This document is printed using soy-based inks using FSC and Green
Seal™ certified paper that contains recycled post-consumer fiber.
Revenues were up 10% to $760.1 million in 2017
compared to $691.8 million in 2016. The increase
was primarily due to increased revenue from our
Department of Defense markets served by our
Federal Services Group.
Operating income was up 5.4% to $54.3 million
in 2017 compared to $51.5 million in 2016.
The change in operating income was primarily
attributable to the increase in our revenues from
our Federal Services Group.
Net income was up 45.9% to $39.1 million for
2017, or $3.60 per diluted share, compared to
$26.8 million, or $2.47 per diluted share for 2016.
Our increase in net income for the year benefitted
from enactment of the Tax Cuts and Jobs Act,
which reduced our deferred tax liabilities and
our provision for income taxes by approximately
$10.6 million for 2017.
Bookings in our Federal Services Group totaled
$430 million for 2017 compared to revenue
of $411 million for the same period. Funded
contract backlog as of December 31, 2017 was
$324 million, compared to $403 million as of
September 30, 2017 and $322 million as of
December 31, 2016.
Operational and Contract Highlights
in 2017
" Revenues from our Federal Services
Group increased by 16% for 2017 as
compared to 2016. This increase resulted
primarily from a full year of revenue from
our equipment refurbishment services
at Red River Army Depot, and increased
revenue from our Foreign Military Sales
(FMS) support contract with the Naval Sea
Systems Command (NAVSEA).
" Our Supply Chain Management Group
sales to the Department of Defense
and commercial customers increased
approximately $9.6 million, or 40% in 2017.
" Our Aviation Group has opened an office
in Singapore to provide distribution and
supply chain services in support of various
strategic partners, which expands our
2017 Highlights
geographic footprint and extends new and
existing product lines to new clients and
geographic markets.
" 2017 contract awards:
▪ We were awarded several delivery orders
in 2017 to provide support under our
FMS contract with NAVSEA International
Fleet Support Program Office. The
periods of performance for these delivery
orders range between nine and 20
months, and the delivery orders have a
combined funded value of approximately
$207.5 million.
▪ In May we were awarded a task order
under the United States Air Force
Contract Field Teams (CFT) Indefinite
Delivery/Indefinite Quantity (IDIQ)
contract, supporting the 18th Equipment
Maintenance Squadron at Kadena Air
Base in Japan. This task order consists of
a one year base period of performance
with two one-year option periods and a
total potential value of $22.3 million.
▪ In July we were awarded a Cost-Plus
Fixed-Fee (CPFF) Task Order under our
Rapid Response Third Generation (R2-
3G) prime contract to continue providing
support services to the U.S. Army Reserve
Command (USARC) for its Equipment,
Engineering, Maintenance and Logistics
Readiness Program. The R2-3G Task
Order has a one-year base period of
performance and two one-year option
periods, with a total potential value of
$17.8 million.
▪ Our subsidiary, VSE Aviation, Inc., was
selected to support the United States
Department of State (DoS), Bureau
of International Narcotics and Law
Enforcement Affairs, Office of Aviation
for the repair, overhaul and modification
of T53-L-703 engines. The single award
IDIQ contract has a five year period of
performance and supports a fleet of 85
UH-1H “Huey” Helicopters. The maximum
ceiling for the contract is $16.6 million.
1
INTEGRITY • AGILITY • VALUE " Our Quality Management System (QMS)
was recommended for approval by
Lloyd’s Register Quality Assurance (LRQA)
to the new International Organization
for Standardization (ISO) 9001:2015
certification for Quality Management
Systems.
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.
Corporate Profile
We are a diversified services and supply chain
management company that assists our clients
in sustaining, extending the service life, and
improving the performance of their transportation,
equipment, and other assets and systems. Our
offerings include:
" Supply Chain Management and Aviation
Services
▪ We provide vehicle parts and mission
critical supply chain support for
government and commercial customers.
We specialize in sourcing, acquisition,
scheduling, shipping, logistics, data
management, and other services to
assist our clients with supply chain
management efforts.
▪ We specialize in maintenance, repair and
overhaul (MRO) services and parts supply
for corporate and regional jet aircraft
engines and engine accessories.
" Federal Services
▪ We are one of the nation’s leading
providers of maintenance, reset, overhaul
and modernization support, ensuring
land, sea and air systems are capable of
performing their operational missions
throughout their lifecycle.
▪ We provide professional competencies
in strategic planning, clean energy
solutions, policy analysis, performance
metrics, project management, enterprise
architecture, data mining, public
protection/security, and technical and
software engineering.
2
2017 VSE Annual Report and Form 10-K Financial Highlights
3
INTEGRITY • AGILITY • VALUE 4
2017 VSE Annual Report and Form 10-K Message to Stockholders
Overview
Our 2017 financial performance was driven by
increases in work for our Federal Government
clients. Our Federal Services Group revenues
benefited from foreign military sales work performed
for two ship transfers to Taiwan early in the year and
a full year of work on an equipment sustainment
and logistics support contract at Red River Army
Depot. Our Federal Government work is an integral
part of our success and we will continue to pursue
opportunities to provide our traditional services to
these clients while also seeking to extend newer
competencies offered by our other groups to this
market.
Vehicle parts supply and inventory management
support for the USPS delivery vehicle fleet has
provided steady revenues for our Supply Chain
Management Group, while sales to DoD and
commercial clients continue to increase. Our
growing commercial client base now includes
companies in food distribution, oil field services,
waste management, commercial long haul shipping,
bus transportation and other clients that have vehicle
fleets required to meet mission critical delivery
schedules. We are also capturing new customers
and increasing revenue using e-commerce solutions.
Our Aviation Group revenues were steady but flat in
2017, reflecting market trends. We began extending
our gas turbine maintenance, repair, and overhaul
competency to international maritime applications in
2017 and we are pursuing additional opportunities
for this competency. We are expanding our
aviation aftermarket distribution work to include
Asia by opening a new office in Singapore and
signing a distribution agreement with a key original
equipment manufacturer serving that region. These
ongoing initiatives extend both current and new
product lines to emerging markets.
Tax Cuts and Jobs Act
The federal tax legislation enacted in December
2017 resulted in a one-time reduction in our
deferred tax liabilities that lowered our provision
for income taxes and increased our net income for
2017. Going forward, our federal corporate income
tax rate will decline from 35% to 21%, which will
benefit our cash flows.
Board Membership
We are pleased to welcome Admiral Mark Ferguson
to our Board of Directors. Adm. Ferguson brings 38
years of experience in the U.S. Navy and in senior
positions in the U.S. military, including serving as the
Vice Chief of Naval Operations from 2011 to 2014.
Adm. Ferguson provides expertise in cyber defense,
congressional and regulatory affairs, strategic
planning and operations management.
Looking Ahead
While our Federal Government work has provided
us with significant uplift and our Supply Chain
Management Group revenues have increased over
the past few years, we anticipate that initiatives
launched to enhance our Aviation Group revenues
will contribute to growth in the coming years. Our
strategic plans are formed with long-term growth in
mind, and we focus on initiatives that return value
to our stockholders.
Maurice A. Gauthier
CEO/President/COO
March 2018
Clifford M. Kendall
Chairman of the Board
March 2018
5
INTEGRITY • AGILITY • VALUE Board of Directors
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
Triumph Group, Inc.
Mark E. Ferguson III
Admiral, USN (Ret.)
Vice Chief of Naval Operations, U.S. Navy
Former Commander, U.S. Joint Forces
Command
Calvin S. Koonce, Ph.D.
President and Director of Montgomery
Investment Management, Inc. and
Sole Member of Koonce Securities, LLC
James F. Lafond, CPA
Retired Executive; formerly
Washington Area Managing Partner,
PricewaterhouseCoopers LLP
John E. “Jack” Potter
President/CEO, Metropolitan Washington
Airports Authority, Former Postmaster General
and CEO of the USPS
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): Adm. Mark Ferguson, Gen. Jack Stultz, Calvin Koonce, Bonnie Wachtel,
Mo Gauthier (CEO), Cliff Kendall (Chairman), Jim Lafond, Gen. Ralph Eberhart, Jack Potter.
6
2017 VSE Annual Report and Form 10-K 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 customers’ asset, systems improvement, service life extension, and sustainment needs. VSE
conducts business operations through the parent company and its wholly owned subsidiaries, including Wheeler Bros., Inc.
(which includes Ultra Seating), VSE Aviation, Inc. (which includes Prime Turbines, CT Aerospace, Kansas Aviation, Air Parts &
Supply Co., and VSE Aviation Singapore), 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 federal and commercial 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) supply chain management and professional services company, and maintains an
ISO 9001:2015-registered Quality Management System. VSE’s subsidiary, Wheeler Bros., Inc. has received seven U.S. Postal
Service Supplier Performance Awards. 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 9001:2015
Corporate Supporter:
Yellow Ribbon Fund
7
INTEGRITY • AGILITY • VALUE Locations
VSE Corporation
Headquarters
6348 Walker Lane
Alexandria, VA 22310
(703) 960-4600 or
Toll-free: (800) 455-4873
Texarkana, Arkansas
Durham, North Carolina
Mesa, Arizona
Fort Bragg, North Carolina
Barstow, California
Whitesboro, New York
Chula Vista, California
Butler, Pennsylvania
Fort Hunter Liggett, California
N. Charleston, South Carolina
Subsidiary Headquarters
Washington, D.C.
MacDill AFB, Florida
El Paso, Texas
Fort Bliss, Texas
Wheeler Bros., Inc.
Somerset, Pennsylvania
Energetics Incorporated
Columbia, Maryland
Akimeka, LLC
Maitland, Florida
VSE Aviation, Inc.
Carrollton, Texas
Miami, Florida
Fort Sam Houston, Texas
College Park, Georgia
Gatesville, Texas
Fort Benning, Georgia
Grand Prairie, Texas
Kihei, Hawaii
San Antonio, Texas
Independence, Kansas
Texarkana, Texas
Baltimore, Maryland
Chesapeake, Virginia
Other United States Locations
Bethesda, Maryland
Falls Church, Virginia
Fort Chaffee, Arkansas
Little Rock, Arkansas
Fort Detrick, Maryland
Ladysmith, Virginia
Indian Head, Maryland
Rosslyn, Virginia
North Little Rock, Arkansas
Sterling Heights, Michigan
VSE’s management team celebrates 35 years as a NASDAQ listed company by ringing the trade day closing bell
on October 23, 2017.
8
2017 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, 2017 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 [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes [ ] No [ ]
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
approximately
Market
as
of
that
date.
value
market
$384
million
of
based
outstanding
last
the
on
voting
reported
stock
sales
held
price
by
of
the
non-affiliates
registrant's
of
the
common
Registrant
stock
as
The
on
June 30,
of
NASDAQ
2017,
was
Select
Global
Number
of
shares
of
Common
Stock
outstanding
as
of
February 27,
2018:
10,849,947.
DOCUMENTS INCORPORATED BY
REFERENCE
Portions
are
of
incorporated
Registrant's
herein
definitive
by
reference
proxy
into
statement
Part
III
for
of
this
the
Annual
report.
Meeting
of
Stockholders
expected
to
be
held
on
April
30,
2018,
-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
Page
5
8
10
11
11
12
12
14
17
18
29
30
53
53
56
56
56
56
56
56
56
57
58
-3-
Forward Looking Statements
This
constitute
harbor
actual
forward
Item
and
to
place
Company
or
occur
from
files
Company
Annual
Report
"forward
on
Form
looking
provided
protection
VSE
Corporation
looking
7
undue
statements
"Management's
on
reliance
arise
no
date
undertakes
the
after
time
to
time
to
subsequent
with
this
"Company,"
in
this
and
filing,
Analysis
"us,"
see
of
("Form
10-K
statements"
by
("VSE,"
applicable
the
contained
Discussion
these
obligation
hereof.
the
Form
forward
to
Readers
Securities
10-K
10-K")
contains
under
federal
securities
laws.
statements
laws.
that,
All
discussions
"we")
or
VSE's
securities
For
"our,"
below
Financial
Condition
reflect
the
extent
statements
to
such
identifying
to
differ
results
Description
"Narrative
of
Results
and
management's
statements
factors
looking
risk
the
including
8-K
Form
Quarterly
the
by
filed
are
are
they
not
intended
important
from
Business"
some
materially
of
Operations."
analysis
only
reflect
to
in
described
Reports
Company.
other
on
recitations
be
to
factors
those
(Items
fact,
historical
of
safe
the
to
subject
cause
that
could
the
in
anticipated
1A,
3),
and
2
not
cautioned
Readers
The
the
of
hereof.
as
that
circumstances
or
events
Company
the
the
by
documents
Form
1,
are
date
10-Q
filed
looking
publicly
should
and
and
any
which
forward
statements,
these
revise
also
carefully
Exchange
Current
review
Commission,
Reports
on
-4-
PART
I
ITEM
1.
Business
(a)
General
Background
chain
management
diversified
a
improving
for
services
including
are
We
life,
and
distribution
"government"),
civilian
supply
agencies,
chain
and
management
and
aviation,
fleet,
vehicle
environmental
service
and
(the
federal
include
for
and
services;
services
and
the
legacy
the
performance
systems
United
commercial
supply
of
and
States
and
solutions,
clients;
health
parts
vehicle
IT
care
other
and
IT
other
their
equipment
transportation
and
Department
customers.
and
equipment
supply
and
solutions;
company
equipment,
and
("DoD"),
customers
assists
that
and
other
technical
the
are
maintenance,
professional
Defense
of
largest
Our
distribution,
in
clients
systems.
and
to
the
States
and
United
Postal
the
our
assets
services
United
DoD
the
repair,
and
overhaul
and
sustaining,
We
USPS.
provide
extending
the
logistics
Government
("USPS"),
operations
services
energy
States
Service
Our
(“MRO”)
engineering;
maintenance
refurbishment;
logistics;
and
consulting
and
services.
VSE
our
our
The
as
entity
for
perform
Group.
only
VSE
was
operating
incorporated
groups,
services.
term
the
"VSE"
parent
VSE’s
or
company.
Delaware
which
groups
in
each
of
operating
"Company"
in
1959
consists
include
VSE
and
of
our
and
means
parent
the
one
or
Supply
its
more
Chain
subsidiaries
serves
company
wholly
owned
Management
and
divisions
a
centralized
or
as
subsidiaries
Group,
Aviation
the
managing
and
unincorporated
Group,
and
indicates
context
consolidating
that
divisions
Services
of
operations
Federal
unless
(b) Financial Information
Our
Management,
of
our
financial
and
Results
operations
which
in
are
generated
and
our
Operations”
2017;
for
information
revenues
of
conducted
within
approximately
Federal
(3)
three
28.2%
Services,
reportable
Item
in
and
segments
8
"Financial
appears
reportable
revenues
of
our
generated
which
7
Item
in
and
Statements
segments
in
approximately
aligned
(2)
2017;
with
Aviation,
our
operating
groups:
which
of
and
this
54.1%
Discussion
of
Data”
our
generated
revenues
of
10-K.
Analysis
Form
(1)
Supply
approximately
in
2017.
Financial
Chain
17.7%
Additional
Condition
"Management’s
Supplementary
(c) Description of Business
Products
and
Services
We
a
apply
equipment
core
solutions,
through
IT
broad
and
offerings
health
of
array
processes.
in
care
and
capabilities
creating
on
focus
We
management,
chain
supply
services.
consulting
and
IT,
resources
value
to
by
MRO,
systems,
assets
provide
support
our
sustaining
equipment
clients’
life
the
transportation
improving
and
refurbishment,
assets,
the
logistics
vehicle
performance
and
fleets,
of
engineering.
aircraft,
client
also
We
our
Typical
supply
support
offerings
and
include
distribution;
military
management
support
cycle
supply
MRO
vehicles;
support;
for
for
logistics
ships;
life
modernization
electric
grid
continuity,
assurance/business
Item
7
regarding
control.
See
information
“Management’s
business.
and
more
power
our
and
and
chain
of
aircraft
military
machinery
ship
inventory
engines
equipment
condition
communication
projects;
risk
security
management
engine
refurbishment
analysis;
systems;
technology
management,
and
services;
components;
and
specification
energy
road-mapping;
network
of
and
Analysis
Discussion
parts
fleet
engineering
support;
training;
crew
supply,
and
information
command
for
below
vehicle
aircraft
fleet
engine
ship
modification;
conservation,
preparation
for
energy
enterprise
IT
services;
Financial
Condition
sustainment
programs;
and
follow-on
supply
and
alterations;
parts
MRO
ship
efficiency,
sustainable
ship’s
vehicle
distribution;
technical
force
energy
development,
and
medical
Operations”
architecture
logistics;
of
Results
medical
and
Revenues
and
Contracts
Our
products
our
arrangements.
revenues
and
professional
derived
and
from
the
technical
delivery
services
are
of
products
and
through
various
from
ordering
contract
services
and
performed
negotiated
for
and
our
clients.
competitive
We
offer
contract
agreements
Our
commercial
Supply
Chain
We
Management
recognize
Group
revenue
revenues
from
the
result
of
sale
from
vehicle
the
sale
parts
of
when
vehicle
the
to
parts
customer
the
takes
USPS
and
ownership
other
of
government
parts.
the
clients.
and
-5-
Our
commercial
upon
the
Aviation
Group
revenues
result
aircraft
shipment
owners,
or
delivery
other
of
aviation
products
MRO
to
from
the
providers,
sale
of
and
based
aircraft
aviation
when
on
parts
original
or
title
customers
and
performance
of
MRO
equipment
loss
of
risk
manufacturers.
the
transfers
to
for
recognize
services
We
customer.
private
and
revenues
Federal
contracts
Our
fixed-price
work
or
from
are
contracts
on
basis
the
performance
performed
depending
performed,
recorded
Group
Services
with
our
allowable
labor
revenues
the
government.
subcontractors,
are
costs
worked
losses
hours
or
billing
the
and
service
units
Profits
defined
the
over
unit
work
the
as
by
performed
as
recorded
allowable
of
the
on
the
and
the
on
typically
a
on
contract.
contract
of
nature
ratably
price
result
Revenues
and
from
incurred
and
multiplied
and
these
on
rates
time
for
contract
period.
are
delivered.
based
per
from
from
primarily
result
costs
fees
by
the
material
of
are
cost
work
materials
earned.
contract
contracts
plus
fixed
performed
used
in
Revenues
defined
result
cost
fee,
on
these
performing
time
and
rates,
plus
own
time
fee,
by
our
Revenues
contracts
award
contracts
work.
the
materials
the
cost
between
plus
of
the
fixed-price
and
on
are
materials,
employees,
cost
type
recorded
used
in
services
vary
is
are
items
work
materials
cost
of
contracts
as
difference
methods
on
contracts
fixed-price
contracts
service
that
require
are
delivery
recorded
of
specific
for
billing
from
the
recognition
services.
Revenue
on
Revenues
on
fixed-price
terms.
Revenues
The
commercial
USPS,
U.S.
entities.
and
Navy,
and
U.S.
Army
are
our
largest
customers.
Our
customers
also
include
various
other
government
Customer
U.S. Postal Service
2017
%
2016
%
2015
%
$
180,205
23.7
$
181,215
26.2
$
184,876
Revenues by Customer
(dollars in thousands)
Years ended December 31,
U.S. Navy
U.S. Army
U.S. Air Force
Total - DoD
Commercial Aviation
Other Commercial
Total - Commercial
206,644
188,462
7,123
402,229
126,960
12,498
139,458
27.2
24.8
0.9
52.9
16.7
1.7
18.4
190,155
139,764
3,482
333,401
131,067
10,721
141,788
27.5
20.2
0.5
48.2
19.0
1.5
20.5
98,887
80,086
3,558
182,531
119,729
4,653
124,382
Other Civilian Agencies
38,221
5.0
35,386
5.1
42,193
34.6
18.5
15.0
0.7
34.2
22.4
0.9
23.3
7.9
Total
Backlog
$
760,113
100.0
$
691,790
100.0
$
533,982
100.0
Funded backlog represents a measure of potential future revenues from work performed by our Federal Services Group
on 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 for work that is generally expected to be completed within six to
12 months following the award of the funding. Our funded backlog for our Federal Services Group as of December 31, 2017, was
approximately $324 million and as of December 31, 2016 and 2015 it was approximately $322 million and $238 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 may temporarily diminish the availability of funds for ongoing and planned work.
In addition to 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 task orders are placed on the contracts.
Frequently, these task orders are competitively awarded. Additionally, these task orders must be funded by the procuring agencies
before we can perform work and begin generating revenues.
-6-
Marketing
Our
professional
programs,
and
calls
in
our
new
sales
participation
trade
are
conducted
marketing
activities
sales
of
staff
requirements
client
professional
representatives,
and
servicing,
opportunities
through
organizations,
at
the
managers,
become
by
level
group
operating
other
and
available
key
contract
personnel.
through
business
our
New
attendance
partners,
performance,
marketing
customer
at
through
and
with
of
from
and
contacts
trade
business
and
shows
development
information
and
informal
published
staff
and
concerning
through
from
government,
events,
briefings,
by
formal
and
literature
industry
in
organizations
negotiation
the
and
course
commercial
entities.
associations,
professional
Personnel
Our
employees
our
clients.
December 31,
logisticians,
(c)
environmental
configuration,
government
of
Some
have
2016.
have
a
levels
high
Principal
and
warehouse
services,
change
and
regulations
and
data
and
education.
of
variety
of
employee
sales
(e)
management
procedures.
personnel,
information
experience,
specialized
December 31,
of
include
(a)
engineers
As
categories
(d)
technology
The
training,
2017,
mechanics
and
and
we
and
technicians
in
required
professionals
expertise
disciplines.
that
skills
had
2,306
vehicle,
in
computer
our
by
the
provide
employees,
and
aircraft,
expertise
a
decrease
equipment
mechanical,
electronic,
systems,
applications
customers
frequently
to
2,523
service
required
of
from
as
technicians,
(b)
and
energy
products,
knowledge
industrial,
and
includes
We
Forces.
These
Approximately
actively
efforts
30%
seek
include
our
of
initiatives
an
and
emphasis
employees
have
participate
hiring
previously
on
outreach
in
military
programs
veterans,
to
which
in
assist
we
the
individuals
believe
U.S.
Armed
who
enhances
have
the
Forces.
served
quality
in
of
the
our
Armed
U.S.
workforce.
served
as
members
Competition
The
supply
contracted
environments.
federally
operating
chain,
professional
logistics,
and
and
MRO
technical
services
services
offered
offered
by
by
our
Supply
Federal
Chain
Services
Management
Group
are
our
and
Aviation
conducted
in
very
groups
and
the
competitive
The
competitors
that
compete
for
our
customer
base.
vehicle
parts
aftermarket
and
aviation
parts
and
servicing
markets
are
fragmented,
with
many
large
and
small
firms
with
greater
contracting
us.
by
sole
Large
the
source
diversified
services
same
or
other
awarded
level
government
work
of
we
services
federal
offered
noncompetitive
competitive
a
on
may
we
work
of
can
agencies,
also
small
for
business
will
offer
providing
to
a
either
regarding
certain
reallocation
or
initially
the
cause
the
basis.
basis
agencies
Government
the
Most
of
been
have
or
of
some
under
competition
programs
competition.
these
in
that
affect
set-aside
increased
obtain
significant
renewed
contracts.
business.
in
our
results
financial
emphasize
contracts
least
at
staffs
are
basis
competitive
larger
on
technical
a
resources
awarding
under
on
and
contracts
which
a
once
Government
A
lower
reallocation
levels
currently
basis.
in
we
competitive
and
budgets,
government
of
business
potential
capable
as
services
perform
is
There
no
the
particular
of
opposed
were
assurance
of
budgets
priorities
or
serve
we
spending
the
markets
of
in
competition
of
The
requirements
customer
been
extent
or
knowledge,
heavily
more
technological
technical
in
weighted
we
that
developments
financial
and
years.
recent
as
encounter
a
unpredictable.
will
is
qualifications,
past
result
We
changing
of
believe
the
performance,
principal
government
or
competitive
budgetary
competitive
factors
stress,
conditions,
our
for
price,
and
customer
are
has
business
which
economic
Available
Information
of
8-K
Copies
and
pursuant
available
filed
our
amendments
Section
to
free
of
with
Form
(“SEC”)
are
also
electronically
the
publicly
to
13(a)
charge
available
those
or
through
SEC.
reports
15(d)
Annual
are
of
our
the
website
Reports
with
filed
Securities
on
or
10-K,
Form
otherwise
Exchange
www.vsecorp.com
Quarterly
furnished
of
soon
to
1934,
as
Act
as
on
Securities
Reports
the
as
reasonably
amended.
Form
10-Q,
Current
and
Such
Exchange
and
reports
practicable
after
the
Reports
on
Commission
amendments
are
reports
-7-
ITEM 1A. Risk Factors
future
Our
in
this
important
Form
factors
may
results
10-K
due
disclosed
contained
other
differ
to
various
previously
materially
from
uncertainties
and
from
past
and
time
results
risks,
time
to
and
from
including
our
in
those
those
projected
set
filed
in
forth
with
risks
reports
the
below,
the
other
SEC.
forward-looking
non-recurring
statements
and
events
Uncertain
our
affect
in
result
budgets
government
ability
loss
to
of
continue
on
work
and
work
current
shifting
under
our
programs
our
government
priorities
could
delay
contract
awards
and
funding
government
small
to
contracts.
business
set-asides
Additionally,
and
large
federal
procurement
award
contracts.
multiple
and
directives
adversely
could
Our
government
in-sourcing,
procurement
environment
have
continue
experienced
existing
business
extensions,
is
delays
work
to
funding
delays,
moratoriums
and
awards
subject
is
and
unpredictable
contract
in
to
and
contracts
associated
could
and
expiring
with
adversely
funding
work.
extensions
replace
or
pursuant
contracts
contract
to
for
set-aside
very
large
on
(including
terminations
the
our
affect
contracts
our
our
Additionally,
be
may
diverted
administered
programs
These
the
at
budgeting
government’s
to
perform
ability
in
recent
government
the
by
the
by
can
risks
businesses.
government's
and
work
that
business
convenience),
The
process.
contracting
existing
new
and
affected
adversely
risk
the
to
subject
or
small
a
to
Administration,
or
effect
adverse
under
have
is
agency
Business
have
an
contracting
Small
potentially
years
our
of
potential
minority-owned
into
growth
multiple
profit
large
and
business
award
margins.
reductions,
federal
contracts.
ability
our
that
or
one
disadvantaged
be
may
our
on
We
to
more
or
bundled
revenue
Increased
contracting
market
award
competition
criteria
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resulting
from
adversely
affect
decreases
our
in
ability
government
sustain
to
our
revenue
for
levels.
spending
contract
services
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government
Pressure
on
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contracts
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work
delay
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continue
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which
lowest
emphasizes
budgets
a
in
that
or
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loss
of
competition
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government
for
our
performed
contract
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reverse
technically
to
to
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expiring
work
of
the
tended
work
offerings
service
under
by
us
Additionally,
awards.
bids,
acceptable
flow
have
perform.
to
awards,
further
which
that
contract
criteria
federal
redirect
adversely
contractors,
their
affected
particularly
efforts
ability
marketing
our
Unsuccessful
has
competition
new
toward
to
win
bidders
programs.
types
the
new
work
frequently
contract
used
government
frequently
our
in
the
government
intensifies
contracts.
Competitor
work
of
that
or
successor
protest
award
markets.
Certain
to
revenue
programs
growth
comprise
and
a
sustainability
material
portion
profit
revenue.
our
of
margins.
Our
work
on
large
government
programs
presents
a
risk
and
The
eventual
large
expiration
profits.
fixed
of
Such
corporate
our
and
revenues
of
the
inventory
reduce
portion
a
larger
managed
USPS
material
constitute
a
if
disruptions
requirements
enough
of
types
to
parts
customer
associated
material
purchased
cause
portion
program
our
of
operational
these
with
in
changes
USPS
the
by
revenue
costs
(“MIP”)
revenues.
decisions,
key
our
in
government
losses
previously
our
and
could
programs
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allocated
foreign
concentration
This
government
recent
In
revenue
years
have
programs.
overall
recent
levels
program
the
or
of
our
on
expiring
or
erode
to
military
loss
profits
the
sales
our
contractual,
years,
and
caused
revenue
other
or
revenue
levels
affect
changes
our
in
of
profit
our
have
on
that
disruption
revenues
of
programs
remaining
or
programs
U.S.
the
with
subjects
to
us
prevent
issues
FMS
for
discontinued
Navy
of
risk
delay
or
Program
a
single
would
contract
contract
to
work.
Program”)
adverse
fulfillment
fluctuated
in
may
absorb
Our
each
revenue
work
of
widely
and
volume
(“FMS
material
the
have
variations
our
margins.
Similarly,
profit
margins.
the
in
roll
the
out
fleet
USPS
The
of
new
a
could
initiated
a
has
the
fleet
and
have
potentially
fleet
retirement
a
replacement
the
of
affect
significant
program
current
on
for
vehicles
future
generation
next
and
their
revenues
decision
and
the
on
profits.
our
of
a
delivery
how
vehicle
of
many
fleet.
The
vehicles
timing
will
of
both
remain
such
Global
economic
conditions
and
political
factors
could
adversely
affect
our
revenues.
Revenues
these
our
in
by
from
our
countries
employees
domestic
Significant
fluctuating
in
on
it
have
of
continuation
a
will
conditions
performed
country.
resulting
effect
the
the
upon
level
our
ongoing
government
to
and
political
FMS
our
on
political
and
of
services
FMS
programs
risks
Program
unrest
in
performed
for
posed
to
are,
client
by
which
by
certain
a
countries
our
Regime
revenues.
Program
is
work
ongoing
performed
foreign
extent,
can
dependent
to
subject
in
conflicts
on
ability
predict
countries
foreign
and
our
to
when
can
countries
potential
placement
maintain
these
in
employees
are
terrorist
of
consistent
conditions
government
economic
Services
client
a
in
levels,
staffing
occur
or
will
restrictions
activity.
result
our
cannot
constrain
We
in
these
employees.
changes
work.
-8-
Economic
could
commodities
conditions
potentially
in
have
both
an
United
the
adverse
States
on
effect
and
the
foreign
demand
countries,
some
for
and
of
global
prices
our
services,
and
including
availability
our
of
aviation
oil
and
other
services.
Due
to
the
nature
of
our
work
we
could
potentially
be
exposed
to
legal
actions
arising
from
our
operations.
Our
repairing
and
and
engines
materials.
performance
events
could
below.)
includes
and
work
military
engine
accessories
many
manual
non-military
tasks,
vehicles
including
and
aviation
challenges
or
losses
employee
and
for
pose
general
certain
incidents,
financial
warehousing,
equipment,
and
jet
that
aircraft.
could
Some
cause
misconduct
affect
adversely
and
shipping
and
maintaining
work
our
of
exposed
to
be
result
in
financial
us
that
our
of
packing
overhauling
efforts
to
legal
truck
parts
U.S.
involve
and
or
Item
Navy
the
other
death
3.
injury
(See
inventory,
ships.
handling
liabilities
to
third
"Legal
maintaining
also
repair
We
hazardous
of
from
arising
parties.
Such
Proceedings”
damages,
condition.
These
services
work
to
us
issues,
cause
may
related
suffer
Technology
security
and
cyber
attack
risks
could
potentially
impact
our
financial
results.
We
face
the
threat
organized
clients'
our
cyber-attacks
proprietary
to
and
or
our
other
classified
information.
computer
security
systems
problems
of
unauthorized
system
and
access,
disruptions,
computer
hackers,
computer
viruses,
malicious
including
possible
unauthorized
access
to
our
code,
and
Some
Administration
there
a
is
damages
maintenance
with
conflict
programs.
security
third
to
and
the
of
and
management
work
breach
contract
our
military
of
related
medical
sensitive
to
services
parties
training
international
includes
health
and
data
our
in
security
to
support
data
records.
custody
and
international
be
could
breach
such
support
we
clients
and
us
we
to
directly
exposes
which
costs
This
or
for
incur
clients
motivated
to
technology
to
certain
provide
services
information
we
services,
prevent
and
conduct
future
through
a
incidents.
DoD.
cyber-attack
associated
and
could
We
Foreign
to
with
technology
possibly
also
Security
Social
If
risks.
security
held
be
for
liable
refurbishment,
provide
that
these
with
information
interests
nations
access
on
Costs
effect
associated
on
our
with
preventing
expenditures,
an
such
adverse
remediating
or
or
earnings,
effect.
capital
have
could
potentially
adverse
event
information
management
competitive
position.
However,
security
the
breaches
of
occurrence
have
a
not
future
a
had
security
material
breach
Acquisitions,
which
have
been
a
part
of
our
business
strategy
in
recent
years,
present
certain
risks.
The
ineffective
an
acquisition
integration
could
acquisition
of
of
an
adversely
a
business
acquisition,
affect
that
our
subsequently
inability
does
service
performance.
financial
not
debt
to
our
expected
meet
associated
operating
and
with
an
acquisition,
financial
the
or
performance
to
failure
timely
targets,
the
complete
nature
The
of
management.
our
operations
and
work
performed
by
our
employees
present
certain
challenges
related
to
work
force
Our
skills,
of
skill
technical
diversity
staff
and
compliance.
compliance,
or
attract
can
result
regulatory
contract
sets.
Our
local
an
and
We
current
laws
adequately
work,
and
retain
in
noncompliance.
lost
financial
performance
is
heavily
operating
types,
also
performance,
nature
face
work,
challenges
of
on
dependent
cost
locations,
with
pricing,
work
associated
abilities
the
management,
legal
and
our
quality
countries
of
safety,
and
of
exposes
projected
customs,
skilled
in
work
workforce
workforce,
margins,
foreign
issues,
lack
of
losses
reduced
profit
extended
knowledge
cost
supply
or
overruns,
from
administrative
and
operating
our
and
regulatory
workforce,
to
political
critical
in
performance
us
chain,
training
and
administrative
staff
compliance
our
and
export
threats.
challenges
safety,
with
zone
inadequate
workplace
to
respect
with
efforts.
wide
A
administrative
relations
labor
ethics
to
levels
and
staffing
accidents,
and
Failure
of
work,
associated
war
unrest
and
functions,
or
deficiencies,
complexities
quality
challenges
business
Our
significant
could
financial
be
liability
on
us.
adversely
affected
by
incidents
that
could
cause
an
interruption
in
our
operations
or
impose
a
Disruption
third
and
our
of
parties
condition.
or
operations
in
working
fire,
flood,
A
procurement
a
due
high-risk
to
or
internal
locations,
or
contractual
earthquake,
or
external
or
other
natural
system
operations,
employees
or
performance
generating
system
or
disasters
service
other
or
at
disaster
failures,
crises
physical
natural
interrupt
accidents
or
adversely
that
revenues
incidents
our
affect
support
key
from
involving
financial
revenue
operations.
could
facilities
the
our
delay
could
potentially
-9-
We
are
subject
to
numerous
government
rules
and
regulations
that
could
expose
us
to
potential
liabilities
or
work
loss.
We
government
or
contracts
must
contracts.
debarment
are
and
with
violation
A
from
of
working
laws
or
affected
or
by
laws
regulations
on
and
could
government
regulations
relating
the
in
result
contracts.
the
to
imposition
bidding
comply
award,
fines
of
administration
penalties
and
and
the
or
performance
termination
of
of
In
to
favorable
government
some
the
may
instances,
government
terminate
these
than
government
those
government
any
typically
contract
regulations
laws
available
or
and
to
subcontract
commercial
at
its
impose
in
parties
convenience,
terms
negotiated
as
well
as
or
are
that
transactions.
for
significantly
For
performance
example,
default.
rights
more
the
contract
termination
and
A
contracts
In
services
future
work.
of
addition,
the
provided
for
orders.
default
A
government
as
by
could
termination
could
us
a
subcontractor.
expose
for
terminate
us
default
a
to
could
prime
liability
also
contract
and
impact
have
our
under
material
a
past
which
effect
adverse
performance
are
on
ability
subcontractor,
and
we
ability
to
our
new
to
irrespective
obtain
a
compete
or
of
for
additional
quality
the
our
financial
Additionally,
and
other
contract
If
risks.
our
problems,
that
work
any
of
ability
is
our
to
requirements
or
compliance
by
our
performed
subcontractors
our
fail
obligations
subcontractors
timely
a
to
as
prime
is
meet
subject
their
contractor
fulfill
to
government
compliance,
performance
regulatory
or
have
contractual
may
be
obligations
jeopardized.
The
agencies
in
established
the
FAA
adopted
and
in
aviation
industry
other
the
by
countries.
FAA
equivalent
future
or
the
agencies
could
that
the
engines
highly
is
Aviation
equivalent
of
have
certain
an
regulated
and
agencies
other
adverse
the
by
engine
in
certain
to
us.
countries
on
effect
Federal
U.S.
components
Aviation
we
that
We
countries.
Administration
must
sell
meet
operate
also
and
New
services.
such
other
perform
("FAA")
certain
and
similar
airworthiness
that
are
regulations
regulatory
standards
by
be
licensed
may
repair
more
facilities
stringent
Our
business
could
be
adversely
affected
by
government
audits
or
investigations.
Government
agencies,
including
the
Defense
agencies
and
review
standards.
contractors.
laws,
control
These
regulations
systems
Any
must
applicable
its
internal
information
already
penalties
government
with
with,
management
costs
such
any
criminal
and
fines
investigate
compliance
compliance
and
and
civil
payments,
to
our
with
reputation
Foreign
and
if
Corrupt
systems.
reimbursed
and
suspension
allegations
and
costs
be
administrative
debarment
or
impropriety
of
and
Act
Practices
the
Export
from
were
policies,
found
refunded.
sanctions,
doing
made.
Control
Audit
contractor’s
government
Contract
a
The
the
including
improperly
be
to
audit
an
If
including
business
with
the
of
compliance.
Performance
Act
Agency
and
the
performance
also
contractor’s
Department
its
under
adequacy
allocated
may
review
purchasing,
to
a
improper
of
government.
international
specific
illegal
or
contracts,
In
work
addition,
can
the
property,
and
audit
routinely
of
Labor,
and
structure
cost
contracts,
a
contractor’s
of,
and
compensation
estimating,
reimbursed
not
will
be
to
subject
may
we
be
suspension
profits,
of
harm
suffer
serious
associated
to
contract
activities,
of
could
us
forfeiture
we
expose
risks
uncovers
termination
Investments
in
facilities
could
cause
losses
if
certain
work
is
disrupted
or
discontinued.
We
service
have
offerings.
made
A
below
intended
and
operating
facilities
investments
or
slowing
could
levels
in
disruption
cause
us
and
of
these
business
to
suffer
financial
to
programs,
losses.
lease
commitments
support
work
specific
requirements,
business
or
programs,
service
work
offerings
requirements,
in
results
that
Environmental
and
pollution
risks
could
potentially
impact
our
financial
results.
our
contract
vehicles,
work
aircraft
Some
of
refurbish
with
protection
repair,
and
associated
the
to
position.
future
compliance
the
of
we
However,
or
environmental
with
environment
cannot
pollution
predict
event.
of
includes
the
engines,
and
State
and
a
had
not
likelihood
use
equipment.
local
material
such
of
chemical
This
provisions
adverse
a
and
solvents
exposes
us
regulating
on
effect
adverse
material
Federal,
have
the
the
to
the
our
certain
environmental
discharge
capital
of
expenditures,
hazardous
and
or
materials
materials
pollution
that
to
risks.
otherwise
maintain,
Costs
relate
competitive
a
or
occurrence
of
earnings,
the
effect
should
we
experience
handling
of
ITEM 1B. Unresolved Staff Comments
None.
-10-
ITEM
2.
Properties
Our
executive
95,000
and
square
administrative
feet
office
of
headquarters
by
leased
space
are
us
located
through
in
a
April
five-story
2027.
building
in
Alexandria,
Virginia,
with
approximately
We
Chain
own
facilities
Management
of
feet
square
Supply
271,000
located
Group.
in
an
These
industrial
properties
and
park
in
consist
warehouse
Somerset,
of
space.
office,
engineering,
Pennsylvania
30
acres
that
of
we
land
use
and
to
conduct
buildings
the
totaling
operations
our
approximately
of
approximately
We
of
Florida.
in
space
own
two
approximately
own
We
Independence,
properties
one
and
we
that
acre
of
operate
use
land
a
Kansas
conduct
to
and
a
property
that
located
is
building
consisting
of
operations
our
approximately
with
with
building
a
of
municipal
leased
Group.
square
Aviation
14,000
approximately
land.
airport
the
on
consisting
Miami,
in
office
and
feet
We
of
30,500
own
and
warehouse
square
operate
and
of
feet
property
a
office
space
warehouse
and
We
own
storage
multiple
and
land
30
consists
of
acres
of
Texarkana,
properties
114,000
We
feet.
maintenance.
in
square
two
operate
vehicle
and
land
and
Arkansas
use
these
facilities
in
Ladysmith,
maintenance
buildings
buildings
consisting
totaling
an
of
primarily
properties
aggregate
to
Virginia.
totaling
approximately
of
provide
of
these
One
approximately
square
13,500
16
consists
properties
56,000
of
feet
of
land
services
square
space.
and
for
of
feet
We
of
also
buildings
military
acres
refurbishment
approximately
approximately
space.
The
and
own
totaling
equipment,
44
other
acres
of
property
operate
two
approximately
and
storage
and
also
We
sites
to
facilities
services
the
of
provide
facilitate
with
at
United
services
communications
a
total
customer
States,
products
and
approximately
limiting
foreign
at
of
facilities,
generally
from
enhance
319,000
our
shipyards
program
square
requirement
facilities
customer
19
such
provide
outside
generally
short-term
under
occupied
As
of
shop,
December
and
31,
2017,
warehouse
also
We
provide
leases
we
space.
located
primarily
leased
Our
services
near
approximately
often
locations
employees
from
performance.
of
feet
office,
additional
for
space.
or
U.S.
military
installations.
ITEM
3.
Legal
Proceedings
Hawaii
Litigation
of
2012,
In
other
individuals
vendor
of
insurance
financial
estates
the
and
entities
in
April
retained
we
or
carriers,
condition,
individuals
2011
was
VSE
by
settled
cash
a
for
caused
to
this
flows.
five
deceased
individuals
and
their
unspecified
by
dispose
matter
damages,
of
fireworks
all
negligence
of
with
plaintiffs
filed
relatives
the
that
the
other
explosives
in
resulting
complaints
explosion
of
defendants.
by
seized
material
no
alleging
and
other
2017,
in
state
a
fireworks
five
The
federal
the
adverse
VSE
and
in
in
diesel
court
and
deceased
Hawaii
fuel
plaintiffs
against
that
killed
government.
on
our
effect
were
Together
of
results
and
VSE
the
five
employees
our
with
operations,
Aviation
Litigation
In
by
LLC,
named
that
on
VSE's
Plaintiffs
together
predicted
lawsuit
Arrieta
et
al
plaintiffs
defendants.
2016,
November
Arrieta,
Edgar
three
and
defendants
April
subsidiaries
a
and
other
are
2016,
lawsuit,
four
other
unrelated
Pratt
a
were
&
plane
1,
Whitney
crashed
in
relief
negligent
monetary
are
with
with
having
seeking
its
certainty
material
a
insurance
carrier,
and
the
adverse
will
amount
effect
was
et
al,
Kansas
filed,
Prime
Turbines
VSE
the
vs.
against
LLC
subsidiaries,
was
lawsuit
Since
Cessna
Corporation,
Canada
three
in
of
death
the
service
maintenance,
the
from
million
five
Aircraft
plaintiffs
and
defendants.
proceedings.
the
reasonably
cannot
be
financial
operation,
of
resulting
providing
$1.0
over
aggressively
loss,
of
our
on
if
results
Texas
Court
District
Independence,
joined
of
L.L.C.
the
have
Inc.
Woodward
six
other
engine
for
legal
to
airplane
scheduled
the
of
plaintiffs
and
in
filed
Aviation
other
Company
and
serious
inspection
of
The
trial
the
While
estimated,
or
condition,
injuries
the
is
results
we
cash
of
believe
flows
that
is
any,
of
defend
the
remote.
The
Dallas
in
and
Prime
lawsuit.
County,
Turbines
other
The
allege
plaintiffs
that
crash.
VSE
be
this
cannot
of
the
2018.
and
plaintiffs
prior
to
November
proceedings
likelihood
addition
In
legal
adverse
cannot
the
to
proceedings,
effect
be
our
on
predicted
above-referenced
us
against
results
with
and
of
certainty,
against
operations,
the
Aviation
amount
we
Litigation,
In
our
parties.
position,
any,
if
have
may
opinion,
or
cash
cannot
certain
the
flows.
be
loss,
of
financial
other
claims
resolution
However,
reasonably
the
in
of
these
because
estimated.
normal
other
the
course
claims
results
of
will
of
business,
have
not
including
material
a
proceedings
any
legal
-11-
time-to-time,
for
contractual
other
from
conducted
Further,
applicable
or
imposed
being
years
often
take
of
outcome
any
position,
financial
upon
to
such
or
us,
complete
government
flows.
cash
whether
investigate
and
reasons,
could
or
and
government
agencies
regulatory
requirements.
in
could
result
or
suspension
to
lead
no
in
adverse
result
many
investigations
and
administrative,
debarment
action
will
Government
civil
operations
us,
of
our
investigations
liabilities,
criminal
or
government
future
from
We
us.
against
believe,
material
a
have
not
disputes
being
are
whether
including
contracting.
upon
based
effect
adverse
conducted
in
accordance
relating
to
repayments,
government
or
fines
Government
current
our
on
information,
results
with
contracts
penalties
investigations
that
the
operations,
of
ITEM
4.
Mine
Safety
Disclosures
Not
applicable.
ITEM 4(a).
Executive Officers of Registrant
officers
Our
family
meeting
elected
executive
relationships
VSE's
of
have
and
among
Board
of
qualified,
listed
any
of
Directors
until
or
below,
our
(the
death,
well
as
executive
"Board")
resignation
as
officers.
following
or
information
The
the
removal,
are
is
no
first
are
executive
annual
next
whichever
their
officers
meeting
is
age
are
of
sooner.
concerning
and
positions
appointed
stockholders
VSE.
held
annually
and
with
to
until
serve
their
There
until
the
successors
Name
Joseph R. Brown
Maurice A. Gauthier
Paul W. Goffredi
Thomas M. Kiernan
Thomas R. Loftus
Chad Wheeler
Age
61
70
60
50
62
43
with
Registrant
Position
President, Federal Services Group
Director, Chief Executive Officer, President and Chief Operating Officer
President, VSE's subsidiary VSE Aviation, Inc.
Vice President, General Counsel and Secretary
Executive Vice President and Chief Financial Officer
President, VSE's subsidiary Wheeler Bros., Inc.
Mr. Brown was appointed the President of the Federal Services Group in May 2015. Mr. Brown brings over 20 years of
experience as a program and business unit manager at VSE. Mr. Brown leads a team whose primary focus is refurbishment services
to extend and enhance the life of existing vehicles and equipment, fleet-wide ship and aircraft support, aircraft sustainment and
maintenance, foreign military sales and other technical, management, engineering, logistics, maintenance, configuration
management, prototyping, technology, and field support services to the U.S. Navy and Marine Corps, U.S. Army and Army Reserve,
U.S. Air Force, and other U.S. and foreign military customers. Prior to joining VSE in 1996, Mr. Brown served 20 years active
duty in the U.S. Navy. He earned a Bachelor of Business Administration from University of Maryland University College and an
Associate of Science in Mechanical Engineering from the University of Tennessee at Knoxville.
Mr. Gauthier has served as VSE's Chief Executive Officer, President and Chief Operating Officer since April 2008, and
has served as a Board member since February 2009.
Mr. Goffredi has served as President and Chief Operating Officer of our subsidiary VSE Aviation, Inc. since January
2015, when VSE Aviation, Inc. acquired Prime Turbines LLC (including both U.S. and Germany-based operations), CT Aerospace
LLC, Kansas Aviation of Independence, L.L.C. and Air Parts & Supply Co. (collectively, "the Aviation Acquisition"). His focus
and background includes business development, strategic OEM and major customer relations, supply chain management, engine
and material acquisition, and operational excellence and improvement. Prior to joining VSE, Mr. Goffredi served for three years
as Chief Operating Officer for Killick Aerospace, and 13 years with BBA Aviation as Program Director for all Honeywell Engine
Programs. Mr. Goffredi received a degree in Business Administration from Mesa State College (Colorado) and holds an MBA in
Marketing and Finance from The University of St. Thomas (Texas).
Mr. Kiernan has served as VSE's Vice President, General Counsel and Secretary since November 2008.
Mr. Loftus has served as VSE's Chief Financial Officer and Executive Vice President since March 2002. Mr. Loftus has
served in various roles of increasing responsibility at VSE since 1978, and served as VSE's Comptroller, Senior Vice President
and Corporate Tax Director from March 1999 to February 2002.
Mr. Wheeler has served as President and Chief Operating Officer of Wheeler Bros., Inc. ("WBI") since July 2013. Since
1991, Mr. Wheeler has served in 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
-12-
implementation
country.
of
Wheeler
Mr.
WBI's
Managed
graduated
Inventory
cum
Program
laude
from
which
is
Indiana
summa
used
the
at
University
USPS'
of
Vehicle
Pennsylvania
Maintenance
1998
in
with
Facilities
degree
a
throughout
in
the
Marketing.
-13-
PART
II
ITEM 5. Market for
Securities
Registrant's Common Equity, Related Stockholder
Matters
and Issuer
Purchases of Equity
(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."
In
Stock
May
Split
The
amounts
Stock
the
have
Split.
our
2016,
a
had
record
adjusted
been
Board
date
to
approved
July
of
retroactive
give
a
20,
two-for-one
and
2016
effect
stock
the
to
split
distribution
increased
stock
effected
in
the
occurred
of
number
on
shares
form
stock
a
of
August
3,
of
common
2016.
dividend
All
stock
("Stock
share
per
and
outstanding
Split").
share
to
due
The
Select
years.
following
Market)
Sales
table
and
prices
cash
and
the
forth
dividend
cash
per
dividend
sets
of
share
per
and
high
information
low
for
information
sales
our
have
(based
price
common
been
on
stock
adjusted
information
each
for
the
for
quarter
Stock
reported
and
Split.
share
range
Global
two
last
by
The
annually
NASDAQ
the
during
Quarter Ended
High
Low
Dividends
$
For the Year $
$
For the Year
$
35.60
35.98
38.23
42.69
42.69
42.18
45.93
58.70
59.90
59.90
$
$
$
$
26.38
30.86
29.94
26.16
26.16
34.98
38.90
41.95
45.12
34.98
$
$
$
$
0.055
0.060
0.060
0.060
0.235
0.060
0.070
0.070
0.070
0.270
2016:
March 31
June 30
September 30
December 31
2017:
March 31
June 30
September 30
December 31
(b)
Holders
As of February 1, 2018, VSE common stock, par value $0.05 per share, was held by approximately 241 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
Pursuant to our bank loan agreement (see Note 7, 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.
(d)
Certain Sales and Repurchases of VSE Common Stock
During the fiscal year covered by this Form 10-K, VSE did not sell any of its equity securities 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)) other than 12,473 shares of our restricted common stock that were voluntarily forfeited to VSE by participants in
its 2006 Restricted Stock Plan to cover their personal tax liability for restricted stock awards.
-14-
(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.
As of December 31, 2017, 132,357 shares of VSE common stock were available for future issuance under the VSE
Corporation 2004 Non-Employee Directors Stock Plan and 436,532 shares of VSE common stock were available for future issuance
under the VSE Corporation 2006 Restricted Stock Plan.
-15-
Performance
Graph
below
Set
broad
VSE
forth
market
common
(formerly
(a) an
SIC
index
with
line
is
(The
stock
a
NASDAQ
traded
is
Code
8711).
for
The
the
for
index.
services
stock
graph
comparing
the
cumulative
Market)
on
Global
The
Select
NASDAQ
the
Select
on
Accordingly,
Global
Select
Global
performance
Market
(U.S.
graph
NASDAQ
total
which
return
VSE
Market,
of
VSE
common
our
and
compares
companies)
common
is
stock
industry
stock
traded
group
with
and
is
total
Index")
(a) a
(b) a
performance
published
and
VSE
peer
index
industry
technical
common
group.
engineering
for
our
return
(b)
and
cumulative
the
("NASDAQ
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Performance Graph Table
VSE
NASDAQ Composite
Peer Group
2012
100
100
100
2013
197.84
141.63
152.19
-16-
2014
273.38
162.09
158.10
2015
259.75
173.33
173.87
2016
326.82
187.19
190.30
2017
410.02
242.29
211.15
ITEM
6.
Selected
Financial
Data
(in thousands, except per share data)
Revenues
Income from continuing operations
Loss from discontinued operations
Net income
Basic earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Diluted earnings per share:
Income from continuing operations
Loss from discontinued operations
Net income
Cash dividends per common share
Working capital
Total assets
Long-term debt
Long-term lease obligations
Stockholders' equity
2017
760,113
39,096
—
39,096
3.61
—
3.61
3.60
—
3.60
0.270
2017
134,563
629,013
165,614
20,581
293,095
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Years ended December 31,
2015
2014
2016
691,790
26,793
—
26,793
2.48
—
2.48
2.47
—
2.47
0.235
$
$
$
$
$
$
$
$
533,982
24,918
—
24,918
2.32
—
2.32
2.31
—
2.31
0.215
$
$
$
$
$
$
$
$
424,071
20,489
(1,124)
19,365
1.91
(0.10)
1.81
1.91
(0.10)
1.81
0.195
As of December 31,
2015
2014
2016
110,021
661,839
193,621
21,959
255,194
$
$
$
$
$
100,780
617,354
215,243
23,251
229,309
$
$
$
$
$
33,037
353,430
23,483
24,584
205,489
2013
471,638
23,990
(1,138)
22,852
2.25
(0.11)
2.14
2.25
(0.11)
2.14
0.175
2013
46,828
380,077
64,221
25,721
186,803
$
$
$
$
$
$
$
$
$
$
$
$
$
This consolidated summary of selected financial data should be read in conjunction with Management's Discussion and
Analysis of 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 VSE's future results of operations.
-17-
ITEM
7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
Executive
Overview
Customers
and
Services
We
are
and
life,
distribution
"government"),
civilian
supply
diversified
a
improving
for
services
including
to
agencies,
chain
aviation,
and
management
and
IT
other
and
services;
by
customer.
fleet,
vehicle
environmental
revenues
for
management
services
and
performance
the
systems
legacy
the
United
commercial
solutions,
clients;
chain
supply
of
and
States
and
parts
vehicle
IT
their
equipment
transportation
and
of
Department
other
customers.
and
equipment
and
supply
and
solutions;
health
care
service
and
(the
federal
include
for
and
above
company
equipment,
and
("DoD"),
our
assets
services
that
assists
other
and
technical
United
the
the
customers
are
repair,
maintenance,
clients
and
to
States
DoD
in
systems.
the
Postal
the
and
overhaul
United
and
professional
Defense
Our
distribution,
largest
and
maintenance
and
consulting
services.
See
refurbishment;
1
Item
“Business
logistics;
-
Revenues
sustaining,
We
Service
USPS.
States
provide
extending
the
logistics
Government
and
operations
services
energy
Contracts”
("USPS")
Our
(“MRO”)
engineering;
and
Organization
and
Segments
Our
Management;
Consulting
operations
2)
Group
Aviation;
our
with
are
conducted
within
three
3)
and
Federal
Federal
Services.
Services
Group.
reportable
Beginning
in
segments
we
2017,
aligned
have
with
our
combined
management
IT,
former
our
groups:
Energy
1)
and
Supply
Chain
Management
Supply
transportation,
of
Operations
fleets,
truck
and
for
source
this
support
chain
Chain
shipping,
group
this
DoD
group
the
for
Management
data
logistics,
conducted
are
fleet
with
USPS
is
the
vehicle
USPS
Group
Our
-
management,
wholly
our
by
and
management
Managed
Inventory
fleet.
other
Supply
and
owned
sustainment
Chain
services
subsidiary
Management
assist
to
Wheeler
and
that
solutions,
("MIP")
Group
our
Bros.,
managed
supplies
provides
with
which
inventory
vehicle
clients
Inc.,
Program
sourcing,
supply
acquisition,
chain
management
USPS,
supports
services.
and
the
The
mission
parts
primary
critical
scheduling,
efforts.
commercial
revenue
supply
Aviation
aviation
for
general
to
a
providers,
diversified
cargo
Our
-
Group
aircraft
jet
client
of
base
transporters,
and
Aviation
engines
corporate
and
agricultural
private
clients.
Group
and
engine
provides
parts
accessories.
aircraft
supply
This
owners,
and
group
distribution,
offers
supply
of
aviation
a
range
airlines,
regional
chain
solutions,
complimentary
and
services
MRO
and
aviation
services
supplies
MRO
manufacturers,
and
customers.
Federal
to
and
extend
maintenance,
technology,
other
(“FMS”)
Services
Benning
Army
programs
Reserve
for
Program
Program
Logistics
U.S.
Services
the
enhance
and
other
Group
of
life
technical,
-
Our
existing
Federal
vehicles
Services
and
Group
equipment,
support
field
Significant
work
services
surface
for
(“RRAD
Support
ships
ERS”)
Services
refurbishment
commands.
Army
vehicle
engineering,
Navy
management,
U.S.
the
for
this
leased
to
efforts
sold,
providing
Program
program
group
or
on-site
supporting
and
and
include
to
logistics
base
granted
various
refurbishment
services,
support,
aircraft
management,
sales
aircraft
configuration
and
in
River
Marine
provides
logistics,
fleet-wide
military
foreign
and
ship
maintenance,
U.S.
Army
Corps,
to
the
assistance
countries,
foreign
for
support
operations
and
U.S.
our
River
logistics
Red
and
equipment
Navy
Red
Army
at
U.S.
Foreign
Reserve,
its
Depot
Texarkana,
Army
executing
Army
at
Benning,
Depot
Fort
Force,
sustainment
Air
Military
services
and
prototyping,
and
Sales
Related
Equipment
Fort
our
Texas,
and
U.S.
our
sustainment
refurbishment,
maintenance
Georgia,
and
vehicle
Our
with
focus
a
Departments
and
system;
Federal
on
of
other
medical
Energy;
Services
and
the
government
Group
health
Social
also
related
Security
and
energy
provides
fields
for
Administration;
commercial
and
various
the
clients.
agencies
environmental
and
DoD
National
consulting
civilian
of
federal
Institutes
services
agencies,
solutions
and
IT
including
in
and
United
military
services
States
health
the
the
Health;
customers
-18-
Concentration of Revenues
Source of Revenues
USPS
FMS Program
Other
Total Revenues
Management Outlook
(in thousands)
Years ended December 31,
2017
180,205
185,556
394,352
760,113
$
$
%
2016
181,215
169,754
340,821
691,790
24
24
52
100
$
$
%
2015
184,876
76,476
272,630
533,982
26
25
49
100
$
$
%
35
14
51
100
We saw revenue growth in 2017 of 10% over 2016 revenues, which was up 30% over 2015 revenues. The improvement
in our revenues were again led by our Federal Services Group for which revenues increased by 16%. Increased revenues from our
Supply Chain Management Group also contributed to our revenue growth in 2017. We are pursuing initiatives in each of our groups
to sustain our growth.
Our 2017 Federal Services Group revenues increase resulted primarily from a full year of performance on our RRAD
ERS Program as compared to a partial year of performance in its 2016 start-up year. Various smaller programs also contributed
to revenue increases in this group. Our FMS Program remains the largest contributor to our Federal Services Group revenues and
FMS Program revenues increased 9% over 2016. Our Federal Services Group revenues were supported by contract funding awards
exceeding $400 million and funded contract backlog exceeding $300 million for the second consecutive year. However, funding
activity has been clouded by federal government budget uncertainties in the fourth quarter of 2017 and early 2018. We are well
positioned in our pursuit of opportunities to expand our services supporting our traditional government clients, and to capture new
work for which our Federal Services Group can team with our Aviation Group to provide enhanced competencies to a wider range
of government and international clients. Additionally, we have developed strong international business relationships through our
decades of work with foreign client countries. We are extending these relationships to market our services to several international
clients.
Our vehicle parts supply and inventory management support for the USPS delivery vehicle fleet continues to provide
steady revenues while increases in parts sales and supply chain and inventory management support services to our DoD and
commercial clients have provided revenue growth in our Supply Chain Management Group. Sales from the Supply Chain
Management Group to DoD increased 51% and revenue from commercial customers increased 25% in 2017 from the prior year.
Our investment in resources and management efforts to diversify and expand our operational capacity, market channels, and client
base has resulted in the capture and on-boarding of new commercial customers in 2017. Our commercial client base now includes
companies in food distribution, oil field services, waste management, linen and uniform, commercial long haul shipping, bus
transportation, and other clients that have vehicle fleets required to meet mission critical delivery or service schedules. We are
also capturing new customers and increasing revenue using e-commerce solutions. We are in the beginning stages in our relationship
with many of these new clients, and we look forward to further developing these relationships and adding new clients to grow our
revenues from commercial markets.
We continue to closely monitor the USPS delivery vehicle procurement efforts and are positioning ourselves to support
both newly procured vehicles as they are placed in service and aging vehicles that remain in service. While it will likely be several
years before the planned custom next-generation delivery vehicle is placed in service in significant numbers, the USPS has begun
some shorter term annual vehicle acquisitions through the procurement of commercial of-the-shelf ("COTS") mass-market vehicles
and the retirement of some of its aging COTS vehicles. While we cannot predict with certainty the impact of the USPS delivery
vehicle procurement and retirement transition cycle on our future revenues, we believe that our years of service and knowledge
of this client’s needs strategically position us to continue to serve as a key vehicle fleet sustainment partner. We will remain agile
and support this client during its complex vehicle transition initiatives.
We look forward to achieving results from our revenue enhancement initiatives in our Aviation Group in 2018. In
conjunction with our Federal Services Group, we began extending our gas turbine MRO competency to maritime applications in
2017 and we are pursuing additional opportunities for this competency. We have also opened a Singapore office and signed an
agreement with a key original equipment manufacturer that provides us the opportunity to expand our geographic distribution
footprint and extend both current and new product lines to new markets. Revenues and operating income for our Aviation Group
may experience fluctuations due to market demand and the mix of products sold.
-19-
115-97,
No.
Public
a
resulted
in
our
increased
the
lowering
Law
one-time
net
U.S.
reduction
income
by
corporate
enacted
our
upon
deferred
in
approximately
rate
income
tax
$10.6
from
and
the
Tax
passage
tax
of
liabilities
for
21%
that
2017.
Cuts
lowered
This
effective
million
to
35%
our
a
was
January
Jobs
Act
provision
non-cash
2018.
1,
Act")
(the
for
event
"Tax
income
for
2017
on
taxes
a
as
December
and
result
2017,
22,
correspondingly
Act
Tax
the
of
Entering
on
effect
adverse
2018,
our
we
results
have
of
settled
the
operations,
Hawaii
financial
Litigation,
condition,
as
discussed
cash
or
in
flows.
Item
3.
"Legal
Proceedings"
above,
with
no
material
We
amended
reduced
our
our
we
strengthens
bank
loan
our
bank
balance
debt
during
agreement
2017
to
enhances
by
extend
our
approximately
maturity
the
and
liquidity,
$43
date
on
positions
million
our
us
bank
to
sheet,
and
our
leverage
debt
better
and
support
increase
our
declined.
ratio
the
current
has
borrowing
business
January
commitments.
strategic
and
In
2018
This
efforts.
Bookings
and
Funded
Backlog
government
Revenues
and
potential
contract
for
bookings
future
backlog
(“bookings”),
indicator
have
of
funded
generally
revenue.
that
While
expires
contract
occur
work
when
bookings
or
performed
contract
and
de-obligated
funded
is
by
funding
Federal
our
documentation
backlog
Services
is
generally
and
Group
received.
result
does
upon
contract
completion
contract
Funded
in
not
revenue,
generate
depend
contract
on
contract
we
funding
backlog
an
is
occasionally
may
revenue.
2016
and
summary of our bookings and revenues for our Federal Services Group for the years ended
A
2015, and funded contract backlog for this group as of
December 31, 2017,
December 31, 2017,
2016
and
2015
is as follows (in millions):
2017
2016
2015
$
$
$
430
411
324
$
$
$
458
353
322
$
$
$
281
217
238
Bookings
Revenues
Funded Backlog
Recently Issued Accounting Pronouncements
For a description of recently announced accounting standards, including the expected dates of adoption and estimated
effects, if any, on our consolidated financial statements, see "Recently Issued Accounting Pronouncements" in Note 1 of the Notes
to our Consolidated Financial Statements in this Form 10-K.
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 collection 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. Sales returns and allowances are
not significant.
Our Aviation Group revenues are recognized upon the shipment or delivery of products to customers based on when title
or risk of loss transfers to the customer. Sales returns and allowances are not significant.
Substantially all of our Federal Services Group work is performed for our customers on a contract basis. The three primary
types of contracts used are cost-type, fixed-price and time and materials. 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.
-20-
Revenues
is
contract
and
is
and
the
Program
by
the
year
of
fee
performance
fee
award
and
in
the
award
notifications.
that
2017
when
contract
are
contract.
recorded
This
cost-type
on
contracts
fee
plus
a
cost
award
activity.
contract
of
level
subsequent
issued
the
to
recognized
years
prior
or
became
fees
as
contract
are
fees
Award
which
in
period
award
fee
determinable.
has
made
the
revenue
We
that
the
allowable
terms
during
is
income
award
are
specify
through
year
Award
performed.
the
period
revenue
incurred
award
a
fee
we
and
fees
payments
earned.
that
are
modification
occur
contractual
from
2017
fee
contract
evaluations
received
in
income
FMS
determined
authorizing
times
per
notification
award
three
in
fee
work
and
recognized
fixed
costs
three
Our
and
are
we
Revenue
Revenues
on
recognition
on
fixed-price
fixed-price
methods
service
that
contracts
on
contracts
fixed-price
are
delivery
require
terms.
Revenues
contracts
recorded
of
specific
will
as
items
vary
is
are
work
depending
performed,
recorded
on
the
typically
on
a
based
the
of
ratably
per
and
work
the
units
over
as
the
service
are
contract
period.
delivered.
unit
nature
price
Revenues
for
defined
on
contract
performance
performed
by
used
of
the
in
services
and
time
billing
the
and
contracts
materials
plus
direct
the
Generally,
defined
rates,
contract.
the
contract
profits
billing
are
costs
recorded
and
on
indirect
and
these
on
rates
time
for
A
years
summary
ended
of
revenues
31
December
for
the
for
is
our
presented
operating
below
groups,
(in
including
thousands).
of
burdens
basis
the
cost
materials
contract
allowable
with
from
associated
result
labor
materials
the
hours
and
difference
worked
subcontract
the
between
multiplied
work
cost
contracts
services.
a
summary
by
contract
type
for
our
Federal
Services
Group,
Contract Type
Cost-type
Fixed-price
Time and materials
Total Federal Services revenues
Supply Chain Management and
Aviation revenues
2017
Revenues
$
230,981
90,064
89,717
410,762
%
30.4
11.8
11.8
54.0
2016
Revenues
$
207,047
75,213
70,589
352,849
%
29.9
10.9
10.2
51.0
2015
Revenues
$
100,447
74,490
42,544
217,481
349,351
46.0
338,941
49.0
316,501
Total revenues
$
760,113
100.0
$
691,790
100.0
$
533,982
%
18.8
13.9
8.0
40.7
59.3
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, 2017 include approximately $4.0 million for which
we have not received formalized funding. We believe that we are entitled to reimbursement and expect to receive all of this funding.
Goodwill and Intangible Assets
Goodwill is subject to a review for impairment at least annually. We perform an annual review of goodwill for impairment
during the fourth quarter and whenever events or other changes in circumstances indicate that the carrying value may not be fully
recoverable. We estimate the fair value of our reporting units using a weighting of fair values derived from the income approach
and market 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 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 2017, we performed our annual goodwill impairment analysis for each of our reporting units
utilizing the statutory tax rate in effect at the time of the test. The results of the impairment analysis indicated that our reporting
units had fair values substantially in excess of their carrying values with the exception of our VSE Aviation and Akimeka reporting
units.
The fair value of our VSE Aviation reporting unit, within our Aviation Group, approximated its carrying value as of our
annual goodwill impairment analysis. While there has not been a significant contract or customer loss, VSE Aviation’s revenues
and operating income for 2017 did not meet our cash flow projections, primarily due to a decreased demand for new parts and
-21-
new
remains
business
opportunities.
our
with
consistent
of
business
point
8%
development
Aviation
basis
50
of
rate
rate
growth
to
turbine
future
our
expectations.
our
MRO
cash
related
over
than
outlook
discount
revenue
anticipated
our
for
rate
(a
growth
slower
overall
a
12.5%
annual
compounded
by
market
distribution
the
reflects
or
not
do
multiples
premium
fair
the
in
the
goodwill.
in
increase
meet
of
and
value
annual
For
the
annual
studies
and
risks
and
such
gas
in
our
revenues
applied
VSE
our
of
impairment
example,
carrying
earnings
multiples
Aviation
analysis
all
would
keeping
value
the
over
from
increase
a
the
aviation
services
flows
Under
seven-year
seven-year
business,
provided
assumptions
market
the
interest,
before
of
VSE
both
to
unit
reporting
increase
or
the
an
assumptions
other
an
likely
result
in
rate
a
primarily
discount
and
period,
is
period
significant
and
U.S.
to
our
the
including
We
believe
long-term
in
the
that
these
projections.
analysis
used
revenue
long-term
based
on
initiatives,
projected
including
conditions
are
the
Under
income
in
the
prior
in
3%
of
growth,
performed
rate
growth
organic
international
the
believe
opportunities
customer.
new
government
the
that
risk
a
estimated
fair
amortization
and
one-year
and
We
business
based
value
projected
comparable
on
("EBITDA")
and
we
approach,
taxes,
Aviation's
approximated
in
depreciation
historical
its
carrying
may
value
carrying
additional
the
an
same,
in
impairment
value,
result
50
reporting
the
negative
a
future
in
a
points
basis
revenues
the
in
change
impairment
in
increase
unit's
goodwill.
year),
temporary
the
which
and
approach,
a
terminal
is
the
that
we
used
compounded
Our
year.
corroborated
for
parts
opportunities
properly
rate
discount
develop
to
take
longer
market
companies'
a
control
in
Because
EBITDA.
used
assumptions
unit's
reporting
an
or
rate
and
key
of
the
this
discount
factored
the
at
result
test,
a
annual
Tax
of
the
we
used
discount
impairment
Act,
we
similar
of
rate
to
Due
deferred
our
2017.
the
In
of
passage
our
in
31,
the
in
utilized
impairment
this
the
annual
impairment
the
tax
interim
the
Tax
annual
lower
liabilities
a
clearance
as
impairment
Act
and
,
goodwill
shows
analysis,
Aviation
utilized
impairment
that
VSE
negative
reporting
impairment
VSE
the
of
analysis
analysis
Aviation’s
changes
in
unit's
due
fair
key
goodwill.
the
and
test
performed
projections,
13.0%,
the
to
value
which
changes
exceeded
or
assumptions
increase
interim
an
adjusted
the
in
goodwill
the
for
a
50
calculation
value
in
reflected
the
in
carrying
its
increase
an
resulting
carrying
value
impairment
impact
of
lower
increase
basis
point
the
of
result
a
as
approximately
by
analysis
statutory
from
Tax
the
carrying
value
the
of
from
as
tax
the
Act.
decrease
December
to
due
rate
of
with
future
rates
discount
The
Consistent
in
result
result
a
2%.
may
of
risk
Based
a
on
future
at
our
implementing
the
in
increase
an
an
or
in
increase
approximately
of
the
results
goodwill
revenue
discount
growth
rate
and
there
interim
are
annual
of
the
if
impairment
Additionally,
plans.
income
in
this
reporting
December 31,
used
of
of
value
as
the
future
the
approach
unit.
The
2017.
fair
carrying
the
$104.5
million
impairment
analysis
in
our
could
decrease
value
declines
value
a
or
carrying
performed,
flow
cash
adversely
market
the
VSE
our
be
in
of
we
have
projections
affected
by
multiples
that
determined
we
are
market
the
unit
or
if
other
in
used
reporting
is
VSE
Aviation
in
unsuccessful
such
as
factors
approach,
goodwill
market
included
Aviation
The
our
value
fair
12%.
contracts
as
results
of
of
Akimeka
and
a
set-aside
of
our
projected
a
carrying
cash
decrease
approximately
on
by
clients
businesses
small
Based
the
on
deterioration
approach
income
reporting
unit.
December 31,
or
The
2017.
our
services
Akimeka
unit,
reduction
experienced
had
loss
work
of
contracts.
our
or
reporting
a
performed
factors
is
changes
These
assessment
negative
on
have
that
within
in
expiring
been
we
remain
multiples
market
our
Akimeka
market
in
the
used
in
unit
reporting
value
Group,
years
Services
prior
to
due
follow-on
used
Federal
in
performed
the
which
for
projections
the
in
future
of
a
an
as
such
approach,
exceeded
its
decline
a
work
our
in
impairment
goodwill
the
in
increase
increases
an
or
approximately
of
carrying
services
in
was
often
impairment
there
if
rate
discount
in
by
ordered
to
analysis.
further
is
the
in
used
this
value
of
of
million
contracts
considered
at
risk
factors,
market
included
carrying
$29.8
goodwill
awarded
as
analysis,
flows
the
in
of
value
also
review
We
For
exists.
of
$110.9
reporting
the
from
same
the
(of
million
as
unit)
of
these
of
use
the
reasons
which
December
recoverability
discussed
$5.8
of
above,
our
we
relates
Based
million
31,
2017.
intangible
assets
long-lived
assessed
our
to
on
our
with
the
Akimeka
analysis
finite
of
lives,
long-lived
intangible
assets
recoverability
reporting
of
unit
estimated
we
determined
with
the
and
lives
finite
long-lived
$65.5
undiscounted
their
that
an
when
intangible
relates
cash
indicator
assets
to
flows
of
with
impairment
lives
finite
Aviation
to
result
recoverable.
our
VSE
expected
values
were
million
future
carrying
As
million
of
of
December 31,
goodwill
2017,
associated
$199
we
with
have
our
no
intangible
acquisitions.
assets
with
indefinite
lives
and
we
had
an
aggregate
of
approximately
-22-
Results
of
Operations
Revenues
(in thousands)
Years ended December 31,
Supply Chain Management Group
Aviation Group
Federal Services Group
2017
214,542
134,809
410,762
760,113
$
$
%
28.2
17.7
54.1
100.0
$
$
2016
205,475
133,466
352,849
691,790
%
29.7
19.3
51.0
100.0
$
$
2015
196,772
119,729
217,481
533,982
%
36.8
22.4
40.8
100.0
Our revenues increased by approximately $68 million or 10% for the year ended December 31, 2017 as compared to the
prior year. The change in revenues for this period resulted from an increase in our Federal Services Group of approximately $58
million, an increase in our Supply Chain Management Group of approximately $9 million, and an increase in our Aviation Group
of approximately $1 million.
Our revenues increased by approximately $158 million or 30% for the year ended December 31, 2016 as compared to
the prior year. The change in revenues for this period resulted from an increase in our Federal Services Group of approximately
$135 million, an increase in our Aviation Group of approximately $14 million, and an increase in our Supply Chain Management
Group of approximately $9 million.
Consolidated Statements of Income
(in thousands)
Years ended December 31,
Revenues
Costs and operating expenses
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income
2017
760,113
705,788
54,325
9,240
45,085
5,989
39,096
$
$
%
100.0
92.9
7.1
1.2
5.9
0.8
5.1
2016
691,790
640,261
51,529
9,855
41,674
14,881
26,793
$
$
%
100.0
92.6
7.4
1.4
6.0
2.1
3.9
2015
533,982
483,443
50,539
9,544
40,995
16,077
24,918
$
$
%
100.0
90.5
9.5
1.8
7.7
3.0
4.7
Costs and operating expenses consist primarily of cost of inventory and delivery of our products sold; direct costs,
including labor, material, and supplies used in the performance of our contract work; indirect costs associated with our direct
contract costs; sales, general, and administrative expenses associated with our operating groups and corporate management; and
certain costs and charges arising from nonrecurring events outside the ordinary course of business. These costs will generally
increase or decrease in conjunction with our level of products sold or contract work performed. Costs and operating expenses also
include expense for amortization of intangible assets acquired through our acquisitions. Expense for amortization of acquisition
related intangible assets is included in the segment results in which the acquisition is included. Segment results also include expense
for an allocation of corporate management costs.
Our costs and operating expenses increased by approximately $66 million or 10% in 2017 as compared to 2016. The
change in costs and operating expenses resulted primarily from an increase in our Federal Services Group of approximately $52
million, an increase in our Supply Chain Management Group of approximately $10 million, and an increase in our Aviation Group
of approximately $4 million.
Our costs and operating expenses increased by approximately $157 million or 32% in 2016 as compared to 2015. The
change in costs and operating expenses resulted primarily from an increase in our Federal Services Group of approximately $134
million, an increase in our Supply Chain Management Group of approximately $10 million, and an increase in our Aviation Group
of approximately $12 million.
Our operating income increased by approximately $2.8 million or 5% in 2017 as compared to 2016. Operating group
results included operating income increases for our Federal Services Group of approximately $5.6 million and operating income
decreases for our Aviation Group of approximately $3.1 million and for our Supply Chain Management Group of approximately
$878 thousand.
-23-
operating
income
Our
income
resulted
primarily
results
operating
group
Aviation
approximately
base,
income
which
of
Group
included
of
$821
benefited
our
approximately
operating
approximately
Our
thousand.
operating
$1.9
increased
from
income
$2.2
increase
group
for
by
approximately
changes
in
our
increases
for
an
and
revenue
The
$1.0
operating
our
operating
allowed
us
combined
million
in
income.
2016.
Federal
million
million
group
Services
or
results
2%
and
Group
decrease
our
in
as
2016
settlement
of
for
corporate
compared
two
of
approximately
Supply
our
infrastructure
Chain
to
material
$994
2015.
The
lawsuits.
thousand
Management
and
costs
a
in
a
over
decrease
larger
in
change
in
Operating
our
for
of
Group
revenue
operating
the
lawsuit
settlements
resulted
income
to
effect
spread
of
Interest
debt
remained
bank
our
levels
headquarters
$1.6
million,
levels.
steady
expense
decreased
Interest
for
lease.
and
most
The
$1.6
expense
of
the
amount
million
approximately
increased
year.
of
for
interest
2017,
facility
million
approximately
expense
Interest
expense
and
2016
also
associated
2015,
includes
our
with
respectively.
in
$311
as
2017
thousand
$615
thousand
in
interest
compared
2016
to
as
related
headquarters
due
2015,
2016
compared
to
our
financing
primarily
to
executive
is
lease
to
as
and
approximately
of
decline
the
our
debt
bank
administrative
$1.5
Provision
for
Income
Taxes
Our
our
effective
effective
Act,
Tax
in
our
we
provision
13.3%
for
was
rate
tax
tax
for
rate
recorded
for
2017
in
the
income
and
2017,
for
35.7%
benefit
expect
a
a
quarter
2017
of
$10.6
approximately
2016,
to
our
one-time
39.2%
effective
for
tax
reduction
the
for
million
2015.
rates
in
our
year.
we
and
fourth
of
taxes
lowered
Due
the
to
reduction
Tax
The
and
cash
deferred
Act
tax
tax
passed
in
payments
liabilities
December
future
in
resulted
that
2017
years.
a
in
Our
tax
addition
rate
tax
to
million
Acquisition
Aviation
is
state
our
Aviation
that
rate
to
and
our
year.
In
income
$1.3
our
permanent
credit
tax
affected
also
income
effective
by
taxes,
tax
rate.
Acquisition
were
federal
our
to
discrete
certain
Our
earn-out
deductible
tax
state
for
rates
not
and
tax
differences
provided
and
benefit
items
that
may
credits
tax
effective
tax
and
rate
obligation.
tax
for
such
credits
2016
2017,
as
and
purposes
the
2015.
occur
given
other
for
any
caused
in
items
was
2016
Approximately
in
opportunity
year,
but
differences
due
to
thousand
to
credit
increase
tax
reduced
$900
an
resulted
may
not
between
value
fair
transaction
of
effective
our
state
a
and
work
consistent
statutory
be
our
changes
of
costs
rate
tax
from
U.S.
year
to
Federal
approximately
with
associated
Other
2015.
for
improvement
educational
Supply
Chain
Management
Group
Results
The results of operations for our Supply Chain Management Group are (in thousands):
Revenues
Costs and operating expenses
Operating income
2017
214,542
180,788
33,754
$
$
%
100.0
84.3
15.7
$
$
2016
205,475
170,843
34,632
%
100.0
83.1
16.9
$
$
2015
196,772
161,319
35,453
%
100.0
82.0
18.0
Years ended December 31,
Revenues for our Supply Chain Management Group increased approximately $9 million or 4% for 2017, as compared
to the prior year. The revenue increase resulted primarily from an increase in sales to DoD and commercial customers of
approximately $9.6 million or 40%. Costs and operating expenses for our Supply Chain Management Group increased
approximately $10 million or 6% and operating income decreased by approximately $878 thousand or 3% for 2017 as compared
to the prior year. The increase in costs and operating expenses resulted primarily from an increase in products sold. The products
sold associated with our increasing government and commercial customer revenues tend to lower our overall profit margins as
our revenue mix changes. The decrease in operating income was primarily attributable to market competition and a change in the
mix of products sold, and to increased costs associated with investments to support revenue growth.
Revenues for our Supply Chain Management Group increased approximately $9 million or 4% for 2016, as compared
to the prior year. The revenue increase resulted primarily from an increase in sales to government and commercial customers of
approximately $10.9 million, including sales of approximately $3.3 million from Ultra Seating Company, which we acquired in
December 2015. Costs and operating expenses for our Supply Chain Management Group increased approximately $10 million or
6% and operating income decreased by approximately $821 thousand or 2% for 2016 as compared to the prior year. The increase
in costs and operating expenses resulted primarily from an increase in products sold. The products sold associated with our
increasing government and commercial customer revenues tends to lower our overall profit margins as our revenue mix changes.
The decrease in operating income was primarily attributable to market competition and a change in the mix of products sold, and
to increased costs associated with investments to support revenue growth.
-24-
Aviation Group Results
The
results
of
operations
for
our
Aviation
Group
since
the
acquisition
date
of
January
28,
2015
are
as
follows
(in
thousands):
Revenues
Costs and operating expenses
Operating income
2017
134,809
125,114
9,695
$
$
%
100.0
92.8
7.2
$
$
2016
133,466
120,643
12,823
$
$
%
100.0
90.4
9.6
$
$
2015
119,729
109,094
10,635
%
100.0
91.1
8.9
Years ended December 31,
Revenues for our Aviation Group increased approximately $1 million or 1% for 2017 as compared to the prior year. The
revenue increase was primarily related to new work from maritime gas turbine engine MRO services offset by a decrease in sales
in our parts distribution business. Costs and operating expenses increased by approximately $4 million or 4% for 2017, primarily
due to an increase in lower margin MRO related revenues. Costs and operating expenses for 2016 were reduced by approximately
$1.3 million for a valuation adjustment to the accrued earn-out obligation associated with the acquisition of our aviation businesses
and were increased by approximately $300 thousand due to expense associated with a settlement agreement. Our operating income
decreased approximately $3 million or 24% for 2017, as compared to the prior year. Factors affecting the change in our operating
income included a decrease in the demand in our parts distribution businesses, an increase in operating income from engine MRO
services and engine accessories services, and the adjustments to 2016 operating income for the earn-out obligation valuation
adjustment and the settlement agreement expense mentioned above.
Our Aviation Group began operations upon the acquisition of our aviation businesses on January 28, 2015; therefore, the
results for our Aviation Group include a full 12 months for 2016 and approximately 11 months for 2015. Accordingly, year over
year comparisons for this group for 2016 should consider this variance.
Costs and operating expenses for this group include expense for amortization of intangible assets associated with the
acquisition of our aviation businesses, allocated corporate costs, and valuation adjustments to the accrued earn-out obligation
associated with the acquisition. Expense for amortization of intangible assets was approximately $6.6 million for 2017 and 2016
and approximately $6.1 million for 2015. Expense for allocated corporate costs was approximately $3.6 million, $3.9 million and
$4.5 million for 2017, 2016 and 2015, respectively. Valuation adjustments to the accrued earn-out obligation decreased costs and
operating expenses approximately $1.3 million for 2016 and $101 thousand for 2015.
Federal Services Group Results
The results of operations for our Federal Group are (in thousands):
Revenues
Costs and operating expenses
Operating income
2017
410,762
397,343
13,419
$
$
%
100.0
96.7
3.3
2016
352,849
345,053
7,796
%
100.0
97.8
2.2
2015
217,481
210,679
6,802
%
100.0
96.9
3.1
Years ended December 31,
Revenues for our Federal Services Group increased approximately $58 million or 16% and costs and operating expenses
increased approximately $52 million or 15% for 2017, as compared to the prior year. Revenues for this group increased
approximately $135 million or 62% and costs and operating expenses increased approximately $134 million or 64% for 2016, as
compared to the prior year.
Significant items affecting changes in our revenues and costs and operating expenses for 2017 included an increase in
revenue of approximately $25 million from the inclusion of a full year of revenue on our RRAD ERS Program in 2017 as compared
to a partial year in 2016, an increase in revenue of approximately $16 million from our FMS Program services, an increase in
revenue of approximately $3 million from our Ft. Benning Logistics Support Services Program, and increases in work and new
work on various other contracts.
Operating income increased by approximately $5.6 million or 72% for 2017, as compared to 2016. The increase in
operating income resulted primarily from an increase of award fees earned on our FMS Program of approximately $1.9 million;
from an improvement in profit margins on vehicle and equipment refurbishment, maintenance, and sustainment work supporting
various U.S. Army and Army Reserve programs; and from increases in revenues resulting in a more favorable cost structure relative
-25-
to
of
the
increased
approximately
revenue
$1.9
levels.
million.
Operating
This
contract
income
has
was
been
adversely
completed
affected
we
and
by
a
expect
contract
no
further
related
loss.
loss
for
our
Energetics
subsidiary
Significant
revenue
of
associated
full
of
items
approximately
startup
with
Ft.
for
affecting
$93
our
of
Benning
million
RRAD
Logistics
changes
from
ERS
year
our
the
a
our
in
our
FMS
Program,
revenues
and
Program
and
an
Services
Support
increase
Program
in
as
and
costs
services,
operating
increase
an
revenue
of
compared
expenses
in
for
revenue
approximately
year
partial
to
2016
of
$15
in
a
million
2015.
an
included
approximately
from
increase
$40
the
in
million
inclusion
The
operating
of
our
reduced
required
cost
by
us
structure
losses
to
price
income
to
with
relative
associated
our
services
increase
revenue
the
more
2016
for
for
levels
start
new
of
aggressively
resulted
this
contract
to
primarily
that
work
and
from
improved
was
that
our
build
sustain
group
margins
won
a
in
revenue
the
increase
in
on
more
levels.
and
revenues
our
existing
competitive
a
work.
more
favorable
These
increases
environment
bidding
balance
were
that
Profit
with
margins
our
recognized
revenue
and
FMS
award
associated
years
award
we
fee
in
this
group
Program.
fee
income
revenue
2017
in
have
Award
and
from
varied
fee
income
three
to
due
evaluations
the
in
award
fluctuations
FMS
on
our
we
period
fee
notifications.
received
contract
in
Program
occur
contractual
activity
three
and
the
times
notification
timing
year
per
the
of
contract
of
and
in
award.
2017
We
award
and
fees
prior
recognized
Financial
Condition
has
been
earnings,
There
our
to
primarily
payments
vendor
and
January
customers.
In
available
commitments
no
our
required
2018,
we
us,
to
material
of
level
perform
to
amended
implement
change
business
in
our
activity,
2017.
financial
the
contract
loan
favorable
condition
of
timing
and
work,
agreement
interest
in
inventory
the
to
rate
timing
extend
of
the
structure,
bank
our
more
a
our
Changes
purchases,
associated
maturity
and
modify
date,
asset
to
contract
liability
and
delivery
to
increase
accounts
schedules,
and
the
collections
of
amount
were
due
subcontractor
our
from
loan
bank
billings
other
terms
and
conditions.
Liquidity and Capital Resources
Cash
Flows
Cash
and
cash
equivalents
increased
by
approximately
$196
thousand
during
2017.
Cash
attributable
is
in
million
to
changes
decreased
tax
federal
by
provided
increase
an
to
and
depreciation
the
of
levels
approximately
upon
in
by
legislation
operating
activities
approximately
increased
$12.3
of
and
assets
amortization
operating
$10.6
passage
million
the
of
other
and
to
Act
due
Tax
in
by
million
approximately
cash
operating
Net
adjustment
December
income
to
2017.
non-cash
liabilities.
an
in
$3.2
provided
activities,
was
deferred
tax
million
net
by
a
and
as
a
of
in
2017
income;
decrease
and
arising
compared
decrease
of
approximately
operating
the
non-cash
from
The
2016.
to
approximately
million
$1.8
activities
the
of
enactment
change
$7.3
due
were
new
increased
liabilities
significant
to
related
Our
significant
provided
and
accounts
our
timing
materials
a
cash
payable
and
to
on
and
significant
accordingly,
fulfill
the
represent
a
and
inventories
amount
related
deferred
payable
contract
of
services
vendors,
receivable
liabilities.
accounts
was
use
accounts
operating
our
of
to
in
decreases
compensation
the
result
from
Accordingly,
obligations.
products
ordered
of
the
and
our
and
timing
in
and
Cash
receivable
approximately
of
subcontractors
provided
was
$23.6
to
of
our
sold,
payments
levels
government
received
increases
decreases
or
increases
inventory,
our
in
cash
decreases
approximately
million
perform
accounts
funding
for
accounts
services.
receivable,
for
work
receivable
the
delays,
Such
and
operations.
provided
by
can
cause
amount
of
decreases
$2.9
2017.
on
our
in
million,
A
our
assets,
inventory
and
significant
contracts
and
timing
timing
accounts
accounts
of
billings
differences
payable
used
of
cash
portion
and
from
payable
and
our
was
accounts
approximately
payable
represent
million,
$3.7
in
accounts
receivable
materials
depending
subcontractors
cause
to
and
periods,
by
our
decreases
accounts
of
purchase
the
may
received
have
in
the
short
fluctuate
from
potential
time
used
Cash
consisted
activities
in
primarily
investing
of
activities
purchases
of
property
and
$3.5
equipment.
decreased
approximately
million
in
2017
as
compared
to
2016.
Cash
used
in
investing
Cash
used
consisted
our
of
final
activities
in
primarily
earn-out
financing
of
net
obligation
increased
of
associated
approximately
loan
bank
2015
the
our
with
$6.2
million
in
borrowings.
of
acquisition
2017
We
our
as
used
aviation
repayments
activities
payment
approximately
businesses.
$19
compared
to
2016.
Cash
used
million
in
in
financing
for
2016
-26-
Cash
attributable
is
increase
and
of
amortization
by
increase
provided
an
to
approximately
and
operating
of
million
activities
approximately
cash
in
operating
non-cash
increased
$10.2
provided
by
million
net
by
activities.
other
$1.9
approximately
due
to
income;
changes
a
and
million
$9.6
the
in
decrease
in
levels
of
2016
of
as
compared
operating
The
to
assets
2015.
and
in
million
change
liabilities;
an
depreciation
approximately
$2.5
Cash
used
activities
in
for
investing
investing
2015
activities
decreased
approximately
approximately
for
million
$195
$199
million
acquisitions.
included
in
2016
as
compared
to
2015.
Cash
used
in
Cash
of
We
aviation
activities
2015.
in
our
of
businesses.
in
used
financing
$168
approximately
approximately
used
activities
million
in
million
$19
was
2015.
in
2016
approximately
$41
This
for
difference
of
payment
was
our
million
in
primarily
final
2016
due
earn-out
compared
as
to
bank
obligation
borrowing
cash
to
associated
provided
our
2015
finance
the
with
by
financing
acquisitions
acquisition
to
paid
We
agreement,
have
our
increased
cash
payment
our
dividends
cash
of
dividend
each
totaling
dividends
year
approximately
subject
is
2004.
since
to
$2.8
annual
or
million
restrictions.
$0.26
We
per
have
share
paid
during
cash
2017.
dividends
Pursuant
each
to
year
our
since
bank
1973
loan
and
sources
liquidity
are
Liquidity
Our
internal
of
accounts
accounts
inventory,
associated
and
revenues
and
can
levels
be
be
can
levels
subcontractor
Government
days
on
our
timing
inventory,
affected
affected
efforts
funding
sales
by
by
used
delays
outstanding.
the
changes
in
our
can
receivable,
receivable,
large
of
level
the
in
contracts,
delays
cause
from
primarily
accounts
and
and
accounts
opportunistic
contract
delays
to
operating
payable,
payable
inventory
we
work
in
the
invoice
by
our
and
in
ability
of
can
specifically
activities,
profitability.
from
and
liquidity.
affect
our
Our
purchases.
the
perform,
from
Significant
Our
accounts
timing
by
of
award
for
contractual
earned,
coverage
presenting
revenues
changes
in
our
increases
and
and
materials
funding
potential
level
or
accounts
accounts
of
decreases
revenues
in
payable
payable
and
payments.
impact
purchases
and
negative
inventory
receivable
large
of
and
a
We
also
purchase
property
invest
and
in
the
equipment;
acquisition
invest
of
in
other
expansion,
companies.
improvement,
our
2015,
In
maintenance
and
acquisitions
of
required
our
a
and
operational
significant
use
and
of
administrative
cash.
facilities;
Our
credit.
external
The
revolving
The
consists
financing
loan
agreement,
facility
loan
of
a
which
provides
with
loan
expires
for
agreement
in
revolving
January
loans
a
2020,
and
bank
is
letters
group
that
comprised
credit.
of
provides
a
of
term
for
a
loan
term
loan,
facility
revolving
a
and
loans,
revolving
and
loan
of
letters
facility.
of
credit
The
December 31,
permit.
revolving
in
million
maximum
was
unused
2017
an
amounts
loan
pay
loan
revolving
We
amount
$150
million.
commitment
and
We
fee
no
outstanding
amounts
outstanding
under
and
letters
available
may
and
letters
and
us
to
borrow
on
fees
credit
of
of
no
the
repay
of
loan
the
credit
outstanding
credit
letters
for
loan
issued.
agreement
revolving
that
are
as
outstanding
revolving
borrowings
had
We
2017.
December 31,
as
of
of
of
loans
as
letters
and
cash
our
approximately
credit
as
require
million
of
flows
$79.3
approximately
of
or
in
$100
We
had
December 31,
2016.
Under
both
or
facility,
the
loan
facilities
agreement
to
up
an
we
may
aggregate
elect
to
additional
increase
the
amount
maximum
$75
of
million.
availability
of
the
term
loan
facility,
the
revolving
loan
Total
approximately
unamortized
respectively.
using
value
facilities.
credit
bank
$173.7
deferred
fair
The
2
Level
loan
borrowed
and
funds
$216.3
costs
of
outstanding
on
million
financing
of
based
outstanding,
as
million
including
term
of
December 31,
approximately
$1.1
bank
our
under
debt
companies
on
million
loan
with
data
market
a
value
inputs
and
facilities
loan
2017
and
and
revolving
respectively.
as
borrowings
2016,
million
of
December 31,
to
rating
loan
These
December 31,
2017
ours
borrowings,
amounts
2017
approximates
have
that
and
its
recently
were
exclude
2016,
carrying
priced
similar
$1.7
of
as
corporate
We
pay
the
was
interest
prime
0.75%.
on
rate)
The
loan
the
plus
base
term
a
base
margins
margin.
borrowings
of
or
As
increase
revolving
and
December 31,
decrease
loan
2017,
increments
in
the
as
at
LIBOR
base
our
Total
borrowings
LIBOR
plus
margin
a
was
base
2.00%
margin
and
Funded
Debt/EBITDA
or
the
Ratio
base
a
at
base
rate
increases
rate
base
or
(typically
margin
decreases.
-27-
The
of
the
swapped
years
of
loan
agreement
agreement.
debt
outstanding
We
requires
executed
of
to
us
interest
December
have
rate
31,
as
rate
interest
swap
2017
hedges
in
million.
agreements
$85
was
portion
on
a
February
of
2015
the
that
outstanding
complied
term
loan
the
first
for
terms.
The
three
amount
with
these
After
taking
into
outstanding
debt
ranged
from
account
the
3.25%
impact
of
5.25%,
hedging
the
and
to
instruments,
as
interest
of
rate
December 31,
our
on
aggregate
2017,
interest
outstanding
effective
rates
on
portions
of
3.66%.
debt
was
our
and
$7.3
Interest
million
expense
during
incurred
years
on
ended
the
bank
loan
borrowings
and
December 31,
2017,
interest
and
rate
2015,
2016
respectively.
hedges
was
approximately
$7.2
million,
$7.8
million
The loan agreement contains collateral requirements to secure our loan agreement obligations, restrictive covenants, a
limit on annual dividends, and other affirmative and negative covenants, conditions and limitations. Restrictive covenants
include a maximum
Ratio.
We were in compliance with required ratios and other terms and conditions as of
Ratio, which decreases over time, and a minimum Fixed Charge Coverage
Total Funded Debt/EBITDA
December 31, 2017.
Total Funded Debt/EBITDA Ratio
Fixed Charge Coverage Ratio
Current Maximum Ratio
2.75 to 1
Minimum Ratio
1.20 to 1
Actual Ratio
2.02 to 1
Actual Ratio
2.05 to 1
We currently do not use public debt security financing.
Contractual Obligations
Our contractual obligations as of December 31, 2017 are (in thousands):
Contractual Obligations
Bank loan debt
Operating leases, net of non-cancelable sublease
income
Corporate headquarters lease, net of non-
cancelable sublease income
Purchase obligations
Total
Payments Due by Period
Total
173,699
$
Less than
1 year
1-3 years
4-5 years
After
5 years
$
7,500
$
21,875
$
29,375
$
114,949
5,461
2,753
1,871
753
84
43,972
162
223,294
$
$
3,445
155
13,853
$
8,659
7
32,412
$
9,532
—
39,660
$
22,336
—
137,369
Estimated cash requirements for interest on our bank loan debt are approximately $5.1 million for 2018 and $3.0 million
for 2019.
Bank Loan Amendment
In January 2018, we amended the loan agreement to extend our payment terms, increase the borrowing commitments
available to us, and increase the bank group from six banks to nine banks. The termination date of the loan agreement after the
amendment is January 2023 and the amount of our term loan borrowings outstanding after the January amendment is $100 million.
After the amendment, our scheduled term loan payments are approximately $7.5 million in 2018, $10.0 million in 2019, $11.9
million in 2020, $14.4 million in 2021, $15.0 million in 2022 and $41.2 million in 2023.
The maximum amount of credit available to us for revolving loans and letters of credit after the amendment is $300
million. Under the loan agreement we may elect to increase the maximum availability of the term loan facility, the revolving loan
facility, or a combination of both facilities. The aggregate limit of incremental increases is $100 million after the amendment.
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. After the amendment the LIBOR base margin is 1.75% and the base rate base
margin is 0.50%.
-28-
The
the
our
loan
agreement
agreement
for
and
with
us
to
requires
first
the
three
requirement
this
have
years
for
interest
after
an
the
additional
rate
hedges
on
amendment.
three
a
We
years.
compliance
years
of
extended
portion
of
executed
the
an
outstanding
rate
interest
term
hedge
loan
in
for
the
February
first
2018
three
that
After
maximum
the
the
ratio
amendment,
event
the
in
the
of
maximum
material
a
Funded
Total
acquisition.
Debt/EBITDA
Ratio
was
fixed
at
3.0
to
1,
with
a
provision
to
increase
lease
also
Operating
are
leases
software
We
have
a
agreement
May
in
2012
have
under
commitments
are
primarily
for
leased
facilities
for
office,
shop,
and
warehouse
space.
Equipment
and
included
in
these
amounts.
lease
15-year
to
us
finance
agreement
the
lease
capitalize
of
method
required
the
to
our
related
construction
accounting
executive
the
of
costs
rules.
and
leased
administrative
building
headquarters
for
account
facility.
the
lease
Terms
upon
our
lease
of
occupancy
and
obligations
consist
primarily
Purchase
excludes
commitments
table
The
Such
reimbursable
if
a
contractual
for
contract
is
materials
and
“terminated
of
for
subcontractors
for
contractual
or
materials
reimbursable
are
by
convenience”
commitments
subcontractor
government
the
when
technology
information
perform
our
to
contracts,
with
purchased
the
on
federal
to
government
generally
and
regulations.
contracting
systems.
contracts.
also
are
used
pursuant
associated
work
commitments
Inflation
and
Pricing
costs
labor
buildings
expect
the
operations
Most
in
and
overall
or
contracts
our
of
our
are
contracts
improvements,
of
impact
condition.
provide
normally
shop
and
inflation
financial
estimates
for
considered
warehouse
on
replacement
of
future
reimbursable
equipment,
of
costs
costs
labor
cost.
at
computer
our
to
Our
systems
and
property
be
property
escalated
and
any
for
equipment
option
periods,
consists
and
to
furniture
material
the
of
while
principally
fixtures.
future
our
We
do
results
non-
land,
not
of
equipment,
equipment
and
be
to
ITEM 7A. Quantitative and Qualitative Disclosures
About Market Risks
Interest
Rates
Our
put
interest
potentially
future
for
various
available
bank
us
rate
periods.
provide
for
loans
at
a
risk
movements
The
material
have
we
fixed
resulting
adverse
employed
rates
on
borrowing
to
impact
us
on
interest
this
portion
at
future
rate
of
earnings
and
hedges
our
debt
to
fix
give
the
us
flows.
cash
rate
a
on
protection
variable
interest
rates.
Accordingly,
future
mitigate
of
our
interest
To
portion
against
rate
interest
the
risks
outstanding
changes
associated
could
with
borrowings
rate
increases.
2015,
February
In
amount
the
1.25%
term
pay
entered
The
loan
we
million.
$100
of
term
the
of
amount
margin.
base
our
plus
a
with
years
three
of
1.25%
rate
effective
an
of
three
term
a
for
loan
term
years.
third
and
into
swap
swap
Also
in
notional
plus
years
our
second
2017,
of
for
notional
31,
rate
loan
place,
swap
for
a
we
on
LIBOR
a
on
amount
$60
was
February
amount
our
with
based
our
million
2015,
$25
of
margin.
base
notional
a
term
the
of
for
our
term
interest
loan
rate
swap
decreases
the
into
of
on
in
term
a
term
increments
in
swap
loan
based
LIBOR
31,
December
entered
2018,
we
the
for
million
a
annual
we
rate
the
LIBOR
loan
on
an
place,
interest
with
a
year,
years
four
of
As
of
basis.
effective
an
our
swap
on
loan
revolving
interest
based
$50
to
with
a
December
interest
revolving
in
swap
rate
million
increasing
and
we
million.
In
with
entered
As
February
of
amount
2017,
first
into
$10
pay
-29-
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, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Page
31
32
33
34
35
36
37
-30-
Report of Independent Registered Public
Accounting Firm
The
Board
of
Directors
and
Stockholders
of
VSE
Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
December 31, 2017 and 2016, 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, 2017, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles.
VSE Corporation and Subsidiaries (the Company) as of
Accounting Oversight Board (United States)
We also have audited, in accordance with the standards of the Public Company
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 7, 2018 expressed an unqualified opinion thereon.
Basis for
Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst &
Young LLP
We
have
served
as
the
Company’s
auditor
since
2002.
Tysons, Virginia
March 7, 2018
-31-
VSE Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and Stockholders' equity
Current liabilities:
Current portion of long-term debt
Accounts payable
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
Deferred tax liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and
outstanding 10,838,747 and 10,798,927 respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
As of December 31,
2016
2017
$
$
$
624
98,337
132,591
16,988
248,540
55,146
110,909
198,622
15,796
629,013
6,960
66,015
40,243
759
113,977
165,614
16,323
20,581
19,423
335,918
428
101,218
136,340
20,477
258,463
62,061
126,926
198,622
15,767
661,839
21,023
93,999
32,772
648
148,442
193,621
12,751
21,959
29,872
406,645
542
24,470
267,902
181
293,095
629,013
$
540
22,876
231,733
45
255,194
661,839
$
$
$
$
The accompanying notes are an integral part of these financial statements.
-32-
VSE Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands, except share and per share amounts)
Revenues:
Products
Services
Total revenues
Costs and operating expenses:
Products
Services
Selling, general and administrative expenses
Amortization of intangible assets
Total costs and operating expenses
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income
Basic earnings per share:
Basic weighted average shares outstanding
Diluted earnings per share:
For the years ended December 31,
2016
2017
2015
$
$
350,129
409,984
760,113
$
341,776
350,014
691,790
318,141
215,841
533,982
291,769
395,573
2,429
16,017
705,788
279,629
337,956
6,609
16,067
640,261
258,009
206,570
3,288
15,576
483,443
54,325
51,529
50,539
9,240
9,855
9,544
45,085
41,674
40,995
5,989
14,881
16,077
39,096
3.61
$
$
26,793
2.48
$
$
24,918
2.32
10,834,562
10,793,723
10,747,226
3.60
$
2.47
$
2.31
$
$
$
Diluted weighted average shares outstanding
10,867,834
10,828,152
10,787,270
The accompanying notes are an integral part of these financial statements.
-33-
Corporation
VSE
Consolidated
and
Statements
Subsidiaries
of
Comprehensive
Income
(in thousands)
Net income
Change in fair value of interest rate swap agreements, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income
For the years ended December 31,
2015
2016
2017
$
$
39,096
136
136
39,232
$
$
26,793
120
120
26,913
$
$
24,918
(75)
(75)
24,843
The accompanying notes are an integral part of these financial statements.
-34-
VSE Corporation and Subsidiaries
Consolidated
Statements
of
Stockholders'
(in thousands except per share data)
Equity
Common Stock
Balance at December 31, 2014
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.215 per share)
Balance at December 31, 2015
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.235 per share)
Balance at December 31, 2016
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.27 per share)
Balance at December 31, 2017
Shares
10,716
—
35
—
—
10,751
—
48
—
—
10,799
—
40
—
—
10,839
Amount
536
$
—
2
—
—
538
—
2
—
—
540
—
2
—
—
542
$
Additional
Paid-In
Capital
$
$
20,080
—
1,288
—
—
21,368
—
1,508
—
—
22,876
—
1,594
—
—
24,470
Retained
Earnings
$ 184,873
24,918
—
—
(2,313)
207,478
26,793
—
—
(2,538)
231,733
39,096
—
—
(2,927)
$ 267,902
$
Accumulated
Other
Comprehensive
Income (Loss)
$
Total
Stockholders'
Equity
— $
—
—
(75)
—
(75)
—
—
120
—
45
—
—
136
—
181
$
205,489
24,918
1,290
(75)
(2,313)
229,309
26,793
1,510
120
(2,538)
255,194
39,096
1,596
136
(2,927)
293,095
The accompanying notes are an integral part of these financial statements.
-35-
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31,
2016
2017
2015
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
$
39,096
$
26,793
$
24,918
Depreciation and amortization
Deferred taxes
Stock-based compensation
Earn-out obligation adjustment
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables, net
Inventories, net
Other current assets and noncurrent assets
Accounts payable and deferred compensation
Accrued expenses and other current liabilities
Long-term lease obligations
Earn-out obligations
25,882
(10,534)
3,068
—
2,881
3,749
3,681
(23,587)
7,562
(1,378)
—
26,046
(1,146)
2,109
(1,329)
(22,747)
(27,217)
(13,020)
54,743
4,253
(1,292)
—
25,541
84
2,081
426
(8,139)
(10,381)
6,031
(362)
1,919
(1,275)
(3,269)
Net cash provided by operating activities
50,420
47,193
37,574
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from the sale 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 agreement
Repayments on loan agreement
Earn-out obligation payments
Payment of debt financing costs
Payments on financing lease obligations
Payment of taxes for equity transactions
Dividends paid
(3,743)
732
—
(3,011)
348,675
(391,285)
—
—
(1,287)
(500)
(2,816)
(6,546)
143
(63)
(10,562)
507
(195,135)
(6,466)
(205,190)
321,630
(340,046)
(18,515)
—
(1,128)
(499)
(2,481)
519,313
(333,222)
(11,713)
(2,699)
(986)
(342)
(2,258)
Net cash (used in) provided by financing activities
(47,213)
(41,039)
168,093
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow disclosures:
Cash paid for:
Interest
Income taxes
196
428
624
$
(312)
740
428
$
477
263
740
7,606
16,346
$
$
8,230
18,886
$
$
6,621
15,949
$
$
$
The accompanying notes are an integral part of these financial statements.
-36-
VSE Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December
31, 2017
(1)
Nature
of
Business
and
Significant
Accounting
Policies
Nature
of
Business
The
term
operations
"VSE,"
of
only
the
"Company,"
the
as
VSE
parent
"us,"
"we,"
or
company.
indicates
"our"
means
VSE
and
its
subsidiaries
and
divisions
unless
the
context
chain
operations
Our
("MRO")
include
and
supply
parts
overhaul
engineering;
services
for
"government"),
civilian
agencies
energy
legacy
supply
services
and
systems
the
for
services;
and
Postal
environmental
and
United
commercial
equipment
States
customers,
including
management
clients;
aviation
IT
health
and
professional
and
solutions;
parts
solutions
and
vehicle
IT
care
technical
and
United
the
("USPS"),
customers.
supply
equipment
and
services
States
Service
to
other
and
and
to
vehicle
for
maintenance
consulting
the
fleets;
and
services.
maintenance,
refurbishment;
provide
Government
We
States
repair,
to
Department
Defense
("DoD")
and
and
logistics;
logistics
(the
federal
United
of
Principles of Consolidation
The
consolidated
Energetics
Aviation"),
Incorporated
our
and
financial
("Energetics"),
statements
Akimeka,
All
divisions.
operations
the
of
("Akimeka"),
consist
LLC
intercompany
of
our
Wheeler
transactions
have
been
Bros.,
Inc.
unincorporated
("WBI")
eliminated
and
in
parent
company,
our
wholly
VSE
owned
Aviation,
subsidiaries,
("VSE
Inc.
consolidation.
Use of Estimates in the Preparation of Financial Statements
of
statements
preparation
The
to
us
make
liabilities
and
Actual
estimates
the
at
could
results
disallowance
financial
and
of
differ
reserves
assumptions
financial
the
those
from
recoverability
and
conformity
in
that
affect
statements
estimates.
of
with
the
reported
the
and
Significant
goodwill
date
requires
assets
period.
for
contract
accounting
of
amounts
amounts
reported
generally
liabilities
principles
and
assets
revenues
of
the
and
financial
accepted
and
expenses
in
the
disclosure
during
United
of
the
include
States
contingent
reporting
accruals
statements
estimates
and
intangible
affecting
assets.
Stock Split Effected in Form of Stock Dividend
In
The
our
2016,
May
Split
Stock
share
to
made
retroactively
Board
a
had
per
or
adjusted
of
record
share
to
Directors
date
of
amounts
the
reflect
approved
July
20,
the
in
Stock
and
the
accompanying
Split.
a
2016
two-for-one
Split").
references
been
have
split
stock
stock
resulting
consolidated
in
effected
the
distribution
financial
statements
dividend
of
form
a
occurred
and
stock
on
August
applicable
("Stock
3,
All
2016.
disclosures
Recently
Adopted
Accounting Pronouncements
Effective
January
2017,
1,
Accounting,
Payment
Share-Based
tax
income
the
have
We
flows.
consolidated
our
on
consequences,
elected
to
financial
account
adopted
we
which
is
classification
for
position,
forfeitures
of
results
Accounting
simplify
to
either
as
awards
occur.
they
as
or
operations
Standards
the
equity
The
cash
Update
accounting
or
adoption
flows.
(ASU)
for
liabilities
of
intended
of
ASU
2016-09,
Improvements
No.
share-based
and
2016-09
payment
on
have
classification
not
did
to
transactions,
the
a
statement
significant
Employee
including
of
cash
impact
Effective
inventories
for
estimated
transportation.
operations
or
selling
January
1,
measured
at
in
prices
adoption
flows.
The
cash
2017,
the
the
of
ASU
adopted
we
cost
lower
and
of
course
ordinary
did
2015-11
ASU
net
of
not
No.
2015-11,
realizable
Simplifying
value,
net
reasonably
impact
the
realizable
Measurement
value
predictable
our
on
of
should
of
costs
consolidated
less
significant
business
have
a
Inventory,
which
determined
completion,
clarifies
based
on
disposal,
be
financial
position,
results
that,
the
and
of
January
In
requirement
the
the
Under
unit
with
reporting
after
to
amendments
carrying
its
fair
unit’s
15,
December
2017-04,
assets
the
2017,
determine
in
ASU
amount
The
and
value.
2019,
issued
value
FASB
fair
the
2017-04,
and
new
should
No.
individual
ASU
of
goodwill
an
effective
on
recognizing
is
standard
applied
be
a
impairment
impairment
for
the
of
for
reporting
Simplifying
liabilities
and
be
testing
will
for
charge
the
interim
and
with
basis
Test
a
by
performed
amount
by
goodwill
early
adoption
annual
prospective
Goodwill
to
unit
comparing
the
which
impairment
which
Impairment,
measure
the
fair
carrying
tests
goodwill
value
of
amount
in
We
fiscal
elected
years
to
eliminates
impairment.
reporting
the
the
exceeds
beginning
adopt
early
permitted.
-37-
ASU 2017-04 effective April 1, 2017 and applied the new standard to our 2017 annual goodwill impairment test, as well as any
interim tests. The adoption did not have a significant impact on our consolidated financial position, results of operations or cash
flows.
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 costs and operating expenses, is amortized over the requisite service period using the accelerated attribution method.
Earnings Per Share
Basic earnings per share ("EPS") is 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
Cash and Cash Equivalents
Years Ended December 31,
2016
2015
2017
10,834,562
33,272
10,867,834
10,793,723
34,429
10,828,152
10,747,226
40,044
10,787,270
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 82%, 80%,
and 77% of revenues for the years ended December 31, 2017, 2016 and 2015, respectively. 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. Sales returns and allowances are
not significant.
Our Aviation Group revenues are recognized upon the shipment or delivery of products to customers based on when title
or risk of loss transfers to the customer. Sales returns and allowances are not significant.
-38-
Substantially all of our Federal Services work is performed for our customers on a contract basis. The three primary types
of contracts used are cost-type, fixed-price and time and materials. 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.
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.
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.
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.
Revenue related to work performed on government 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 2013 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 for our Supply Chain Group are stated at the lower of cost or net realizable value 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.
Inventories for our Aviation Group are stated at lower of cost or net realizable value. Inventories for our Aviation Group
primarily consist of general aviation jet aircraft engines and engine accessories and parts. The cost for purchased engines and parts
is determined by the specific identification method. Included in inventory are related purchasing, overhaul labor, storage, and
handling costs. We also purchase aircraft engines for disassembly into individual parts and components.
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 costs and operating expenses 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
-39-
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 costs and operating expenses in the accompanying consolidated
statements of income for the years ended December 31, 2017, 2016, and 2015 was approximately $1.9 million, $1.7 million, and
$1.9 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets include intangible assets and 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.
No impairment charges related to long-lived assets, other than goodwill, were recorded in the years ended December 31,
2017, December 31, 2016 and December 31, 2015.
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 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 test goodwill for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate
the carrying value of goodwill may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A qualitative
assessment can be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its
carrying value. If the reporting unit does not pass the qualitative assessment, we compare the fair value of each reporting unit to
its carrying value using a quantitative assessment. If the fair value of the reporting unit exceeds its carrying value, goodwill is
considered not impaired. If the fair value of the reporting unit is less than the carrying value, the difference is recorded as an
impairment loss.
For the quantitative assessment, we estimate the fair value of each reporting unit using a combination of an income
approach using a discounted cash flow ("DCF") analysis and a market-based valuation approach based on as comparable public
company trading values. Determining the fair value of a reporting unit requires the exercise of significant management judgments,
including the amount and timing of projected future revenues, earnings and cash flows, discount rates, long-term growth rates,
and comparable public company revenues and earnings multiples. The projected results used in our quantitative assessment are
based on our best estimate as of the testing date of future revenues, earnings and cash flows after considering factors such as recent
operating performance, general market and industry conditions, existing and expected future contracts, changes in working capital,
and long-term business plans and growth initiatives. The carrying value of each reporting unit includes the assets and liabilities
employed in its operations and goodwill. There are no significant allocations of amounts held at the Corporate level to the reporting
units.
Based on our annual goodwill impairment analysis we performed in the fourth quarter of 2017, including an interim
impairment analysis performed for the VSE Aviation reporting unit at year-end, the fair value of our reporting units exceeded their
carrying values.
-40-
Intangible Assets
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 seven to 16 years with a weighted-average life of approximately 12.6 years as of December 31, 2017. We
have four trade names that are amortized over an estimated useful life of approximately nine 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 12.2 years as of December 31, 2017.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which changes
the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The new
standard is effective for reporting periods beginning after December 15, 2019 with early adoption permitted for reporting periods
beginning after December 15, 2018. We currently are assessing the impact that this standard will have on our consolidated financial
statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. The new standard is effective for reporting periods beginning after December 15, 2018 with early adoption
permitted. We currently are assessing the impact that this standard will have on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), 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 the goods or services. The standard is required to be applied either
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it
recognized at the date of initial application. 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.
We performed a detailed review of our contract portfolio representative of our different businesses and compared historical
accounting policies and practices to the new standard. Based on the assessment, the primary impacts of adopting the new standard
will be on (1) the timing of when we recognize revenue on our contracts with award fees, which is currently based on when we
receive customer authorization, will change to recognition of the award fees as the performance obligation is satisfied resulting
in revenue being recognized earlier in the contract period, (2) the timing of when we recognize revenues and costs on MRO services
for aviation clients and certain fixed price delivery contracts will change from the date of delivery to recognition over time as
progress is made to satisfy the performance obligation, and (3) the pattern in which we recognize revenue on certain fixed price
services contracts may change from a straight-line basis over the contract period to measuring progress using input measures, such
as costs incurred. While we have identified these areas of change under the new standard, we also implemented changes to our
business processes, systems and controls to support adoption of the new standard in 2018. The new standard requires additional
disclosures regarding the company’s contracts with customers, including disclosure of remaining unsatisfied performance
obligations, in the first quarter 2018, which we are continuing to assess. We adopted the new standard effective January 1, 2018
using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The cumulative
effect of initially applying the new revenue standard is preliminarily estimated to be an increase to retained earnings of approximately
$1.5 million.
-41-
(2)
Receivables,
net
Total
December 31,
receivables,
and
2017
net
2016,
of
allowance
respectively,
for
were
doubtful
follows
as
accounts
(in
thousands):
of
approximately
$83
thousand
and
$30
thousand
as
of
Billed
Unbilled
Total receivables
2017
2016
$
$
55,760
42,577
98,337
$
$
55,669
45,549
101,218
The unbilled balance includes certain costs for work performed at risk but which we believe will be funded by the
government totaling approximately $4.0 million and $2.1 million as of December 31, 2017 and 2016, respectively. We expect to
invoice substantially all unbilled receivables during 2018.
(3) Other Current Assets and Other Assets
At December 31, 2017 and 2016, other current assets primarily consisted of vendor advances, prepaid rents and deposits,
prepaid income taxes, software licenses, prepaid maintenance agreements and deferred contract costs. At December 31, 2017 and
2016, other assets primarily consisted of deferred compensation plan assets.
(4) Property and Equipment
Property and equipment consisted of the following as of December 31, 2017 and 2016 (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
2017
2016
$
$
53,049
27,775
30,704
545
4,462
116,535
(61,389)
55,146
$
$
52,972
29,463
29,455
545
4,214
116,649
(54,588)
62,061
Depreciation and amortization expense for property and equipment for the years ended December 31, 2017, 2016 and
2015 was approximately $9.3 million, $9.4 million and $9.1 million, respectively.
(5) Acquisitions
Ultra Seating
On December 31, 2015, we acquired Ultra Seating Company ("Ultra Seating") for approximately $3.6 million, which
represents cash consideration of $3.8 million adjusted for the settlement of pre-existing liabilities and a final working capital
adjustment. Ultra Seating provides specialized seating for commercial trucks and buses. Ultra Seating is included in our Supply
Chain Management Group.
We have completed our purchase price allocation and recognized fair values of assets acquired (including intangible
assets), liabilities assumed and the amortization period for the intangible assets. We recorded approximately $2.0 million of
goodwill and approximately $1.5 million of intangible assets, primarily related to customer relationships and a trade name. During
2016, we recorded immaterial purchase accounting adjustments based on changes to management’s estimates and assumptions in
regards to acquired intangible assets and assumed liabilities.
The pro forma effects, assuming our acquisition of Ultra Seating had occurred as of January 1, 2015, were not material
to our total revenues, net income or earnings per share for the year ended December 31, 2015.
-42-
VSE Aviation
On January 28, 2015, we acquired four related businesses that perform maintenance, repair and overhaul ("MRO") services
and parts supply for general aviation jet aircraft engines and engine accessories. The acquired businesses include Air Parts &
Supply Co., Kansas Aviation of Independence, L.L.C., Prime Turbines LLC (including U.S. and German-based operations), and
CT Aerospace LLC (collectively, "the Aviation Acquisition"). These four businesses are operating as a combined group managed
by our subsidiary VSE Aviation, Inc.
The initial purchase consideration paid at closing for the Aviation Acquisition was approximately $189 million, which
included an estimated net working capital adjustment of approximately $5 million. Additional cash consideration of $2.4 million
was paid to the sellers during the third quarter of 2015 based on the final working capital adjustment.
We were required under a post-closing-earn-out obligation contained in the Aviation Acquisition agreement to make
additional purchase price payments of up to $40 million if the acquired businesses satisfied certain financial targets during the
first two post-closing years. Consideration of $5 million was paid to the sellers in September 2015 because certain of the acquired
businesses surpassed agreed upon financial targets during a 12- consecutive month period in 2014 and 2015. In July 2016, VSE
and the sellers of the four aviation businesses agreed upon an early termination of the earn-out obligation and a final payment
amount. VSE paid the sellers approximately $8.0 million as an earn-out payment in May 2016 and the final earn-out payment of
approximately $10.5 million in July 2016.
We incurred approximately $528 thousand of acquisition-related expenses during the year ended December 31, 2015
which are included in selling, general and administrative expenses.
The following VSE unaudited consolidated pro forma results are prepared as if the Aviation Acquisition had occurred on
January 1, 2014. This information is for comparative purposes only and does not necessarily reflect the results that would have
occurred or may occur in the future. The unaudited consolidated pro forma results of operations are as following (in thousands
except per share amounts):
Revenue
Income from continuing operations
Basic earnings per share
Diluted earnings per share
(6) Goodwill and Intangible Assets
Changes in goodwill for the years ended December 31, 2017 and 2016 are as follows (in thousands):
Year Ended
December 31,
2015
$
$
$
$
541,387
25,267
2.35
2.34
Balance as of December 31, 2015
Increase from acquisitions
Balance as of December 31, 2016
Increase from acquisitions
Balance as of December 31, 2017
Supply
Chain
Management
63,113
$
77
63,190
—
63,190
$
$
Federal
Services
Aviation
$
$
$
30,883
—
30,883
—
30,883
$
$
$
104,549
—
104,549
—
104,549
$
$
$
Total
198,545
77
198,622
—
198,622
The results of our annual goodwill impairment testing in the fourth quarter of 2017 indicated that the fair value of our
reporting units exceeded their carrying values.
Intangible assets consist of the value of contract-related assets, technologies and trade names. Amortization expense for
the years ended December 31, 2017, 2016 and 2015 was approximately $16.0 million, $16.1 million and $15.6 million, respectively.
-43-
Intangible assets were composed of the following (in thousands):
December 31, 2017
Contract and customer-related
Acquired technologies
Trade names
Total
December 31, 2016
Contract and customer-related
Acquired technologies
Trade names
Total
Cost
Accumulated
Amortization
Accumulated
Impairment
Loss
Net
Intangible
Assets
$
$
$
$
173,094
12,400
16,670
202,164
173,094
12,400
16,670
202,164
$
$
$
$
(72,937) $
(7,406)
(9,887)
(90,230) $
(1,025) $
—
—
(1,025) $
99,132
4,994
6,783
110,909
(59,799) $
(6,278)
(8,136)
(74,213) $
(1,025) $
—
—
(1,025) $
112,270
6,122
8,534
126,926
Future expected amortization of intangible assets is as follows for the years ending December 31, (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
(7) Debt
Amortization
16,017
15,953
15,362
14,998
13,252
35,327
110,909
$
$
We have a loan agreement with a group of banks to provide working capital support, letters of credit and finance
acquisitions. The loan agreement, which expires in January 2020, is comprised of a term loan facility and a revolving loan facility.
The revolving loan facility provides for revolving loans and letters of credit.
The maximum amount of credit available to us under the loan agreement for revolving loans and letters of credit as of
December 31, 2017 was $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 $79.3 million in
revolving loan amounts outstanding and no letters of credit outstanding as of December 31, 2017. We had approximately $100
million in revolving loan amounts outstanding and no of letters of credit outstanding as of December 31, 2016.
Under the 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 including term loan borrowings and revolving loan borrowings were
approximately $173.7 million and $216.3 million as of December 31, 2017 and 2016, respectively. These amounts exclude
unamortized deferred financing costs of approximately $1.1 million and $1.7 million as of December 31, 2017 and 2016,
respectively. The fair value of outstanding debt under our bank loan facilities as of December 31, 2017 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, 2017, the LIBOR base margin was 2.00% and the base rate
base margin was 0.75%. The base margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases
or decreases.
-44-
The
of
the
swapped
years
of
loan
agreement
requires
agreement.
debt
outstanding
We
executed
of
as
to
us
interest
December
have
rate
31,
rate
interest
swap
2017
hedges
in
million.
agreements
$85
was
portion
on
a
February
of
2015
the
that
outstanding
complied
term
loan
the
first
for
terms.
The
three
amount
with
these
After
taking
into
outstanding
debt
ranged
from
account
the
3.25%
impact
to
of
5.25%,
hedging
the
and
instruments,
as
interest
of
rate
December 31,
our
on
aggregate
2017,
interest
outstanding
effective
rates
on
portions
of
3.66%.
debt
was
our
and
$7.3
Interest
million
expense
during
incurred
years
on
ended
the
bank
loan
borrowings
and
December 31,
2017,
interest
and
2016
rate
2015,
respectively.
hedges
was
approximately
$7.2
million,
$7.8
million
loan
The
annual
limit
a
were
on
maximum
in
Total
dividends,
Funded
with
compliance
contains
agreement
and
other
Debt/EBITDA
collateral
affirmative
Ratio,
required
ratios
and
other
to
requirements
and
negative
which
terms
decreases
and
secure
covenants,
over
conditions
loan
our
conditions
time,
a
of
as
and
minimum
limitations.
Fixed
Restrictive
Charge
and
December 31,
2017.
covenants
Coverage
Ratio.
a
include
We
agreement
obligations,
restrictive
covenants,
Subsequent
Event
In
to
available
amendment
After
million
term
the
in
debt
January
and
us,
January
is
amendment,
2020,
$14.4
in
2018,
we
increase
2023
our
million
our consolidated
amended
bank
the
the
and
scheduled
in
2021,
balance
the
group
amount
term
loan
from
our
of
loan
agreement
banks
loan
six
term
payments
in
are
2022
extend
to
nine
to
borrowings
our
banks.
payment
The
outstanding
approximately
increase
terms,
of
date
termination
January
the
after
in
million
2018,
We
2023.
classified
amended
these
$7.5
in
on
terms.
borrowing
the
loan
the
amendment
million
current
commitments
the
after
million.
$11.9
long-
agreement
is
$100
in
portion
2019,
of
$10.0
our
$15.0
sheets as
million
and
of December 31,
$41.2
2017,
million
based
The
Under
a
or
maximum
loan
the
combination
amount
of
agreement
both
credit
we
may
facilities.
of
to
us
increase
available
to
elect
aggregate
The
for
revolving
the
limit
maximum
of
incremental
loans
and
availability
letters
of
increases
of
the
is
credit
term
$100
the
facility,
after
loan
million
after
the
the
is
revolving
amendment.
$300
loan
amendment
million.
facility,
We
the
pay
prime
interest
rate)
on
plus
the
a
term
base
loan
margin.
borrowings
the
After
revolving
and
amendment
loan
borrowings
the
LIBOR
base
at
margin
LIBOR
is
plus
1.75%
base
a
and
the
margin
base
or
rate
at
a
base
base
rate
margin
The
the
our
loan
agreement
agreement
for
and
with
to
us
requires
first
the
three
requirement
this
have
years
for
interest
after
an
the
additional
rate
on
hedges
amendment.
three
a
We
years.
compliance
years
of
extended
portion
of
executed
the
an
outstanding
rate
interest
term
hedge
loan
in
the
for
February
(typically
0.50%.
is
first
2018
three
that
After
maximum
the
the
ratio
amendment,
event
the
in
the
of
maximum
material
a
Funded
Total
acquisition.
Debt/EBITDA
Ratio
was
fixed
at
3.0
to
1,
with
a
provision
to
increase
(8)
Accrued
Expenses
and
Other
Current
Liabilities
Accrued
and
million
expenses
$20.7
salaries
and
million
and
other
of
as
payroll
related
current
December 31,
taxes,
liabilities
2017
vacation
bonus,
$23.3
include
consist
and
primarily
of
respectively.
accrued
The
compensation
accrued
and
compensation
benefits
and
2016,
of
benefits
approximately
amounts
and
deferred
compensation.
(9) Stock-Based Compensation Plans
the
approved
2014,
500,000
the
stockholders
Plan"). In
our
2006,
(the
"2006
authorizing
In
employees
and
2021
6,
we
authorized
are
available
and
award
between
to
issuance
each
period
and
May
additional
to
up
the
of
continued
recipients
an
issue
under
recipient
of
the
determines
the
VSE
and
for
shares
The
under
1,000,000
2006
Plan.
an
award
employment
award.
of
the
VSE
common
Corporation
our
shares
of
stockholders
of
our
Compensation
Plan,
2006
the
the
for
required
approved
2006
stock
Stock
Plan
Restricted
the
to
2006
amendments
the
under
issuance
for
December 31,
as
of
and,
stock
for
responsible
is
Committee
the
shares
of
number
restricted
the
terms
award.
such
of
vesting
and
until
2006
directors,
extending
officers
for
its
term
its
Plan
the
Plan. Under
2006
shares
2017,
436,532
the
of
administration
stock
common
of
subject
in
included
are
other
May
Plan,
remained
Plan,
2006
to
such
agreements
award
These
common
During
respectively,
$30.89
per
under
share,
2017,
the
and
2016
2006
$34.29
and
Plan.
per
2015,
The
share
non-employee
weighted
the
for
average
shares
awarded
value
fair
2017,
16,100,
these
of
and
2016
and
17,600
restricted
stock
respectively.
grants
The
2015,
$39.85
restricted
per
issued
was
shares
stock,
share,
vested
18,000
shares
of
directors
were
grant-date
in
awarded
-45-
and,
immediately
second
thousand
anniversary
$617
and
without
of
the
thousand
the
grant
Compensation
Committee's
approval,
date.
Compensation
2016
and
2017,
during
expense
related
2015,
respectively.
cannot
to
be
these
sold,
grants
transferred,
pledged
approximately
or
$642
was
assigned
before
thousand,
the
$544
of
2006
every
Plan,
corresponding
and
of
In
under
stock
expensed
issuance
determination
awards
2015
number
The
on
expensed
the
for
2016
these
of
January
our
a
shares
is
was
of
an
awards,
was
awards
on
expected
March
each
to
1,
issued
shares
accelerated
2015
$40.14
year
based
since
on
liability
our
is
date,
March
and
based
over
and
share.
vesting
be
in
2017
is
basis
awards
per
we
have
2007,
accelerated
reduced
is
2017
recorded
the
2018
notified
performance
financial
on
an
liability
the
for
respectively.
2016,
market
the
on
fair
period
vesting
the
2014
On
value
of
awards.
each
of
received
awards
total
a
certain
the
for
basis
and
approximately
employees
respective
over
the
additional
of
date
date,
common
three
that
fiscal
vesting
paid-in
award
100%
stock
years.
of
to
they
awards
stock
three
receive
are
years.
period
eligible
These
restricted
approximately
of
increased.
is
capital
determination
the
vested
of
vesting
the
on
1,
March
On
stock.
common
for
the
award
date.
2017,
The
2016
is
paid
The
the
VSE
of
awards
are
years. Upon
award
and
the
shares.
is
eligible
value
of
date
awards
our
amount
in
earned
employees
grant-date
The
fair
of
23,508
shares
The
vesting
our
The
(in
follows
thousands):
total
stock-based
compensation
expense
related
to
restricted
stock
awards
for
the
years
ended
December
31,
are
as
Employees
Non-employee Directors
Total
2017
2016
2015
$
$
2,416
642
3,058
$
$
1,555
544
2,099
$
$
1,423
617
2,040
Employees are permitted to use a certain number of shares of restricted stock to cover their personal tax liability for
restricted stock awards. We paid approximately $500 thousand, $499 thousand and $342 thousand, to cover this liability in the
years ended December 31, 2017, 2016 and 2015, respectively. These payments are classified as financing cash flows on the
consolidated statements of cash flows. The total compensation cost related to non-vested awards not yet recognized was
approximately $2.3 million with a weighted average amortization period of 1.7 years and $1.1 million with a weighted average
amortization period of 1.9 years as of December 31, 2017 and 2016, respectively.
Stock-based compensation consisting of restricted stock awards was included in costs and operating expenses and
provision for income taxes on the accompanying statements of income for the years ended December 31, 2017, 2016 and 2015
(in thousands):
Stock-based compensation included in costs and operating expenses
Income tax benefit recognized for stock-based compensation
Stock-based compensation expense, net of income tax benefit
2017
2016
2015
$
$
3,068
(1,180)
1,888
$
$
2,109
(811)
1,298
$
$
2,081
(800)
1,281
(10) 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 2013.
The Tax Cuts and Jobs Act (the "Tax Act") was signed into law on December 22, 2017. The Tax Act significantly affects
the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating
certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and changing how foreign
earnings are subject to U.S. tax. The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation
deductions on qualified property. We have not completed our determination of the accounting implications of the Tax Act on our
tax accruals. However, we have reasonably estimated the effects of the Tax Act and recorded provisional amounts in our financial
statements as of December 31, 2017. We recorded a provisional tax benefit for the impact of the Tax Act of approximately $10.6
million. This amount is primarily comprised of the re-measurement of our federal net deferred tax liabilities resulting from the
permanent reduction in the U.S. corporate tax rate from 35% to 21%. As we complete our analysis of the Tax Act, collect and
prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service,
and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments, if any, are not expected
to have a material impact on our consolidated financial statements.
-46-
We
taxes
file
from
consolidated
continuing
federal
operations
income
for
tax
the
returns
years
that
ended
income
all
include
of
December 31,
our
2017,
subsidiaries.
and
2016
The
2015
components
as
of
follows
are
the
(in
provision
for
thousands):
Current
Federal
State
Deferred
Federal
State
Foreign
Provision for income taxes
2017
2016
2015
$
$
14,149
2,511
16,660
(10,645)
110
(136)
(10,671)
5,989
$
$
13,648
2,379
16,027
(983)
(163)
—
(1,146)
14,881
$
$
13,641
2,352
15,993
73
11
—
84
16,077
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, 2017, 2016 and 2015 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
Impact of Tax Act
Other, net
Provision for income taxes
2017
2016
2015
$
15,780
$
14,586
$
14,348
1,732
(643)
(10,556)
(324)
5,989
$
1,599
(974)
—
(330)
14,881
$
1,683
88
—
(42)
16,077
$
The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2017 and
2016 are as follows (in thousands):
Gross deferred tax assets
Deferred compensation and accrued paid leave
Accrued expenses
Stock-based compensation
Reserve for contract disallowances
Capitalized inventory
State operating loss carryforward
Tax credit carryforward
Foreign country operating loss carryforward
Legal settlements
Other
Total gross deferred tax assets
Gross deferred tax liabilities
Interest rate swaps
Depreciation
Deferred revenues
Goodwill and intangible assets
Total gross deferred tax liabilities
$
2017
2016
$
5,594
1,013
772
84
916
263
178
136
—
—
8,956
(74)
(2,439)
(1,875)
(23,854)
(28,242)
7,602
1,933
803
90
1,104
283
155
—
614
65
12,649
(28)
(3,522)
(2,291)
(36,680)
(42,521)
Net deferred tax liabilities
$
(19,286) $
(29,872)
Certain amounts from the prior year have been reclassified to conform to the current year presentation.
-47-
(11) Commitments and Contingencies
(a) Leases and Other Commitments
We
have
terms
The
upon
the
agreements
thousands):
years.
based
rent
(in
various
the
of
operating
having
non-cancelable
facilities
of
cost
escalating
leases
the
rent
operating
leases
provide
typically
and
the
Lease
for
for
consumer
for
expense
facilities,
certain
price
the
years
facility
terms.
minimum
index. Rent
ended
with
as
software
well
and
as
payments
recognized
is
expense
2017,
December 31,
terms
increases
a
and
on
2016
between
in
lease
straight-line
as
2015
was
and
15
payments
basis
for
follows
two
equipment,
2017
2016
2015
Operating
Lease
Expense
Sublease
Income
Net
Expense
$
$
$
4,924
5,100
5,824
$
$
$
1,134
888
506
$
$
$
3,790
4,212
5,318
Future minimum annual non-cancelable commitments as of December 31, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Operating Leases
Lease
Commitments
2,753
$
1,214
657
427
326
84
5,461
$
$
$
Sublease
Income
Net
Commitments
2,753
1,214
657
427
326
84
5,461
— $
—
—
—
—
—
— $
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 required us to account for this transaction as a financing lease upon commencement of the lease period. The building and
building improvements are included on our consolidated balance sheets and are being depreciated over a 15-year period. The
accumulated depreciation of the construction asset was $10.9 million and $9.0 million as of December 31, 2017 and 2016,
respectively. 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. The long-term lease liability of $20.3
million and $21.7 million as of December 31, 2017 and 2016, respectively, is included in long-term lease obligations in our
consolidated balance sheets. The current portion of our obligation, which is included in accrued expenses and other current
liabilities in our consolidated balance sheets, was $1.4 million and $1.3 million as of December 31, 2017 and 2016, respectively.
Future minimum annual non-cancelable commitments under our headquarters lease as of December 31, 2017, which are
not included in the table above, are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Lease
Commitments
4,337
$
4,456
4,579
4,705
4,827
22,336
45,240
$
$
$
Sublease
Income
892
376
—
—
—
—
1,268
Net
Commitments
3,445
$
4,080
4,579
4,705
4,827
22,336
43,972
$
-48-
(b) Contingencies
2012, the
entities
in
vendor
In
other
individuals
a
insurance
of
deceased
individuals
of
five
individuals
was
VSE
estates
and
April
retained
we
condition,
2011
by
settled
or
for
caused
to
this
cash
unspecified
by
dispose
matter
flows.
of
with
negligence
carriers,
and
VSE
the
five
employees
with
of
our
operations,
financial
and
their
alleging
and
VSE
other
and
in
plaintiffs
filed
relatives
the
that
the
other
explosives
resulting
damages,
of
fireworks
all
complaints
of
state
a
fireworks
five
The
defendants.
by
seized
federal
the
material
no
in
explosion
2017,
in
in
court
and
diesel
deceased
Hawaii
fuel
that
plaintiffs
government.
against
killed
were
Together
results
adverse
effect
on
our
Prime
Turbines
other
2016,
Prime
Arrieta,
lawsuit,
four
November
Edgar
and
Canada
Mexico,
In
by
County,
Aviation”)
of
Whitney
in
crashed
negligent
were
monetary
relief
carrier,
the
adverse
a
and
Turbines
Corporation,
resulting
providing
in
$1.0
over
aggressively
of
effect
will
amount
any,
results
LLC
Cessna
in
death
maintenance,
from
the
the
be
operation,
million
defend
cannot
of
loss,
on
if
our
the
et
Arrieta
al
plaintiffs
vs.
against
and
three
(“Prime”)
Company
Aircraft
plaintiffs
of
three
and
service
defendants.
VSE's
other
and
and
inspection
is
trial
The
results
we
or
proceedings.
reasonably
the
While
estimated,
financial
condition,
in
al,
was
Kansas
defendants.
The
Inc.
injuries
to
airplane
filed
Aviation
The
Plaintiffs
other
six
engine
November
prior
the
of
other
Texas
L.L.C.
Court
District
of
Independence,
named
that
defendants
April
on
allege
plaintiffs
the
to
VSE
2018.
be
cannot
this
that
1,
VSE's
Plaintiffs
with
with
that
and
crash.
together
predicted
lawsuit
will
have
are
2016,
in
Dallas
(“Kansas
Pratt
&
a
plane
subsidiaries
seeking
are
insurance
its
and
certainty
material
a
LLC
et
subsidiaries,
unrelated
Woodward
serious
the
of
scheduled
legal
that
flows
of
believe
cash
for
proceedings
the
is
remote.
likelihood
government
addition
In
legal
adverse
cannot
the
may
we
In
and
of
agencies
proceedings,
parties.
other
legal
against
operations,
above-referenced
to
us
against
proceedings,
results
on
effect
our
with
predicted
be
investigate
Government
or
civil
from
against
not
debarment
action
will
financial
of
amount
operations
us,
of
liabilities,
government
We
believe,
material
the
certainty,
whether
our
investigations
criminal
future
us.
a
our
position,
if
loss,
being
are
relating
whether
including
repayments,
contracting.
based
current
our
on
upon
effect
have
certain
opinion,
the
cash
or
flows.
be
cannot
any,
conducted
information,
of
results
Government
government
fines
adverse
have
or
to
administrative,
result
in
suspension
in
result
no
investigations
and
or
adverse
including
a
material
proceedings
time,
regulatory
could
to
lead
many
disputes
requirements.
claims
resolution
in
of
However,
reasonably
in
accordance
contracts
penalties
investigations
that
the
operations,
the
these
because
estimated.
with
or
being
often
outcome
financial
course
claims
results
normal
other
the
Further,
of
will
of
from
applicable
contractual
business,
have
not
any
legal
time-to-
and
reasons,
could
or
and
government
flows.
cash
complete
other
us,
conducted
imposed
years
take
of
any
position,
for
upon
to
such
or
(12) Business Segments and Customer
Information
Segment Information
Beginning
is
now
restated
combined
reflect
to
in
with
such
we
Federal
2017,
our
change.
changed
our
structure
and
as
a
Services
Management
Group.
our
of
Consequently,
business
result
our
former
our
segment
IT,
financial
Energy
operations
is
conducted
under
and
information
three
Management
2016
for
reportable
Consulting
and
2015
operating
Group
been
segments:
has
Supply
Inventory
Chain
Management
("MIP")
Program
Group
and
–
direct
Our
Supply
to
the
sales
Chain
Management
States
Postal
United
Group
supplies
primarily
through
a
Managed
Service
("USPS")
other
customers.
vehicle
and
parts
to
Aviation
aviation
Group
jet
–
aircraft
Our
Aviation
and
engines
Group
engine
provides
MRO
accessories.
services,
parts
supply
and
distribution,
and
supply
chain
solutions
for
general
Federal
equipment
("DoD")
Services
Group
sustainment
other
and
–
Our
services,
Federal
and
IT
agencies.
government
Services
technical
Group
and
provides
consulting
engineering,
services
industrial,
primarily
to
the
logistics,
United
foreign
States
military
Department
sales,
of
legacy
Defense
These
segment
sales
evaluate
intersegment
segments
operate
performance
these
based
activities
as
under
on
are
separate
consolidated
in
eliminated
management
revenues
consolidation.
teams
and
and
financial
operating
income.
information
sales
Net
is
of
produced
our
for
business
each
segments
segment.
We
exclude
-49-
Our segment information is as follows (in thousands):
For the years ended December 31,
Revenues
Supply Chain Management Group
Aviation Group
Federal Services Group
Total revenues
Operating income:
Supply Chain Management Group
Aviation Group
Federal Services Group
Corporate expenses
Operating income
Depreciation and amortization expense:
Supply Chain Management Group
Aviation Group
Federal Services Group
Total depreciation and amortization
Capital expenditures:
Supply Chain Management Group
Aviation Group
Federal Services Group
Corporate
Total capital expenditures
Total assets:
Supply Chain Management Group
Aviation Group
Federal Services Group
Corporate
Total assets
2017
2016
2015
$
$
$
$
$
$
$
$
214,542
134,809
410,762
760,113
33,754
9,695
13,419
(2,543)
54,325
6,536
4,835
14,511
25,882
1,376
1,387
177
373
3,313
$
$
$
$
$
$
$
$
$
$
205,475
133,466
352,849
691,790
34,632
12,823
7,796
(3,722)
51,529
6,445
5,461
14,140
26,046
4,195
1,459
94
1,624
7,372
$
$
$
$
$
$
$
$
196,772
119,729
217,481
533,982
35,453
10,635
6,802
(2,351)
50,539
7,074
5,865
12,602
25,541
7,544
959
94
1,965
10,562
December 31,
2017
2016
176,860
282,738
102,372
67,043
629,013
$
$
185,004
291,500
107,549
77,786
661,839
Revenues are net of inter-segment eliminations. Corporate expenses are primarily selling, general and administrative
expenses not allocated to segments. Included in our Corporate expenses for 2016 is a charge of approximately $3.3 million for
the settlement of the Heritage Litigation offset by a gain of approximately $1.4 million resulting primarily from the Maritime
Administration contract close-outs. Corporate assets are primarily cash, property and equipment and investments held in separate
trust.
-50-
Customer
Information
derived
Our
of
delivery
customers
years
ended
products
revenues
to
include
December
also
are
our
various
(in
31,
clients.
other
thousands):
from
contract
USPS,
The
government
services
U.S.
agencies
Army
and
performed
and
for
DoD
Reserve,
agencies
and
or
U.S.
Army
commercial
entities.
Our
federal
Navy
revenue
civilian
our
are
customer
by
agencies
largest
is
from
and
customers.
for
follows
as
the
Our
the
Customer
U.S. Postal Service
2017
180,205
$
%
23.7
$
2016
181,215
%
26.2
$
2015
184,876
%
Revenues by Customer
Years ended December 31,
U.S. Navy
U.S. Army
U.S. Air Force
Total - DoD
Commercial Aviation
Other Commercial
Total - Commercial
Other Government
206,644
188,462
7,123
402,229
126,960
12,498
139,458
38,221
27.2
24.8
0.9
52.9
16.7
1.7
18.4
5.0
190,155
139,764
3,482
333,401
131,067
10,721
141,788
27.5
20.2
0.5
48.2
19.0
1.5
20.5
98,887
80,086
3,558
182,531
119,729
4,653
124,382
35,386
5.1
42,193
34.6
18.5
15.0
0.7
34.2
22.4
0.9
23.3
7.9
Total
$
760,113
100.0
$
691,790
100.0
$
533,982
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.
Geographical Information
Revenue by geography is based on the billing address of the customer. Our revenue by geographic area is as follows (in
thousands):
United States
Other Countries (1)
Total revenue
Years ended December 31,
2016
$ 638,726
53,064
$ 691,790
2015
$ 481,466
52,516
$ 533,982
2017
$708,474
51,639
$760,113
(1) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented.
(13) 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.
(14) 401(k) Plan
-51-
We
defined
a
maintain
of
all
our
plan
the
years
substantially
in
specified
the
for
ended
million
covers
rates
at
$4.8
contribution
plan
under
Section
employees.
Under
provisions
of
documents.
Our
December 31,
the
expense
2017,
associated
and
2016,
the
401(k)
our
with
2015,
of
401(k)
plan,
was
plan
this
respectively.
Internal
Revenue
employees'
approximately
Code
eligible
$6.2
as
of
1986,
contributions
$6.3
million,
amended,
that
matched
and
are
million
(15) Fair
Value Measurements
The
for
hierarchy
accounting
measuring
standard
value.
fair
for
The
fair
value
standard
measurements
applicable
is
defines
whenever
fair
assets
value,
and
and
liabilities
establishes
are
a
market-based
fair
at
measured
framework
value.
or
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
Observable
2
for
–
similar
inputs
instruments,
all
other
quoted
significant
than
the
prices
inputs
quoted
for
are
prices
identical
or
observable
in
active
similar
active
in
for
markets
instruments
markets;
identical
in
inactive
and
where
models
quoted
from
prices
valuation
assets
and
markets,
liabilities
and
–
amounts
includes
derived
Level
3
unobservable
are
–
and
Unobservable
us
require
inputs
to
develop
includes
relevant
amounts
assumptions.
derived
–
from
valuation
models
where
one
or
more
significant
inputs
The
December 31,
following
and
2017
summarizes
table
December 31,
2016
the
financial
the
level
assets
they
and
and
fall
liabilities
the
within
measured
value
fair
at
fair
hierarchy
value
(in
a
recurring
on
thousands):
basis
as
of
Amounts Recorded at Fair Value
Non-COLI assets held in Deferred
Supplemental Compensation Plan
Interest rate swaps
Financial Statement
Classification
Other assets
Other current assets
Fair Value Hierarchy
Fair Value
December
31, 2017
Fair Value
December
31, 2016
1
2
$
$
389
294
$
$
299
73
Non-COLI assets held in the deferred supplemental compensation plan consist of equity funds with fair value based on
observable inputs such as quoted prices for identical assets in active markets and changes in its fair value are recorded as selling,
general and administrative expenses.
We account for our interest rate swap agreements under the provisions of ASC 815, Derivatives and Hedging, and have
determined that our swap agreements qualify as cash flow hedges. Accordingly, the fair value of the swap agreements, which is
an asset recorded in other current assets of approximately $294 thousand and approximately $73 thousand at December 31, 2017
and 2016, respectively. The offset, net of an income tax effect of approximately $113 thousand and $28 thousand is included in
accumulated other comprehensive income in the accompanying balance sheets as of December 31, 2017 and 2016, respectively.
The amounts paid and received on the swap agreements are recorded in interest expense in the period during which the related
floating-rate interest is incurred. We determine the fair value of the swap agreements based on a valuation model using market
data inputs.
-52-
(16)
Selected
Quarterly
Data
(Unaudited)
The
following
table
shows
selected
quarterly
data
for
2017
and
2016,
in
thousands,
except
earnings
per
share.
Revenues
Costs and operating expenses
Operating income
Net income
Basic earnings per share:
Net income
Basic weighted average shares outstanding
Diluted earnings per share:
Net income
Diluted weighted average shares outstanding
Revenues
Costs and operating expenses
Operating income
Net income
Basic earnings per share:
Net income
Basic weighted average shares outstanding
Diluted earnings per share:
Net income
Diluted weighted average shares outstanding
1st
197,294
183,098
14,196
7,293
0.67
10,823
0.67
10,849
1st
143,636
130,895
12,741
6,552
0.61
10,778
0.61
10,806
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2017 Quarters
2nd
3rd
193,860
178,855
15,005
7,807
0.72
10,838
0.72
10,862
$
$
$
$
$
$
174,164
161,927
12,237
6,639
0.61
10,838
0.61
10,857
2016 Quarters
2nd
3rd
160,473
148,594
11,879
5,969
0.55
10,799
0.55
10,826
$
$
$
$
$
$
172,780
159,157
13,623
7,088
0.66
10,799
0.65
10,826
$
$
$
$
$
$
$
$
$
$
$
$
4th
194,795
181,908
12,887
17,357
1.60
10,838
1.59
10,903
4th
214,901
201,615
13,286
7,184
0.67
10,799
0.66
10,853
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 (the "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.
-53-
Management's
Report
on
Internal
Control
Over
Financial
Reporting
responsible
is
Exchange
Act
Executive
Management
in
Chief
reporting
financial
of
Committee
Internal
in
effective
was
opinion
on
Accounting
defined
is
term
our
including
over
control
the
by
issued
framework
the
under
reporting
financial
firm,
an
issued
has
Registered
Public
establishing
for
Rules 13a-15(f)
and
Officer
Chief
as
December 31,
of
Sponsoring
Organizations
and
Financial
2017
of
Integrated
–
Control
of
as
internal
our
forth
set
Firm
December 31,
control
below.
over
and
15d-15(f).
maintaining
adequate
Officer,
based
the
conducted
Under
we
the
on
Treadway
supervision
an
framework
Commission
the
Framework,
our
&
Ernst
Young
reporting.
financial
control
internal
the
with
and
assessment
Internal
in
(2013
financial
of
reporting,
our
effectiveness
over
participation
of
the
–
Control
Based
Framework).
our
that
registered
in
as
such
management,
our
internal
of
Framework
Integrated
assessment
on
our
over
internal
accounting
Independent
public
of
control
Report
the
management
our
LLP,
opinion
This
concluded
independent
appears
2017.
Change
in
Internal
Controls
During
in
materially
fourth
the
Rules 13a-15(f)
affect
quarter
and
these
of
15d-15(f)
controls
2017,
year
the
under
subsequent
there
Exchange
the
to
were
Act)
evaluation
no
that
of
changes
have
these
our
materially
controls.
in
fiscal
defined
to
likely
internal
control
these
over
controls,
financial
or
are
reporting
(as
reasonably
affected
-54-
Report of Independent Registered Public
Accounting Firm
The
Board
of
Directors
and
Stockholders
of
VSE
Corporation
Opinion
on
Internal
Control
over
Financial
Reporting
VSE Corporation and Subsidiaries’
We have audited
internal control over financial reporting as of December 31, 2017, 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). In our opinion,
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,
based on the COSO criteria.
VSE Corporation and Subsidiaries (the
We also have audited, in accordance with the standards of the Public Company
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated
statements of income, comprehensive income, stockholders’
ended December 31, 2017, and the related notes and our report dated March 7, 2018 expressed an unqualified opinion thereon.
equity and cash flows for each of the three years in the period
Accounting Oversight Board (United States)
Basis for
Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and 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.
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We are a public accounting firm registered with the PCAOB and are required to be
We conducted our audit in accordance with the standards of the PCAOB.
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Those standards require that we plan and perform the
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.
reasonable basis for our opinion.
We believe that our audit provides a
Definition and Limitations of Internal Control over
Financial Reporting
A
company’s internal control over financial reporting includes those policies and procedures
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.
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.
Also,
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
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.
/s/ Ernst &
Young LLP
Tysons, Virginia
March 7, 2018
-55-
ITEM 9B.
Other
Information
None.
PART
III
as
Except
in
omitted
statement
to
stockholders
otherwise
reliance
be
filed
scheduled
indicated
General
of
the
with
be
to
SEC
held
below,
the
Instruction
later
April
not
on
information
G(3)
than
30,
to
120
2018
(the
Form
days
required
10-K
after
"Proxy
11,
10,
Items
is
12,
incorporated
2017
by
and
December 31,
Statement").
been
has
proxy
VSE's
14
and
13
herein
in
by
respect
of
Part
reference
the
of
III
to
Annual
of
our
Form
10-K
definitive
of
Meeting
ITEM
10.
Directors,
Executive
Officers
and
Corporate
Governance
See
incorporated
4
Item
by
under
reference
the
to
caption
Proxy
"Executive
Statement.
the
Officers
of
Registrant,"
and
the
remaining
information
required
by
this
Item
is
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
incorporated
the
by
Item
is
"Equity
reference
Compensation
Proxy
the
to
Plan
Statement.
Information"
disclosed
in
Item
5(e)
above,
the
information
required
by
this
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
schedules
have
been
supplied
the
financial
statements
All
in
omitted
or
notes
because
the
to
they
are
financial
applicable,
not
statements.
not
required,
or
the
information
has
been
otherwise
3.
Exhibits
See
"Exhibit
Index"
hereinafter
contained
and
incorporated
by
reference.
-56-
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 7, 2018
By:
VSE CORPORATION
/s/ M. A. Gauthier
M. A. Gauthier
Chief Executive Officer,
President and Chief Operating
Officer
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/ 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/ Mark E. Ferguson III
Mark E. Ferguson III
Director, Chief Executive
Officer, President and
Chief Operating Officer
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
March 7, 2018
March 7, 2018
Chairman/Director
March 7, 2018
Director
Director
Director
Director
Director
Director
Director
-57-
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
EXHIBIT
INDEX
Reference No.
Per Item 601 of
Regulation S-K
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
10.8
21.1
23.1
31.1
31.2
32.1
32.2
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 (Exhibit 10.3
to Form 10-Q dated April 29, 2016); and Amendment
Agreement dated as of December 14, 2016 by and
between VSE Corporation and Maurice A. Gauthier
(Exhibit 10.1 to Form 8-K dated December 9, 2016)
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)
Fourth 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 eight other banks (Exhibit 10.1 to
Form 8-K dated January 8, 2018)
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)
VSE Corporation 2004 Non-Employee Directors Stock
Plan (Appendix B to Registrant's definitive
proxy statement for the Annual Meeting of
Stockholders held on May 6, 2014)
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
-58-
*
*
* +
* +
* +
* +
*
*
* +
* +
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
99.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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.
-59-
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a listing of the subsidiaries of the Registrant:
Jurisdiction Organization
Energetics Incorporated
Maryland
Integrated Concepts and Research Corporation
District of Columbia
Akimeka, LLC
Wheeler Bros., Inc.
VSE Aviation, Inc.
Air Parts & Supply Co.
Kansas Aviation of Independence, L.L.C.
Prime Turbines LLC
CT Aerospace LLC
Ultra Seating Company
Hawaii
Pennsylvania
Delaware
Florida
Kansas
Delaware
Texas
Texas
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 7, 2018, 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, 2017.
/s/ Ernst & Young LLP
Tysons, Virginia
March 7, 2018
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;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
3.
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
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
5.
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)
(b)
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
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 7, 2018
/s/ M. A. Gauthier
M. A. Gauthier
Chief Executive Officer, President and
Chief Operating Officer
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;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
3.
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
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
5.
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)
(b)
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
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.
Date: March 7, 2018
/s/ T. R. Loftus
T. R. Loftus
Executive Vice President and
Chief Financial Officer
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, 2017 (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.
Date: March 7, 2018
/s/ M. A. Gauthier
M. A. Gauthier
Chief Executive Officer, President and Chief
Operating Officer
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, 2017 (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.
Date: March 7, 2018
/s/ T. R. Loftus
T. R. Loftus
Executive Vice President and
Chief Financial Officer