. These
competencies are primarily performed by our
subsidiary, Energetics Incorporated.
4
2014 VSE Annual Report and Form 10-K Financial Highlights
Revenues
($M)
974.2
974.2
937.4
937.4
811
811
603.2
603.2
580.8
580.8
546.8
546.8
471.6
471.6
424.1
424.1
364
364
280.1
280.1
Net Income
($M)
19
19
14.1
14.1
7.8
7.8
6.2
6.2
24
24
23.7
23.7
22.9
22.9
21.3
21.3
20.6
20.6
19.4
19.4
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
Y E A R
Y E A R
Funded
Backlog ($M)
523
523
375
375
299
299
276
276
461
461
400
400
282
282
250
250
236
236
195
195
Number of
Employees
1223
1223
857
857
716
716
2897
2897
2534
2534
2516 2472
2516 2472
1920
1920
1872
1872
1589
1589
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
Y E A R
4.67
4.67
4.53
4.53
4.28
4.28
4.01
4.01
3.9
3.9
3.61
3.61
Earnings Per
Share
Diluted ($)
3.74
3.74
2.82
2.82
1.61
1.61
1.29
1.29
Y E A R
Stockholders’
Equity ($M)
205.5
205.5
186.8
186.8
164.3
164.3
143.6
143.6
123.8
123.8
101.3
101.3
76.1
76.1
56.4
56.4
38.2
38.2
30.2
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
Y E A R
Y E A R
5
INTEGRITY • AGILITY • VALUE Dividends
Per Share ($)
Stock Price,
End of Year ($)
0.39
0.39
0.35
0.35
0.31
0.31
0.27
0.27
0.23
0.23
0.195
0.195
0.175
0.175
0.155
0.155
0.135
0.135
0.115
0.115
48.84
48.84
45.08
45.08
39.23
39.23
33.02
33.02
24.28 24.51
24.28 24.51
21.05
21.05
16.95
16.95
65.90
65.90
48.01
48.01
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
‘12 ‘13 ‘14
Y E A R
Y E A R
Income Statement Data (in thousands, except share data)
Year Ended December 31
2014
% CHANGE
2013
Revenues
$
424,071
Net income
Earnings per share (diluted)
19,365
3.61
Weighted average shares (diluted)
5,371,200
-10.1%
-15.3%
-15.7%
$
471,638
22,852
4.28
5,343,267
Balance sheet data (in thousands, except percentages)
December 31
2014
% CHANGE
2013
Total assets
$
355,330
Working capital
Stockholders’ equity
Return on equity
34,871
205,489
10.4%
-6.6%
-26.9%
10%
$
380,529
47,691
186,803
13.9%
6
2014 VSE Annual Report and Form 10-K Message to Stockholders
Overview
We experienced a year of significant change
in 2014. As we continue to navigate the
challenging federal contracting environment,
we are executing our strategy to move into new
markets that will help us build a sustainable
future. We are calling this transition a “pivot”
because we are leaning heavily on our
traditional core competencies of platform and
system sustainment and bringing them to
adjacent markets. We have already had some
success in cross-selling our legacy offerings
to non-traditional markets, principally to
domestic commercial entities. The proactive
steps we have taken in recent years to diversify
our offerings and markets in response to the
changing priorities of our traditional customer
base have positioned us well for future success.
On Dec. 31, 2014 we signed a definitive
agreement to acquire four businesses from
Killick Aerospace Group, consisting of Prime
Turbines (including both U.S. and Germany-
based operations), CT Aerospace, Kansas
Aviation and Air Parts & Supply Co (APSCO).
These companies serve the business aviation
and regional airline markets, specializing in
jet engine and engine accessory parts supply
and maintenance, repair and overhaul (MRO)
services. These businesses will operate under a
newly formed subsidiary called VSE Aviation, Inc.
We closed the transaction on January 28, 2015.
This aviation acquisition is a logical step in our
pivot into commercial supply chain management
and MRO markets. Similar to the success of
our acquisition of Wheeler Bros., Inc. in 2011,
which gave us significant penetration into
the vehicle fleet supply chain management
market, we believe the aircraft parts supply and
MRO market is a profitable industry with good
growth potential. Since October 2008, we have
managed the Contract Field Teams program
for the U.S. Air Force for aircraft and airframe
components maintenance, repair and rebuild.
Building on our Sustainment (MRO plus Supply
Chain) experience, we had been looking for
potential acquisitions that were in line with our
legacy competencies and diversification strategy.
Continuing challenges in our federal contracting
markets have led us to adjust our operating
model. As we move forward into 2015, we
believe that combining our Federal and
International Groups into our newly designated
Federal Services Group will improve our
competitiveness in these markets.
Board Membership
We are pleased to welcome Admiral John C.
Harvey to our Board of Directors, who joined
the Board effective July 31, 2014. Admiral
Harvey retired from the U.S. Navy in October
2012, after serving as the Commander of the
U.S. Fleet Forces Command. Admiral Harvey
was responsible for improving the operational
readiness of deployed naval forces, increasing
performance standards in all aspects of Fleet
operations and maintenance, and strengthening
the Navy’s operational partnership with U.S.
Marine Corps forces. In his thirty-nine year
naval career, Admiral Harvey specialized in
naval nuclear propulsion, surface ship and
carrier strike group operations and navy-wide
manpower management and personnel policy
development. Since 2013, Admiral Harvey
has served as Virginia’s Secretary of Veterans
Affairs and Homeland Security and as the
Commonwealth’s Secretary for Veterans and
Defense Affairs. Admiral Harvey’s expertise,
experience and background provide a broad
perspective to our Board as we align and
execute our company’s diversification strategy.
We would also like to take this time to express
our sincere appreciation and gratitude to long-
time board member David Osnos. Mr. Osnos
will retire on May 5, 2015, concluding a 47-year
term on the VSE Board of Directors. Mr. Osnos
7
INTEGRITY • AGILITY • VALUE has been an integral part of VSE’s success and
growth over the years. We wish him the best in
the years to come and sincerely thank him for
his exceptional leadership and dedication to the
long standing success of VSE Corporation.
Looking Ahead
VSE has remained a successful organization for
56 years because of our ability to adjust and
adapt as the market dictates. Throughout this
period, our core principles of Integrity, Agility
and Value have served us well. The past several
years have been challenging, and our agility
continues to position us well for the future.
Like the WBI acquisition, we view our aviation
acquisition as a transformational move that will
help redefine our company. While we continue to
maintain a diverse portfolio of service offerings,
we are primarily a sustainment company - the
combination of Supply Chain Management
and Maintenance, Repair and Overhaul. Our
diversification strategy and focus on sustainment
has set the foundation for our future.
Maurice A Gauthier
CEO/President/COO
March 2015
Clifford M. Kendall
Chairman of the Board
March 2015
8
2014 VSE Annual Report and Form 10-K Clifford M. Kendall
Chairman of the Board
VSE Corporation
Maurice A. “Mo” Gauthier
CEO/President/COO
VSE Corporation
Ralph E. Eberhart
General, USAF (Ret.)
President, Armed Forces Benefit Association
Chairman and Director of
5Star Bank/Life/Funds/Investments
John C. Harvey, Jr.
Admiral, USN (Ret.)
Secretary of Veterans and Defense Affairs,
State of Virginia, Former Commander, U.S. Fleet
Forces Command
Calvin S. Koonce, Ph.D.
Chairman, Koonce Securities, Inc.
Securities Broker/Dealer
Board of Directors
James F. Lafond, CPA
Retired Executive; formerly
Washington Area Managing Partner,
PricewaterhouseCoopers LLP
David M. Osnos, Esq.
Of Counsel
Arent Fox LLP
Attorneys-at-Law
John E. “Jack” Potter
President/CEO, Metropolitan Washington Airports
Authority, Former Postmaster General
Jack C. Stultz, Jr.
Lieutenant General, USAR (Ret.)
Operations Manager, Procter & Gamble Company (Ret.)
Bonnie K. Wachtel
Vice President and General Counsel,
Wachtel & Co., Inc.
VSE Board of Directors (left to right): Gen. Ralph Eberhart, Calvin Koonce, Jack Potter, Jim Lafond, Mo Gauthier
(CEO), Cliff Kendall (Chairman), Bonnie Wachtel, David Osnos, Lt. Gen. Jack Stultz, and Adm. John C. Harvey.
9
INTEGRITY • AGILITY • VALUE About VSE
VSE Corporation was established in 1959 with a mission to provide engineering and technical support services to reduce the
cost and improve the reliability of DoD systems and equipment. Originally incorporated as Value Engineering Company, VSE
has evolved to serve our customer’s asset, systems improvement, and sustainment needs. VSE conducts business operations
through the parent company and its wholly-owned subsidiaries, including Wheeler Bros., Inc., VSE Aviation, Inc. (which includes
Prime Turbines, CT Aerospace, Kansas Aviation and Air Parts & Supply Co.), Akimeka LLC and Energetics Incorporated.
Today, VSE is a broadly diversified company focused on creating, sustaining, and improving the systems, equipment, and
processes of our customers through core competencies in fleet sustainment, supply chain management, maintenance, repair and
overhaul (MRO), legacy systems sustainment, obsolescence management, prototyping, reverse engineering, technology insertion,
foreign military sales, management consulting, information technology and process improvement.
VSE’s strength lies in the talented professionals who support our customers in maintaining and modernizing products,
equipment, and systems. Our nationwide network of local offices provides access to a spectrum of corporate resources and
services in diversified engineering, logistics, management, and information technology disciplines. We combine their individual
skills, experience, and motivation with corporate resources, technology, teamwork, and the management principles of integrity,
honesty, and self-governance to deliver high quality, cost-effective solutions to a global customer base.
VSE is a publicly traded (NASDAQ: VSEC), ISO 9001:2008-registered supply chain management and professional services
company. VSE’s subsidiary, Wheeler Bros., Inc. received its seventh U.S. Postal Service Supplier Performance Award for 2013.
VSE has been ranked among the top 100 defense contractors, top 10 foreign military sales contractors, and top 50 Navy
contractors in the nation.
NASDAQ: VSEC
ISO 9001:2008
Celebrating
56
Years
of Excellence
10
Corporate Supporter: Yellow Ribbon Fund
2014 VSE Annual Report and Form 10-K VSE Corporation Headquarters
Miami, Florida*
6348 Walker Lane
Alexandria, VA 22310
(703) 960-4600 or
Toll-free: (800) 455-4873
Orlando, Florida
Albany, Georgia
College Park, Georgia
Carrollton, Texas*
Anderson AFB, Guam
El Paso, Texas
Locations
Sparta, New Jersey
Butler, Pennsylvania*
Somerset, Pennsylvania
Other United States Locations
North Little Rock, Arkansas
Honolulu, Hawaii
Maui, Hawaii
Fort Sam Houston, Texas
Houston, Texas
Texarkana, Arkansas
Wynne, Arkansas*
Mesa, Arizona
Barstow, California
Camp Pendleton, California
China Lake, California
Chula Vista, California
Fort Hunter Liggett, California
Miramar, California
Twentynine Palms, California
Fort Collins, Colorado
Lakewood, Colorado
Washington, D.C.
Independence, Kansas*
San Antonio, Texas
Baton Rouge, Louisiana
Texarkana, Texas
Hyannis, Massachusetts*
Ogden, Utah
Baltimore, Maryland
Bethesda, Maryland
Columbia, Maryland
Chesapeake, Virginia
Falls Church, Virginia
Fort Belvoir, Virginia
Indian Head, Maryland
Ladysmith, Virginia
Fort Detrick, Maryland
Reston, Virginia
Sterling Heights, Michigan
Rosslyn, Virginia
Long Beach, Mississippi
Vienna, Virginia
Fort Bragg, North Carolina
Fort Lewis, Washington
Durham, North Carolina
Tacoma, Washington
Jacksonville, North Carolina
Fort McCoy, Wisconsin
* Locations for VSE Aviation, Inc.,
acquired January 28, 2015
VSE Aviation, Inc. facility in Carrollton, Texas
11
INTEGRITY • AGILITY • VALUE This page intentionally left blank
12
2014 VSE Annual Report and Form 10-K UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014 Commission File Number: 0-3676
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
54-0649263
(I.R.S. Employer
Identification No.)
6348 Walker Lane
Alexandria, Virginia
(Address of Principal Executive Offices)
22310
(Zip Code)
www.vsecorp.com
(Webpage)
Registrant's Telephone Number, Including Area Code: (703) 960-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.05 per share
Name of each exchange on which registered
The NASDAQ Global Select Market
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 [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [x]
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 [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [x] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The aggregate market value of outstanding voting stock held by nonaffiliates of the Registrant as of June 30, 2014, was
approximately $290 million based on the last reported sales price of the registrant’s common stock on The NASDAQ Global
Select Market as of that date.
Number of shares of Common Stock outstanding as of March 1, 2015: 5,367,261.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of Stockholders expected to be held on May 5,
2015, are incorporated herein by reference into Part III of this report.
2
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of Registrant
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About
Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and
Director Independence
Principal Accountant Fees and Services
PART I
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
ITEM 4(a)
PART II
ITEM 5
ITEM 6
ITEM 7
ITEM 7A
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
ITEM 15
Exhibits and Financial Statement Schedules
Signatures
Exhibits
3
Page
5
8
11
11
12
12
13
14
17
18
31
32
56
56
58
58
58
58
58
58
58
59
61-70
Forward Looking Statements
This Annual Report on Form 10-K (“Form 10-K”) contains statements that, to the extent they are not recitations of
historical fact, constitute "forward looking statements" under federal securities laws. All such statements are
intended to be subject to the safe harbor protection provided by applicable securities laws. For discussions
identifying some important factors that could cause actual VSE Corporation (“VSE,” the “Company,” “us,” “our,” or
“we”) results to differ materially from those anticipated in the forward looking statements contained in this filing,
see VSE's “Narrative Description of Business” (Items 1, 1A, 2 and 3), and “Management’s Discussion and
Analysis.” Readers are cautioned not to place undue reliance on these forward looking statements, which reflect
management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these
forward looking statements to reflect events or circumstances that arise after the date hereof. Readers should also
carefully review the risk factors described in other documents the Company files from time to time with the
Securities and Exchange Commission, including Quarterly Reports on Form 10-Q filed by the Company subsequent
to this Form 10-K and any Current Reports on Form 8-K filed by the Company.
4
ITEM 1. Business
(a) General Background
VSE was incorporated in Delaware in 1959 and serves as a centralized managing and consolidating entity
for our business operations. Our business operations are managed under groups consisting of one or more divisions
or wholly owned subsidiaries that perform our services. VSE’s operating groups include our Supply Chain
Management Group, International Group, Federal Group, and IT, Energy and Management Consulting Group. The
term "VSE" or "Company" means VSE and its subsidiaries and divisions unless the context indicates operations of
only VSE as the parent company.
Our business operations consist of vehicle fleet and equipment sustainment services, including supply chain
management services, and diversified technical services, including logistics, engineering, IT solutions, health care
IT, and consulting services. Our services are performed for the United States Government (the "government"),
including the United States Department of Defense (“DoD”) and federal civilian agencies, the United States Postal
Service (“USPS”), commercial customers, and other clients.
We seek to provide our customers with competitive, cost-effective solutions to specific problems. These
problems generally require a detailed technical knowledge of vehicles, equipment, materials, processes, functional
characteristics, information systems, technology and products and an in-depth understanding of the basic
requirements for effective systems and business operations.
(b) Financial Information
Our operations are conducted within four reportable segments aligned with our management groups: (1)
Supply Chain, which generated approximately 41% of our revenues in 2014; (2) International, which generated
approximately 25% of our revenues in 2014; (3) Federal, which generated approximately 20% of our revenues in
2014; and (4) IT, Energy and Management Consulting, which generated approximately 14% of our revenues in
2014. Additional financial information for our reportable segments appears in “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and in “Item 8. Financial Statements and
Supplementary Data” of this Form 10-K.
(c) Description of Business
Services and Products
We use a broad array of capabilities and resources to support military, federal civilian, and other
government and non-government vehicle fleets, systems, equipment and processes. We are focused on creating,
sustaining and improving the vehicle fleets, systems, equipment and processes of our clients through core offerings
in supply chain management, equipment refurbishment, logistics, engineering, IT solutions, health care IT, and
consulting services.
Typical service offerings include supply chain and inventory management services; vehicle fleet
sustainment programs; vehicle fleet parts; engineering support for military vehicles and combat trailers; military
equipment refurbishment and modification; ship maintenance, overhaul, and follow-on technical support; logistics
management support; machinery condition analysis; specification preparation for ship alterations; ship’s force crew
training; life cycle support for ships; ship communication systems; energy conservation, energy efficiency,
sustainable energy supply, and electric power grid modernization projects; technology road-mapping; IT enterprise
architecture development, information assurance/business continuity, security risk management, and network
services; medical logistics; and medical command and control. See Item 7 “Management’s Discussion and Analysis
of Financial Information and Results of Operations” for more information regarding our business.
5
Revenues and Contracts
Our revenues are derived from contract services performed for DoD agencies or federal civilian agencies
and from the delivery of products to our clients. The USPS, U.S. Army and Army Reserve, and U.S. Navy are our
largest customers. Our customers also include various other government agencies and commercial entities.
Customer
U.S. Army/Army Reserve
U.S. Navy
U.S. Air Force
Total - DoD
U.S. Postal Service
Department of Energy
Department of Treasury
Department of Interior
Other government
Total – Federal civilian agencies
Commercial
Total
Revenues by Customer
(dollars in thousands)
Years ended December 31,
%
24.0
20.7
0.8
45.5
2014
$101,714
88,007
3,323
193,044
2013
$101,736
123,307
3,625
228,668
167,268
19,000
10,897
1,431
28,751
227,347
3,680
39.4
4.5
2.6
0.3
6.8
53.6
0.9
142,203
20,124
35,929
1,545
40,919
240,720
2,250
%
21.6
26.1
0.8
48.5
30.1
4.3
7.6
0.3
8.7
51.0
0.5
2012
$182,412
120,867
6,963
310,242
130,866
20,898
33,369
16,884
32,231
234,248
2,265
%
33.4
22.1
1.3
56.8
23.9
3.8
6.1
3.1
5.9
42.8
0.4
$424,071
100.0
$471,638
100.0
$546,755
100.0
Depending on solicitation requirements and other factors, we offer our products and professional and
technical services through various ordering agreements, negotiated and competitive contract arrangements, and
business units that are responsive to customer requirements. Some of the contracts permit the contracting agency to
issue delivery orders or task orders in an expeditious manner to satisfy relatively short-term requirements for
engineering and technical services.
Our Supply Chain Management Group revenues result from the sale of vehicle parts to the USPS and other
clients. We recognize revenue from the sale of vehicle parts when the customer takes ownership of the parts.
Our International, Federal, and IT, Energy and Management Consulting Group revenues result primarily
from cost plus fee, time and materials, or fixed-price contracts with the government. Revenues result from work
performed on these contracts by our own employees, from work performed by our subcontractors, and from costs of
materials used in performing the work. Revenues on cost-type contracts are recorded as allowable costs are incurred
and fees are earned.
Revenues for time and materials contracts are recorded on the basis of allowable labor hours worked
multiplied by the contract defined billing rates, plus the cost of materials used in performance on the contract.
Profits or losses on time and material contracts result from the difference between the cost of services performed and
the contract defined billing rates for these services.
Revenue recognition methods on fixed-price contracts vary depending on the nature of the work and the
contract terms. Revenues on fixed-price service contracts are recorded as work is performed, typically ratably over
the service period. Revenues on fixed-price contracts that require delivery of specific items are recorded based on a
price per unit as units are delivered.
Backlog
Funded backlog represents a measure of potential future revenues from our government contracts. Funded
backlog is defined by us as the total value of contracts that has been appropriated and funded by the procuring
agencies, less the amount of revenues that have already been recognized on such contracts. Our reported backlog is
comprised of funding received by us in incremental amounts intended to fund work that is generally expected to be
completed within six to 12 months following the award of the funding. Accordingly, substantially our entire
reported backlog is reasonably expected to be filled within this time. Our funded backlog as of December 31, 2014,
6
was approximately $195 million. Funded backlog as of December 31, 2013 and 2012 was approximately $236
million and $250 million, respectively. Changes in funded backlog on contracts are sometimes unpredictable due to
uncertainties associated with changing government program priorities and availability of funds, which is heavily
dependent upon the congressional authorization and appropriation process. Delays in this process, such as those
experienced in recent years, may temporarily diminish the availability of funds for ongoing and planned work.
In addition to the funded backlog levels, we have contract ceiling amounts available for use on multiple
award, indefinite delivery, indefinite quantity contracts with DoD and federal civilian agencies. While these
contracts increase the opportunities available for us to pursue future work, the actual amount of future work is
indeterminate until delivery orders are placed on the contracts. Frequently, these delivery orders are competitively
awarded. Additionally, these delivery orders must be funded by the procuring agencies before we can perform work
and begin generating revenues.
Marketing
Our marketing activities are conducted at the operating group level by our business development and
marketing staff and our professional staff of engineers, program managers, and other personnel. Information
concerning new programs, requirements and opportunities becomes available in the course of contract performance,
through sales calls and client servicing, through negotiation with key business partners, through formal and informal
briefings, from participation in professional organizations, and from literature published by the government, trade
associations, professional organizations and commercial entities.
Personnel
Services are provided by our professional and technical personnel having high levels of education,
experience, training and skills. As of December 31, 2014, we had 1,589 employees, a decrease from 1,872 as of
December 31, 2013. Principal employee categories include (a) mechanics and vehicle and equipment technicians,
(b) information technology professionals in computer systems, applications and products, configuration, change and
data management disciplines, (c) engineers and technicians in mechanical, electronic, industrial, energy and
environmental services, (d) logisticians, (e) environmental specialists, and (f) warehouse and sales personnel. The
expertise required by our customers frequently includes knowledge of government administrative procedures.
Approximately one-third of our employees have previously served as members in the U.S. Armed Forces.
Competition
The professional and technical services industry in which we are engaged is very competitive. Numerous
other organizations, including large, diversified firms, have greater financial resources and larger technical staffs
that are capable of providing the same services offered by us.
Government agencies emphasize awarding contracts on a competitive basis as opposed to a sole source or
other noncompetitive basis. Most of the significant contracts under which we currently perform were either initially
awarded on a competitive basis or have been renewed at least once on a competitive basis. Government agencies
also order services through contracts awarded by the General Services Administration (“GSA”). GSA provides a
schedule of services at fixed prices that may be ordered outside of the solicitation process. We have seven GSA
schedule contracts for different classes of services. There is no assurance regarding the level of work we may obtain
under these contracts. Government budgets, and in particular the budgets of certain government agencies, can also
affect competition in our business. A general decline in government budgets, or a reallocation of government
spending priorities that results in lower levels of potential business in the markets we serve or the services we offer,
will cause increased competition. Further, contract awards frequently are protested to the Government Accounting
Office (“GAO”).
The extent and range of competition that we will encounter as a result of changing economic or competitive
conditions, customer requirements or technological developments is unpredictable. We believe the principal
competitive factors for our business are technical and financial qualifications, past performance, government
budgetary stress, and price.
7
Available Information
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to those reports are filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. They are available free of charge through our website www.vsecorp.com as
soon as reasonably practicable after the reports are electronically filed with the Securities and Exchange
Commission (“SEC”).
ITEM 1A. Risk Factors
Our future results may differ materially from past results and from those projected in the forward-looking
statements contained in this Form 10-K due to various uncertainties and risks, including but not limited to those
risks set forth below, non-recurring events and other important factors disclosed previously and from time to time in
our other reports filed with the SEC.
Uncertain government budgets and shifting government priorities could delay contract awards and funding
and adversely affect our ability to continue work under our government contracts. Additionally, federal
procurement directives could result in our loss of work on current programs to set-asides and large multiple
award contracts.
Our government business is subject to funding delays, terminations, reductions, extensions, and
moratoriums caused by the government’s budgeting and contracting process. The federal procurement environment
is unpredictable and could adversely affect our ability to perform work under new and existing contracts. Contract
award and funding delays extend across the federal technical services industry. We experienced delays in contract
awards and funding on our contracts in recent years that have adversely affected our ability to continue existing
work and to replace expiring work. Additionally, our government business is subject to the risk that one or more of
our potential contracts or contract extensions may be awarded by the contracting agency to a small or disadvantaged
or minority-owned business pursuant to set-aside programs administered by the Small Business Administration, or
may be bundled into large multiple award contracts for very large businesses. These risks can potentially have an
adverse effect on our revenue growth and profit margins.
Increased market competition resulting from decreases in government spending for contract services and
government contracting award criteria could adversely affect our ability to sustain our revenue levels.
Continuing pressure on government budgets may adversely affect the flow of work to federal contractors,
particularly new programs. Consequently, competitor contractors that experience a loss of government work have
tended to redirect their marketing efforts toward the types of work that we perform. This increase in competition for
our service offerings has adversely affected our ability to win new work or successor contracts to continue work that is
currently performed by us under expiring contracts. Disappointed bidders frequently protest contract awards, which can
delay or reverse the contract awards. Additionally, the government has trended toward contract award criteria that
emphasizes lowest price, technically acceptable bids, which further intensifies competition in our government markets.
Our business could be adversely affected by incidents that could cause an interruption in our operations or
impose a significant financial liability on us.
Disruption of our operations due to internal or external system or service failures, accidents or incidents
involving employees or third parties working in high-risk locations, or natural disasters or other crises could adversely
affect our financial performance and condition. Our Managed Inventory Program (“MIP”) that supplies truck
replacement parts for the United States Postal Service (“USPS”) fleet, our Foreign Military Sales ("FMS") Program for
the U.S. Navy, and our vehicle and equipment refurbishment work for the U.S. Army Reserve are our three largest
revenue generators, accounting for 38%, 20%, and 11% of our 2014 revenues, respectively. A fire, flood, earthquake,
or other natural disaster at physical facilities that support these operations, or a procurement system or contractual delay
such as we experienced on our U.S. Army Reserve contract in 2013, could potentially interrupt the revenues from our
operations.
8
Certain programs comprise a material portion of our revenue.
Our USPS MIP, FMS Program, and U.S. Army Reserve vehicle and equipment refurbishment work
constitute a material portion of our revenues. This concentration of our revenue in a few key programs subjects us to
risk of material adverse revenue disruptions if USPS operational decisions, government contractual, or other issues
prevent or delay the fulfillment of work requirements associated with these key programs. In recent years, our
financial results have been adversely affected by revenue declines for our (a) FMS Program due to the government’s
inability to pass ship transfer legislation and (b) U.S. Army Reserve vehicle and equipment refurbishment work due
to government procurement decisions.
The nature of our operations and work performed by our employees present certain challenges related to
work force management.
Our financial performance is heavily dependent on the abilities of our operating and administrative staff
with respect to technical skills, operating performance, pricing, cost management, safety, and administrative and
compliance efforts. A wide diversity of contract types, nature of work, work locations, and legal and regulatory
complexities challenges our administrative staff and skill sets. We also face challenges associated with our quality of
workforce, quality of work, safety, and labor relations compliance. Our current and projected work in foreign
countries exposes us to challenges associated with export and ethics compliance, local laws and customs, workforce
issues, extended supply chain, political unrest and war zone threats. Failure to attract or retain an adequately skilled
workforce, lack of knowledge or training in critical functions, or inadequate staffing levels can result in lost work,
reduced profit margins, losses from cost overruns, performance deficiencies, workplace accidents, and regulatory
noncompliance.
Our work on large government programs presents a risk to revenue and profit growth and sustainability.
The eventual expiration of large government programs or the loss of or disruption of revenues on a single
contract may reduce our revenues and profits. Such revenue losses could also erode profits on our remaining
programs that would have to absorb a larger portion of the fixed corporate costs previously allocated to the expiring
programs or discontinued contract work. Our Supply Chain Management Group managed inventory program for
USPS, International Group FMS Program, and Federal Group equipment refurbishment program for the U.S. Army
Reserve provide significant amounts of revenues and profits, which if interrupted, could adversely impact our
overall financial performance.
Acquisitions, which have been a part of our business strategy in recent years, present certain risks.
The decision to acquire a business that subsequently does not meet expected operating and financial
performance targets, the failure to make or timely complete an acquisition, the ineffective integration of an acquisition,
or the inability of our company to service debt associated with making an acquisition could adversely affect our
financial performance.
Global economic conditions and political factors could adversely affect our revenues on current government
programs.
Revenues from our government programs for which work is performed in foreign countries are subject to
economic conditions in these countries and to political risks posed by ongoing foreign conflicts and potential terrorist
activity. A significant amount of our revenues in past years resulted from the U.S. military involvement in Iraq and
Afghanistan, and the winding down of this U.S. military involvement has adversely affected our revenues. Also,
services performed by our employees on our FMS Program are, to a certain extent, dependent on our placement of
employees in a client country. Due to significant domestic and political unrest in Egypt, we have been unable to
maintain a consistent level of staffing in that country, resulting in a fluctuating level of services performed by our
employees for our Egyptian Navy client. We cannot predict how the Egyptian political situation will unfold or the long
range affect it will have on our Egyptian Navy support program. Our Egyptian Navy support services generated
revenue of approximately $33 million for 2014 and approximately $48 million for 2013. Global economic and political
risks could have an adverse effect on our future revenue levels.
9
As a government contractor, we are subject to numerous of procurement rules and regulations that could
expose us to potential liabilities or work loss. Additionally, we are exposed to contractual and financial
liabilities if our subcontractors do not perform satisfactorily.
We must comply with and are affected by laws and regulations relating to the award, administration and
performance of government contracts. Additionally, we are responsible for subcontractor compliance with these
laws and regulations. Government contract laws and regulations affect how we conduct business with our customers
and, in some instances, impose added costs to us. A violation of laws or regulations could result in the imposition of
fines and penalties or the termination of contracts or debarment from working or bidding on government contracts.
In some instances, these government contract laws and regulations impose terms or rights that are
significantly more favorable to the government than those typically available to commercial parties in negotiated
transactions. For example, the government may terminate any government contract or subcontract at its
convenience, as well as for performance default.
A termination for default could expose us to liability and have a material adverse effect on our ability to
compete for future contracts and orders. A termination for default could also impact our past performance and
ability to win new work. In addition, the government could terminate a prime contract under which we are a
subcontractor, irrespective of the quality of services provided by us as a subcontractor.
Additionally, some of our contract work is performed by subcontractors, and such work is subject to
government compliance, performance and financial risks. If unsatisfactory performance or compliance failure occurs
on the part of subcontractors, we must bear the cost to remedy these deficiencies on our prime contracts.
Due to the nature of our work we could potentially be exposed to legal actions arising from our operations.
Our work includes many manual tasks, including warehousing, shipping and packing of truck parts
inventory, maintaining and repairing military and non-military vehicles and equipment, and maintaining and
overhauling U.S. Navy ships. Some of our work efforts involve the handling of hazardous materials. This may pose
certain challenges that could cause us to be exposed to legal and other liabilities arising from performance issues,
work related incidents, or employee misconduct that result in damages, injury or death to third parties (see “Item 3.
Legal Proceedings”). Such events could cause us to suffer financial losses and adversely affect our financial
condition.
Technology security risks could potentially impact our financial results.
Some of our contract work includes data management and technology services associated with Social
Security Administration and military medical and health records. This exposes us to certain information and
technology security risks. If there was a security breach of sensitive data in our custody or for which we provide
services, we could possibly be held liable for damages to third parties related to such security breach and incur costs
to prevent future incidents. Costs associated with preventing or remediating information management security
breaches have not had a material adverse effect on our capital expenditures, earnings, or competitive position.
However, the occurrence of a future security breach event could potentially have such an adverse effect.
Environmental and pollution risks could potentially impact our financial results.
Some of our contract work includes the use of chemical solvents and the handling of hazardous materials to
maintain and refurbish vehicles and equipment. This exposes us to certain environmental and pollution risks. Costs
associated with preventing or remediating pollution clean-up efforts and environmental regulatory compliance have
not yet had a material adverse effect on our capital expenditures, earnings, or competitive position. However, the
occurrence of a future environmental or pollution event could have such an adverse effect.
Investments in facilities could cause losses if certain work is disrupted or discontinued.
We have made investments in facilities and lease commitments to support specific business programs, work
requirements, and service offerings. A slowing or disruption of these business programs, work requirements, or
10
service offerings that results in operating below intended levels could cause us to suffer financial losses. We
incurred charges against operating income of approximately $1.2 million in 2013 and $1.9 million in 2012
associated with the lease of warehouse facilities for our Seized Asset programs.
Our business could be adversely affected by government audits.
Government agencies, including the Defense Contract Audit Agency and the Department of Labor,
routinely audit and investigate government contractors. These agencies review a contractor’s performance under its
contracts, cost structure and compliance with applicable laws, regulations and standards. The government also may
review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the
contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found
to be improperly allocated to a specific contract will not be reimbursed and any such costs already reimbursed must
be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and
suspension or prohibition from doing business with the government. In addition, we could suffer serious harm to our
reputation if allegations of impropriety were made.
New accounting standards could result in changes to our methods of quantifying and recording accounting
transactions, and could affect our financial results and financial position.
Changes to generally accepted accounting principles in the United States (“GAAP”) arise from new and
revised guidance issued by the Financial Accounting Standards Board, the SEC, and others. The effects of such
changes may include prescribing an accounting method where none had been previously specified, prescribing a
single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the
acceptability of a current method and replacing it with an entirely different method, among others. These changes
could result in unanticipated effects on results of operations, financial position and other financial measures.
ITEM 1B. Unresolved Staff Comments
None
ITEM 2. Properties
Our executive and administrative headquarters are located in a five-story building in Alexandria, Virginia,
with approximately 95,000 square feet of office space leased by us through April 2027.
We own facilities located in an industrial park in Somerset, Pennsylvania that we use to conduct the
operations of our subsidiary Wheeler Bros., Inc. These properties consist of approximately 30 acres of land and
buildings totaling approximately 212,000 square feet of office, engineering, and warehouse space.
We own and operate two facilities in Ladysmith, Virginia. One of these properties consists of
approximately 44 acres of land and multiple storage and vehicle maintenance buildings totaling approximately
56,000 square feet of space. The other property consists of 30 acres of land and buildings totaling approximately
13,500 square feet of space. We also own and operate a facility in Texarkana, Arkansas consisting of approximately
10 acres of land and buildings totaling approximately 79,000 square feet. We use these three properties primarily to
provide refurbishment services for military equipment, storage and maintenance.
We also provide services and products from facilities generally occupied under short-term leases primarily
located near customer sites to facilitate communications and enhance program performance. As of December 31,
2014, we leased approximately 27 such facilities with a total of approximately 884,000 square feet of office and
warehouse space. Our employees often provide services at customer facilities, limiting our requirement for
additional space. We also provide services from locations outside of the United States, generally at foreign shipyards
or U.S. military installations.
11
ITEM 3. Legal Proceedings
We may have, in the normal course of business, certain claims, including legal proceedings, against us and
against other parties. In our opinion, the resolution of these claims will not have a material adverse effect on our
results of operations or financial position. However, the results of any claims, including legal proceedings, cannot be
predicted with certainty.
On or about May 24, 2012, four complaints were filed in the Circuit Court of the First Circuit, State of
Hawaii, by the estates of five deceased individuals and certain of their relatives against VSE and certain other
entities and individuals. The complaints allege, among other things, that the explosion of fireworks and diesel fuel
that injured and killed the five individuals on or about April 8, 2011 was caused by negligence, actions and
omissions of VSE and the other defendants and their employees, agents and representatives. The five deceased
plaintiffs were employees of Donaldson Enterprises, Inc., which was a vendor retained by VSE to warehouse, store
and dispose of fireworks and other explosives seized by the federal government from entities and persons illegally in
possession of the fireworks and other explosives. We had a prime contract with the U.S. Department of Treasury
(“Treasury”) to support the Treasury Executive Office for Asset Forfeiture to manage various seized assets,
including management and disposal of fireworks and other explosives seized by various federal government
agencies.
We have denied the allegations and, together with our insurance carriers, will aggressively defend the
proceedings, which are expected to proceed to trial in 2016. While the results of legal proceedings cannot be
predicted with certainty, we do not anticipate that this lawsuit will have a material adverse effect on our results of
operations or financial condition.
On or about March 8, 2013, a lawsuit, Anchorage v. Integrated Concepts and Research Corporation, et al.,
was filed in the Superior Court for the State of Alaska at Anchorage by the Municipality of Anchorage, Alaska
against our wholly owned subsidiary Integrated Concepts and Research Corporation (“ICRC”) and two former
subcontractors of ICRC. Two additional defendants have been added to this litigation. With respect to ICRC, the
lawsuit asserts, among other things, breach of contract, professional negligence and negligence in respect of work
and services ICRC performed under the Port of Anchorage Intermodal Expansion Contract with the Maritime
Administration, a federal agency with the United States Department of Transportation. On or about April 10, 2013,
ICRC removed the case to the United States District Court for the District of Alaska. This litigation is expected to
proceed to trial in 2016. Currently we cannot predict whether the lawsuit will have a material adverse effect on our
results of operations or financial condition.
Further, from time-to-time, government agencies investigate whether our operations are being conducted in
accordance with applicable contractual and regulatory requirements. Government investigations of us, whether
relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal
liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment
from future government contracting. Government investigations often take years to complete and many result in no
adverse action against us. We believe, based upon current information, that the outcome of any such government
disputes and investigations will not have a material adverse effect on our results of operations or financial position.
ITEM 4. Mine Safety Disclosures
Not applicable.
12
ITEM 4(a). Executive Officers of Registrant
Our executive officers are listed below, as well as information concerning their age and positions held with
VSE. There is no family relationships among any of our executive officers. For executive officers who have been
with us fewer than five years, their principal occupations and business experience during the last five years are
provided. The executive officers are appointed annually to serve until the first meeting of VSE’s Board of Directors
(the “Board”) following the next annual meeting of stockholders and until their successors are elected and have
qualified, or until death, resignation or removal, whichever is sooner.
Name
Age Position with Registrant
Maurice A. Gauthier
67 Director, Chief Executive Officer, President and Chief Operating Officer
John T. Harris
63
President, VSE’s subsidiary Akimeka, LLC
Thomas M. Kiernan
47 Vice President, General Counsel and Secretary
Thomas R. Loftus
59 Executive Vice President and Chief Financial Officer
Nancy Margolis
59
President, VSE’s subsidiary Energetics Incorporated
Chad Wheeler
40
President VSE’s subsidiary Wheeler Bros., Inc.
Mr. Harris was appointed President and Chief Operating Officer of Akimeka, LLC in August 2010
immediately following VSE’s acquisition of the company. Mr. Harris joined Akimeka LLC in 2001 as Chief
Operating Officer. Prior to that, he was president of JJA Enterprises, an independent consulting firm specializing in
acquisition, business and financial management, and business development services. Mr. Harris has a Bachelor of
Science degree from Middle Tennessee State University and a Master of Science degree in Healthcare
Administration from Southwest Texas State University. He also has a Masters equivalent in International Affairs
from the Armed Forces Staff College in Norfolk, Virginia.
Mr. Wheeler was appointed President and Chief Operating Officer of Wheeler Bros., Inc. (“WBI”), in July
2013. He is involved in the executive management of day-to-day operations, government contract administration,
new business development, supply chain initiatives and facilities management. He serves as a member of the
operational board for WBI, and has played an active role at WBI since 1991. Previously, Mr. Wheeler assumed various
roles at WBI, including Senior Vice President of Operations, Senior Vice President of Sales and Marketing, and Marketing
and Sales Manager. While serving as Marketing and Sales Manager, Mr. Wheeler coordinated implementation of WBI’s
Managed Inventory Program which is used at the USPS’ Vehicle Maintenance Facilities throughout the country. Mr.
Wheeler graduated summa cum laude from Indiana University of Pennsylvania in 1998 with a degree in Marketing.
13
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
(a)
Market Information
VSE common stock, par value $0.05 per share, is traded on The NASDAQ Global Select Market, trading
symbol, "VSEC," Newspaper listing, "VSE."
The following table sets forth the range of high and low sales price (based on information reported by The
NASDAQ Global Select Market) and cash dividend per share information for our common stock for each quarter
and annually during the last two years.
Quarter Ended
High
Low
Dividends
2013:
March 31
June 30
September 30
December 31
For the Year
2014:
March 31
June 30
September 30
December 31
For the Year
(b)
Holders
$25.93
41.09
49.12
52.20
$52.20
$53.00
70.35
74.86
66.23
$74.86
$22.14
25.00
42.05
42.08
$22.14
$39.98
52.85
47.51
48.85
$39.98
$0.08
0.09
0.09
0.09
$0.35
$0.09
0.10
0.10
0.10
$0.39
As of February 6, 2015, VSE common stock, par value $0.05 per share, was held by approximately 260
stockholders of record. The number of stockholders of record is not representative of the number of beneficial
holders because many of VSE’s shares are held by depositories, brokers or nominees.
(c)
Dividends
In 2013 cash dividends were declared quarterly at the annual rate of $0.32 per share through March 31,
2013, and at the annual rate of $0.36 per share commencing June 1, 2013.
In 2014 cash dividends were declared quarterly at the annual rate of $0.36 per share through March 31,
2014, and at the annual rate of $0.40 per share commencing June 1, 2014.
Pursuant to our bank loan agreement (see Note 6, Debt, of "Notes to Consolidated Financial Statements" in
Item 8 of this Form 10-K), the payment of cash dividends is subject to annual rate restrictions. We have paid cash
dividends each year since 1973 and have increased our dividend each year since 2004.
14
(d)
Certain Sales and Repurchases of VSE Common Stock
During the fiscal year covered by this Form 10-K, VSE did not sell any equity securities of VSE that were
not registered under the Securities Act of 1933, as amended. During the fourth quarter of the fiscal year covered by
this Form 10-K, no purchases of equity securities of VSE were made by or on behalf of VSE or any “affiliated
purchaser” (as defined in Exchange Act Rule 10b-18 (a)(3)).
(e)
Equity Compensation Plan Information
We have two compensation plans approved by our stockholders under which our equity securities are
authorized for issuance to employees and directors: (i) the VSE Corporation 2004 Non-Employee Directors Stock
Plan and (ii) the VSE Corporation 2006 Restricted Stock Plan (the “2006 Plan”). On May 6, 2014, the stockholders
approved amendments to the 2006 Plan extending the term thereof until May 6, 2021 and authorized an additional
250,000 shares of our common stock for issuance under the 2006 Plan.
As of December 31, 2014, 67,075 shares of VSE common stock were available for future issuance under
the VSE Corporation 2004 Non-Employee Directors Stock Plan and 278,482 shares of VSE common stock were
available for future issuance under the 2006 Plan.
15
Performance Graph
Set forth below is a line graph comparing the cumulative total return of VSE common stock with (a) a
performance index for the broad market (The NASDAQ Global Select Market) on which VSE common stock is
traded and (b) a published industry index. VSE common stock is traded on The NASDAQ Global Select Market,
and our industry group is engineering and technical services (formerly SIC Code 8711). Accordingly, the
performance graph compares the cumulative total return for VSE common stock with (a) an index for The
NASDAQ Global Select Market (U.S. companies) (“NASDAQ Index”) and (b) our peer group.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among VSE Corporation, the NASDAQ Composite Index,
and a Peer Group
$250
$200
$150
$100
$50
$0
12/09
12/10
12/11
12/12
12/13
12/14
VSE Corporation
NASDAQ Composite
Peer Group
*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Performance Graph Table
VSE
NASDAQ Composite
Peer Group
2009
100
100
100
2010
73.65
117.61
100.27
2011
54.72
118.70
89.51
2012
2014
2013
55.94 110.68 152.94
139.00 196.83 223.74
93.46 143.65 142.86
16
ITEM 6. Selected Financial Data
(In thousands, except per share data)
Years ended December 31,
2014
2013
2012
2011
2010
Revenues
$424,071
$471,638
$546,755
$580,762
$810,955
Income from continuing operations
(Loss) income from discontinued operations
Net income
$20,489
(1,124)
$19,365
$23,990
(1,138)
$22,852
$27,364
(6,070)
$21,294
$20,190
362
$20,552
$23,505
182
$23,687
Basic earnings per share:
Income from continuing operations
(Loss) income from discontinued operations
Net income
Diluted earnings per share:
Income from continuing operations
(Loss) income from discontinued operations
Net income
Cash dividends per common share
$3.83
(0.21)
$3.62
$3.82
(0.21)
$3.61
$0.39
$4.50
(0.21)
$4.29
$4.49
(0.21)
$4.28
$0.35
$5.18
(1.15)
$4.03
$5.15
(1.14)
$4.01
$0.31
As of December 31,
$3.86
0.07
$3.93
$3.83
0.07
$3.90
$0.27
$4.53
0.03
$4.56
$4.50
0.03
$4.53
$0.23
Working capital
Total assets
Long-term debt
2014
2013
2012
2011
2010
$34,871
$47,691
$64,976
$71,123
$54,569
$355,330
$380,529
$410,211
$454,512
$288,426
$23,563
$64,487
$116,377
$144,759
$11,111
Long-term lease obligations
$24,584
$25,721
$27,435
$33,938
$20,258
Stockholders' equity
$205,489
$186,803
$164,335
$143,600
$123,776
This consolidated summary of selected financial data should be read in conjunction with Management’s
Discussion and Analysis of the Financial Condition and Results of Operations included in Item 7 of this Form 10-K
and with the Consolidated Financial Statements and related Notes included in Item 8 of this Form 10-K. The
historical results set forth in this Item 6 are not necessarily indicative of the results of operations to be expected in
the future.
17
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Customers and Services
We provide sustainment services for legacy systems and equipment and professional and technical services to:
the United States Government (the "government"), including the United States Department of Defense ("DoD") and
federal civilian agencies; the United States Postal Service ("USPS"); commercial customers; and to other customers.
Our largest customers are DoD and USPS. Our operations consist primarily of vehicle fleet parts supply, supply chain
management, ship and aircraft maintenance, vehicle and equipment maintenance and refurbishment, logistics,
engineering, energy and environmental, IT solutions, health care IT, and consulting services performed on a contract
basis. See Item 1 “Business – Revenues and Contracts” on page 6 for revenues by customer.
Acquisition
In January 2015, we acquired four businesses that specialize in maintenance, repair and overhaul (“MRO”)
services and parts supply for corporate and regional jet aircraft engines and engine accessories. The businesses acquired
include Air Parts & Supply Co., Kansas Aviation of Independence, L.L.C., Prime Turbines LLC, and CT Aerospace
LLC. These four businesses will operate as a combined group under our newly formed wholly owned subsidiary VSE
Aviation, Inc., which has retained certain key management members of the former ownership group.
Organization and Segments
Our operations are conducted within four reportable segments aligned with our management groups: 1)
Supply Chain Management; 2) International; 3) Federal; and 4) IT, Energy and Management Consulting. Beginning
in 2015, we are consolidating our International and Federal groups into a single management group and one
reportable segment. Also beginning in 2015, the newly acquired companies operating under our subsidiary VSE
Aviation, Inc. will be included in our current segments or in a new segment.
Supply Chain Management Group – Our Supply Chain Management Group provides sourcing,
acquisition, scheduling, transportation, shipping, logistics, data management, and other services to assist our clients
with supply chain management efforts. This group consists of our wholly owned subsidiary Wheeler Bros., Inc.
("WBI"). Significant current work efforts for this group include WBI's ongoing USPS Managed Inventory Program
("MIP") that supplies vehicle parts for the USPS truck fleet, other projects to support the USPS, managed inventory
services and parts sales to support commercial client truck fleets, and parts sales to DoD.
International Group – Our International Group provides engineering, industrial, logistics, maintenance,
information technology, fleet-wide ship and aircraft support, aircraft sustainment and maintenance, facility
operations, storage and disposal support for seized and forfeited general property programs, and foreign military
sales services to the U.S. military branches, government agencies, and other customers. This group provides its
services to the U.S. Navy, Air Force, Department of Justice, Bureau of Alcohol, Tobacco, Firearms and Explosives
(“ATF”), and other customers. Current and recent work efforts for this group include assistance to the U.S. Navy in
executing its Foreign Military Sales (“FMS”) Program for surface ships sold, leased or granted to foreign countries,
various task orders under the U.S. Air Force Contract Field Teams (“CFT”) Program, and management of seized and
forfeited general property programs (“Seized Asset Programs”).
Federal Group - Our Federal Group provides engineering, technical, management, and integrated logistics
support services to U.S. military branches, government agencies and other customers. These services include full life
cycle engineering, logistics, maintenance, field support, and refurbishment services to extend and enhance the life of
existing vehicles and equipment; comprehensive systems and software engineering, systems technical support,
configuration management, obsolescence management, prototyping services, technology insertion programs, and
technical documentation and data packages; and management and execution of government programs under large
multiple award contracts. This group provides its services to the U.S. Army, Army Reserve, Marine Corps, and other
customers. Significant current work efforts for this group include our ongoing U.S. Army Reserve vehicle
refurbishment program and various vehicle and equipment maintenance and sustainment programs for U.S. Army
commands.
18
IT, Energy and Management Consulting Group – Our IT, Energy and Management Consulting Group
consists of our wholly owned subsidiaries Energetics Incorporated ("Energetics") and Akimeka, LLC ("Akimeka").
This group provides technical and consulting services primarily to various DoD and federal civilian agencies, including
the United States Departments of Energy, Homeland Security, Commerce, Interior, Labor, Agriculture, and Housing
and Urban Development; the Social Security Administration; the Pension Benefit Guaranty Corporation; the National
Institutes of Health; customers in the military health system; and other government agencies and commercial clients.
Energetics provides technical, policy, business, and management support in areas of energy modernization, clean and
efficient energy, climate change mitigation, infrastructure protection, and measurement technology. Akimeka offers
solutions in fields that include medical logistics, medical command and control, e-health, information assurance, public
safety, enterprise architecture development, information assurance/business continuity, program and portfolio
management, network IT services, systems design and integration, quality assurance services, and product and process
improvement services.
Concentration of Revenues
Source of Revenues
USPS MIP
FMS Program
U.S. Army Reserve
Other
Total Revenues
Management Outlook
(in thousands)
Years ended December 31,
2014
$160,742
86,399
47,765
129,165
$424,071
%
38
20
11
31
100
2013
$142,147
94,950
60,162
174,379
$471,638
%
30
20
13
37
100
2012
$129,392
88,167
78,269
250,927
$546,755
%
24
16
14
46
100
Our January 2015 acquisition of four aviation businesses operating under VSE Aviation, Inc. (“VAI”)
represents a logical next step in our strategy to expand the markets for our sustainment services. We have been
performing aircraft maintenance, repair, and overhaul (“MRO”) services on our CFT IDIQ contract since 2008, and
we have a long history of providing ship and vehicle MRO services to our DoD markets. Our 2011 acquisition of
WBI was our first step in bringing the supply chain element of sustainment in house. Our successful foray into
aviation MRO provided us with the platform to enter the aviation supply chain market. The lion’s share of WBI and
VAI business extends beyond our traditional markets, and neither depends upon federal budget actions.
The VAI acquisition enhances our range of service offerings, broadens our client base, and decreases our
reliance on federal government procurement and budgeting decisions. The addition of these aviation MRO and
supply chain management competencies is in furtherance of our long range strategic growth efforts that focus on
extending our vehicle, ship, and aircraft sustainment and logistics services to new markets. We are committed to
providing value to our clients and optimizing their investment in existing physical assets by assisting them in
extending service life and enhancing performance as an attractive alternative to costly replacement. With this
aviation acquisition, we expect to become less reliant on DoD with respect to sustaining and growing our revenues.
Managed inventory services centered on vehicle fleet sustainment will continue to be a key service offering
of our Supply Chain Management Group. WBI’s USPS MIP provides ongoing mission critical supply chain support
to the USPS, which provides us with a steady revenue and earnings source. This program does not rely on
appropriated government spending, as it is primarily self-funded through revenues generated by USPS business
operations. The USPS is challenged by an aging fleet and constrained vehicle procurement resources. We have been
successful in competitively winning work for modifying the existing fleet to address the sharp increase in demand
for package delivery. WBI is our largest revenue source and we experienced growth in this program in 2014.
Additionally, WBI’s managed inventory competency is being successfully marketed to commercial clients operating
large vehicle fleets. WBI’s successful operating performance has increased the likelihood that certain financial
performance thresholds in our acquisition agreement will be met requiring us to make certain post-closing earn-out
payments to WBI’s sellers. Accordingly, we recorded charges related to this earn-out obligation that offset increases
in our Supply Chain Management Group operating income by approximately $3.1 million in 2014. Success in
WBI’s offerings to both traditional and commercial markets has encouraged us to focus our strategic direction on
this part of our business and direct financial and management resources toward such efforts.
19
Decreases in government spending for certain programs and services and increased competition for fewer
opportunities has led to declines in our DoD and other federal civilian agency revenues. As revenues in our legacy
markets have declined, we have responded by taking active measures to adjust our cost structure and operating
model to better meet the needs of these markets. We have eliminated certain management positions, consolidated
our operations into a fewer number of facilities, and reduced other costs that have supported these activities. Going
forward, we will consolidate our International and Federal Groups into a single operating group and report their
results as a combined reporting segment beginning in 2015. We expect the cost reductions and consolidation made
in the third and fourth quarters of 2014 to provide an estimated annual savings of approximately $4 million. We will
continue cost balancing efforts to remain competitive and profitable as we go forward. Despite these challenges to
our revenue base, we have key programs in our legacy markets that continue to provide a substantial portion of our
business. These programs include our U.S. Navy FMS Program, and our military vehicle and equipment
refurbishment work.
Our U.S. Navy FMS Program is our second largest source of revenue. This program does not rely on
appropriated government spending as it is largely funded by foreign government clients. Historically, supporting the
U.S. Navy in reactivating, transferring and providing follow on technical support to receiving navies constituted the
majority of our FMS business. FMS Program revenues for the past few years have been impeded by protracted
delays in passing legislation required for the transfer of naval vessels to allied navies. In December 2014, legislation
was passed allowing the transfer of certain vessels to selected foreign nations, which is expected to provide us with
future FMS Program revenue increases. The revenues associated with these transfers will take time to ramp up, and
we expect to begin realizing these revenues in late 2015 and in 2016. Our current contract supporting this work
gives us potential contract coverage of up to $1.5 billion over a five-year period that began in January 2012. This
contract coverage, combined with the eligibility, upon approval, of U.S. Navy ships for transfer to foreign
government clients, presents us with additional revenue opportunities pending future passage of Naval Vessel
Transfer Act legislation.
Without the benefit of revenues from vessel transfers in recent years, follow on technical support work has
generated the majority of revenues under our FMS Program. These services are provided to several foreign client
countries, the largest of which is the Egyptian Navy. Due to significant domestic and political unrest in Egypt, we
have been unable to maintain a consistent level of staffing in that country, and accordingly, our revenues associated
with follow on technical support services provided to the Egyptian Navy have fluctuated in recent years. Our
Egyptian Navy support services generated approximately $33 million of revenue for 2014 and approximately $48
million of revenue for 2013. We believe that our long term relationship with the Egyptian Navy remains strong, and
as a result, we anticipate benefiting if the political situation in Egypt stabilizes and U.S. and Egyptian relations
improve. We cannot, however, predict how the Egyptian political situation will unfold or the long range affect it will
have on our Egyptian Navy support program.
Our vehicle and equipment refurbishment work for the U.S. Army Reserve has been our third largest
source of revenue. The U.S. Army Reserve has been adversely affected by DoD and Department of the Army budget
reductions, and we have experienced changes to contractual coverage that have adversely affected the flow of work
on this program in recent years. This has resulted in a reduction in revenues and lower profit margins on this
program compared to previous years. This program generated approximately $48 million of revenue for 2014, a
decline from approximately $60 million of revenue for 2013. Contractual coverage on a portion of the work on our
current task orders expired in August 2014, and revenue will be lower going forward. Revenue for this program was
approximately $8 million for the fourth quarter of 2014. Contractual coverage on our current task orders has been
extended for varying periods of time at lower levels, and it remains uncertain how much of this work will be re-
competed, continued or extended.
Our work as the prime contractor for the U.S. Department of Treasury Executive Office for Asset
Forfeiture general property program ended in 2014, and substantially all of our work on this program was completed
as of March 2014. This program generated approximately $9 million of revenue for 2014 and approximately $36
million of revenue for 2013.
20
Bookings and Funded Backlog
Revenues for federal government contract work performed by our International, Federal, and IT, Energy
and Management Groups depend on contract funding (“bookings”), and bookings generally occur when contract
funding documentation is received. Funded contract backlog is an indicator of potential future revenue for these
groups. While bookings and funded contract backlog generally result in revenue, occasionally we will have funded
contract backlog that expires or is de-obligated upon contract completion and does not generate revenue.
Our Supply Chain Management Group revenues are affected by maintenance schedules and the rate and
timing of parts failure on customer vehicles. Bookings for this group occur at the time of sale. Accordingly, this
group does not generally have funded contract backlog and it is not an indicator of potential future revenues.
A summary of our bookings and revenues for our International, Federal, and IT, Energy and Management
Groups for the years ended December 31, 2014, 2013 and 2012, and funded contract backlog for these groups as of
December 31, 2014, 2013 and 2012 is as follows (in millions).
Bookings
Revenues
Funded Backlog
2014
$391
$424
$195
(in millions)
2013
$501
$472
$236
2012
$539
$547
$250
The addition of our acquired aviation businesses and growth of our Supply Chain Management Group
revenues is expected to cause our federal government contract revenues to become a smaller proportion of our
aggregate revenues in the future. Accordingly, bookings and backlog may become less indicative of future revenues.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to fulfill a contract. The ASU will become effective for us on January 1, 2017. We currently are
assessing the impact that this standard will have on our consolidated financial statements.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States, which require us to make estimates and assumptions. We believe the following critical
accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and
assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the fee is fixed or determinable, and collectability is probable.
Substantially all of our Supply Chain Management Group revenues result from the sale of vehicle parts to
clients. We recognize revenue from the sale of vehicle parts when the customer takes ownership of the parts.
21
Substantially all of our International, Federal, and IT, Energy and Management Consulting work is
performed for our customers on a contract basis. The three primary types of contracts used are time and materials,
cost-type, and fixed-price. Revenues result from work performed on these contracts by our employees and our
subcontractors and from costs for materials and other work related costs allowed under our contracts.
Revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and
the contract terms. Revenues on fixed-price service contracts are recorded as work is performed, typically ratably
over the service period. Revenues on fixed-price contracts that require delivery of specific items are recorded based
on a price per unit as units are delivered. We classify our Supply Chain Management Group revenues as fixed-price
revenue.
Revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned.
Our FMS Program contract is a cost plus award fee contract. This contract has terms that specify award fee
payments that are determined by performance and level of contract activity. Award fees are made during the year
through a contract modification authorizing the award fee that is issued subsequent to the period in which the work
is performed. We recognize award fee income on the FMS Program contract when the fees are fixed or
determinable. Due to such timing, and to fluctuations in the level of revenues, profits as a percentage of revenues on
this contract will fluctuate from period to period.
Revenues for time and materials contracts are recorded on the basis of contract allowable labor hours
worked multiplied by the contract defined billing rates, plus the direct costs and indirect cost burdens associated
with materials and subcontract work used in performance on the contract. Generally, profits on time and materials
contracts result from the difference between the cost of services performed and the contract defined billing rates for
these services.
Revenues by contract type for the years ended December 31 were as follows (in thousands):
Contract Type
Fixed-price
Cost-type
Time and materials
2014
Revenues
$260,289
120,915
42,867
$424,071
%
61.4
28.5
10.1
100.0
2013
Revenues
$257,189
119,350
95,099
$471,638
%
54.5
25.3
20.2
100.0
2012
Revenues
$224,478
124,908
197,369
$546,755
%
41.1
22.8
36.1
100.0
We will occasionally perform work at risk, which is work performed prior to formalizing contract funding
for such work. Revenue related to work performed at risk is not recognized until it can be reliably estimated and its
realization is probable. We recognize this “risk funding” as revenue when the associated costs are incurred or the
work is performed. We are at risk of loss for any risk funding not received. Revenues recognized as of December 31,
2014 include approximately $2.9 million for which we had not received formalized funding. We believe that we are
entitled to reimbursement and expect to receive all of this funding.
Earn-out Obligations
We utilize the Monte Carlo valuation model for our earn-out obligation. Significant unobservable inputs
used to value the contingent consideration include projected earnings before interest, taxes, depreciation and
amortization and the discount rate. Interest expense and subsequent changes in the fair value of the earn-out
obligations are recognized in earnings for the period of the change.
Goodwill and Intangible Assets
Goodwill is subject to a review for impairment at least annually. We perform this review at the beginning of
our fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. The impairment assessment requires us to estimate the fair value of our reporting units and involves the
use of subjective assumptions. We estimated the fair value of our reporting units using a weighting of fair values
derived from the income approach, market approach, and comparative transactions approach with the heaviest
weighting placed on the income approach. Under the income approach, we calculate the fair value of a reporting unit
based on the present value of estimated future cash flows. Cash flow projections are based on our estimates of
revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount
22
rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the
characteristics of the business and the projected cash flows.
In the fourth quarter of 2014, we performed our annual goodwill impairment analysis for each of our reporting
units. The results of the impairment analysis indicated that the estimated fair values of our reporting units substantially
exceeded their carrying values.
As of December 31, 2014, we have no intangible assets with indefinite lives and we had an aggregate of
approximately $92 million of goodwill associated with our acquisitions.
Results of Operations
Revenues
(in thousands)
Years ended December 31,
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
2014
$172,482
106,369
84,392
60,828
$424,071
%
40.7
25.1
19.9
14.3
100.0
2013
$154,702
146,908
95,435
74,593
$471,638
%
32.8
31.2
20.2
15.8
100.0
2012
$143,014
167,193
142,323
94,225
$546,755
%
26.2
30.6
26.0
17.2
100.0
Our revenues decreased by approximately $48 million or 10% for the year ended December 31, 2014 as
compared to the prior year. The change in revenues for this period resulted from a decrease in our International
Group of approximately $41 million; a decrease in our IT, Energy, and Management Consulting Group of
approximately $14 million; and a decrease in our Federal Group of approximately $11 million. These decreases
were partially offset by an increase in our Supply Chain Management Group of approximately $18 million.
Our revenues decreased by approximately $75 million or 14% for the year ended December 31, 2013 as
compared to the prior year. The change in revenues for this period resulted from a decrease in our Federal Group of
approximately $47 million; a decrease in our International Group of approximately $20 million and a decrease in our
IT, Energy, and Management Consulting Group of approximately $20 million. These decreases were partially offset
by an increase in our Supply Chain Management Group of approximately $12 million.
Consolidated Statements of Income
(in thousands)
Years ended December 31,
Revenues
Contract costs
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
2014
$424,071
383,001
%
100.0
90.3
2013
$471,638
424,250
%
100.0
90.0
2012
$546,755
490,686
%
100.0
89.8
4,140
-
36,930
3,983
32,947
12,458
1.0
0.0
8.7
0.9
7.8
3.0
3,285
-
44,103
5,789
38,314
14,324
0.7
0.0
9.3
1.2
8.1
3.0
3,968
1,025
51,076
7,224
43,852
16,488
0.7
0.2
9.3
1.3
8.0
3.0
Income from continuing operations
20,489
4.8
23,990
5.1
27,364
5.0
(Loss) income from discontinued operations,
net of tax
(1,124)
(0.2)
(1,138)
(0.2)
(6,070)
(1.1)
Net income
$ 19,365
4.6
$ 22,852
4.9
$ 21,294
3.9
23
Contract costs consist primarily of direct costs including labor, inventory, material, and supplies used in the
performance of our work and delivery of our products, and indirect costs associated with these direct costs. These
costs will generally increase or decrease in conjunction with our level of work or products sold and associated
revenues.
Our contract costs decreased by approximately $41 million or 10% in 2014 as compared to 2013. The
decrease resulted from a decrease in our International Group of approximately $37 million, a decrease in our IT,
Energy, and Management Consulting Group of approximately $11 million, a decrease in our Federal Group of
approximately $8 million, and an increase in our Supply Chain Management Group of approximately $15 million.
Our contract costs decreased by approximately $66 million or 14% in 2013 as compared to 2012. The
decrease resulted from a decrease in our Federal Group of approximately $39 million, a decrease in our International
Group of approximately $21 million, a decrease in our IT, Energy, and Management Consulting Group of
approximately $17 million, and an increase in our Supply Chain Management Group of approximately $9 million.
Selling, general and administrative expenses consist primarily of costs and expenses that are not chargeable
or reimbursable on our operating unit contracts. These costs increased by approximately $900 thousand for 2014 as
compared to the prior year due to legal, consulting, professional services fees and other costs associated with
strategic planning efforts, including costs related to the acquisition of our aviation businesses, which was completed
in January 2015, of approximately $1.1 million.
Our operating income decreased by approximately $7.2 million or 16% in 2014 as compared to 2013. The
decrease resulted primarily from a decrease of approximately $3.3 million in our International Group, a decrease of
approximately $2.7 million in our Federal Group, and a decrease of approximately $2.4 million in our IT, Energy
and Management Consulting Group. These decreases were partially offset by an increase in operating income in our
Supply Chain Management Group of approximately $2.4 million.
Our operating income decreased by approximately $7 million or 14% in 2013 as compared to 2012. The
decrease resulted primarily from a decrease in operating income of approximately $8 million in our Federal Group
and a decrease in operating income in our IT, Energy and Management Consulting Group of approximately $2.8
million. These decreases were partially offset by an increase in operating income in our Supply Chain Management
Group of approximately $3.3 million and an increase in operating income in our International Group of
approximately $1 million.
Interest expense decreased in 2014 as compared to 2013, and in 2013 as compared to 2012, due to
reductions in our level of borrowing as we paid down our bank loan. Interest expense also includes interest related to
our executive and administrative headquarters facility lease. The amount of interest expense associated with capital
leases is approximately $1.7 million for 2014, approximately $1.7 million for 2013, and approximately $1.2 million
for 2012.
Provision for Income Taxes
Our effective tax rate from continuing operations was 37.8% for 2014, 37.4% for 2013, and 37.6% for
2012. Our tax rate is affected by discrete items that may occur in any given year, but may not be consistent from
year to year. In addition to state income taxes, certain tax credits and other items had an impact on the difference
between our statutory U.S. Federal income tax rate of 35% and our effective tax rate. Permanent differences and
federal and state tax credits such as the work opportunity tax credit and a state educational improvement tax credit
provided a benefit to our tax rates of 1.7% for 2014, 1.9% for 2013 and 1.7% for 2012.
24
Supply Chain Management Group Results
The results of operations for our Supply Chain Management Group are (in thousands):
Revenues
Contract costs
Selling, general and administrative expenses
Operating income
2014
$172,482
142,201
587
$ 29,694
Years ended December 31,
%
100.0
82.5
0.3
17.2
2013
$154,702
126,869
534
$ 27,299
%
100.0
82.0
0.4
17.6
2012
$143,014
118,146
854
24,014
%
100.0
82.6
0.6
16.8
Revenues for our Supply Chain Management Group increased approximately $18 million or 11% for 2014,
as compared to the prior year. The revenue increase resulted primarily from an increase in WBI’s USPS MIP
revenues and to additional revenues associated with other projects performed for the USPS and revenues from new
customers. DoD revenues for this group declined slightly in 2014 as compared to the prior year. Contract costs for
our Supply Chain Management Group increased by approximately $15 million or 12% for 2014 as compared to the
prior year. Operating income for our Supply Chain Management Group increased by approximately $2.4 million or
9% for 2014 as compared to the prior year. Contract cost and operating income increases resulted primarily from the
increase in USPS MIP revenues. Operating income for this segment was decreased by approximately $3.1 million in
2014 and by approximately $183 thousand in 2013 due to adjustments to the accrued earn-out obligation associated
with our acquisition of WBI.
Revenues for our Supply Chain Management Group increased approximately $12 million or 8% for 2013,
as compared to the prior year. The revenue increase resulted primarily from an increase in WBI’s USPS MIP
revenues of approximately $11.4 million. Contract costs for our Supply Chain Management Group increased by
approximately $9 million or 7% for 2013 as compared to the prior year. Operating income for our Supply Chain
Management Group increased by approximately $3 million or 14% for 2013 as compared to the prior year. Contract
cost, operating income and profit percentage increases resulted primarily from the increase in USPS MIP revenues.
Operating income for this segment was decreased by approximately $183 thousand in 2013 and by approximately
$802 thousand in 2012 due to adjustments to the accrued earn-out obligation associated with our acquisition of WBI.
International Group Results
The results of operations for our International Group are (in thousands):
Revenues
Contract costs
Selling, general and administrative expenses
Operating income
2014
$106,369
102,055
519
$ 3,795
Years ended December 31,
%
100.0
95.9
0.5
3.6
2013
$146,908
138,857
982
$ 7,069
%
100.0
94.5
0.7
4.8
2012
$167,193
159,967
1,174
$ 6,052
%
100.0
95.7
0.7
3.6
Revenues for our International Group decreased approximately $41 million or 28% for 2014, as compared
to the prior year. The decrease in revenues for 2014 was primarily attributable to a decrease of approximately $27
million associated with the completion of our U.S. Treasury Seized Assets Program in March 2014, to a decrease of
approximately $9 million on our FMS Program, and to smaller decreases in our CFT Program services and other
work.
Revenues for our International Group decreased approximately $20 million or 12% for 2013, as compared
to the prior year. The decrease in revenues for 2013 was primarily attributable to a decline of approximately $18
million in pass-through work provided on engineering and technical services task orders, and to lesser declines in
revenues from our CFT Program services. These decreases were partially offset by increases in revenues on our
FMS and Seized Asset Programs.
Contract costs for our International Group decreased approximately $37 million or 27% for 2014, as
compared to the prior year. The decrease in contract costs for 2014 was primarily attributable to a decrease of
approximately $23 million associated with the completion of our U.S. Treasury Seized Assets Program in March
25
2014, to a decrease of approximately $8 million on our FMS Program, and to smaller decreases in our CFT Program
services and other work.
Contract costs for our International Group decreased approximately $21 million or 13% for 2013, as
compared to the prior year. The decrease in contract costs for 2013 was primarily attributable to a decline of
approximately $18 million in pass-through work provided on engineering and technical services task orders, and to
lesser declines in revenues from our CFT Program services. These decreases were partially offset by increases on
our FMS and Seized Asset Programs.
Operating income for our International Group decreased by approximately $3.3 million or 46% for 2014, as
compared to the prior year. The decrease in operating income for 2014 was primarily attributable to a decrease of
approximately $3.5 million associated with the completion of our U.S. Treasury Seized Assets Program in March
2014. Our operating income was reduced in 2014 by a charge of approximately $398 thousand for a Department of
Treasury claim for an inventory shortage, and was reduced in 2013 by a charge of approximately $1.2 million
associated with idle warehouse facilities and a charge of $485 thousand for a Department of Treasury claim for
flood damage to vehicles, all of which were associated with our Seized Asset Programs. In 2014, we recovered a net
amount of approximately $206 thousand associated with the Department of Treasury vehicle flood damage claim.
Profit margins in this group can vary due to fluctuations in contract activity and the timing of contract award fees
associated with our FMS Program. Award fee evaluations on our FMS Program occur three times per year and we
recognize award fee revenue and income in the period we receive contractual notification of the award. We
recognized award fee revenue and income in 2014 from three award fee notifications.
Operating income for our International Group increased by approximately $1 million or 17% for 2013, as
compared to the prior year. Our operating income was reduced for these two years by: 1) charges of approximately
$1.9 million in 2012 and approximately $1.2 million in 2013 associated with idle warehouse facilities; 2) a charge of
$485 thousand in December 2013 for a Department of Treasury claim for flood damage to vehicles; and 3) a loss of
$750 thousand in 2012 associated with the final payment on a work share agreement with a subcontractor, all of
which were associated with our Seized Asset Programs. The year over year change in operating income was also
impacted by an increase in operating income in 2013 associated with the increased revenues on our Seized Asset
Programs and the timing of award fee recognition on our FMS Program. We recognized award fee revenue and
income in 2013 from three award fee notifications. Due to a catch up of delays in government contractual
notification, we recognized revenue and income from four award fees in 2012, including approximately $1.1 million
in award fee revenue and income that would typically have been recognized in the prior year. This effectively
increased 2012 operating income associated with this program as compared to the typical pattern.
Federal Group Results
The results of operations for our Federal Group are (in thousands):
Years ended December 31,
Revenues
Contract costs
Selling, general and administrative expenses
Operating income
2014
$84,392
84,635
100
($ 343)
%
100.0
100.3
0.1
(0.4)
2013
$95,435
92,681
354
$ 2,400
%
2012
$142,323
131,269
636
$ 10,418
100.0
97.1
0.4
2.5
%
100.0
92.2
0.5
7.3
Revenues for our Federal Group decreased approximately $11 million or 12% for the year ended 2014, as
compared to the prior year. The decrease in revenues is primarily due to a reduction in our Army Reserve vehicle
refurbishment work of approximately $12 million. Our Army Reserve vehicle refurbishment work decreased as a
result of a transition of contractual coverage in the third quarter of 2013 which resulted in a temporary suspension of
work and generally lower levels of revenues subsequent to such transition. Additionally, contractual coverage on a
portion of the work on our current task orders expired in the third quarter of 2014.
Revenues for our Federal Group decreased approximately $47 million or 33% for the year ended 2013, as
compared to the prior year. The decrease in revenues is primarily due to the expiration of a contract at the end of
2012 to provide mechanical maintenance services for Mine Resistance Ambush Protected (“MRAP”) vehicles and
systems in Kuwait and to a reduction in revenues from our vehicle and equipment refurbishment work for the U.S.
Army Reserve due to the suspension of work in the third quarter of 2013. The reduction in revenues due to the
26
expiration of the MRAP contract was approximately $26 million. The reduction in revenues from our vehicle and
equipment refurbishment work for the U.S. Army Reserve was approximately $18 million.
Contract costs for our Federal Group decreased approximately $8 million or 9% for 2014, as compared to
the prior year. The decrease in contract costs is primarily due to a reduction in contract costs from our U.S. Army
Reserve vehicle refurbishment program of approximately $11 million. We incurred contract costs for increases in
other Federal Group work.
Contract costs for our Federal Group decreased approximately $39 million or 29% for 2013, as compared
to the prior year. The decrease in contract costs is primarily due to the expiration of the MRAP contract and to a
reduction in contract costs from our U.S. Army Reserve vehicle refurbishment program. The reduction in contract
costs due to the expiration of the MRAP contract was approximately $24 million. The reduction in contract costs
from our vehicle and equipment refurbishment work for the U.S. Army Reserve was approximately $13 million.
Operating income for our Federal Group decreased by approximately $2.7 million or 114% for 2014 as
compared to the prior year. The decrease resulted primarily from a reduction of profits on our U.S. Army Reserve
program of approximately $1 million due to the reduction in revenues on this program and to the continuation of
fixed infrastructure costs during the time that revenue levels have declined.
Operating income for our Federal Group decreased by approximately $8 million or 77% for 2013 as
compared to the prior year. The decrease resulted primarily from a reduction of profits on our U.S. Army Reserve
program of approximately $5 million due to the reduction in revenues on this program and to the continuation of
fixed infrastructure costs during the time that work was suspended, and to a decrease of approximately $2 million in
profits associated with the expiration of the MRAP contract. The decrease in the profit percentage in 2013 as
compared to 2012 is also primarily due to the continuation of fixed infrastructure costs while work was suspended
under the U.S. Army Reserve program.
IT, Energy and Management Consulting Group Results
The results of operations for our IT, Energy and Management Consulting Group are (in thousands):
Revenues
Contract costs
Selling, general and administrative expenses
Operating income
Years ended December 31,
2014
$60,828
54,119
75
$ 6,634
%
100.0
89.0
0.1
10.9
2013
$74,593
65,359
173
$ 9,061
%
100.0
87.6
0.2
12.2
2012
$94,225
82,085
324
$11,816
%
100.0
87.1
0.4
12.5
Revenues for our IT, Energy and Management Consulting Group decreased approximately $14 million or
18% for 2014, as compared to the prior year. Contract costs for our IT, Energy and Management Consulting Group
decreased approximately $11 million or 17% for 2014, as compared to the prior year. The decreases in revenues and
contract costs were due primarily to a decline in services ordered by clients on continuing contracts and the
expiration of a contract in the fourth quarter of 2013. Revenue on the expired contract was approximately $7.6
million for 2013. Operating income for this segment decreased approximately $2.4 million, or 27% for 2014, as
compared to the prior year. The decrease in operating income is primarily attributable to the decreases in revenues
and lower profit margins associated with new contracts that replaced predecessor contracts, which were partially
offset by indirect cost reductions and efficiencies.
Revenues for our IT, Energy and Management Consulting Group decreased approximately $20 million or
21% for 2013, as compared to the prior year. Contract costs for our IT, Energy and Management Consulting Group
decreased approximately $17 million or 20% for 2013, as compared to the prior year. The decreases in revenues and
contract costs were due primarily to a decrease in services performed due to contract expirations and a decline in
services ordered by clients on continuing contracts. Operating income for this segment decreased approximately
$2.8 million, or 23% for 2013, as compared to the prior year. The decrease in operating income is primarily
attributable to a reduction of $5.1 million in the accrued earn-out obligation associated with our acquisition of
Akimeka that increased prior year operating income. There was no earn-out obligation adjustment in 2013. Without
the prior year earn-out obligation adjustment, operating income for 2013 would be higher than in the prior year due
to improved operating and cost efficiencies.
27
Financial Condition
Our financial condition did not change materially in 2014. We used our cash flow to reduce our bank debt
by approximately $41 million in 2014. Changes to other asset and liability accounts were due primarily to our
earnings, our level of business activity, contract delivery schedules, subcontractor and vendor payments required to
perform our work, and the timing of associated billings to and collections from our customers.
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents increased by approximately $43 thousand during 2014.
Cash provided by operating activities decreased by approximately $6.9 million in 2014 as compared to
2013. The change is attributable to a decrease of approximately $8.2 million due to changes in the levels of
operating assets and liabilities; an increase of approximately $4.8 million in depreciation and amortization and other
non-cash operating activities; and a decrease of approximately $3.5 million in cash provided by net income. Our
largest operating assets are our accounts receivable and inventories. Our largest operating liabilities are our accounts
payable and accrued expenses. A significant portion of our accounts receivable, accounts payable, and inventories
result from the use of subcontractors to perform work on our contracts, from the purchase of materials to fulfill our
contract requirements, and from the purchase and sale of inventory products. Accordingly, our levels of accounts
receivable, accounts payable and inventories may fluctuate depending on the timing of services or products ordered,
government funding delays, the timing of billings received from subcontractors and material and inventory vendors,
and the timing of payments received from customers in payment of services and products. Such timing differences
have the potential to cause increases and decreases in our accounts receivable, accounts payable, and inventories in
short time periods. Our levels of accrued expenses tend to vary in accordance with our levels revenues and services
performed.
Cash used in investing activities decreased approximately $1.0 million in 2014 as compared to 2013. Cash
used in investing activities consisted of purchases of property and equipment.
Cash used in financing activities decreased approximately $7.2 million in 2014 as compared to 2013. Cash
used in financing activities consisted primarily of repayments on our bank loan, earn-out obligation payments, and
dividends.
Cash provided by operating activities decreased by approximately $3.2 million in 2013 as compared to
2012. The change is attributable to a decrease of approximately $1.2 million due to changes in the levels of
operating assets and liabilities; a decrease of approximately $3.6 million in depreciation and amortization and other
non-cash operating activities; and an increase of approximately $1.6 million in cash provided by net income.
Cash used in investing activities decreased approximately $21 million in 2013 as compared to 2012. This
was primarily due to nonrecurring events in 2012, including cash used of approximately $9 million for capital
investments related to the move of our corporate headquarters offices in May 2012 and approximately $9 million to
purchase office, warehouse and distribution facilities that support our WBI operations in December 2012.
Cash used in financing activities increased approximately $20 million in 2013 as compared to 2012. This
was primarily due to an increase of approximately $26 million in repayments on our bank loan.
We paid quarterly cash dividends totaling approximately $2.0 million or $0.38 per share during 2014.
Pursuant to our bank loan agreement, our payment of cash dividends is subject to annual restrictions. We have paid
cash dividends each year since 1973 and have increased our dividend each year since 2004.
Liquidity
Our internal sources of liquidity are primarily from operating activities, specifically from changes in the
level of revenues and associated accounts receivable and accounts payable, and from profitability. Significant
increases or decreases in revenues and accounts receivable and accounts payable can impact our liquidity. Our
28
accounts receivable and accounts payable levels can be affected by changes in the level of the work we perform, by
the timing of large materials purchases and subcontractor efforts used in our contracts, the timing of large inventory
purchases to support our product offerings, and by government delays in the award of contractual coverage and
funding and payments. Government funding delays can cause delays in our ability to invoice for revenues earned,
resulting in a negative impact on our days sales outstanding.
We also purchase property and equipment and invest in expansion, improvement, and maintenance of our
operational and administrative facilities. In 2012, we made approximately $9 million in capital investments related
to the move of our corporate headquarters offices in May 2012 and in December 2012 we used approximately $9
million to purchase office, warehouse and distribution facilities that support our WBI operations. From time to time,
we may also invest in the acquisition of other companies.
Our external financing consists of a loan agreement with a group of banks. In January 2015, we amended
and restated the loan agreement to facilitate our acquisition of four aviation businesses. Both the former and the
amended and restated loan agreements are comprised of a term loan facility and a revolving loan facility. The
revolving loan facility provides for revolving loans and letters of credit. The amended and restated loan agreement
expires in January 2020.
The amended and restated term loan requires quarterly installment payments. Our scheduled term loan
payments after December 31, 2014 are $11.2 million in 2015, $17.8 million in 2016, $21.6 million in 2017, $28.1
million in 2018, $30 million in 2019, and $41.3 million after 2019. The amount of term loan borrowings outstanding
as of December 31, 2014 under the former loan agreement was $25 million. The amount of term loan borrowings
outstanding at inception of the amended and restated loan agreement in January 2015 was $150 million.
The maximum amount of credit available to us from the banking group for revolving loans and letters of
credit under the former loan agreement as of December 31, 2014 was $125 million. The maximum amount for
revolving loans and letters of credit under the amended and restated agreement is $150 million. We may borrow and
repay the revolving loan borrowings as our cash flows require or permit. We pay an unused commitment fee and
fees on letters of credit that are issued. We had approximately $23.6 million in revolving loan amounts outstanding
and no of letters of credit outstanding as of December 31, 2014 under the former loan agreement. The timing of
certain payments made and collections received associated with our subcontractor, materials, and inventory
requirements and other operating expenses can cause fluctuations in our outstanding revolving loan amounts. Delays
in government funding of our work performed can also cause additional borrowing requirements.
Under the amended and restated loan agreement we may elect to increase the maximum availability of the
term loan facility, the revolving loan facility, or both facilities up to an aggregate additional amount of $75 million.
We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a base margin
or at a base rate (typically the prime rate) plus a base margin. As of December 31, 2014, the LIBOR base margin
was 1.75% and the base rate base margin was 0.00%. At inception of the amended and restated loan agreement the
LIBOR base margin is 2.25% and the base rate base margin was 1.00%. The base margins increase or decrease in
increments as our Total Funded Debt/EBITDA Ratio increases or decreases.
We had interest rate hedges on a portion of our outstanding borrowings that expired June 30, 2014. Between
June 30, 2014 and December 31, 2014, we had no interest rate hedges on our outstanding borrowings. The terms of the
amended and restated loan agreement require us to have interest rate hedges on a portion of the outstanding term loan
for the first three years of the agreement, and for such interest rate hedges to be in place within 60 days after inception
of the agreement. We executed such compliant interest rate hedges in February 2015. As of December 31, 2014,
interest rates on portions of our outstanding debt range from 1.91% to 3.25%, and the effective interest rate on our
aggregate outstanding debt was 3.15%.
Both the former and amended and restated loan agreements contain collateral requirements to secure our
loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative
covenants, conditions and limitations. Upon execution of the amended and restated loan agreement, all restrictive
covenants and the December 31, 2014 restrictive covenant measurement date under the former loan agreement were
replaced by the restrictive covenants under the amended and restated agreement, with the initial measurement date
being the date of inception of the amended and restated agreement. Restrictive covenants under the amended and
restated loan agreement include a maximum Total Funded Debt/EBITDA Ratio and a minimum Fixed Charge
29
Coverage Ratio, for which calculations as of the amended and restated agreement inception date are shown below.
We were in compliance with required ratios and other terms and conditions at inception of the amended and restated
loan agreement.
Total Funded Debt/EBITDA Ratio
Fixed Charge Coverage Ratio
Current Maximum Ratio
3.50 to 1
Minimum Ratio
1.20 to 1
Actual Ratio
3.17 to 1
Actual Ratio
1.97 to 1
We currently do not use public debt security financing.
Contractual Obligations
Our contractual obligations as of December 31, 2014 are (in thousands):
Contractual Obligations
Bank loan debt
Operating leases, net of non-cancelable
sublease income
Corporate headquarters lease
Purchase obligations
Total
Payments Due by Period
Total
$48,633
9,106
57,549
2,153
$117,441
Less than
1 year
$25,000
3,613
3,985
1,612
$34,210
1-3 years
$23,633
4-5 years
$ -
After
5 years
$ -
4,306
8,325
517
$36,781
1,187
8,793
24
$10,004
-
36,446
-
$36,446
As of the date of inception of the amended and restated agreement in January 2015, our bank loan debt was
$250 million and payments due by period were: $11.2 million in less than one year, $39.4 million in one to three
years, $199.4 million in four to five years, and $0 after five years. Estimated cash requirements for interest on our
bank loan debt are approximately $6.0 million for 2015 and $4.9 million for 2016.
Operating lease commitments are primarily for leased facilities for office, shop, and warehouse space.
Equipment and software leases are also included in these amounts.
We have a 15-year lease agreement whereby lease payments began in May of 2012 for executive and
administrative headquarters space. Terms of our lease agreement have required us to capitalize the construction
costs of the leased building and account for the lease upon occupancy in May 2012 under the finance method of
lease accounting rules.
Purchase obligations consist primarily of contractual commitments associated with our information
technology systems. The table excludes contractual commitments for materials or subcontractor work purchased to
perform government contracts. Such commitments for materials and subcontractors are reimbursable when used on
the contracts, and generally are also reimbursable if a contract is “terminated for convenience” by the government
pursuant to federal contracting regulations.
Inflation and Pricing
Most of our contracts provide for estimates of future labor costs to be escalated for any option periods,
while the non-labor costs in our contracts are normally considered reimbursable at cost. Our property and equipment
consists principally of computer systems equipment, furniture and fixtures, shop and warehouse equipment, and
land, buildings and improvements. We do not expect the overall impact of inflation on replacement costs of our
property and equipment to be material to our future results of operations or financial condition.
30
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rates
Our bank loans provide available borrowing to us at variable interest rates. Accordingly, future interest rate
changes could potentially put us at risk for a material adverse impact on future earnings and cash flows. To mitigate
the risks associated with future interest rate movements we have, at times, used interest rate hedges to fix the rate on
portions of our outstanding borrowings. The resulting fixed rates on these portions of our debt is initially higher than
the variable rate at the time the hedge is put in place, but gives us protection against future interest rate increases.
As of December 31, 2014, we did not have any interest rate hedges on our debt. In February 2015, we
entered into an amortizing LIBOR based interest rate swap on our term loan for a term of four years with a notional
amount of $100 million. The swap amount on our term loan decreases in increments on an annual basis. With the
term loan swap in place, we pay an effective rate of 1.129% plus our base margin as of February 2015. Also in
February 2015, we entered into a LIBOR based interest rate swap on our revolving loan for a term of three years
with a notional amount of $25 million. With the revolving loan swap in place, we pay an effective rate of 0.95%
plus our base margin as of February 2015.
31
ITEM 8. Financial Statements and Supplementary Data
Index To Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Income for the years ended
December 31, 2014, 2013, and 2012
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2014, 2013, and 2012
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2014, 2013, and 2012
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013, and 2012
Notes to Consolidated Financial Statements
Page
33
34
35
36
37
38
39
32
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of VSE Corporation
We have audited the accompanying consolidated balance sheets of VSE Corporation and Subsidiaries as of
December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2014. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of VSE Corporation and Subsidiaries at December 31, 2014 and 2013, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2014, 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), VSE Corporation and Subsidiaries' internal control over financial reporting as of December 31, 2014, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) and our report dated March 6, 2015 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 6, 2015
33
VSE Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Receivables, principally U.S. Government
Inventories
Deferred tax assets
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
Accounts payable
Current portion of earn-out obligation
Accrued expenses and other current liabilities
Dividends payable
Total current liabilities
Long-term debt, less current portion
Deferred compensation
Long-term lease obligations, less current portion
Earn-out obligations, less current portion
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares;
issued and outstanding 5,358,261 and 5,333,077 respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31,
2014
2013
$ 263
59,391
49,363
1,834
11,517
122,368
52,911
72,209
92,052
-
15,790
$355,330
$ 24,837
29,424
9,455
23,245
536
87,497
23,563
12,563
24,584
-
1,634
-
149,841
$ 220
78,387
39,315
863
10,641
129,426
57,738
82,257
92,052
2,545
16,511
$380,529
$ 24,837
31,757
-
24,661
480
81,735
64,487
11,454
25,721
9,062
-
1,267
193,726
268
20,348
184,873
-
205,489
$355,330
267
19,139
167,598
(201)
186,803
$380,529
The accompanying notes are an integral part of these financial statements.
34
VSE Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands, except share and per share amounts)
Revenues:
Services
Products
Total revenues
Contract costs
Services
Products
Total contract costs
Selling, general and administrative expenses
Impairment of intangible assets
Operating income
Interest expense, net
For the years ended December 31,
2013
2012
2014
$251,085
172,986
424,071
$314,306
157,332
471,638
$398,682
148,073
546,755
240,004
142,997
383,001
4,140
-
295,223
129,027
424,250
3,285
-
368,540
122,146
490,686
3,968
1,025
36,930
44,103
51,076
3,983
5,789
7,224
Income from continuing operations before income taxes
32,947
38,314
43,852
Provision for income taxes
12,458
14,324
16,488
Income from continuing operations
Loss from discontinued operations, net of tax
20,489
(1,124)
23,990
(1,138)
27,364
(6,070)
Net income
$ 19,365
$ 22,852
$ 21,294
Basic earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
$ 3.83
(0.21)
$ 3.62
$ 4.50
(0.21)
$ 4.29
$ 5.18
(1.15)
$ 4.03
Basic weighted average shares outstanding
5,353,912
5,329,208
5,282,047
Diluted earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
$ 3.82
(0.21)
$ 3.61
$ 4.49
(0.21)
$ 4.28
$ 5.15
(1.14)
$ 4.01
Diluted weighted average shares outstanding
5,371,200
5,343,267
5,309,862
The accompanying notes are an integral part of these financial statements.
35
VSE Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
For the years ended December 31,
2014
2013
2012
Net income
Change in fair value of interest rate swap
agreements, net of tax
Comprehensive income
$19,365
201
$19,566
$22,852
$21,294
536
$23,388
(45)
$21,249
The accompanying notes are an integral part of these financial statements.
36
VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands except per share data)
Balance at December 31, 2011
Net income
Stock-based compensation
Change in fair value of interest rate swap
agreements, net of tax
Dividends declared ($0.31)
Balance at December 31, 2012
Net income
Stock-based compensation
Change in fair value of interest rate swap
agreements, net of tax
Dividends declared ($0.35)
Balance at December 31, 2013
Net income
Stock-based compensation
Change in fair value of interest rate swap
agreements, net of tax
Dividends declared ($0.39)
Balance at December 31, 2014
Common Stock
Shares
5,247
-
46
Amount
262
-
3
-
-
5,293
-
40
-
-
5,333
-
25
-
-
5,358
-
-
265
-
2
-
-
267
-
1
-
-
$268
Additional
Paid-In
Capital
Accumulated
Other
Retained
Earnings
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
17,069
-
1,124
-
-
18,193
-
946
-
-
19,139
-
1,209
126,961
21,294
-
-
(1,641)
146,614
22,852
-
-
(1,868)
167,598
19,365
-
-
-
$20,348
-
(2,090)
$184,873
(692)
-
-
(45)
-
(737)
-
-
536
-
(201)
-
-
201
-
$-
143,600
21,294
1,127
(45)
(1,641)
164,335
22,852
948
536
(1,868)
186,803
19,365
1,210
201
(2,090)
$205,489
The accompanying notes are an integral part of these financial statements.
37
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Impairment of goodwill and intangible assets
Depreciation and amortization
Loss on sale of property and equipment
Deferred taxes
Stock-based compensation
Earn-out obligation adjustment
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables, net
Inventories
Other current assets and noncurrent assets
Accounts payable and deferred compensation
Accrued expenses and other current liabilities
Long-term lease obligations
Other liabilities
For the years ended December 31,
2013
2012
2014
$ 19,365
$ 22,852
$ 21,294
-
18,770
125
3,083
1,739
3,059
18,996
(10,048)
(627)
(1,224)
(1,149)
(1,107)
(1,267)
790
20,016
246
(874)
1,576
183
14,130
2,240
(3,798)
1,922
(843)
(1,826)
(16)
8,953
21,162
-
(1,253)
1,076
(4,337)
25,051
435
5,938
(17,279)
(1,719)
(506)
992
Net cash provided by operating activities
49,715
56,598
59,807
Cash flows from investing activities:
Purchases of property and equipment
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Borrowings on loan arrangement
Repayments on loan arrangement
Earn-out obligation payments
Payments on capital lease obligations
Payment of taxes for equity transactions
Dividends paid
(3,414)
-
(3,414)
295,513
(336,601)
(1,972)
(850)
(314)
(2,034)
(4,416)
-
(20,863)
(4,607)
(4,416)
(25,470)
290,137
(340,627)
(180)
(725)
(257)
(1,811)
269,388
(293,409)
(6,787)
(562)
(332)
(1,585)
Net cash used in financing activities
(46,258)
(53,463)
(33,287)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
43
220
$ 263
(1,281)
1,501
$ 220
1,050
451
$ 1,501
Supplemental cash flow disclosures (in thousands):
Cash paid for:
Interest
Income taxes
$2,135
$9,934
$ 4,192
$15,638
$ 5,512
$10,686
The accompanying notes are an integral part of these financial statements.
38
VSE Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014
(1) Nature of Business and Significant Accounting Policies
Nature of Business
The term “VSE,” the “Company,” “us,” “we,” or “our” means VSE and its subsidiaries and divisions unless
the context indicates operations of only VSE as the parent company.
Our operations consist primarily of vehicle fleet parts supply, supply chain management, ship and aircraft
maintenance, vehicle and equipment maintenance and refurbishment, logistics, engineering, energy and environmental,
IT solutions, health care IT, and consulting services performed on a contract basis. Our services are performed for the
United States Government (the "government"), including the United States Department of Defense (“DoD”) and
federal civilian agencies, the United States Postal Service (“USPS”), commercial customers, and other clients.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements consist of the operations of our parent company, our unincorporated divisions
and our wholly owned subsidiaries, Energetics Incorporated (“Energetics”), Akimeka, LLC (“Akimeka”) and Wheeler
Bros., Inc. (“WBI”). All intercompany transactions have been eliminated in consolidation. These consolidated financial
statements also account for the classification of the Infrastructure Group as discontinued operations of our subsidiary
Integrated Concepts and Research Corporation (“ICRC”) and therefore any financial impact of such group has been presented
as discontinued operations in the 2014, 2013 and 2012 reporting periods.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates affecting the financial statements include accruals for contract disallowance reserves, recoverability of
goodwill and intangible assets and earn-out obligations.
Stock-Based Compensation
We account for share-based awards in accordance with the applicable accounting rules that require the
measurement and recognition of compensation expense for all share-based payment awards based on estimated fair
values. The compensation expense, included in contract costs, is amortized over the requisite service period. See
Note 8, Stock-Based Compensation Plans, for further discussion of our stock-based compensation plans and related
activity.
Earnings Per Share
Basic earnings per share (“EPS”) have been computed by dividing net income by the weighted average
number of shares of common stock outstanding during each period. Shares issued during the period are weighted for
the portion of the period that they were outstanding. Our calculation of diluted earnings per common share includes
the dilutive effects for the assumed vesting of restricted stock awards.
Basic weighted average common shares outstanding
Effect of dilutive shares
Diluted weighted average common shares outstanding
2014
5,353,912
17,288
5,371,200
Years Ended December 31,
2013
5,329,208
14,059
5,343,267
2012
5,282,047
27,815
5,309,862
39
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash
equivalents. Due to the short maturity of these instruments, the carrying values on our consolidated balance sheets
approximate fair value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of computer equipment, furniture, other
equipment is provided principally by the straight-line method over periods of 3 to 15 years. Depreciation of
buildings and land improvements is provided by the straight-line method over periods of approximately 15 to 20
years. Amortization of leasehold improvements is provided by the straight-line method over the lesser of their useful
life or the remaining term of the lease.
Concentration of Credit Risk/Fair Value of Financial Instruments
Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash,
cash equivalents and trade receivables. Contracts with the government, either as a prime or subcontractor,
accounted for approximately 99% of revenues for each of the years ended December 31, 2014, 2013, and 2012. We
believe that concentrations of credit risk with respect to trade receivables are limited as they are primarily
government receivables. We believe that the fair market value of all financial instruments, including debt,
approximate book value.
Revenues
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the fee is fixed or determinable, and collectability is probable.
Substantially all of our Supply Chain Management Group revenues result from the sale of vehicle parts to
clients. We recognize revenue from the sale of vehicle parts when the customer takes ownership of the parts.
Substantially all of our International, Federal, and IT, Energy and Management Consulting work is
performed for our customers on a contract basis. The three primary types of contracts used are time and materials,
cost-type, and fixed-price. Revenues result from work performed on these contracts by our employees and our
subcontractors and from costs for materials and other work related costs allowed under our contracts.
Revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and
the contract terms. Revenues on fixed-price service contracts are recorded as work is performed, typically ratably
over the service period. Revenues on fixed-price contracts that require delivery of specific items are recorded based
on a price per unit as units are delivered. We classify our Supply Chain Management Group revenues as fixed-price
revenue.
Revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned.
Our FMS Program contract is a cost plus award fee contract. This contract has terms that specify award fee
payments that are determined by performance and level of contract activity. Award fees are made during the year
through a contract modification authorizing the award fee that is issued subsequent to the period in which the work
is performed. We recognize award fee income on the FMS Program contract when the fees are fixed or
determinable. Due to such timing, and to fluctuations in the level of revenues, profits as a percentage of revenues on
this contract will fluctuate from period to period.
Revenues for time and materials contracts are recorded on the basis of contract allowable labor hours
worked multiplied by the contract defined billing rates, plus the direct costs and indirect cost burdens associated
with materials and subcontract work used in performance on the contract. Generally, profits on time and materials
contracts result from the difference between the cost of services performed and the contract defined billing rates for
these services.
40
Revenue related to work performed on contracts at risk, which is work performed at the customer’s request
prior to the government formalizing funding, is not recognized until it can be reliably estimated and its realization is
probable.
A substantial portion of contract and administrative costs are subject to audit by the Defense Contract Audit
Agency. Our indirect cost rates have been audited and approved for 2007 and prior years with no material
adjustments to our results of operations or financial position. While we maintain reserves to cover the risk of
potential future audit adjustments based primarily on the results of prior audits, we do not believe any future audits
will have a material adverse effect on our results of operations or financial position.
Receivables and Allowance for Doubtful Accounts
Receivables are recorded at amounts earned less an allowance for doubtful accounts. We review our
receivables regularly to determine if there are any potentially uncollectible accounts. The majority of our
receivables are from government agencies, where there is minimal credit risk. We record allowances for bad debt as
a reduction to receivables and an increase to bad debt expense. We assess the adequacy of these reserves by
considering general factors, such as the length of time individual receivables are past due and historical collection
experience.
Inventories
Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. Included
in inventory are related purchasing, storage, and handling costs. Our inventory primarily consists of vehicle
replacement parts.
Deferred Compensation Plans
We have a deferred compensation plan, the VSE Corporation Deferred Supplemental Compensation Plan
(“DSC Plan”), to provide incentive and reward for certain management employees based on overall corporate
performance. We maintain the underlying assets of the DSC Plan in a Rabbi Trust and changes in asset values are
included in contract costs on the accompanying consolidated statements of income. We invest the assets held by the
Rabbi Trust in both corporate owned life insurance (“COLI”) products and in mutual funds. The COLI investments
are recorded at cash surrender value and the mutual fund investments are recorded at fair value. The DSC Plan
assets are included in other assets and the obligation to the participants is included in deferred compensation on the
accompanying consolidated balance sheets.
Deferred compensation plan expense recorded as contract costs in the accompanying consolidated
statements of income for the years ended December 31, 2014, 2013, and 2012 was approximately $1.3 million, $1.4
million, and $1.2 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets include property and equipment to be held and used. We review the carrying values of
long-lived assets other than goodwill for impairment if events or changes in the facts and circumstances indicate that
their carrying values may not be recoverable. We assess impairment by comparing the estimated undiscounted
future cash flows of the related asset to its carrying value. If an asset is determined to be impaired, we recognize an
impairment charge in the current period for the difference between the fair value of the asset and its carrying value.
During 2012, impairment charges of approximately $1 million were recorded for the intangible assets
related to our acquisition of Akimeka. Also during 2012, an impairment charge of approximately $1.9 million was
recorded for the intangible assets related to our acquisition of ICRC (see Note 5, Goodwill and Intangible Assets).
No impairment charges related to intangible assets, other than goodwill, were recorded in the years ended December
31, 2014 and December 31, 2013.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
41
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. This
method also requires the recognition of future tax benefits, such as net operating loss carryforwards, to the extent
that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The carrying value of net deferred tax assets is based on assumptions regarding our ability to generate
sufficient future taxable income to utilize these deferred tax assets.
Goodwill
We review goodwill for impairment annually at the beginning of the fourth quarter and whenever events or
changes in circumstances indicate the carrying value of goodwill may not be recoverable. The goodwill impairment
test involves a two-step process. In the first step, we compare the fair value of each reporting unit to its carrying
value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further
testing is required. If the fair value of the reporting unit is less than the carrying value, we must perform the second
step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair
value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible
assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the
reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill
is less than the carrying value, the difference is recorded as an impairment loss. Based on our annual goodwill
impairment analysis we performed during the fourth quarter of 2014, we found no impairment in the carrying value
of goodwill.
During 2013, goodwill of $790 thousand was impaired (See Note 15, Discontinued Operations). Based on
the results of the impairment analyses performed during 2012, goodwill impairment charges of approximately $6
million were recorded related to our ICRC acquisition (see Note 5, Goodwill and Intangible Assets).
Intangibles
Intangible assets consist of the value of contract-related intangible assets, trade names and acquired
technologies acquired in acquisitions. We amortize on a straight-line basis intangible assets acquired as part of
acquisitions over their estimated useful lives unless their useful lives are determined to be indefinite. The amounts
we record related to acquired intangibles are determined by us considering the results of independent valuations. Our
contract-related intangibles are amortized over their estimated useful lives of approximately 8 to 12 years with a
weighted-average life of approximately 11.8 years as of December 31, 2014. We have three trade names that are
amortized over an estimated useful life of approximately 8.4 years. We have an acquired technologies intangible
asset that is amortized over an estimated useful life of 11 years. The weighted-average life for all amortizable
intangible assets is approximately 11.4 years as of December 31, 2014.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to fulfill a contract. The ASU will become effective for us on January 1, 2017. We currently are
assessing the impact that this standard will have on its consolidated financial statements.
42
(2) Receivables
The components of receivables as of December 31, 2014 and 2013 were as follows (in thousands):
Billed
Unbilled
Total receivables
2014
$ 26,709
32,682
$ 59,391
2013
$ 36,703
41,684
$ 78,387
The unbilled balance includes certain costs for work performed at risk but which we believe will be funded
by the government totaling approximately $2.9 million and $5 million as of December 31, 2014 and 2013,
respectively. We expect to invoice substantially all unbilled receivables during 2015.
(3) Other Current Assets and Other Assets
At December 31, 2014 and 2013, other current assets primarily consisted of contract inventories, vendor advances,
prepaid rents and deposits, prepaid income taxes, software licenses and prepaid maintenance agreements. At
December 31, 2014, other current assets also included approximately $1.6 million of deferred contract costs. At
December 31, 2014 and 2013, other assets primarily consisted of deferred compensation plan assets, cash surrender
value of life insurance policies and an acquired software license.
(4) Property and Equipment
Property and equipment consisted of the following as of December 31, 2014 and 2013 (in thousands):
Buildings and building improvements
Computer equipment
Furniture, fixtures, equipment and other
Leasehold improvements
Land and land improvements
Less accumulated depreciation and amortization
Total property and equipment, net
2014
$45,825
25,327
17,603
3,567
3,410
95,732
(42,821)
$52,911
2013
$45,418
24,933
16,604
3,567
3,410
93,932
(36,194)
$57,738
Depreciation and amortization expense for property and equipment for the years ended December 31, 2014,
2013 and 2012 was approximately $7.9 million, $9 million and $9.2 million, respectively.
(5) Goodwill and Intangible Assets
Changes in goodwill for the years ended December 31, 2014 and 2013 are as follows (in thousands):
Balance as of December 31, 2012
Balance as of December 31, 2013
Balance as of December 31, 2014
Supply Chain
Management
$61,169
$61,169
$61,169
IT, Energy and
Management
Consulting
$30,883
$30,883
$30,883
Total
$92,052
$92,052
$92,052
The results of our annual impairment testing indicated that the fair value of our reporting units exceeded
their carrying values as of October 1, 2014.
43
Intangible assets consist of the value of contract-related assets, technologies and trade names. Amortization
expense for the years ended December 31, 2014, 2013 and 2012 was approximately $10 million, $10.2 million and
$11.2 million, respectively.
Intangible assets were composed of the following (in thousands):
December 31, 2014
Contract and customer-related
Acquired technologies
Trade names – amortizable
Total
December 31, 2013
Contract and customer-related
Acquired technologies
Trade names – amortizable
Total
Accumulated
Amortization
Accumulated
Impairment
Loss
Net Intangible
Assets
$(33,840)
(4,024)
(4,706)
$(42,570)
$(26,287)
(2,896)
(3,339)
$(32,522)
$(1,025)
-
-
$(1,025)
$(1,025)
-
-
$(1,025)
$ 58,439
8,376
5,394
$ 72,209
$ 65,992
9,504
6,761
$ 82,257
Cost
$ 93,304
12,400
10,100
$115,804
$ 93,304
12,400
10,100
$115,804
Future expected amortization of intangible assets is as follows for the years ending December 31, (in
thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Amortization
$9,439
9,255
9,255
9,255
9,190
25,815
$72,209
(6) Debt
We have a loan agreement with a group of banks. In January 2015, we amended and restated the loan
agreement to fund our acquisition of four aviation businesses, provide working capital for our continuing operations,
and retire our existing debt. Both the former and the amended and restated loan agreements are comprised of a term
loan facility and a revolving loan facility. The revolving loan facility provides for revolving loans and letters of credit.
The amended and restated loan agreement expires in January 2020. Financing costs associated with the inception of
the amended and restated loan agreement were approximately $2 million.
The amended and restated term loan requires quarterly installment payments. Our scheduled term loan
payments after December 31, 2014 are $11.2 million in 2015, $17.8 million in 2016, $21.6 million in 2017, $28.1
million in 2018, $30 million in 2019, and $41.3 million after 2019. The amount of term loan borrowings outstanding as
of December 31, 2014 under the former loan agreement was $25 million. The amount of term loan borrowings
outstanding at inception of the amended and restated loan agreement was $150 million.
The maximum amount of credit available to us from the banking group for revolving loans and letters of
credit under the former loan agreement as of December 31, 2014 was $125 million. The maximum amount for
revolving loans and letters of credit under the amended and restated agreement is $150 million. We may borrow and
repay the revolving loan borrowings as our cash flows require or permit. We pay an unused commitment fee and fees
on letters of credit that are issued. We had approximately $23.6 million in revolving loan amounts outstanding and no
of letters of credit outstanding as of December 31, 2014 under the former loan agreement. The amount of revolving
loan borrowings outstanding at inception of the amended and restated loan agreement was $100 million. We had
approximately $30.3 million in revolving loan amounts and $573 thousand of letters of credit outstanding as of
December 31, 2013.
44
Under the amended and restated loan agreement we may elect to increase the maximum availability of the
term loan facility, the revolving loan facility, or both facilities up to an aggregate additional amount of $75 million.
Total bank loan borrowed funds outstanding as of December 31, 2014, including term loan borrowings and
revolving loan borrowings, were approximately $48.6 million. Total bank loan borrowed funds outstanding as of
December 31, 2013 were $89.7 million. The fair value of outstanding debt under our bank loan facilities as of
December 31, 2014 approximates its carrying value using Level 2 inputs based on market data on companies with a
corporate rating similar to ours that have recently priced credit facilities.
We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a base margin or
at a base rate (typically the prime rate) plus a base margin. As of December 31, 2014, the LIBOR base margin was
1.75% and the base rate base margin was 0.00%. At inception of the amended and restated loan agreement, the LIBOR
base margin was 2.25% and the base rate base margin was 1.00%. The base margins increase or decrease in increments
as our Total Funded Debt/EBITDA Ratio increases or decreases.
We had interest rate hedges on a portion of our outstanding borrowings that expired June 30, 2014. Between
June 30, 2014 and December 31, 2014, we had no interest rate hedges on our outstanding borrowings. The terms of the
amended and restated loan agreement require us to have interest rate hedges on a portion of the outstanding term loan
for the first three years of the agreement, and for such interest rate hedges to be in place within 60 days after inception
of the agreement. We executed such compliant interest rate hedges in February 2015. As of December 31, 2014,
interest rates on portions of our outstanding debt range from 1.91% to 3.25%, and the effective interest rate on our
aggregate outstanding debt was 3.15%.
Interest expense incurred on bank loan borrowings and interest rate hedges was approximately $2 million and
$3.7 million during the years ended December 31, 2014 and 2013, respectively.
Both the former and amended and restated loan agreements contain collateral requirements to secure our
loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative
covenants, conditions and limitations. Upon execution of the amended and restated loan agreement, all restrictive
covenants and the December 31, 2014 restrictive covenant measurement date under the former loan agreement were
replaced by the restrictive covenants under the amended and restated agreement, with the initial measurement date
being the date of inception of the amended and restated agreement. Restrictive covenants under the amended and
restated loan agreement include a maximum Total Funded Debt/EBITDA Ratio and a minimum Fixed Charge
Coverage Ratio. We were in compliance with required ratios and other terms and conditions at inception of the
amended and restated loan agreement.
(7) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist primarily of accrued compensation and benefits of
approximately $16.7 million and $17.6 million as of December 31, 2014 and 2013, respectively. The accrued
compensation and benefits amounts include bonus, salaries and related payroll taxes, vacation and deferred
compensation.
(8) Stock-Based Compensation Plans
In 2006, our stockholders approved the VSE Corporation 2006 Restricted Stock Plan for its directors,
officers and other employees (the “2006 Plan”). On May 6, 2014, the stockholders approved amendments to the
2006 Plan extending the term thereof until May 6, 2021 and authorized an additional 250,000 shares of our common
stock for issuance under the 2006 Plan. Under the provisions of the 2006 Plan, we are authorized to issue up to
500,000 shares of our common stock. The Compensation Committee is responsible for the administration of the
2006 Plan, and determines each recipient of an award under the 2006 Plan, the number of restricted shares of
common stock subject to such award and the period of continued employment required for the vesting of such
award. These terms are included in award agreements between us and the recipients of the award. As of December
31, 2014, 278,482 shares of our common stock were available for issuance under the 2006 Plan.
45
During 2014 and 2013, Non-employee directors were awarded 10,800 and 16,100 shares of restricted stock,
respectively, under the 2006 Plan. The weighted average grant-date fair value of these restricted stock grants was
$47.22 per share and $25.68 per share for the shares awarded in 2014 and 2013, respectively. The shares issued
vested immediately and cannot be sold, transferred, pledged or assigned before the second anniversary of the grant
date. Compensation expense related to these grants was approximately $510 thousand and $413 thousand during
2014 and 2013, respectively.
In January of every year since 2007, we have notified certain employees that they are eligible to receive
awards of VSE stock under our 2006 Plan, as amended, based on our financial performance for the respective fiscal
years. These restricted stock awards are expensed and a corresponding liability is recorded ratably over the vesting period of
approximately three years. Upon issuance of shares on each vesting date, the liability is reduced and additional paid-in capital
is increased. The date of award determination is expected to be in March 2015 for the 2014 awards. The date of
award determination for the 2013 awards and the 2012 awards was March 2, 2014 and March 1, 2013, respectively.
On each vesting date, 100% of the vested award is paid in our shares. The number of shares issued is based on the
fair market value of our common stock on the vesting date. The earned amount is expensed ratably over the vesting
period of approximately three years. On March 2, 2014, the employees eligible for the 2013 awards, 2012 awards
and 2011 awards received a total of 12,221 shares of common stock. The grant-date fair value of these awards was
$47.07 per share.
The total stock-based compensation expense related to restricted stock awards for the years ended
December 31, are as follows (in thousands):
Employees
Non-employee Directors
Total
2014
$ 1,104
510
$ 1,614
2013
$1,163
413
$1,576
2012
$ 650
272
$ 922
Employees are permitted to forfeit a certain number of shares of restricted stock to cover their personal tax
liability for restricted stock awards. We paid approximately $314 thousand, $257 thousand and $332 thousand, to
cover this liability in the years ended December 31, 2014, 2013 and 2012, respectively. These payments are
classified as financing cash flows on the consolidated statements of cash flows. As of December 31, 2014, the total
compensation cost related to non-vested awards not yet recognized was approximately $764 thousand with a
weighted average amortization period of 1.8 years.
Stock-based compensation, which includes compensation recognized on stock option grants and restricted
stock awards, was included in contract costs and the following line items on the accompanying statements of income
for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Stock-based compensation included in contract costs
Income tax benefit recognized for stock-based compensation
Total stock-based compensation expense, net of income tax
benefit
2014
$1,739
(669)
2013
$1,576
(606)
2012
$1,076
(414)
$1,070
$ 970
$ 662
(9) Income Taxes
We are subject to U.S. federal income tax as well as income tax in multiple state and local jurisdictions.
We have concluded all U.S. federal income tax matters as well as material state and local tax matters for years
through 2010.
46
We file consolidated federal income tax returns that include all of our subsidiaries. The components of the
provision for income taxes from continuing operations for the years ended December 31, 2014, 2013, and 2012 are
as follows (in thousands):
Current
Federal
State
Deferred
Federal
State
Provision for income taxes
2014
2013
2012
$ 7,889
1,486
9,375
2,595
488
3,083
$12,458
$12,654
2,544
15,198
(848)
(26)
(874)
$14,324
$14,782
2,959
17,741
(999)
(254)
(1,253)
$16,488
The differences between the amount of tax computed at the federal statutory rate of 35% and the provision
for income taxes from continuing operations for the years ended December 31, are as follows (in thousands):
Tax at statutory federal income tax rate
Increases (decreases) in tax resulting from:
State taxes, net of federal tax benefit
Permanent differences, net
Other, net
Provision for income taxes
2014
$11,531
1,486
(516)
(43)
$12,458
2013
$13,410
1,630
(685)
(31)
$14,324
2012
$15,348
1,901
(522)
(239)
$16,488
The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31,
2014 and 2013, are as follows (in thousands):
Gross deferred tax assets
Deferred compensation and accrued paid leave
Accrued expenses
Stock-based compensation
Interest rate swaps
Reserve for contract disallowances
Acquisition-related expenses
Capitalized inventory
Other
Total gross deferred tax assets
Gross deferred tax liabilities
Depreciation
Deferred revenues
Goodwill and intangible assets
Total gross deferred tax liabilities
Net deferred tax assets
(10) Commitments and Contingencies
(a) Leases and Other Commitments
2014
2013
$ 6,992
1,276
592
-
287
982
589
5
10,723
$6,805
1,489
510
125
326
603
409
-
10,267
(2,830)
(2,676)
(5,017)
(10,523)
(3,237)
(1,921)
(1,701)
(6,859)
$ 200
$3,408
We have various non-cancelable operating leases for facilities, equipment, and software with terms
between two and 15 years. The terms of the facilities leases typically provide for certain minimum payments as well
as increases in lease payments based upon the operating cost of the facility and the consumer price index. Rent
47
expense is recognized on a straight-line basis for rent agreements having escalating rent terms. Lease expense for the
years ended December 31, 2014, 2013 and 2012 were as follows (in thousands):
2014
2013
2012
Operating
Lease
Expense
$6,576
$9,826
$11,544
Sublease
Income
$119
$531
$671
Net
Expense
$6,457
$9,295
$10,873
Future minimum annual non-cancelable commitments as of December 31, 2014 are as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Lease
Commitments
$ 3,859
2,367
1,939
871
316
-
$9,352
Operating Leases
Sublease
Income
Net
Commitments
$246
-
-
-
-
-
$246
$ 3,613
2,367
1,939
871
316
-
$9,106
We signed a lease in 2009 for a building to serve as our headquarters with a rent commencement date of
May 1, 2012. Certain terms in the lease agreement resulted in the capitalization of construction costs due to specific
accounting rules. We recorded a construction asset and corresponding long-term liability of approximately $27.3
million on May 1, 2012, which represents the construction costs incurred by the landlord as of that date. According
to accounting rules, we have forms of continuing involvement that require us to account for this transaction as a
financing lease upon commencement of the lease period. The building and building improvements will remain on
our consolidated balance sheet and will be depreciated over a 15-year period. Payments made under the lease
agreement are applied to service the financing obligation and interest expense based on an imputed interest rate
amortizing the obligation over the life of the lease agreement.
Future minimum annual non-cancelable commitments under our headquarters lease as of December 31,
2014, which are not included in the table above, are as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
(b) Contingencies
Lease Commitments
$ 3,985
4,104
4,221
4,336
4,456
36,447
$57,549
We are one of the primary defendants in a multiple plaintiff wrongful death action in Hawaii related to a
fireworks explosion that occurred in April 2011 at a facility operated by one of our subcontractors, which resulted in
the death of five subcontractor employees. The litigation is expected to proceed to trial in 2016. While the results of
litigation cannot be predicted with certainty, we do not anticipate that this litigation will have a material adverse
effect on our results of operations or financial position.
On or about March 8, 2013, a lawsuit, Anchorage v. Integrated Concepts and Research Corporation, et al.,
was filed in the Superior Court for the State of Alaska at Anchorage by the Municipality of Anchorage, Alaska
against our wholly owned subsidiary Integrated Concepts and Research Corporation (“ICRC”) and two former
subcontractors of ICRC. With respect to ICRC, the lawsuit asserts, among other things, breach of contract,
professional negligence and negligence in respect of work and services ICRC rendered under the Port of Anchorage
48
Intermodal Expansion Contract with the Maritime Administration, a federal agency with the United States
Department of Transportation. In April 2013, ICRC removed the case to the United States District Court for the
District of Alaska. ICRC’s contract with the Maritime Administration expired on May 31, 2012. ICRC did not have
a contract with the municipality of Anchorage. The litigation is expected to proceed to trial in 2016. Currently we
cannot currently predict whether this litigation will have a material adverse effect on our results of operations or
financial position.
In addition to the above-referenced litigation, we have, in the normal course of business, certain claims
against us and against other parties and we may be subject to various governmental investigations. In our opinion,
the resolution of these claims and investigations will not have a material adverse effect on our results of operations
or financial position. However, the results of any legal proceedings cannot be predicted with certainty.
(11) Business Segments and Customer Information
Segment Information
Management of our business operations is conducted under four reportable operating segments:
Supply Chain Management Group – Our Supply Chain Management Group supplies vehicle parts primarily through
a Managed Inventory Program (“MIP”) direct sales to USPS and to other clients.
International Group - Our International Group provides engineering, industrial, logistics and foreign military sales
services to the U.S. military and other government agencies.
Federal Group - Our Federal Group provides legacy equipment sustainment, engineering, technical, management,
integrated logistics support and information technology services to DoD and other government agencies.
IT, Energy and Management Consulting Group – Our IT, Energy and Management Consulting Group provides technical and
consulting services primarily to various civilian government agencies.
These segments operate under separate management teams and financial information is produced for each
segment. The entities within each of the International Group, Federal Group, and IT, Energy and Management
Consulting Group reportable segments meet the aggregation of operating segments criteria as defined by the
accounting standard for segment reporting. We evaluate segment performance based on consolidated revenues and
operating income. Net sales of our business segments exclude intersegment sales as these activities are eliminated in
consolidation. Beginning with the second quarter of 2013, we no longer allocate interest to our reportable segments.
49
Our segment information is as follows (in thousands):
For the years ended December 31,
Revenues
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
Total revenues
Operating income:
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
Corporate
Operating income
Depreciation and amortization expense:
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
Total depreciation and amortization
Capital expenditures:
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
Corporate
Total capital expenditures
2014
2013
2012
$172,482
106,369
84,392
60,828
$424,071
$ 29,694
3,795
(343)
6,634
(2,850)
$ 36,930
$ 5,373
5,713
5,607
2,077
$ 18,770
$ 2,524
-
230
199
461
$ 3,414
$154,702
146,908
95,435
74,593
$471,638
$ 27,299
7,069
2,400
9,061
(1,726)
$ 44,103
$ 4,265
7,323
6,033
2,387
$ 20,008
$ 895
236
1,211
71
2,003
$ 4,416
$143,014
167,193
142,323
94,225
$546,755
$ 24,014
6,052
10,418
11,816
(1,224)
$ 51,076
$ 9,891
3,035
3,116
3,753
$ 19,795
$ 341
83
763
53
19,623
$ 20,863
Total assets:
Supply Chain Management Group
International Group
Federal Group
IT, Energy and Management Consulting Group
Corporate
Total assets
December 31,
2014
2013
$192,720
17,235
18,990
49,790
76,595
$355,330
$185,976
33,355
20,846
57,610
82,742
$380,529
Revenues are net of inter-segment eliminations. Corporate/unallocated expenses are primarily selling,
general and administrative expenses not allocated to segments. Corporate assets are primarily cash and property and
equipment.
50
Customer Information
Our revenues are derived from contract services performed for DoD agencies or federal civilian agencies
and from the delivery of products to our clients. The USPS, U.S. Army and Army Reserve, and U.S. Navy are our
largest customers. Our customers also include various other government agencies and commercial entities. Our
revenue by customer is as follows for the years ended December 31, (in thousands):
Customer
U.S. Army/Army Reserve
U.S. Navy
U.S. Air Force
Total - DoD
U.S. Postal Service
Department of Energy
Department of Treasury
Department of Interior
Other government
Total – Federal civilian agencies
Commercial
Total
Revenues by Customer
(dollars in thousands)
Years ended December 31,
%
24.0
20.7
0.8
45.5
2014
$101,714
88,007
3,323
193,044
2013
$101,736
123,307
3,625
228,668
167,268
19,000
10,897
1,431
28,751
227,347
3,680
39.4
4.5
2.6
0.3
6.8
53.6
0.9
142,203
20,124
35,929
1,545
40,919
240,720
2,250
%
21.6
26.1
0.8
48.5
30.1
4.3
7.6
0.3
8.7
51.0
0.5
2012
$182,412
120,867
6,963
310,242
130,866
20,898
33,369
16,884
32,231
234,248
2,265
%
33.4
22.1
1.3
56.8
23.9
3.8
6.1
3.1
5.9
42.8
0.4
$424,071
100.0
$471,638
100.0
$546,755
100.0
We do not measure revenue or profit by product or service lines, either for internal management or external
financial reporting purposes, because it would be impractical to do so. Products offered and services performed are
determined by contract requirements and the types of products and services provided for one contract bear no
relation to similar products and services provided on another contract. Products and services provided vary when
new contracts begin or current contracts expire. In many cases, more than one product or service is provided under a
contract or contract task order. Accordingly, cost and revenue tracking is designed to best serve contract
requirements and segregating costs and revenues by product or service lines in situations for which it is not required
would be difficult and costly to both us and our customers.
(12) Capital Stock
Common Stock
Our common stock has a par value of $0.05 per share. Proceeds from common stock issuances that are
greater than $0.05 per share are credited to additional paid in capital. Holders of common stock are entitled to one
vote per common share held on all matters voted on by our stockholders. Stockholders of record are entitled to the
amount of dividends declared per common share held.
(13) 401(k) Plan and Profit Sharing Plan
We maintain a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as
amended, that covers substantially all of our employees. Under the provisions of our 401(k) plan, employees’
eligible contributions are matched at rates specified in the plan documents. Our expense associated with this plan
was approximately $4 million, $3.7 million and $4.9 million for the years ended December 31, 2014, 2013, and
2012, respectively.
Energetics maintains a profit sharing plan for its employees. All employees who have completed at least
two years of service are members of the profit sharing plan. At our discretion, we may make contributions to the
Energetics plan. Total expense for the years ended December 31, 2014, 2013, and 2012 was $190 thousand, $175
thousand, and $217 thousand, respectively.
51
(14) Fair Value Measurements
The accounting standard for fair value measurements defines fair value, and establishes a market-based
framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are
measured at fair value.
The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into
three levels as follows:
Level 1 – Observable inputs – quoted prices in active markets for identical assets and liabilities;
Level 2 – Observable inputs other than the quoted prices in active markets for identical assets and liabilities
– includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive
markets, and amounts derived from valuation models where all significant inputs are observable in active markets;
and
Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more
significant inputs are unobservable and require us to develop relevant assumptions.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring
basis as of December 31, 2014 and December 31, 2013 and the level they fall within the fair value hierarchy (in
thousands):
Amounts Recorded
at Fair Value
Non-COLI assets held in DSC Plan
Interest rate swaps
Earn-out obligations - current
Earn-out obligations - long-term
Financial Statement
Classification
Other assets
Accrued expenses
Current portion of
earn-out obligations
Earn-out obligations
Fair Value
Hierarchy
December 31,
2014
December 31,
2013
Level 1
Level 2
Level 3
Level 3
$253
-
$9,455
-
$198
$326
-
$9,062
Changes in the fair value of the Non-COLI assets held in the deferred supplemental compensation plan are
recorded as selling, general and administrative expenses.
Our interest rate swap agreements expired on June 30, 2014. The amounts paid and received on the swap
agreements were recorded in interest expense as yield adjustments in the period during which the related floating-
rate interest was incurred. We determined the fair value of the swap agreements based on a valuation model using
market data inputs.
Our acquisition of WBI in 2011 required us to make additional payments to the sellers of up to a total of
$40 million over a four-year post-acquisition period ending June 30, 2015 if WBI achieves certain financial
performance. WBI’s sellers earned approximately $2.7 million, $219 thousand and $7.1 million based on WBI’s
financial performances for the earn-out years ended June 30, 2014, 2013 and 2012, respectively. Included in earn-
out obligations on our December 31, 2014 balance sheet is approximately $9.5 million classified as the current
portion of earn-out obligations, which represents our best estimate of the present value. Changes in the fair value of
the earn-out obligations are recorded as contract costs in the period of change through settlement.
The following table provides a reconciliation of the beginning and ending balance of the earn-out
obligations measured at fair value on a recurring basis that used significant unobservable inputs (Level 3).
Balance as of December 31, 2013
Earn-out payments
Fair value adjustment included in earnings
Reclassification from long-term to short-term
Balance as of December 31, 2014
Current portion
$ -
-
-
9,455
$9,455
Long-term portion
$9,062
(2,666)
3,059
(9,455)
-
Total
$9,062
(2,666)
3,059
-
$9,455
52
We utilize the Monte Carlo valuation model for our earn-out obligation. Significant unobservable inputs
used to value the contingent consideration include projected earnings before interest, taxes, depreciation and
amortization and the discount rate. The model used a discount rate of 7.5% as of December 31, 2014. If a
significant increase or decrease in the discount rate occurred in isolation, the result could be a significantly lower or
higher fair value measurement of our earn-out obligation.
(15) Discontinued Operations
During 2013 we abandoned the construction management operations of our wholly owned subsidiary
Integrated Concepts and Research Corporation (“ICRC”). Prior to our decision to divest ICRC’s operations in
December 2012, ICRC participated in an arrangement to provide performance and payment bonding services for
certain small business prime contractors associated with ICRC’s construction management business. Under the
arrangement, ICRC received subcontractor work from the small business prime contractors in exchange for
indemnifying the surety company in respect of the performance and payment bonds it provided for the small
business prime contractors. In October 2012, the surety company, at ICRC’s request, ceased issuing bonds for the
small business prime contractors, and in December 2012 ICRC ceased performing all work on construction projects
when it discontinued its construction management operations. Bonds issued prior to December 2012 for construction
projects that were not yet completed by the small business prime contractors remained in effect until the projects are
completed by the small business prime contractors.
As of December 31, 2014, two of the bonded projects had not yet been completed and the aggregate
bonded amount on these projects was approximately $4 million. Our bonded projects are the subject of claims and
disputes involving the subcontractors associated with the projects. We have recorded an expense of approximately
$1.1 million, net of tax, which is included in loss from discontinued operations for the year ended December 31,
2014 primarily related to these claims and disputes. We expect all remaining bonded projects to be completed in
2015.
Revenues and costs of ICRC have been reclassified as discontinued operations for all periods presented.
The major categories included in discontinued operations on the consolidated statements of income are as follows
(in thousands):
Revenues
Loss before income taxes
Income benefit
Loss from discontinued operations, net
Year ended December 31,
2014
-
2013
$225
2012
$23,128
$(1,807)
(683)
$(1,124)
$(1,818)
(680)
$(1,138)
$(9,728)
(3,658)
$(6,070)
53
(16) Selected Quarterly Data (Unaudited)
The following table shows selected quarterly data for 2014 and 2013, in thousands, except earnings per
share.
Revenues
Contract costs
Operating income
Income from continuing operations
Loss from discontinued operations
Net income
Basic earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Basic weighted average shares outstanding
Diluted earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Diluted weighted average shares outstanding
Revenues
Contract costs
Operating income
Income from continuing operations
Loss from discontinued operations
Net income
Basic earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Basic weighted average shares outstanding
Diluted earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Diluted weighted average shares outstanding
2014 Quarters
1st
2nd
3rd
4th
$119,409
$107,611
$11,357
$6,269
($615)
$5,654
$1.17
($0.12)
$1.05
5,347
$1.17
($0.12)
$1.05
5,364
$107,962
$96,481
$10,703
$5,944
($279)
$5,665
$1.11
($0.05)
$1.06
5,356
$1.11
($0.05)
$1.06
5,368
$101,749
$93,388
$7,183
$3,887
($4)
$3,883
$0.73
$0.00
$0.73
5,356
$0.72
$0.00
$0.72
5,372
$94,951
$85,521
$7,687
$4,389
($226)
$4,163
$0.82
($0.04)
$0.78
5,356
$0.82
($0.04)
$0.78
5,380
2013 Quarters
1st
2nd
3rd
4th
$119,062
$105,555
$12,701
$6,963
($101)
$6,862
$1.31
($0.02)
$1.29
5,333
$1.30
($0.02)
$1.28
5,340
$111,069
$101,026
$9,460
$5,327
($1)
$5,326
$1.00
$0.00
$1.00
5,333
$1.00
$0.00
$1.00
5,339
$122,350
$108,886
$12,000
$6,429
($1,023)
$5,406
$1.20
($0.19)
$1.01
5,333
$1.20
($0.19)
$1.01
5,364
$119,157
$108,783
$9,942
$5,271
($13)
$5,258
$0.99
$0.00
$0.99
5,317
$0.99
$0.00
$0.99
5,329
54
(17) Subsequent Events
In January 2015, we acquired 100% of the voting equity interest of four businesses (the “Acquisition”) that
specialize in maintenance, repair and overhaul (“MRO”) services and parts supply for corporate and regional jet aircraft
engines and engine accessories. The businesses acquired include Air Parts & Supply Co., Kansas Aviation of
Independence, L.L.C., Prime Turbines LLC, and CT Aerospace LLC. These four businesses will operate as a
combined group under our newly formed wholly owned subsidiary VSE Aviation, Inc. to expand our sustainment
services into the aviation supply chain market. We have retained certain key members of the management group and
the operating businesses.
The aggregate cash purchase price for the Acquisition was approximately $189 million (subject to working
capital and inventory and equipment adjustments). We may also be required to make earn-out payments of up to $45
million if the Acquisition meets certain financial targets during the first two years after the closing of the Acquisition.
We expect to account for the transaction as a business combination and have not completed the purchase
accounting for the Acquisition. We plan to file the required historical financial statements of the Acquisition and the
required pro forma financial statements of the combined results of the Company and the Acquisition in a Form 8-K/A
to amend the Current Report on Form 8-K filed on January 30, 2015 by April XX, 2015. Preliminary estimates of
valuations are as follows (in thousands):
Tangible assets acquired
Liabilities assumed
Identifiable net assets acquired
Purchase price:
Cash paid
Less identifiable net assets acquired
Excess of purchase price over net assets acquired, allocated
to intangibles and goodwill
Fair Value
$80,000
12,000
$ 68,000
$189,000
(68,000)
$121,000
55
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)
under the Securities Exchange Act of 1934, as amended (Exchange Act)). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and
procedures were effective to ensure that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2014 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework). Based on our assessment under the framework in
Internal Control – Integrated Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2014. Ernst & Young LLP, our independent registered public accounting
firm, has issued an opinion on our internal control over financial reporting. This opinion appears in the Report of
Independent Registered Public Accounting Firm under Item 9(a) of this Form 10-K.
Change in Internal Controls
During the fourth quarter of fiscal year 2014, there were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that
have materially affected these controls, or are reasonably likely to materially affect these controls subsequent to the
evaluation of these controls.
56
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of VSE Corporation
We have audited VSE Corporation and Subsidiaries’ internal control over financial reporting as of December 31,
2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). VSE Corporation
and Subsidiaries’ 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’s 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
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.
In our opinion, VSE Corporation and Subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of VSE Corporation and Subsidiaries as of December 31, 2014 and 2013,
and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2014 of VSE Corporation and Subsidiaries and our report
dated March 6, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 6, 2015
57
ITEM 9B. Other Information
None.
PART III
Except as otherwise indicated below, the information required by Items 10, 11, 12, 13 and 14 of Part III of
Form 10-K has been omitted in reliance of General Instruction G(3) to Form 10-K and is incorporated herein by
reference to our definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2014
in respect to the Annual Meeting of VSE’s stockholders scheduled to be held on May 5, 2015 (the “Proxy
Statement”).
ITEM 10. Directors, Executive Officers and Corporate Governance
See Item 4 under the caption “Executive Officers of Registrant”, and the remaining information required by
this Item is incorporated by reference to the Proxy Statement.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Except for the “Equity Compensation Plan Information” disclosed in Item 5(e) above, the information
required by this Item is incorporated by reference to the Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to the Proxy Statement.
ITEM 15. Exhibits and Financial Statement Schedules
1. Financial Statements
PART IV
The consolidated financial statements are listed under Item 8 of this Form 10-K.
2. Supplemental Financial Statement Schedules
All schedules have been omitted because they are not applicable, not required, or the information has been
otherwise supplied in the financial statements or notes to the financial statements.
3. Exhibits
See “Exhibit Index” hereinafter contained and incorporated by reference.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 6, 2015
By:
VSE CORPORATION
/s/ M. A. Gauthier
M. A. Gauthier
Director, Chief Executive Officer,
President and Chief Operating
Officer
59
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Maurice A. Gauthier
Maurice A. Gauthier
/s/ Thomas R. Loftus
Thomas R. Loftus
/s/ Clifford M. Kendall
Clifford M. Kendall
/s/ Calvin S. Koonce
Calvin S. Koonce
/s/ James F. Lafond
James F. Lafond
/s/ David M. Osnos
David M. Osnos
/s/ Bonnie K. Wachtel
Bonnie K. Wachtel
/s/ Ralph E. Eberhart
Ralph E. Eberhart
/s/ Jack C. Stultz
Jack C. Stultz
/s/ John E. Potter
John E. Potter
/s/ John C. Harvey
John C. Harvey
Director, Chief Executive
Officer, President and
Chief Operating Officer
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
March 6, 2015
March 6, 2015
Chairman/Director
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
Director
Director
Director
Director
Director
Director
Director
Director
60
Reference No.
Per Item 601 of
Regulation S-K
EXHIBIT INDEX
Description of Exhibit
Exhibit No.
In this Form 10-K
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Certificate of incorporation and by-laws
Restated Certificate of Incorporation of VSE
Corporation dated as of February 6, 1996 (Exhibit
3.2 to Form 10-K405 dated March 25, 1996)
By-Laws of VSE Corporation as amended through
December 17, 2008 (Exhibit 3.1 to Form 8-K dated
December 17, 2008)
Instruments defining the rights of security holders,
including indentures
Specimen Stock Certificate as of May 19, 1983
(Exhibit 4 to Registration Statement No. 2-83255
dated April 22, 1983 on Form S-2)
Material contracts
Employment Agreement dated as of July 1, 2004,
by and between VSE Corporation and Thomas R.
Loftus (Exhibit 10.1 to Form 10-Q dated July 30,
2004)
Amended and Restated Employment Agreement
dated as of December 6, 2013, by and between VSE
Corporation and Maurice A. Gauthier (Form 8-K dated
December 9, 2013)
Severance and Mutual Protection Agreement
dated as of November 7, 2008, by and between
VSE Corporation and Thomas M. Kiernan
(Exhibit 10.3 to Form 10-K dated March 3,
2009)
Third Amended and Restated Business Loan and
Security Agreement dated January 28, 2015 among
VSE Corporation and its wholly owned
subsidiaries, Citizens Bank of Pennsylvania and
a syndicate of five other banks (Exhibit 10.1 to
Form 8-K dated January 30, 2015)
Lease Agreement by and between Metropark 7 LLC and
VSE Corporation (Exhibit 10.2 to Form 8-K
dated November 4, 2009)
VSE Corporation Deferred Supplemental Compensation
Plan effective January 1, 1994 as amended by the
Board through March 9, 2004 (Exhibit 10.2 to
Form 10-Q dated April 28, 2004)
*
*
* +
* +
* +
* +
* +
* +
61
* +
Exhibit 13
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
*
10.8
13.1
21.1
23.1
31.1
31.2
32.1
32.2
99.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
VSE Corporation 2004 Non-employee Directors Stock
Plan (Appendix C to Registrant’s definitive
proxy statement for the Annual Meeting of
Stockholders held on May 3, 2004)
Annual report to security holders, Form 10-Q
or selected quarterly data
Subsidiaries of the Registrant
Consent of Ernst & Young LLP, independent
registered public accounting firm
Section 302 CEO Certification
Section 302 CFO and PAO Certification
Section 906 CEO Certification
Section 906 CFO and PAO Certification
Audit Committee Charter (as adopted by the Board
Of Directors of VSE Corporation on March 9,
2004)(Appendix A to Registrant’s definitive
proxy statement for the Annual Meeting of
Stockholders held on May 3, 2004)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*Document has been filed as indicated and is incorporated by reference herein.
+Indicates management contract or compensatory plan or arrangement.
62
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a listing of the subsidiaries of the Registrant:
Energetics Incorporated
G&B Solutions, Inc.
Jurisdiction of
Organization
Maryland
Virginia
Integrated Concepts and Research Corporation
District of Columbia
Akimeka, LLC
Wheeler Bros., Inc.
VSE Aviation, Inc. (f/k/a A Aviation Corp.)
VSE International Corp.
9126767 Canada Inc.
Hawaii
Pennsylvania
Delaware
Delaware
Canada
63
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements of VSE Corporation and
Subsidiaries:
Registration Statement (Form S-8 No. 333-195802) pertaining to the 2004 Non-employee Directors Stock
Plan, as amended;
Registration Statement (Form S-8 No. 333-195803) pertaining to the 2006 Restricted Stock Plan, as
amended; and
Registration Statement (Form S-8 No. 333-134285) pertaining to the 2006 Restricted Stock Plan, as
amended
of our reports dated March 6, 2015, with respect to the consolidated financial statements of VSE Corporation and
Subsidiaries and the effectiveness of internal control over financial reporting of VSE Corporation and Subsidiaries
included in this Annual Report (Form 10-K) for the year ended December 31, 2014.
/s/ Ernst & Young LLP
McLean, Virginia
March 6, 2015
64
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, M. A. Gauthier, certify that:
1. I have reviewed this annual report on Form 10-K of VSE Corporation;
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 officers 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)
(b)
(c)
(d)
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;
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;
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
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 registrant’s board of directors (or
persons performing the equivalent function):
(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
65
(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.
Dated: March 6, 2015
/s/ M. A. Gauthier
M. A. Gauthier
Chief Executive Officer, President and Chief
Operating Officer
66
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, T. R. Loftus, certify that:
1. I have reviewed this annual report on Form 10-K of VSE Corporation;
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 officers 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)
(b)
(c)
(d)
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;
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;
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
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 registrant’s board of directors (or
persons performing the equivalent function):
(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
67
(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.
Dated: March 6, 2015
/s/ T. R. Loftus
T. R. Loftus
Executive Vice President and
Chief Financial Officer
68
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned, as President, Chief Executive Officer and Chief Operating Officer of
VSE Corporation (the "Company"), does hereby certify that to the best of the undersigned's knowledge:
1) our Annual Report on Form 10-K for the year ending December 31, 2014 (the "Report"), fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in our Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: March 6, 2015
/s/ M. A. Gauthier
M. A. Gauthier
Chief Executive Officer, President and Chief
Operating Officer
69
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of VSE
Corporation (the "Company"), does hereby certify that to the best of the undersigned's knowledge:
1) our Annual Report on Form 10-K for the year ending December 31, 2014 (the "Report"), fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in our Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: March 6, 2015
/s/ T. R. Loftus
T. R. Loftus
Executive Vice President and
Chief Financial Officer
70
U.S. Postal Service Honors
Wheeler Bros., Inc. was recognized by the U.S. Postal Service as a winner of a 2013 Postal Service Supplier
Performance Award. This recognition marks the seventh Postal Service Supplier Performance award for WBI.
Attending the ceremony were Mark Guilfoil, USPS Mail & Operational Equipment Manager; Susan Brownell, USPS
VP Supply Management; Mary Ellen Young, USPS Contracting Officer Vehicles; Chad Wheeler, WBI President; Ira
Feldman, USPS Vehicles Category Management Center Manager; Mo Gauthier, VSE President, CEO and COO; Patrick
Donahoe, USPS Postmaster General and CEO; Ed Miller, WBI Senior VP of Research; Chris Heiple, WBI VP Sales and
Marketing; and Mark Shaw, WBI Research Sales Manager.