2021
Annual
Report
Annual Report Contents
2021 Financial Performance Summary .................................................2
About VSE Corporation ..................................................................................3
Chief Executive Officer Message to Shareholders ...............................5
Focused ESG Priorities ...................................................................................9
VSE Corporation Board of Directors .......................................................11
FY2021 Form 10-K ..........................................................................................14
2021 Year in Review
~$751M
Fiscal Year 2021
Revenue
~$30M
Fiscal Year 2021
Adjusted Net Income
13%
Year-Over-Year
Revenue Growth
Revenue by Business Segment
Aviation Fiscal Year
2021 Revenue
F L E E T S O L U T I O N S
Fleet Fiscal Year
2021 Revenue
Federal & Defense Fiscal Year
2021 Revenue
~$248M
33% FY2021 Revenue
50% YOY Revenue Growth
~$234M
31% FY2021 Revenue
8% YOY Adjusted Revenue Growth(1)
~$269M
36% FY2021 Revenue
6% YOY Revenue Growth
(1) Excludes the 2020 revenue related to a non-recurring order for pandemic-related PPE of $26.6M
VSE Corporation Annual Report 2021
About
VSE Corporation
Page 3
VSE Corporation Annual Report 2021 About VSE Corporation
Federal & Defense
Logistics, Sustainment & Technical Services
VSE Corporation (“VSE”) is a leading provider of
aftermarket distribution and maintenance, repair
and overhaul (“MRO”) services for land, sea and air
transportation assets supporting government and
commercial markets.
Aviation
Distribution & MRO Services
VSE’s Aviation segment provides aftermarket MRO and
distribution services to commercial, business and general
VSE’s Federal and Defense segment provides aftermarket
MRO and logistics services to improve operational
readiness and extend the life cycle of military vehicles,
ships and aircraft for the U.S. Government and
international, allied defense customers. Core services
include base operations support, procurement, supply chain
management, vehicle, maritime and aircraft sustainment
services, IT and data management services and energy
consulting. VSE’s Federal and Defense segment includes
wholly owned subsidiaries Energetics Incorporated and
aviation, cargo, military/defense and rotorcraft customers.
Akimeka, LLC.
Core services include parts distribution, component and
engine accessory MRO services, rotable exchange and
supply chain services. In July 2021, VSE acquired Global
Industry Classifications
Parts Group, Inc., the parent company of Global Parts,
VSE is a publicly traded (NASDAQ: VSEC)
Inc. and Global Parts Aero Services, Inc. which will be
integrated into VSE’s Aviation segment.
Fleet
Distribution & Fleet Services
VSE’s Fleet segment provides aftermarket parts,
inventory management, e-commerce fulfillment,
logistics, supply chain support and other services to
professional services company. VSE maintains an
ISO 9001 certified Quality Management System and
an AS9110 Business Management System.
Sector: Industrial Goods
Industry: Aerospace/Defense Products &
Services
SIC: Transportation Equipment (37)
the commercial medium- and heavy-duty truck market
NAICS:
and the United States Postal Service. Core services
include parts distribution, sourcing, customized fleet
logistics, warehousing, kitting, just-in-time supply chain
management, alternative product sourcing, engineering
and technical support. VSE’s Fleet segment includes wholly
owned subsidiary Wheeler Fleet Solutions, Co.
• Other Motor Vehicle Parts Manufacturing (336390)
• Aircraft Engine and Engine Parts Manufacturing (336412)
• Other Aircraft Parts and Auxiliary Equipment
Manufacturing (336413)
• Ship Building and Repairing (336611)
• Engineering Services (541330)
• Physical Distribution and Logistics Consulting (541614)
• Scientific and Technical Consulting Services (541690)
• Facilities Support Services (561210)
Page 4
vsecorp.com VSE Corporation Annual Report 2021
Chief Executive Officer
Message to Shareholders
John A. Cuomo
President and Chief Executive Officer
VSE Corporation
Fellow Shareholders,
2021 was an extraordinary year for VSE. While the
global economy grappled with a series of historic
challenges, including a pandemic, inflation, and
widespread supply chain disruptions, we successfully
navigated these challenges while executing on our
multi-year business transformation. We enter 2022 with
purpose, a roadmap for growth, and a team equipped to
build an industry-leading aftermarket global distribution,
repair, exchange and solutions company.
BUSINESS TRANSFORMATION UPDATE
In 2021, our business transformation was accelerated
by the addition of product and service capabilities and
an internal focus on operational excellence to support
all that is ahead for VSE. We continued building a strong
foundation for our businesses to scale by delivering
operational improvements, acquiring high-quality
businesses, integrating assets, and updating processes
and systems.
Throughout the year we’ve continued to foster a high-
performance culture that leads with purpose, and a
team whose focus is clearly aligned around shared
measurable objectives that position us to win in the
markets we serve.
2021 SEGMENT REVIEW
Aviation Segment
Growth through New Business & Strategy Execution
B&GA Growth & Program Execution
For the full-year 2021, VSE generated total revenue
of $751 million, an increase of 13% versus the prior
year, supported by growth across all of our business
segments. Our performance further validates the
success of our transformational strategies and market
value propositions, and positions the business for a
strong 2022.
Our Aviation segment had an exceptional year, driven
by a combination of significant new program wins and
market share gains. Aviation segment revenue increased
more than 50% year-over-year, led by our aftermarket
parts distribution business and positive impacts from
newly awarded programs.
2021 Highlights
• Global Parts acquisition to support
B&GA distribution and MRO strategy
Underlying this performance was an exciting new growth
story, highlighted by our expansion within the Business &
General Aviation (B&GA) market, an underserved vertical
• Launched an integrated “tip-to-tail”
that includes business jets, turboprop aircraft, and
solution to support B&GA customers
• Added commercial hydraulic MRO
capability
Aviation
• Added OEM licensed repairs to support
engine accessory MRO expansion
• Awarded and launched $1 billion, 15-
year proprietary engine accessories
distribution agreement supporting B&GA
• Implemented new OEM proprietary
distribution programs to support
commercial airline actuation and B&GA
auxiliary power units (APU)
rotorcraft. Today, a sizable group of smaller businesses
provide a disparate array of services to B&GA
customers, without an end-to-end solution available
to serve this market. In this fragmented market, VSE
is responding to customer demand with an integrated,
“tip-to-tail” solution to address the diverse repair and
parts replacement requirements of our B&GA owner-
operators.
Soon after launching our B&GA initiative, we announced
• Enhanced Fleet segment e-commerce
a transformational 15-year, $1 billion distribution
Fleet
Federal &
Defense
Corporate
Transformation
solutions
• Accelerated Fleet segment commercial
sales strategy with new, dedicated sales
organization
• Acquired HAECO Special Services
(HSS) and established new aircraft
Maintenance & Modernization division
• Launched new distribution and logistics
capability
• Improved internal processes and
systems, and established focused
centers of excellence
• Upgraded talent throughout all levels
of the organization to improve overall
customer service quality and to drive
scalable growth
Page 6
agreement with the world’s largest B&GA aircraft engine
manufacturer. Under the terms of this agreement,
VSE Aviation was selected as the distributor for more
than 6,000 flight-critical components used in more
than 100 B&GA and regional aviation engine platforms.
Importantly, this partnership affords us direct access to
aircraft owner-operators who value our ability to provide
a broad range of products, accessories, and components
on a “24/7,” on-demand basis. By moving closer to the
operator, we see significant potential to increase our
penetration in the B&GA market, while strengthening
aftermarket service levels on behalf of our OEM partner.
vsecorp.com Building on our momentum within the B&GA vertical,
and new product introductions for both their current
in July we acquired Kansas-based Global Parts Group,
fleet, and their next generation delivery vehicle.
a market-leading aftermarket distribution and MRO
services provider supporting the B&GA market. Global
Parts’ service-focused culture, long-term customer
relationships, OEM supplier partnerships, consistent
financial performance, and proven technical expertise
were highly complementary to our existing business.
Integrating Global Parts with VSE’s existing B&GA
distribution and MRO offerings provides a solid
foundation to build a sustainable and profitable business
of scale within the B&GA vertical.
Fleet Segment
Commercial & E-Commerce Diversification
Within our Fleet segment, we successfully executed on
our customer and market diversification strategy. More
specifically, during 2021 we positioned ourselves as a
leader in the high-growth class 4-8 commercial fleet
distribution and e-commerce markets.
Our Fleet segment generated strong revenue, as
FEDERAL & DEFENSE SEGMENT
Distribution & MRO Capability Expansion
Our Federal and Defense segment continues to
reposition itself in a dynamic market with a focus on
adding and enhancing differentiated supply chain,
logistics, distribution and MRO capabilities. We continue
to invest in business development to support building a
more robust, multi-year backlog of new, higher-margin
opportunities. The segment grew total funded backlog by
1% for in 2021, while bookings increased more than 16%
during the same period.
In March, we acquired HAECO Special Services (HSS),
a leading provider of fully integrated MRO support
solutions for military and government aircraft. HSS
provides scheduled depot maintenance, contract field
deployment and unscheduled drop-in maintenance for a
U.S. Department of Defense contract for the sustainment
of the U.S. Air Force KC-10 fleet. This transaction further
commercial revenue increased by more than 72% for
expanded our value-added suite of MRO solutions for
the full year 2021. During a period of global supply chain
military customers, while positioning us to capitalize
disruptions, medium- and heavy-duty truck customers
on higher-margin technical service opportunities. HSS’
found a reliable partner in VSE as our on-hand inventory,
contract diversification efforts are highly complementary
technical engineering team, and strong supply chain
capabilities supported their operations during difficult
times. Since 2019, our commercial revenue has
to our Federal and Defense strategy. The acquisition
positions VSE to further support military and government
customers with on-demand MRO support for aging,
increased from 10% to 32% of total segment sales, and
mission-critical assets.
VSE anticipates this market to remain the segment’s
growth driver in 2022 and beyond.
2022 OUTLOOK
Distribution & MRO Capability Focus
In 2021, we continued to provide products and support to
We’re off to a strong start and remain in the early stages
the United States Postal Service (“USPS”) and its fleet of
of this exciting, multi-year transition.
more than 230,000 vehicles. Our Fleet segment remains
well-positioned to support the USPS with distribution
Page 7
VSE Corporation Annual Report 2021 In 2022, we will continue to execute on our playbook,
Within our Fleet segment, we will continue to build scale
with disciplined focus on:
within our commercial and e-commerce channels, while
• New product additions to support our distribution
growing our base of commercial trucking accounts.
businesses;
Within our Federal & Defense segment we will focus
• New repair capabilities to support our MRO
on core services and seek to build a robust pipeline of
businesses;
new business, while remaining disciplined around our
• Execution on previously announced business awards
required margin and return thresholds.
in our Aviation segment;
• Opening of Wheeler Fleet and Aviation segment
I am incredibly proud of the VSE team, the culture that
distribution centers of excellence;
we are building, and all that was accomplished in 2021.
• Investment in additional Wheeler Fleet e-commerce
We see a clear path ahead for growth, one guided by
enhancements;
an unwavering focus on long-term value creation for all
• Growing the logistics and distribution capability with
stakeholders. On behalf of all of us at VSE, we thank you
proprietary technology supporting our Federal &
for your continued support and partnership.
Defense customers;
• Integration of acquired businesses in Aviation and
Respectfully,
Federal and Defense; and
• Margin improvement initiatives in all segments
VSE will seek to focus increasingly on select, higher
margin verticals where we are, or have the potential to
become, a market leader. We will continue to expand our
capabilities, offerings, and geographic reach within these
verticals, developing seamless, integrated solutions for
our customers.
In 2022, we will prioritize investment in our Aviation
segment, pursuing both organic and inorganic growth
within complementary, margin-enhancing markets. We
will leverage new commercial relationships, such as
our engine accessory distribution agreement, which
will provide its first full year of revenue contribution in
2022, while further establishing VSE as a leading player
within the B&GA MRO and parts distribution market.
We will also capitalize on a steady improvement in MRO
activity, which we believe should be supportive of margin
expansion as commercial air travel levels recover back
toward pre-pandemic levels.
Page 8
John A. Cuomo
President and Chief Executive Officer
VSE Corporation
2021 was a market
defining year for VSE. We
won transformational new
business, added new product
and service capabilities and
acquired two businesses, all
supporting our focused strategy
to be a leading aftermarket
supplier in our markets.
vsecorp.com Focused ESG Priorities
We believe that building long-term value for our
• Leadership Essentials training for VSE people
customers, employees and shareholders includes a
leaders to establish expectations and provide
focus on the long-term sustainability of our business,
foundational skills
good corporate citizenship, and a commitment to
our employees and our communities. Our Board of
Directors provides oversight of our ESG strategies and
• Employee Recognition Programs to acknowledge
employees for being stewards of VSE’s Core Values,
and Years of Service and Retirement Awards for
initiatives related to inclusion and diversity, human capital
achieving milestone service levels
management, environmental sustainability, corporate
governance, and health and safety. Some highlights from
2021 include:
• Employee Net Promoter Score (NPS) surveys
conducted quarterly to measure employee
engagement by business segment
Inclusion & Diversity: VSE is committed to having a
• Talent Succession Assessments performed
diverse and inclusive workplace. We strive to create an
annually in conjunction with individual performance
organization that reflects the diversity of our customers
reviews to assist with career development for our
and the communities where we live and work.
employees
• VSE’s Inclusion and Diversity Council focuses
on increasing awareness around inclusion and
diversity in our workplace, facilitates discussion, and
continues to drive our efforts to build an environment
Environmental Initiatives:
• VSE maintains a LEED Gold Certified headquarters
building in Alexandria, VA
where diverse backgrounds are appreciated, and
• Fleet recycled ~289 tons of packing and shipping
diverse ideas are heard
material in 2021
• VSE promotes employee diversity resource
• Federal and Defense Services sustainably disposed
groups, connecting members who share a common
of ~26,000 pounds (~13 tons) of Universal and
affinity such as ethnicity, gender, cultural identity, or
Hazardous Waste in 2021
constituency
• Aviation is engaged in a comprehensive energy
• Our business segments support and participate in
efficiency assessment of its repair and distribution
a wide array of local charitable initiatives and
facilities
community engagement throughout the year
Talent Acquisition & Development: Attracting,
developing and retaining talented employees is critical to
our success and is an integral part of our strategy. Our
initiatives include:
Corporate Governance & Security:
• Our Board is composed entirely of independent
directors, other than our CEO, and reflects a diversity
of backgrounds and professional experience
• Our Board and Committees have oversight
Page 9
VSE Corporation Annual Report 2021 responsibility for implementing our ESG governance
framework
• Our Board provides oversight of human capital policies,
risk management and financial transparency
Occupational Health & Safety: Protecting the health
and safety of our employees is a top priority, and VSE is
committed to providing a safe working environment for all
of our employees worldwide. We use local incident data and
leading indicators to create safety action plans that reduce
risk. Recent results include:
• 2021 Recordable Incident Rate (RIR) of 1.13; industry
average is 2.80
• 2021 Days Away, Restricted or Transferred (DART) of
0.79; industry average is 1.50
• Safety trainings for employees based on risk factors,
feedback and best practices across VSE
• Communication of safety metrics and practices to
evaluate and drive a “Safety First” culture
Cybersecurity & Data Protection:
• We have built a comprehensive governance structure
for managing cybersecurity, privacy and data protec-
tion, which we believe will ultimately build a competitive
advantage for our company
• We have structured our information security program
to align with a combination of industry frameworks,
including the National Institute of Standards and Tech-
nology (NIST), Center for Internet Security (CIS), and
upcoming Cybersecurity Maturity Model Certification
(CMMC)
• Our information security program is independently
assessed by a third party as part of the Company’s
enterprise risk management.
Page 10
Approximately
42% of our
employees
identify with a
racial minority,
and 17% of our
employees are
Veterans.
vsecorp.com VSE Corporation
Board of Directors
Ralph E. “Ed” Eberhart
General, USAF (Ret.)
Chair of the Board
VSE Corporation
John A. Cuomo
President and CEO
VSE Corporation
Edward P. Dolanski
Co-Founder, First Watch Group
Former President, Aviall
Former President, U.S. Government
Services, Boeing Global Services
Mark E. Ferguson III
Admiral, USN (Ret.)
Vice Chair 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.,
Sole Member of Koonce Securities, LLC
James F. Lafond
Washington Area Managing Partner,
PwC LLP (Ret.)
John E. “Jack” Potter
President and CEO, Metropolitan Washington
Airports Authority, Formerly Postmaster
General and CEO of USPS
Jack C. Stultz, Jr.
Lieutenant General, USAR (Ret.)
Operations Manager, Procter & Gamble
Company (Ret.)
Bonnie K. Wachtel
Principal and Director,
Wachtel & Co., Inc.
VSE’s Board of Directors comprises
Independent Directors with diverse
backgrounds and expertise.
Page 11
Page 11
VSE Corporation Annual Report 2021 FY2021 Financials
(in thousands except per share amount)
Revenues
Net income (loss)
Diluted earnings per share:
Net income (loss)
Cash dividends per common share
Years ended December 31,
2021
2020
2019
2018
$750,853
$661,659
$752,627
$7,966
$(5,171)
$37,024
$0.63
$0.37
$(0.47)
$0.36
$3.35
$0.35
$697,218
$35,080
$3.21
$0.31
2017
$760,113
$39,096
$3.60
$0.27
2017
$134,563
$629,013
$165,614
As of December 31,
2019
$191,158
2018
$176,342
$845,864
$638,828
$253,128
$363,101
$151,133
$328,395
$293,095
The non-GAAP Financial Information set forth in this document
is not calculated in accordance with U.S. generally accepted
accounting principles (“GAAP”) under SEC Regulation G. We
consider Adjusted Net Income and Adjusted EPS (Diluted)
as non-GAAP financial measures and important indicators of
performance and useful metrics for management and investors
to evaluate our business’ ongoing operating performance on
a consistent basis across reporting periods. These non-GAAP
financial measures, however, should not be considered in
isolation or as a substitute for performance measures prepared
in accordance with GAAP. Adjusted Net Income represents
Net Income adjusted for acquisition-related costs including any
earn-out adjustments, loss on sale of a business entity and
certain assets, gain on sale of property, other discrete items,
and related tax impact. Adjusted EPS (Diluted) is computed
by dividing net income, adjusted for the discrete items as
identified above and the related tax impacts, by the diluted
weighted average number of common shares outstanding.
Pursuant to the requirements of Regulation G of the Exchange
Act, we are providing the tables on the left that reconcile the
above mentioned non-GAAP financial measures to the most
directly comparable GAAP financial measures.
Working capital
Total assets
Long-term debt
Stockholders' equity
2021
$284,029
$918,558
$270,407
$417,333
2020
$215,729
$780,081
$230,714
$356,317
Adjusted Net Income and Adjusted EPS (Diluted)
Net Income (Loss)
Adjustments to Net Income (Loss):
Acquisition and restructuring
Executive transition costs
Earn-out adjustment
Loss on sale of a business entity and certain
assets
Gain on sale of property
Severance
Goodwill and intangible impairment
Inventory reserve
Non-recurring professional fees
Tax impact of adjusted items
Adjusted Net Income
Weighted Average Dilutive Shares
Adjusted EPS (Diluted)
2021
$7,966
$1,809
$1,014
—
—
—
—
—
$24,420
$357
$(6,045)
$29,521
12,633
$2.34
2020
$(5,171)
$1,132
$1,026
$(5,541)
$8,214
$(1,108)
$739
$33,734
—
—
$(3,973)
$29,052
11,034
$2.63
Page 12
vsecorp.com [This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period from _____ to _____
Commission File Number: 000-3676
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)
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 $0.05 per share
Trading Symbol
VSEC
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 ☒
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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting
company
☐ Emerging growth
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.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of outstanding voting stock held by non-affiliates of the Registrant as of June 30, 2021, the last
business day of the registrant's most recently completed second quarter, was approximately $521 million based on the last
reported sales price of the registrant's common stock on the NASDAQ Global Select Market as of that date.
Number of shares of Common Stock outstanding as of February 28, 2022: 12,737,859.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for the Annual Meeting of Stockholders expected to be held on May 4, 2022,
which is expected to be filed with the Securities and Exchange Commission on or about April 2, 2022, have been incorporated
herein by reference into Part III of this report.
-2-
PART I
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
PART II
ITEM 5
ITEM 6
ITEM 7
ITEM 7A
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B
ITEM 9C
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
ITEM 15
ITEM 16
Exhibits
Signatures
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
5
10
16
16
17
17
18
20
21
34
35
65
65
67
67
67
67
67
67
67
68
68
70
72
-3-
Forward Looking Statements
This Annual Report on Form 10-K ("Form 10-K") contains statements that, to the extent they are not recitations of historical
fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such
statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and include this statement for purposes of such safe harbor provisions.
“Forward-looking” statements, as such term is defined by the Securities and Exchange Commission (the “SEC”) in its rules,
regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our
operations, economic performance, financial condition, growth and acquisition strategies, investments and future operational
plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other
variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their
nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ
materially depending on a variety of important factors, including, but not limited to, those identified in Item 1A, "Risk Factors”
in this Form 10-K. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and
there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis
only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that occur or arise after the date hereof.
-4-
PART I
ITEM 1. Business
History and Organization
VSE Corporation (“VSE,” the “Company,” “we,” “us,” or “our”) is a diversified aftermarket products and services company
providing repair services, parts distribution, logistics, supply chain management and consulting services for land, sea and air
transportation assets to commercial and government markets. We provide logistics and distribution services for legacy systems
and equipment and professional and technical services to commercial customers; the government, including the United States
Department of Defense ("DoD"); and federal civilian agencies. Our operations include supply chain management solutions,
parts supply and distribution, and maintenance, repair and overhaul ("MRO") services for vehicle fleet, aviation, and other
customers. We also provide vehicle and equipment maintenance and refurbishment, logistics, engineering support, energy
services, IT and health care IT solutions, and consulting services.
VSE was incorporated in Delaware in 1959 and the parent company serves as a centralized managing and consolidating entity
for our three operating segments, each of which consists of one or more wholly owned subsidiaries or unincorporated divisions
that perform our services. Our operating segments include the Aviation segment, Fleet segment, and Federal and Defense
segment. The term "VSE" or "Company" means VSE and its operating businesses unless the context indicates operations of
only VSE as the parent company.
Revenues
(in thousands)
Years ended December 31,
2021
$ 247,852
233,532
269,469
$ 750,853
%
2020
%
2019
%
33 $ 165,070
31
242,170
254,419
36
100 $ 661,659
25 $ 224,546
37
214,520
313,561
38
100 $ 752,627
30
28
42
100
Aviation
Fleet
Federal and Defense
Total
Aviation
Our Aviation segment provides international parts supply and distribution, supply chain solutions, and component and engine
accessory MRO services supporting global aftermarket commercial and business and general aviation customers. This business
offers a range of services to a diversified global client base of commercial airlines, regional airlines, cargo transporters, MRO
integrators and providers, aviation manufacturers, corporate and private aircraft owners, and fixed-base operators ("FBOs").
This segment did not have any one client that comprised more than 10% of our consolidated revenues in 2021, 2020 or 2019.
Fleet
Our Fleet segment provides parts supply, inventory management, e-commerce fulfillment, logistics and other services to assist
aftermarket commercial and federal customers with their supply chain management. Operations of this segment are conducted
by our wholly owned subsidiary Wheeler Fleet Solutions, which supports the government and commercial truck fleets with
parts, sustainment solutions and managed inventory services. Revenues for this business are derived from the sale of vehicle
parts and mission critical supply chain services to support client truck fleets. The United States Postal Service ("USPS")
comprised approximately 20%, 27%, and 22% of our consolidated revenues in 2021, 2020 and 2019, respectively.
Federal and Defense
Our Federal and Defense segment provides aftermarket refurbishment and sustainment services to extend and maintain the life
cycle of military vehicles, ships and aircraft for the DoD. The segment provides foreign military sales services, engineering,
logistics, maintenance, configuration management, prototyping, technology, and field support services to the DoD and other
customers. We also provide energy consulting services and IT solutions to various DoD, federal civilian agencies and
commercial clients. The foreign military sales program with the U.S. Department of Navy ("FMS Program") comprised
approximately 13%, 15%, and 12% of our consolidated revenues in 2021, 2020 and 2019, respectively.
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Acquisition and Divestitures
In July 2021, we acquired Global Parts Group, Inc. ("Global Parts"), which provides distribution and MRO services for
business and general aviation ("B&GA") aircraft families. The acquisition expands our existing B&GA focus and further
diversifies our product and platform offerings to include additional airframe components, while expanding our customer base of
regional and global B&GA customers. Global Parts is a subsidiary of VSE Aviation, Inc. under our Aviation segment.
In March 2021, we acquired HAECO Special Services, LLC ("HSS"), which offers scheduled depot maintenance, contract field
deployment and unscheduled drop-in maintenance for the DoD, primarily for the sustainment of the U.S. Air Force ("USAF")
KC-10 fleet. HSS is a subsidiary of VSE Corporation under our Federal & Defense Services segment.
In January 2019, we acquired 1st Choice Aerospace Inc. ("1st Choice Aerospace"), with operations in Florida and Kentucky.
1st Choice Aerospace provides component MRO services and products for new generation and legacy commercial aircraft
families. 1st Choice Aerospace is a subsidiary of VSE Aviation, Inc., under our Aviation segment.
In February 2020, we sold our subsidiary Prime Turbines, LLC ("Prime Turbines") and certain related inventory assets for
$20.0 million in cash and a $8.3 million note receivable to be paid over a period from 2020 through 2024. Our Aviation
segment discontinued turboprop engine MRO services and will concentrate on higher growth potential component/accessory
repair and parts distribution while further expanding our presence within the global commercial and general aviation markets.
Prime Turbines' revenues totaled less than 1% and approximately 4% of our revenue for 2020 and 2019, respectively.
In June 2020, we sold all of the inventory of our subsidiary CT Aerospace, LLC ("CT Aerospace") for a $6.9 million note
receivable to be paid to us over a period from 2020 through 2025. Our Aviation segment discontinued sales and leasing of
engines and supply of used serviceable engine parts. CT Aerospace's revenues totaled less than 1% and less than 2% of our
revenue for 2020 and 2019, respectively.
See Note (2) "Acquisition and Divestitures" to our Consolidated Financial Statements included in Item 8 of this annual report
on Form 10-K for additional information regarding our acquisition and divestitures.
Products and Services
We provide a broad array of capabilities and resources to support our clients’ aftermarket transportation assets, vehicle fleets,
aircraft, systems, equipment and processes. We focus on creating value by sustaining and extending the life and improving the
performance of our client assets through core offerings in supply chain management, parts supply and distribution, MRO,
equipment refurbishment, logistics and engineering. We also provide IT solutions and energy consulting services.
Typical offerings include supply chain and inventory management services; vehicle fleet sustainment programs; vehicle fleet
parts supply and distribution; MRO of aircraft components and engine accessories; aircraft and airframe parts supply and
distribution; engineering support for military vehicles; military equipment refurbishment and modification; ship MRO and
follow-on technical support; logistics management support; sustainable energy supply and electric power grid modernization
projects, IT infrastructure and data management, and IT data services for health and public safety. See Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” below for more information regarding our business.
Revenues and Contracts
We offer our products and professional and technical services through various ordering agreements and negotiated and
competitive contract arrangements. Our revenues are derived from the delivery of products and from contract services
performed for our customers for each of our three segments as follows:
•
•
•
Our Aviation segment revenues result from the sale of aircraft parts and performance of MRO services for private and
commercial aircraft owners, aviation MRO providers, aviation original equipment manufacturers and other clients.
Our Fleet segment revenues result from the sale of aftermarket vehicle parts to government and commercial clients.
Our Federal and Defense segment revenues result from providing professional and technical services primarily to U.S
government customers on a contract basis. The three primary types of contracts used are cost-type, fixed-price, and
time and materials.
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Customers
Our customers include various commercial entities and government clients. In 2021, our commercial customers represented
43% of our consolidated revenues, up from 31% and 32% in 2020 and 2019, respectively. Our USPS work and FMS Program
comprised approximately 20% and 13% of our 2021 consolidated revenues, respectively. None of our other customers comprise
a significant amount of our 2021 consolidated revenues.
Revenues by Customer
(dollars in thousands)
Years ended December 31,
2021
322,318
$ 233,422
195,113
%
2020
%
2019
%
43
208,305
31 $ 236,397
26
216,957
31
242,518
36 $ 304,334
33
205,775
$ 750,853
100 $ 661,659
100 $ 752,627
32
41
27
100
Customer
Commercial
DoD
Other government(a)
Total
(a) USPS is part of Other government
Backlog
Our funded backlog represents the estimated remaining value of work to be performed under firm contracts under our Federal
and Defense segment. Bookings for our Aviation and Fleet segments occur at the time of sale, and therefore, these segments do
not generally have funded contract backlog and backlog is not an indicator of their potential future revenues. Our funded
backlog for our Federal and Defense segment as of December 31, 2021, 2020 and 2019 was approximately $185 million, $183
million and $213 million, respectively. For a complete description of our backlog, see "Bookings and Funded Backlog" in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this report.
Marketing
Our marketing activities are conducted by each of our businesses by industry-specific sales representatives and professional
marketing and business development staff. New customer contacts and information concerning new programs, requirements
and opportunities become available through sales calls and client visits, negotiation with key business partners, and formal and
informal briefings. We participate in various professional organizations and trade association, and also attend industry trade
shows and events in order to increase our brand awareness and strengthen our service offerings.
Human Capital Resources
Workforce Demographics
Our employees have a variety of specialized experience, training and skills that provide the expertise required to service our
customers. As of December 31, 2021, we had approximately 2,500 employees. Principal employee categories include (a)
mechanics and vehicle, aircraft and equipment technicians, (b) logisticians, (c) warehouse and sales personnel, (d) engineers
and technicians in mechanical, electronic, industrial, energy services, and (e) information technology professionals in computer
systems, applications and data management disciplines. As of December 31, 2021, approximately 17% of our employees, all
within our Federal and Defense segment, were unionized.
Employee Health and Safety
We are committed to providing a safe working environment for our employees. Supported by our Health, Environmental and
Safety Program, we strive to minimize the risk of injury or illness to workers. We provide our employees with upfront and
ongoing safety trainings to ensure that safety policies and procedures are effectively communicated and implemented. We also
provide our employees with any additional information, leadership, support and equipment needed to safely perform their job
function.
Talent Acquisition, Retention and Development
We strive to attract and retain top talent at all levels of the company. To support this objective we seek to provide opportunities
for professional development and career growth, and recognize and reward our employees for their contributions and
accomplishments.
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We encourage employees to provide feedback about their experience and we regularly conduct employee engagement surveys
to gauge employee satisfaction and to understand the effectiveness of engaging our employees on all levels. These surveys
provide valuable information on drivers of engagement and areas of improvement to ensure that we maintain an employee-
focused experience and culture. We also host quarterly town hall meetings to provide an open and frequent line of
communication for all employees.
We offer competitive pay and comprehensive benefits to attract, reward and retain a qualified and diverse workforce to achieve
our vision and mission and meet the dynamic needs of employees and their families. In addition to competitive base pay, we
offer annual bonus opportunities, a Company matched 401(k) plan, an employee stock purchase plan, healthcare and insurance
benefits, health savings and flexible spending accounts, paid time off, holiday pay, flexible work schedules, and employee
assistance programs.
Diversity and Inclusion
We embrace and encourage inclusion in order to achieve a culture and company environment supporting diversity. Our
inclusion and diversity initiatives include our practices and policies on employee recruitment and hiring, professional training
and development, employee engagement and the development of a work environment built on the premise of diversity and
equity. In 2020, we formed the VSE Inclusion & Diversity Council ("I&D Council"), an employee led group focused on
creating a framework and action plan for inclusion and diversity related initiatives across the organization. Our I&D Council
regularly hosts roundtable discussions aimed at increasing cultural awareness and promoting dialogue to encourage a culture
that values inclusive behavior in our workplace. We also support employee resource groups, which are voluntary, employee-led
groups that are open to all employees and provide a forum for diverse employees and allies from a variety of different
backgrounds to share experiences and support our company's diversity initiatives. These groups help foster a diverse and
inclusive workplace, build awareness and drive change within our organization. Additionally, we actively seek initiatives and
participate in outreach programs to assist individuals who served in the U.S. Armed Forces. These efforts include an emphasis
on hiring military veterans to enhance the quality of our workforce.
Code of Business Conduct and Ethics
We are committed to the highest ethical standards and we expect all of our directors, officers and employees to comply with our
standards and applicable laws and regulations in the conduct of our business. Our Code of Business Conduct and Ethics (the
"Code") sets forth our policies and expectations on what is appropriate behavior and guides ethical business decisions that
maintain a commitment to integrity. In addition, we require annual ethics and compliance training for all of our employees to
provide them with the knowledge necessary to maintain our standards of ethics and compliance.
Government Regulation and Supervision
Our businesses are subject to extensive regulation in the markets we serve. We work with numerous U.S. government agencies
and entities, including but not limited to, all branches of the DoD and the Federal Aviation Administration ("FAA"). Similar
government authorities and regulations exist in the other countries in which we do business.
Commercial Aircraft
The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States. Its
regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to
ensure safe operation of the aircraft. The inspection, maintenance and repair procedures for various types of aircraft and
equipment are prescribed by these regulatory authorities and can be performed only by certified repair facilities utilizing
certified technicians. Certification and conformance is required prior to installation of a part on an aircraft. The FAA requires
that various maintenance routines be performed on aircraft components, and we currently satisfy these maintenance standards in
our repair and overhaul services.
Government Contracts
We must comply with and are affected by a variety of laws and regulations relating to the award, administration, and
performance of U.S. Government contracts. We are routinely audited and reviewed by the U.S. Government and its agencies,
including the Defense Contract Audit Agency, and the Defense Contract Management Agency. These agencies evaluate our
contract performance, cost structures, and compliance with applicable laws, regulations, and standards, as well as review the
adequacy of our business systems and processes relative to U.S. Government requirements. The U.S. Government generally has
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the ability to terminate contracts, in whole or in part, with little or no prior notice, for convenience or for default based on our
failure to meet specified performance requirements. In the event of termination of a contract for convenience, we would
generally be able to recover costs already incurred on the contract and receive profit on those costs up to the amount authorized
under the contract, but not the anticipated profit that would have been earned had the contract been completed. Such a
termination could also result in the cancellation of future work on the related program. Termination resulting from our default
could expose us to various liabilities, including excess re-procurement costs, and could have a material effect on our ability to
compete for future contracts.
For additional information on regulations and risks affecting our business, refer to Item 1A., "Risk Factors".
Competition
All of our businesses operate in highly competitive industries that include numerous competitors, many of which are larger in
size and have greater name recognition, financials resources and larger technical staff than we do. We also compete against
smaller, more specialized competitors that concentrate their resources on narrower service offerings.
Government agencies emphasize awarding contracts on a competitive basis, as opposed to a sole source or other
noncompetitive basis. Most of the significant contracts under which our Federal and Defense segment currently perform
services were either initially awarded on a competitive basis or have been renewed at least once on a competitive basis. These
contracts may be indefinite delivery/indefinite quantity type contracts for which the government makes awards for work among
several other eligible contract holders, or they may be single award contracts with multiple option years that may or may not be
exercised. Accordingly, there can be no assurance regarding the level of work we may obtain under some of these contracts.
Government budgets, and in particular the budgets of certain government agencies, can also affect competition in our business.
A reallocation of government spending priorities or reallocation of work for small business set-aside programs that results in
lower levels of potential business in the markets we serve or the services we offer can cause increased competition.
The extent of competition that we will encounter as a result of changing economic or competitive conditions, customer
requirements or technological developments is unpredictable. We believe the principal competitive factors for our business are
customer knowledge, technical and financial qualifications, past performance, government budgetary priorities, sales force
initiatives and price.
Available Information
We maintain an internet website at www.vsecorp.com. We make available free of charge through our website, our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed
with or otherwise furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after the reports are electronically filed with the SEC. The information on or obtainable through our website is not
intended to be incorporated into this Annual Report on Form 10-K. The SEC also maintains an internet website (http://
www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC.
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ITEM 1A. Risk Factors
Our future results may differ materially from past results and from those projected in the forward-looking statements contained
in this Form 10-K due to various uncertainties and risks, including those risks set forth below, nonrecurring events and other
important factors disclosed previously and from time to time in our other reports filed with the SEC.
Operational Risks
The COVID-19 outbreak has adversely affected and could in the future continue to adversely affect our business.
The ongoing COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, supply
chains and distribution systems, and we have experienced and expect to continue to experience varying levels of reductions in
demand for our products and services, particularly in the aviation aftermarket as compared to pre-pandemic levels. The global
aviation market experienced a significant decline, specifically in global commercial air travel, which had a significant impact on
the parts distribution and maintenance, repair and overhaul services markets supporting general aviation and commercial
aircraft. Our Aviation segment experienced the most impactful reduction in demand for our products and services during fiscal
2021 and fiscal 2020 compared to fiscal 2019, as a decline in commercial aircraft revenue passenger miles contributed to a
reduction in demand for aftermarket parts and MRO services. This reduction in demand moderated to some extent but
otherwise continued throughout 2021 and may continue into 2022, subject to the duration and severity of the pandemic. This
decrease in demand may continue to adversely impact our operating results for 2022. We cannot estimate with certainty the
severity of this impact, but we expect it to be consistent with overall aviation industry trends.
Due to the impact of COVID-19 and decisions by our customers to delay the use of, or permanently retire, certain aircraft,
demand levels for aviation disruption inventory could decrease in the near term or midterm, which could result in a write-down
of existing inventory to adjust to current market trends and adversely affect our results of operations. Furthermore, as a result of
COVID-19, some of our commercial customers in the Aviation segment have been and could continue to be negatively
impacted as a result of disruption in demand, which has led to delays and could lead to defaults on collections of receivables
from them. Such continued delays could further negatively impact our business, results of operations and financial condition.
We are unable to predict the extent, nature or duration of these impacts at this time.
Supply chain delays, disruptions, and potential geopolitical uncertainty could adversely affect our business operations and
expenses
Due to the ongoing pandemic, supply chain disruptions, and geopolitical uncertainty our business could be adversely impacted
by delays or the inability to source products and services for our customers. If our suppliers experience increased disruptions to
their operations as a result of these dynamics, they may be unable to fill our supply needs in a timely, compliant and cost-
effective manner. We have incurred and may in the future incur additional costs and delays in our business, including higher
prices, schedule delays or the costs associated with identifying alternative suppliers. In instances where we may not be able to
mitigate these consequences, our ability to perform on our contracts may be impacted, which could result in reduced revenues
and profits.
We continue to monitor these dynamics and assess potential implications to our business, supply chain and customers, and take
certain actions in an effort to mitigate potential adverse impacts. Given the uncertainties, we are unable to predict the extent,
nature or duration of these impacts at this time.
Certain programs comprise a material portion of our revenue. Our work on large government programs presents a risk to
revenue growth and sustainability and profit margins.
The eventual expiration of large government programs or the loss of or disruption of revenues on a single contract may reduce
our revenues and profits. Such revenue losses could also erode profits on our remaining programs that would have to absorb a
larger portion of the fixed corporate costs previously allocated to the expiring programs or discontinued contract work. Our
USPS managed inventory program and our FMS Program each constitute a material portion of our revenues and profits. This
concentration of our revenue subjects us to the risk of material adverse revenue disruptions if customer operational decisions,
government contractual or other issues prevent or delay the fulfillment of work requirements associated with these key
programs. In recent years, revenue levels for our FMS Program have fluctuated widely enough to cause material changes in our
overall revenue levels and affect our profit margins. Similarly, variations in volume and types of parts purchased by the USPS
in recent years have caused changes in our profit margins.
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The USPS has initiated a fleet replacement program for a next generation of the delivery vehicle fleet. The timing of both the
roll out of a new fleet and the retirement of the current vehicles and their decision on how many of such vehicles will remain in
the fleet could potentially have a significant impact on our future revenues and profits.
Acquisitions, which are a part of our business strategy, present certain risks.
A key element of our business strategy is growth through the acquisition of additional companies. VSE is focused on acquiring
complementary assets that add new products, new customers, and new capabilities or new geographic and/or operational
competitive advantages in both new and existing markets within our core competencies. Our acquisition strategy is affected by,
and poses a number of challenges and risks, including availability of suitable acquisition candidates, availability of capital,
diversion of management’s attention, effective integration of the operations and personnel of acquired companies, potential
write downs of acquired intangible assets, potential loss of key employees of acquired companies, use of a significant portion of
our available cash, compliance with debt covenants and consummation of acquisitions on satisfactory terms.
We may not be able to successfully execute our acquisition strategy, and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
Changes in future business conditions could cause business investments, recorded goodwill, and/or purchased intangible
assets to become impaired, resulting in substantial losses and write-downs that would reduce our operating income.
As part of our business strategy, we make acquisitions and investments following careful analysis and due diligence processes
designed to achieve a desired return or strategic objective. Business acquisitions involve estimates, assumptions, and judgments
to determine acquisition prices, which are allocated among acquired assets, including goodwill, based upon fair market values.
Notwithstanding our analyses, due diligence processes, and business integration efforts, actual operating results of acquired
businesses may vary significantly from initial estimates. In such events, we may be required to write down our carrying value of
the related goodwill and/or purchased intangible assets. In addition, declines in the trading price of our common stock or the
market as a whole can result in goodwill and/or purchased intangible asset impairment charges associated with our existing
businesses.
As of December 31, 2021, goodwill and intangible assets, net of amortization, accounted for 27% and 12%, respectively, of our
total assets. We test our goodwill for impairment annually in the fourth quarter or when evidence of potential impairment exists.
We test acquired intangible assets for impairment whenever events or changes in circumstances indicate their carrying value
may be impaired. The impairment tests are based on several factors requiring judgments. As a general matter, a significant
decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or
intangible assets.
Adverse equity market conditions that result in a decline in market multiples and the trading price of our common stock, or
other events, such as reductions in future contract awards or significant adverse changes in our operating margins or the
operating results of acquired businesses that vary significantly from projected results on which purchase prices are based, could
result in an impairment of goodwill or other intangible assets. Any such impairments that result in us recording additional
goodwill or intangible asset impairment charges could have a material adverse effect on our financial position or results of
operations.
Intense competition from existing and new competitors may harm our business.
The aviation and vehicle parts industries are highly fragmented, have several highly visible leading companies, and are
characterized by intense competition. Some of our OEM competitors have greater name recognition than VSE or our
subsidiaries, as well as complementary lines of business and financial, marketing and other resources that we do not have. In
addition, OEMs, aircraft maintenance providers, leasing companies and U.S. Federal Aviation Administration ("FAA")
certificated repair facilities may attempt to bundle their services and product offerings in the supply industry, thereby
significantly increasing industry competition.
Pressure on government budgets may adversely affect the flow of work to federal contractors, particularly new programs.
Competitor contractors that experience a loss of government work have tended to redirect their marketing efforts toward the
types of work that we perform. This increase in competition for our service offerings may adversely affect our ability to win
new work or successor contracts to continue work that is currently performed by us under expiring contracts. Unsuccessful
bidders frequently protest contract awards, which can delay or reverse the contract awards. Additionally, the government has
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frequently used contract award criteria that emphasizes lowest price, technically acceptable bids, which further intensifies
competition in our government markets.
Our success is highly dependent on the performance of the aviation aftermarket, which could be impacted by lower demand
for business aviation and commercial air travel or airline fleet changes causing lower demand for our goods and services.
General global industry and economic conditions that affect the aviation industry may also affect our business. We are subject
to macroeconomic cycles, and when recessions occur, we may experience reduced orders, payment delays, supply chain
disruptions or other factors as a result of the economic challenges faced by our customers, prospective customers and suppliers.
Further, the aviation industry has historically, from time to time, been subject to downward cycles which reduce the overall
demand for jet engine and aircraft component replacement parts and repair and overhaul services, and such downward cycles
result in lower sales and greater credit risk. Demand for commercial air travel can be influenced by airline industry profitability,
world trade policies, government-to-government relations, terrorism, disease outbreaks, environmental constraints imposed
upon aircraft operations, technological changes, price and other competitive factors. These global industry and economic
conditions may have a material adverse effect on our business, financial condition and results of operations.
The COVID-19 pandemic has resulted in travel disruption has had an adverse impact on airline spending and demand that has
caused a reduction in demand for our aviation products and services for most of 2020 and into 2021. At this point, the extent or
duration of the impact that the COVID-19 pandemic may have on our future results remains uncertain, and the reduction in
demand could extend into 2022.
Global economic conditions and political factors could adversely affect our revenues.
Revenues for work performed in or products delivered to foreign countries are subject to economic conditions in these countries
and to political risks posed by ongoing foreign conflicts and potential terrorist activity. Significant domestic and political unrest
in client countries can constrain our ability to maintain consistent staffing levels, resulting in a fluctuating level of services
performed by our employees. We cannot predict when these conditions will occur or the effect it will have on our revenues.
Regime changes in these countries can result in government restrictions upon the continuation of ongoing work. Economic
conditions in both the United States and foreign countries, and global prices and availability of oil and other commodities could
potentially have an adverse effect on the demand for some of our services, including our aviation services.
Prolonged periods of inflation where we do not have adequate inflation protections in our customer contracts may adversely
affect us by increasing costs beyond what we can recover through price increases.
Recently, inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of
labor, material and other costs. In addition, inflation is often accompanied by higher interest rates, which could increase the cost
of our outstanding debt obligations. In an inflationary environment, depending on economic conditions, we may be unable to
raise prices enough to keep up with the rate of inflation, which would reduce our profit margins. Although we have minimized
the effect of inflation on our business through contractual protections, the presence of longer pricing periods within our
contracts increases the likelihood that there will be sustained or higher than anticipated increases in costs of labor or material.
We have experienced, and continue to experience, increases in the prices of labor, materials and other costs of providing
service. Continued inflationary pressures could impact our profitability.
The nature of our operations and work performed by our employees present certain challenges related to work force
management.
Our financial performance is heavily dependent on the abilities of our operating and administrative staff with respect to
technical skills, operating performance, pricing, cost management, safety, and administrative and compliance efforts. A wide
diversity of contract types, nature of work, work locations, and legal and regulatory complexities challenges our administrative
staff and skill sets. We also face challenges associated with our quality of workforce, quality of work, safety, and labor relations
compliance. Our current and projected work in foreign countries exposes us to challenges associated with export and ethics
compliance, local laws and customs, workforce issues, extended supply chain, political unrest and war zone threats. Failure to
attract or retain an adequately skilled workforce, lack of knowledge or training in critical functions, or inadequate staffing levels
can result in lost work, reduced profit margins, losses from cost overruns, performance deficiencies, workplace accidents, and
regulatory noncompliance.
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Our business could be adversely affected by incidents that could cause an interruption in our operations or impose a
significant financial liability on us.
Disruption of our operations due to internal or external system or service failures, accidents or incidents involving employees or
third parties working in high-risk locations, or natural disasters, health crisis, epidemics or pandemics, including the COVID-19
pandemic, or other crises could adversely affect our financial performance and condition. The COVID-19 pandemic could
potentially impact our global supply chain network for any of our segments. A fire, flood, earthquake, or other natural disaster,
health crises, epidemic, pandemic or other crisis at or affecting physical facilities that support key revenue generating
operations, or a procurement system or contractual delay could potentially interrupt the revenues from our operations.
Investments in inventory and facilities could cause losses if certain work is disrupted or discontinued.
We have made investments in inventory, facilities and lease commitments to support specific business programs, work
requirements, and service offerings. A slowing or disruption of these business programs, work requirements, or service
offerings that results in operating below intended levels could cause us to suffer financial losses.
We are dependent on access to and the performance of third‑party package delivery companies.
Our ability to provide efficient distribution of the products we sell to our customers is an integral component of our overall
business strategy, both domestic and international. We do not maintain our own delivery networks, and instead rely on
third‑party package delivery companies. We cannot assure that we will always be able to ensure access to preferred shipping
and delivery companies or that these companies will continue to meet our needs or provide reasonable pricing terms. In
addition, if the package delivery companies on which we rely on experience delays resulting from inclement weather or other
disruptions, we may be unable to maintain products in inventory and deliver products to our customers on a timely basis, which
may adversely affect our results of operations and financial condition.
Uncertain government budgets and shifting government priorities could delay contract awards and funding and adversely
affect our ability to continue work under our government contracts. Additionally, federal procurement directives could result
in our loss of work on current programs to small business set-asides and large multiple award contracts.
Our government business is subject to funding delays, terminations (including at the government's convenience), reductions, in-
sourcing, extensions and moratoriums associated with the government’s budgeting and contracting process. The federal
procurement environment is unpredictable and could adversely affect our ability to perform work under new and existing
contracts. We have experienced delays in contract awards and funding on our contracts in recent years that have adversely
affected our ability to continue existing work and to replace expiring work. Additionally, our government business is subject to
the risk that one or more of our potential contracts or contract extensions may be diverted by the contracting agency to a small
or disadvantaged or minority-owned business pursuant to set-aside programs administered by the U.S. Small Business
Administration, or may be bundled into large multiple award contracts for very large businesses. These risks can potentially
have an adverse effect on our revenue growth and profit margins.
Changes to DoD business practices could have a material effect on DoD's procurement process and adversely impact our
current programs and potential new awards.
The defense industry has experienced, and we expect will continue to experience, significant changes to business practices
resulting from greater DoD focus on affordability, efficiencies, business systems, recovery of costs, and a re-prioritization of
available defense funds to key areas for future defense spending. The DoD continues to adjust its procurement practices,
requirements criteria, and source selection methodology in an ongoing effort to reduce costs, gain efficiencies, and enhance
program management and control. We expect the DoD's focus on business practices to impact the contracting environment in
which we operate as we and others in the industry adjust our practices to address the DoD's initiatives and the reduced level of
spending by the DoD. Depending on how these initiatives are implemented, they could have an impact on our current programs,
as well as new business opportunities with the DoD. As a result of certain of these initiatives, we experienced, and may
continue to experience, a higher number of audits and/or lengthened periods of time required to close open audits. Such
additional or lengthier audits could have a material adverse effect on our business, financial condition and results of operations.
-13-
Legal and Regulatory Risks
Our business could be adversely affected by government audits or investigations.
Government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and the
Department of Labor, routinely audit and investigate government contractors. These agencies review a contractor’s
performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The government
also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the
contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be
improperly allocated to a specific contract will not be reimbursed and any such costs already reimbursed must be refunded.
The scope and rigor of government agency audits and investigations have increased in recent years, resulting in a greater
likelihood that an audit or investigation may result in an adverse outcome. We have been subject to unfavorable findings and
recommendations from various government agencies from time to time. We expect that government agencies will continue to
rigorously audit and investigate us and there may be adverse or disputed findings, resulting in corrective action plans and/or
settlements.
If an audit or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension
or debarment from doing business with the government. In addition, we could suffer serious harm to our reputation if
allegations of impropriety were made. Performance of international work can expose us to risks associated with the Foreign
Corrupt Practices Act and Export Control Act compliance.
We are subject to numerous government rules and regulations that could expose us to potential liabilities or work loss.
We must comply with and are affected by laws and regulations relating to the award, administration and performance of
government contracts. A violation of laws or regulations could result in the imposition of fines and penalties or the termination
of contracts or debarment from working or bidding on government contracts.
In some instances, these government contract laws and regulations impose terms or rights that are significantly more favorable
to the government than those typically available to commercial parties in negotiated transactions. For example, the government
may terminate any government contract or subcontract at its convenience, as well as for performance default.
A termination for default could expose us to liability and have a material adverse effect on our ability to compete for future
contracts and orders. A termination for default could also impact our past performance and ability to obtain new or additional
work. In addition, the government could terminate a prime contract under which we are a subcontractor, irrespective of the
quality of services provided by us as a subcontractor.
Additionally, our contract work that is performed by our subcontractors is subject to government compliance, performance
requirements and financial risks. If any of our subcontractors fail to timely meet their contractual obligations or have regulatory
compliance or other problems, our ability to fulfill our obligations as a prime contractor may be jeopardized.
The aviation industry is highly regulated by the FAA and similar regulatory agencies in other countries. Aviation engines,
engine accessories and components that we sell must meet certain airworthiness standards established by the FAA or the
equivalent agencies in certain other countries. We also operate repair facilities that are licensed by the FAA and equivalent
agencies of certain other countries to perform such services. New and more stringent regulations may be adopted in the future
that could have an adverse effect on us.
Lastly, border tariffs and new trade deals could have significant effects on our customers and, in turn, on our suppliers, which
may impact our business.
Due to the nature of our work, we could potentially be exposed to legal actions arising from our operations.
Our work includes many manual tasks, including warehousing, shipping and packing of truck parts inventory, maintaining and
repairing military and non-military vehicles, aircraft and equipment, and maintaining and overhauling U.S. Navy ships. Some
of our work efforts involve the handling of hazardous materials. These services may pose certain challenges that could cause us
to be exposed to legal and other liabilities arising from performance issues, work related incidents or employee misconduct that
result in damages, injury or death to third parties. Such events could cause us to suffer financial losses and adversely affect our
financial condition. See Item 3, "Legal Proceedings” below.
-14-
Environmental and pollution risks could potentially impact our financial results.
Our operations are subject to and affected by a variety of existing federal, state, and local environmental protection laws and
regulations. In addition, we could be affected by future laws or regulations, including those imposed in response to concerns
over climate change, other aspects of the environment, or natural resources. We expect to incur future capital and operating
costs to comply with current and future environmental laws and regulations, and such costs could be substantial, depending on
the future proliferation of environmental rules and regulations and the extent to which we discover currently unknown
environmental conditions.
Some of our contract work includes the use of chemical solvents and the handling of hazardous materials to maintain, repair,
and refurbish vehicles, aircraft engines, and equipment. This exposes us to certain environmental and pollution risks. Various
federal, state, and local environmental laws and regulations impose restrictions on the discharge of pollutants into the
environment and establish standards for the transportation, storage, and disposal of toxic and hazardous wastes. Substantial
fines, penalties, and criminal sanctions may be imposed for noncompliance, and certain environmental laws impose joint and
several "strict liability" for remediation of spills and releases of oil and hazardous substances. Such laws and regulations impose
liability upon a party for environmental cleanup and remediation costs and damage without regard to negligence or fault on the
part of such party and could expose us to liability for the conduct of or conditions caused by third parties.
Costs associated with compliance with Federal, State and local provisions regulating the discharge of materials or that
otherwise relate to the protection of the environment have not had a material adverse effect on our capital expenditures,
earnings, or competitive position. However, we cannot predict the likelihood of such a material adverse effect should we
experience the occurrence of a future environmental or pollution event.
The adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, imposition of
new cleanup requirements, discovery of previously unknown or more extensive contamination, litigation involving
environmental impacts, our inability to recover related costs under our government contracts, or the financial insolvency of
other responsible parties could cause us to incur costs that could have a material adverse effect on our financial position, results
of operations, or cash flows.
Technology Risks
Technology security and cyber-attack risks could potentially impact our financial results.
We face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code,
organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to our and
our clients' proprietary or classified information.
Some of our contract work includes data management and technology services associated with Social Security Administration
and military medical and health records. This exposes us to certain information and technology security risks. If there is a
security breach of sensitive data in our custody or for which we provide services, we could possibly be held liable for damages
to third parties related to such security breach and incur costs to prevent future incidents. We also provide refurbishment,
maintenance and training services support to international clients directly and through the DoD. Foreign nations with interests
that conflict with the international clients we support could be motivated to conduct a cyber-attack to access information on
these programs.
We maintain a cybersecurity risk management program to monitor and mitigate cybersecurity threats and an incident response
plan for emerging threats. Costs associated with preventing or remediating information management security breaches or
complying with related laws and regulations have not had a material adverse effect on our capital expenditures, earnings or
competitive position. Additionally, we have obtained insurance that provides coverage for certain cybersecurity incidents.
However, the occurrence of a future security breach event could potentially have such an adverse effect.
Financial Risks
There can be no assurance we will continue to pay dividends at current levels or in the future.
The payment of cash dividends and repurchases of our common stock are subject to limitations under applicable law and our
bank loan agreement, and to the discretion of our board of directors, considered in the context of then current conditions,
including our earnings, other operating results, and capital requirements. Declines in asset values or increases in liabilities,
-15-
including liabilities associated with benefit plans and assets and liabilities associated with taxes, can reduce stockholders’
equity. A deficit in stockholders’ equity could limit our ability under Delaware law to pay dividends.
Our debt exposes us to certain risks.
As of December 31, 2021, we had $285 million of total debt outstanding (net of unamortized debt issuance costs). The amount
of our existing debt, combined with our ability to incur significant amounts of debt in the future, could have important
consequences, including:
•
•
•
•
•
•
Increasing our vulnerability to adverse economic or industry conditions;
Requiring us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures, strategic initiatives, and general corporate
purposes;
Increasing our vulnerability to, and limiting our flexibility in planning for, or reacting to, changes in our business or
the industries in which we operate;
Exposing us to the risk of higher interest rates on borrowings under our Credit Facility, which are subject to variable
rates of interest;
Placing us at a competitive disadvantage compared to our competitors that have less debt; and
Limiting our ability to borrow additional funds.
Market volatility and adverse capital market conditions may affect our ability to access cost-effective sources of funding and
may expose us to risks associated with the financial viability of suppliers and subcontractors.
The financial markets can experience high levels of volatility and disruption, reducing the availability of credit for certain
issuers. We may access these markets from time to time to support certain business activities, including funding acquisitions
and refinancing existing indebtedness. We may also access these markets to acquire credit support for our letters of credit. A
number of factors could cause us to incur higher borrowing costs and experience greater difficulty accessing public and private
markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial
performance, outlook, or credit ratings. The occurrence of any or all of these events may adversely affect our ability to fund our
operations, meet contractual commitments, make future investments or desirable acquisitions, or respond to competitive
challenges.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our executive and administrative headquarters are located in a five-story building in Alexandria, Virginia, with approximately
95,000 square feet of office space leased by us through April 2027.
We own facilities located in an industrial park in Somerset, Pennsylvania where we conduct our Fleet segment operations.
These properties consist of approximately 30 acres of land and buildings totaling approximately 271,000 square feet of office,
engineering and warehouse space.
We own two properties that we use to conduct our Aviation segment operations. The first property consists of a building with
approximately 30,500 square feet of warehouse and office space in Independence, Kansas that is located on leased municipal
airport land. The second property consists of approximately nine acres of land and a building with approximately 60,000 square
feet of warehouse and office space in Hebron, Kentucky, acquired in 2019.
We own and operate two facilities in Ladysmith, Virginia. One of these properties consists of approximately 44 acres of land
and multiple storage and vehicle maintenance buildings totaling approximately 56,000 square feet of space. The other property
consists of 30 acres of land and buildings totaling approximately 13,500 square feet of space. We also own and operate a
property in Texarkana, Arkansas consisting of approximately 10 acres of land and a building totaling approximately 79,000
square feet. We use these properties primarily to provide refurbishment services for military equipment, storage and
maintenance.
-16-
We also provide services and products from facilities generally occupied under leases primarily located near customer sites to
facilitate communications and enhance program performance. As of December 31, 2021, we leased approximately 19 facilities
with a total of approximately 779,000 square feet of office, shop and warehouse space. Our employees often provide services at
customer facilities, limiting our requirement for additional space. We also provide services from locations outside of the United
States, generally at foreign shipyards, U.S. military installations and aircraft parts distribution facilities.
ITEM 3. Legal Proceedings
We may have certain claims in the normal course of business, including legal proceedings against us and against other parties.
In our opinion, the resolution of these other claims will not have a material adverse effect on our results of operations, financial
position or cash flows. However, because the results of any legal proceedings cannot be predicted with certainty, the amount of
loss, if any, cannot be reasonably estimated.
Further, from time-to-time, government agencies investigate whether our operations are being conducted in accordance with
applicable contractual and regulatory requirements. Government investigations of us, whether relating to government contracts
or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or
penalties being imposed upon us, or could lead to suspension or debarment from future government contracting. Government
investigations often take years to complete and many result in no adverse action against us. We believe, based upon current
information, that the outcome of any such government disputes and investigations will not have a material adverse effect on our
results of operations, financial condition or cash flows.
ITEM 4. Mine Safety Disclosures
Not applicable.
-17-
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
VSE common stock, par value $0.05 per share, is traded on the NASDAQ Global Select Market ("NASDAQ"), trading symbol,
"VSEC."
Common Stock - Dividend Paid Per Share
Quarter Ended
March 31
June 30
September 30
December 31
For the Year
Holders
Dividend Paid Per Share
2020
2021
$
$
0.09 $
0.09
0.09
0.10
0.37 $
0.09
0.09
0.09
0.09
0.36
As of February 1, 2022, VSE common stock, par value $0.05 per share, was held by approximately 220 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.
Dividends
Pursuant to our bank loan agreement, as discussed in Note (8) "Debt" to our Consolidated Financial Statements included in Item
8 of this annual report on Form 10-K, the payment of cash dividends is subject to annual restrictions. We have paid cash
dividends each year since 1973.
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. 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 Rule 10b-18 (a)(3) under the Exchange Act)
other than 16,084 shares of our common stock that were voluntarily forfeited to VSE by participants in its 2006 Restricted
Stock Plan (the "2006 Plan") to cover their personal tax liability for vesting stock awards under the 2006 Plan.
-18-
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: the 2006 Plan and the VSE Corporation 2021 Employee Stock Purchase Plan ("ESPP"). The following
table sets forth the amounts of securities authorized for issuance under the 2006 Plan and the ESPP as of December 31, 2021.
Plan Category
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
— $
— $
— $
—
—
—
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
1,152,647
—
1,152,647
See Note (10) "Stock-Based Compensation Plans" to our Consolidated Financial Statements included in Item 8 of this annual
report on Form 10-K for additional information regarding the 2006 Plan and the ESPP.
-19-
Performance Graph
Set forth below is a line graph comparing the cumulative total return of VSE common stock with (a) a performance index for
the broad market, the NASDAQ Global Select Market, on which VSE common stock is traded and (b) the Company's peer
group which is comprised of other public companies that operate in industries or lines of businesses similar to ours. These
companies include Heico Corporation, Dorman Products, Inc., Vectrus, Inc., ManTech International Corporation, and CACI
International Inc.
The companies in the Peer Group have been weighted based on their relative market capitalization each year. The graph
assumes that $100 was invested in our then outstanding common stock, the NASDAQ and the Peer Group index at the
beginning of the five-year period and that all dividends were reinvested. The comparisons are not intended to be indicative of
future performance of our common stock.
*$100 invested on 12/31/16 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Performance Graph Table
VSE
NASDAQ Composite
Peer Group
ITEM 6. [Reserved]
2016
100
100
100
2017
125.46
129.64
123.42
2018
78.03
125.96
151.53
2019
100.33
172.17
219.02
2020
102.87
249.51
244.42
2021
164.12
304.85
262.73
-20-
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among VSE Corporation, The NASDAQ Composite Index, and Peer GroupsVSENASDAQ CompositePeer Group12/1612/1712/1812/1912/2012/21050100150200250300350400
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
Our Business
We are a diversified aftermarket products and services company providing repair services, parts distribution, logistics, supply
chain management and consulting services for land, sea and air transportation assets to government and commercial markets.
We provide logistics and distribution services for legacy systems and equipment and professional and technical services to
commercial customers and to the government, including federal civilian agencies and the Department of Defense ("DoD"). Our
operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul
("MRO") services for vehicle fleet, aviation, and other customers. We also provide vehicle and equipment maintenance and
refurbishment, logistics, engineering support, energy services, IT and health care IT solutions, and consulting services. See Item
1, “Business-Customers” above for revenues by customer.
The following discussion should be read along with our Consolidated Financial Statements included in Item 8 of this Annual
Report on Form 10-K.
Acquisition and Divestitures
In July 2021, we acquired Global Parts Group, Inc. ("Global Parts"), a privately owned company with operations in Augusta,
Kansas. Global Parts provides distribution and MRO services for business and general aviation ("B&GA") aircraft families. The
acquisition expands our existing B&GA focus and further diversifies our product and platform offerings to include additional
airframe components, while expanding our customer base of regional and global B&GA customers. Global Parts is a subsidiary
of VSE Aviation, Inc. under our Aviation segment.
In March 2021, we acquired HAECO Special Services, LLC ("HSS"), in an all-cash transaction. HSS is a leading provider of
fully integrated MRO support solutions for military and government aircraft. HSS offers scheduled depot maintenance, contract
field deployment and unscheduled drop-in maintenance for the DoD primarily for the sustainment of the U.S. Air Force
("USAF") KC-10 fleet. The experienced workforce of HSS operates from two hangar locations in Greensboro, North Carolina.
HSS is a subsidiary of VSE Corporation under our Federal & Defense Services segment.
In January 2019, we acquired 1st Choice Aerospace Inc. ("1st Choice Aerospace"), with operations in Florida and Kentucky.
1st Choice Aerospace provides component MRO services and products for new generation and legacy commercial aircraft
families. 1st Choice Aerospace is a subsidiary of VSE Aviation, Inc. under our Aviation segment.
In February 2020, we sold our subsidiary Prime Turbines, LLC ("Prime Turbines") and certain related inventory assets for
$20.0 million in cash and a $8.3 million note receivable to be paid over a period from 2020 through 2024. Our Aviation
segment discontinued turboprop engine MRO services and will concentrate on higher growth potential component/accessory
repair and parts distribution while further expanding our presence within the global commercial and general aviation markets.
Prime Turbines' revenues totaled less than 1% and approximately 4% of our revenue for 2020 and 2019, respectively.
In June 2020, we sold all of the inventory of our subsidiary CT Aerospace, LLC ("CT Aerospace") for a $6.9 million note
receivable to be paid to us over a period from 2020 through 2025. Our Aviation segment discontinued sales and leasing of
engines and supply of used serviceable engine parts. CT Aerospace's revenues totaled less than 1% and less than 2% of our
revenue for 2020 and 2019, respectively.
See Note (2) "Acquisition and Divestitures" to our Consolidated Financial Statements included in Item 8 of this annual report
on Form 10-K for additional information regarding our acquisition and divestitures.
Public Common Stock Offering
In February 2021, we completed an underwritten public offering of 1,599,097 shares of common stock, inclusive of 170,497
shares pursuant to the underwriters' exercise of their option to purchase additional shares, at a public offering price of $35.00
per share. We received net proceeds of approximately $52 million, after deducting underwriting discounts and other offering
expenses of approximately $4 million. The net proceeds were used for general corporate purposes, including financing strategic
acquisitions and working capital requirements for new program launches.
-21-
Organization and Segments
Our operations are conducted within three reportable segments aligned with our operating segments: (1) Aviation; (2) Fleet; and
(3) Federal and Defense. We provide more information about each of these reportable segments under Item 1, “Business-
History and Organization.”
Concentration of Revenues
Source of Revenues
Commercial
DoD
Other government
Total Revenues
COVID-19 Discussion
(in thousands)
Years ended December 31,
2021
322,318
$ 233,422
195,113
$ 750,853
%
2020
208,305
43
31 $ 236,397
26
216,957
100 $ 661,659
%
2019
242,518
31
36 $ 304,334
33
205,775
100 $ 752,627
%
32
41
27
100
Our results of operations in fiscal 2021 continued to reflect the adverse impact from the COVID-19 global pandemic. Despite
the challenges faced by the ongoing pandemic, all of our businesses have remained operational through the end of 2021, and we
continue to operate with limited disruption. Our business operations are deemed critical and essential by Federal and State
governments. All of our repair, distribution and base operations facilities remain open and operational, and we continue to
deliver products and services to customers without interruption.
We continue to closely monitor and address the pandemic and related developments, including the impact to our business, our
employees, our customers, and our suppliers. We have been focused and continue to remain focused on protecting the health
and safety of our employees, continuing to serve our customers with the highest quality product and repair services, and on
positioning the company for long-term success. Our actions taken to lessen the potential adverse impacts, both health and
economic, have varied depending on the spread of COVID-19 and applicable government requirements, the needs of our
employees, the needs of our customers and the needs of our business. We will continue to evaluate the nature and extent of
future impacts of the COVID-19 pandemic on our business.
The ultimate impact of the continued spread of COVID-19 on our operations and financial performance in future periods
remains uncertain and will depend on future pandemic-related developments, which are uncertain and cannot be predicted. We
have not experienced a material adverse change in our financial condition at this time as a result of the COVID-19 pandemic;
however, a prolonged disruption in the demand for our products and services could have an adverse impact on our operating
results and cause a material adverse change in our financial condition.
Refer to the discussion under Item 1A, "Risk Factors" of this annual report on Form 10-K with respect to our discussion of
trends or uncertainties arising from or impacted by the COVID-19 pandemic. Additionally, a discussion of the impact of
COVID-19 on our operations can also be found in the "Business Trends" and "Results of Operations" sections below.
Business Trends
The following discussion provides a brief description of some of the key business factors impacting our results of operations
detailed by segment.
Aviation Segment
Our Aviation segment was significantly impacted by the COVID-19 pandemic as reduced global demand for air travel and
decreased revenue passenger miles had an adverse impact on demand for our Aviation products and services. Despite the
challenges faced during the COVID-19 pandemic, we have sustained six consecutive quarters of revenue increases due to the
recovery in demand since the peak of the negative COVID-19 pandemic impact during the second quarter of 2020. Our 2021
results reflect changes in our revenue profile as new distribution programs in our Aviation segment and our acquisition of
Global Parts have increased and broadened our revenue base. Our growth initiatives have resulted in a 108% year over year
distribution revenue increase in 2021 compared to the prior year, demonstrating the current momentum in the aftermarket
recovery.
-22-
Our July 2021 acquisition of Global Parts expands our existing B&GA focus and further diversifies our product and platform
offerings to include additional airframe components, while expanding our customer base of regional and global B&GA
customers.
During the second quarter of 2021, we reviewed the assumptions and calculations utilized in the valuation of excess and
obsolete inventory and recorded an additional reserve of $23.7 million primarily due to excess and slow-moving quantities of
certain Aviation segment inventory, including inventory supporting specific international region distribution programs entered
into prior to 2019 at levels higher than our updated forecasts of future demand. The increase in our inventory valuation reserves
in the second quarter takes into consideration slower than anticipated air travel recovery in certain regions, primarily in the Asia
Pacific region, impacted by the COVID-19 pandemic. While some countries have removed or eased travel restrictions, others
have maintained international testing requirements and travel restrictions due to recent rebounds in the number of cases and low
vaccination rates within those countries, which has lowered demand for our products. While the COVID-19 pandemic has
slowed demand for certain aviation products in international regions, we do not expect any additional material adverse impact
to the carrying value of our inventory. Additionally, we do not anticipate the lower international demand to materially impact
the recovery of our Aviation segment, where our distribution business continues to operate with revenues in excess of pre-
pandemic levels in 2021.
In the first quarter of 2020, we divested our Prime Turbines subsidiary, a business offering turboprop engine MRO services. In
the second quarter of 2020, we sold all the inventory assets of our CT Aerospace subsidiary, a business offering turboprop
engine and engine parts sales. We no longer offer these services, focusing instead on higher-growth component and accessory
repair and parts distribution.
Our Aviation segment pursued multiple opportunities prioritizing strong, efficient future revenue growth and expanding our
geographic footprint. We extended our worldwide exclusivity as the distributor of new fuel control systems and associated
spare parts to the B&GA market for a leading global manufacturer. We continue to enhance key strategic relationships through
extensions to our existing distribution agreements. We remained focused on accelerating business transformation as a well-
established leader in engine accessory repair and proprietary parts distribution through our new engine accessories distribution
agreement with a global aircraft engine manufacturer. Our new development initiatives allow us to expand our repair
capabilities to service additional engine accessory exchange units.
We expect that the current disruption in market conditions will result in strategic opportunities for near-and long-term growth
for our Aviation segment, given its offerings and value-added services. As we continue to experience growth in our distribution
business and see recovery in some commercial markets, our long-term focus continues to emphasize investing in businesses and
programs that will expand or complement our current portfolio and allow access to new customers.
Fleet Segment
Our Fleet segment continues to focus on parts supply and inventory management support for the USPS delivery vehicle fleet
while expanding presence to new commercial customers in both new and existing markets, including e-commerce solutions,
private brand product sales, traditional parts supply, supply chain services, and just-in-time inventory programs. Commercial
customer revenue continues to see a strong growth trend, increasing 72% in 2021 compared to the prior year. We anticipate
continued growth of this service offering going forward as we continue to expand to support further commercial market
demand. In 2021, commercial revenues were 32% of total Fleet segment revenue compared to 10% in 2019, demonstrating the
continued success of our revenue diversification strategy.
In an effort to support the continued commercial focus for the Fleet segment, we opened a new leased facility of approximately
58,000 square feet to allow for continued process improvements and efficiencies as commercial market demand continues to
drive a shift in segment growth.
We believe the COVID-19 pandemic is likely to continue to have a limited adverse impact on revenues for this segment of our
business, as demand from our commercial truck fleet customers and our e-commerce platforms continue to grow.
Federal and Defense Segment
Our Federal and Defense segment continues to focus on redefining VSE in the federal marketplace and investing in business
development to build our contract backlog in current and new markets. Strong revenue performance in our U.S. Department of
Justice program and new revenues from the U.S. Air Force work performed by our HSS acquisition enabled us to successfully
grow our 2021 revenue for this segment despite anticipated declines in our U.S. Army work due to program completions. We
continuously strive to strengthen our portfolio of services to meet the current and future needs of our customers. We are well
-23-
positioned in our pursuit of opportunities to expand our services supporting our traditional government clients, and to capture
new work to expand or complement our current portfolio.
We expect the COVID-19 pandemic to continue to have a limited adverse impact on revenues for this segment, as the U.S.
government is expected to maintain critical DoD preparedness programs.
Financial Statement Presentation
The following discussion provides a brief description of certain key items that appear in our consolidated financial statements:
Revenues
Revenues are derived from the delivery of products and from professional and technical services performed through various
ordering agreements and contract agreements. Revenues from our Aviation and Fleet segment are derived from repair and
distribution services primarily through shorter term purchase orders from customers. Our Federal and Defense segment's
revenue results from services provided on longer term contracts, including cost-type, fixed-price, and time and materials.
Revenues from these contract types result from work performed on these contracts and from costs for materials and other work-
related contract allowable costs.
Costs and Operating Expenses
Costs and operating expenses consist primarily of cost of inventory and material associated with the delivery of products and
labor and other indirect costs associated with services rendered for customers. Costs and operating expense also include other
sales, general and administrative expenses associated with segment and corporate management and certain other costs and
charges arising from events outside the ordinary course of business. These costs will generally increase or decrease in
conjunction with our level of products sold or services 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.
Bookings and Funded Backlog
Our funded backlog represents the estimated remaining value of work to be performed under firm contracts. Bookings for our
Aviation and Fleet segments occur at the time of sale. Accordingly, our Aviation and Fleet segments do not generally have
funded contract backlog and backlog is not an indicator of their potential future revenues. Revenues for federal government
contract work performed by our Federal and Defense segment depend on contract funding ("bookings”), and bookings generally
occur when contract funding documentation is received. Funded contract backlog is an indicator of potential future revenue.
While bookings and funded contract backlog generally result in revenue, we may occasionally have funded contract backlog
that expires or is de-obligated upon contract completion and does not generate revenue.
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 (IDIQ) 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. We do not include in backlog estimates of
revenues to be derived from IDIQ contracts, but rather record backlog and bookings when task orders are awarded and funded
on these contracts.
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A summary of our bookings and revenues for our Federal and Defense segment for the years ended December 31, 2021, 2020
and 2019, and funded contract backlog for this segment as of December 31, 2021, 2020 and 2019 is as follows (in millions):
Bookings
Revenues
Funded Backlog
2021
2020
2019
$
$
$
314 $
269 $
185 $
270 $
254 $
183 $
228
314
213
For the year ended December 31, 2021, Federal and Defense segment bookings increased 16% year-over-year to $314 million,
while total funded backlog increased 1% year-over-year to $185 million. In the fourth quarter of fiscal 2021, we included a
valuation adjustment for open unfulfilled contracts that, in our judgment, may not be converted to future sales, but which have
not been closed or de-obligated by the customer. The effect of this reduced backlog by $36 million as of December 31, 2021.
Critical Accounting Policies, Estimates and Judgments
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles
("U.S. GAAP"), which require us to make estimates and assumptions. Certain 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. The development and selection of these critical accounting policies have been determined by
our management. Due to the significant judgment involved in selecting certain of the assumptions used in these policies, it is
possible that different parties could choose different assumptions and reach different conclusions. We consider our policies
relating to the following matters to be critical accounting policies.
Revenue Recognition
We account for revenue in accordance with ASC 606. The unit of account in ASC 606 is a performance obligation. At the
inception of each contract with a customer, we determine our performance obligations under the contract and the contract's
transaction price. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and
is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and
recognized as revenue when the performance obligation is satisfied. The majority of our contracts have a single performance
obligation as the promise to transfer the respective goods or services is not separately identifiable from other promises in the
contracts and is, therefore, not distinct. For product sales, each product sold to a customer typically represents a distinct
performance obligation. Our performance obligations are satisfied over time as work progresses or at a point in time based on
transfer of control of products and services to our customers.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in
contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct,
and therefore are accounted for as part of the existing contract.
Substantially all Fleet segment revenues from the sale of vehicle parts to customers are recognized at the point in time of the
transfer of control to the customer. Sales returns and allowances for vehicle parts are not significant.
Our Aviation segment revenues result from the sale of aircraft parts and performance of MRO services. Our Aviation segment
recognizes revenues for the sale of aircraft parts at a point in time when control is transferred to the customer, which usually
occurs when the parts are shipped. Our Aviation segment recognizes revenues for MRO services over time as the services are
transferred to the customer. MRO services revenue recognized is measured based on the cost-to-cost input method, as costs
incurred reflect the work completed, and therefore the services transferred to date. Sales returns and allowances are not
significant.
Our Federal and Defense segment revenues result from professional and technical services, which we perform for customers on
a contract basis. Revenue is recognized for performance obligations over time as we transfer the services to the customer. 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. Variable
consideration is included in the estimated transaction price, to the extent that it is probable that a significant reversal will not
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occur, when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award
experience, anticipated performance and our best judgment based on current facts and circumstances.
Revenues on fixed-price contracts are recorded as work is performed over the period. Revenue is recognized over time using
costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance
obligations. Incurred cost represents work performed, which corresponds with the transfer of control to the customer. For such
contracts, we estimate total costs at the inception of the contract based on our assumptions of the cost elements required to
complete the associated tasks of the contract and assess the effects of the risks on our estimates of total costs to complete the
contract. Our cost estimates are based on assumptions that include the complexity of the work, our employee labor costs, the
cost of materials and the performance of our subcontractors. These cost estimates are subject to change as we perform under the
contract and as a result, the timing of revenues and amount of profit on a contract may change as there are changes in estimated
costs to complete the contract. Such adjustments are recognized on a cumulative catch-up basis in the period we identify the
changes.
Revenues for time and materials contracts are recorded based on the amount for which we have the right to invoice our
customers, because the amount directly reflects the value of our work performed for the customer. Revenues are recorded on the
basis of contract allowable labor hours worked multiplied by the contract defined billing rates, plus the direct costs and indirect
cost burdens associated with materials and subcontract work used in performance on the contract. Generally, profits on time and
materials contracts result from the difference between the cost of services performed and the contract defined billing rates for
these services.
Revenues 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.
Most of the Federal and Defense segment contract revenues and administrative costs are subject to audit by the Defense
Contract Audit Agency. Our indirect cost rates have been audited and approved for 2019 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, financial position, or cash flows.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method. Inventories for our
Fleet segment consist primarily of vehicle replacement parts, and also include related purchasing, storage and handling
costs. Inventories for our Aviation segment consist primarily of aftermarket parts for distribution, and general aviation engine
accessories and parts, and also include related purchasing, overhaul labor, storage and handling costs. We periodically evaluate
the carrying value of inventory, giving consideration to factors such as its physical condition, sales patterns and expected future
demand in order to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory. These
estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels or
competitive factors that were not foreseen or did not exist when the estimated write-downs were made.
Business Combinations
We account for business combinations under the acquisition method of accounting. The purchase price of each business
acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on information regarding
their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value of the separately
identifiable assets acquired and liabilities assumed is allocated to goodwill. Determining the fair value of assets acquired and
liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to future cash inflows and outflows, discount rates, and market multiples, among other
items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.
The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to revision as additional
information about the fair values becomes available. We will recognize any adjustments to provisional amounts that are
identified during the period not to exceed twelve months from the acquisition date (the "measurement period") in which the
adjustments are determined. Acquisition costs are expensed as incurred. The results of operations of businesses acquired are
included in the consolidated financial statements from their dates of acquisition.
As part of the agreement to acquire certain subsidiaries, we may be obligated to pay contingent consideration should the
acquired entity meet certain earnings objectives subsequent to the date of acquisition. As of the acquisition date, contingent
consideration is recorded at fair value as determined through the use of a probability-based scenario analysis approach. Under
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this approach, a set of potential future subsidiary earnings is estimated based on various revenue growth rate assumptions for
each scenario. A probability of likelihood is then assigned to each potential future earnings estimate and the resultant contingent
consideration is calculated and discounted using a weighted average discount rate. The fair value is measured each reporting
period subsequent to the acquisition date and any changes are recorded within cost and operating expenses within our
consolidated statement of income. Changes in either the revenue growth rates, related earnings or the discount rate could result
in a material change to the amount of the contingent consideration accrued.
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. The goodwill impairment test is performed at the reporting unit level. We estimate and compare the fair value
of each reporting unit to its respective carrying value including goodwill. If the fair value is less than the carrying value, the
amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying
value. Determining the fair value of a reporting unit requires the exercise of significant management judgments and the use of
estimates and assumptions. 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. Under the market approach, we estimate the fair value of a reporting unit based on multiples of earnings derived from
observable market data of comparable public companies. We evaluate companies within our industry that have operations with
observable and comparable economic characteristics and are similar in nature, scope and size to the reporting unit being
compared. We analyze historical acquisitions in our industry to estimate a control premium that we incorporate into the fair
value estimate of a reporting unit under the market approach. 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.
In the fourth quarter of 2021, we performed our annual goodwill test for each of our reporting units. Based on our impairment
test, we determined there was no impairment of our goodwill. The fair value of each of our reporting units as of December 31,
2021, exceeded its carrying value.
In the second quarter of 2020, due to the significant decline in our market capitalization as well as an overall stock market
decline amid market volatility as a result of the COVID-19 pandemic, we performed an interim impairment test utilizing a
quantitative assessment approach. Based on the assessment, our VSE Aviation reporting unit was determined to be impaired
and a $30.9 million impairment charge was recognized. Based on our annual goodwill impairment test performed in the fourth
quarter of 2020, for which a qualitative assessment approach was utilized, it was determined that it was more likely than not
that the fair value of our reporting units exceeded their carrying value, and no additional impairment was recognized.
Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if
a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives.
Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.
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 and capital 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.
-27-
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 "Nature of Business and Significant Accounting Policies-Recently Issued
Accounting Pronouncements" in Note (1) to our Consolidated Financial Statements included below in Item 8.
Results of Operations
The following discussion of our Results of Operations and Liquidity and Capital Resources includes a comparison of fiscal
2021 to fiscal 2020. For a similar discussion that compares fiscal 2020 to fiscal 2019, refer to Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the fiscal year ended
December 31, 2020.
Consolidated Statements of Income
(in thousands)
Years ended December 31,
Revenues
Costs and operating expenses
Loss on sale of business entity and
certain assets
Gain on sale of property
Goodwill and intangible asset
impairment
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income (loss)
2021
$ 750,853
729,333
%
2020
%
2019
%
100.0 $ 661,659
606,896
97.1
100.0 $ 752,627
692,370
91.7
100.0
92.0
—
—
—
21,520
12,069
9,451
1,485
7,966
$
—
—
—
2.9
1.6
1.3
0.2
1.1 $
(8,214)
1,108
(33,734)
13,923
13,496
427
5,598
(5,171)
(1.2)
0.2
(5.1)
2.2
2.0
0.2
0.8
(0.6) $
—
—
—
60,257
13,830
46,427
9,403
37,024
8.0
1.8
6.2
1.3
4.9
Year Ended 2021 Compared to Year Ended 2020
Revenues
Our revenues increased $89.2 million or 13.5% for the year ended December 31, 2021 as compared to the prior year. The
increase in revenues resulted from an increase in our Aviation segment of $82.8 million, an increase in our Federal and Defense
segment of $15.1 million, and was partially offset by a decrease in our Fleet segment of $8.6 million. See "Segment Operating
Results" for a breakdown of our results of operations by segment.
Costs and Operating Expenses
Our costs and operating expenses increased $122 million or 20% in 2021 as compared to the prior year. Costs and operating
expenses for our operating segments increase and decrease in conjunction with the level of business activity and revenues
generated by each segment. See "Segment Operating Results" for a breakdown of our results of operations by segment. The
increase includes the effects of COVID-19 on the valuation of inventory reserves which increased costs and operating expenses
by $24.4 million in the second quarter of 2021. The inventory reserve increase was primarily due excess quantities of inventory
at levels higher than our updated forecasts of future demand. Costs and operating expenses for 2020 included an expense
reduction of approximately $5.0 million for an adjustment to our earn-out obligation, offset by an expense of approximately
$1.0 million for executive transition costs and an expense of approximately $700 thousand for severance pay related to a
reduction in workforce associated with the COVID-19 pandemic induced reduction in demand.
Operating Income
Our operating income increased $7.6 million or 54.6% in 2021 as compared to the prior year. Operating income increased
approximately $21.1 million for our Aviation segment and was partially offset by a decrease of $6.2 million for our Fleet
segment and a decrease of $6.4 million for our Federal and Defense segment.
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In 2020, the business recorded the following related to our Aviation segment (1) a loss on the sale of a business entity and
certain assets of $8.2 million, (2) a gain on sale of property of $1.1 million, and (3) a goodwill and intangible asset impairment
charge of $33.7 million.
See "Segment Operating Results" for a breakdown of our results of operations by segment.
Interest Expense
Interest expense decreased approximately $1.4 million or 10.6% in 2021 as compared to the prior year primarily due to a lower
average interest rate on borrowings outstanding.
Provision for Income Taxes
Our effective tax rate was 15.7% for 2021 and 1,311.0% for 2020. The lower effective tax rate for 2021 compared to 2020
primarily resulted from: (1) significantly lower pre-tax book income in 2020, (2) goodwill impairment loss recognized in 2020,
of which $16.4 million was non-deductible for income tax purposes, and (3) a full valuation allowance established in 2020 to
offset the capital loss benefit in connection with our divestiture of Prime Turbines due to a lack of anticipated capital gain
income in the carryforward period.
Our tax rate is also affected by discrete items that may occur in any given year but may not be consistent from year to year. In
addition to state income taxes, certain federal and state tax credits and permanent book-tax differences such as foreign derived
intangible income ("FDII") deduction and unrealized investment income or loss from our COLI plan caused differences
between the statutory U.S. federal income tax rate and our effective tax rate.
Segment Operating Results
Aviation Segment Results
The results of operations for our Aviation segment are as follows (in thousands):
Revenues
Costs and operating expenses
Loss on sale of business entity and
certain assets
Gain on sale of property
Goodwill and intangible asset
impairment
Operating (loss) income
Years ended December 31,
2021
$ 247,852
262,225
%
2020
%
2019
%
100.0 $ 165,070
159,743
105.8
100.0 $ 224,546
206,645
96.8
100.0
92.0
—
—
—
$
(14,373)
—
—
(8,214)
1,108
(5.0)
0.7
—
—
—
(5.8) $
(33,734)
(35,513)
(20.4)
(21.5) $
—
17,901
—
—
—
8.0
Revenues for our Aviation segment increased $83 million or 50% in 2021 as compared to the prior year. The revenue growth is
primarily attributable to revenue contributions from recently initiated distribution contract wins, contributions from the
acquisition of Global Parts, and improved demand in end markets. The increases in revenue were partially offset by the
divestiture of Prime Turbines in February of 2020 and the sale of all of CT Aerospace inventory in June 2020. We did not have
revenue for these two divested businesses in 2021 compared to combined revenues for these divested businesses of $8.9 million
in 2020.
Costs and operating expenses increased approximately $102 million or 64% in 2021 compared to the prior year primarily due to
improved demand for our products and services and a $23.7 million inventory valuation reserve recognized in the second
quarter of 2021. Costs and operating expenses for this segment include expenses for amortization of intangible assets associated
with acquisitions, allocated corporate costs, and charges to expense for valuation adjustments to accrued earn-out obligations
associated with acquisitions. Expense for amortization of intangible assets was approximately $8.7 million and $8.8 million for
2021 and 2020, respectively. Expense for allocated corporate costs was approximately $8.8 million and $5.8 million for 2021
and 2020, respectively. There was no expense for earn-out obligation valuation adjustments in 2021 compared to a reduction in
expense of $5.0 million in 2020.
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In 2020, a loss on sale of a business entity and certain assets of $8.2 million was recognized, which comprised of (1) the
difference between the carrying value on our books for our Prime Turbines business and the sale price upon divestiture, plus the
difference between the carrying value on our books of inventory sold that is used to support the operations of our divested
Prime Turbines business and the sale price of the inventory upon divestiture, and (2) the difference between the carrying value
on our books of our CT Aerospace subsidiary's inventory and the sale price of the inventory upon sale.
In 2020, a gain on sale of property of $1.1 million was recognized associated with the sale of a Miami, Florida real estate
holding.
In 2020, a goodwill and intangible asset impairment of $33.7 million was recognized, which comprised of a charge to write
down the goodwill carrying value of our Aviation businesses due to an anticipated decline in demand for these services caused
by the global aviation industry downturn associated with the COVID-19 pandemic and a charge to write down the carrying
value of CT Aerospace related intangible assets that were determined to have no residual value or ongoing future cash flows
due to the sale of all the subsidiary's inventory.
Operating loss decreased $21.1 million or 59.5% in 2021 compared to the prior year, which primarily reflects the previously
mentioned revenue growth, partially offset by the increase in costs as a result of the additional inventory valuation reserve. The
decrease was also attributable to nonrecurring expenses recognized in 2020 related to the loss on sale of Prime Turbines
business and CT Aerospace inventory and the goodwill impairment charge.
Fleet Segment Results
The results of operations for our Fleet segment are as follows (in thousands):
Revenues
Costs and operating expenses
Operating income
2021
$ 233,532
213,106
20,426
$
%
2020
%
2019
%
100.0 $ 242,170
215,511
91.3
26,659
8.7 $
100.0 $ 214,520
184,701
89.0
29,819
11.0 $
100.0
86.1
13.9
Years ended December 31,
Revenues for our Fleet segment decreased $8.6 million or 3.6% in 2021 as compared to the prior year. Revenues from sales to
DoD customers decreased $8 million or 39%, and revenues from sales to other government customers decreased $31 million or
18% primarily due to a non-recurring $26.6 million order for COVID-19 related supplies in 2020. These decreases in revenue
were partially offset by increased revenues from commercial customers of $31 million or 72%, driven by growth in our e-
commerce fulfillment business.
Costs and operating expenses decreased $2.4 million or 1.1%, primarily due to decreased revenues. Costs and operating
expenses for this segment include expense for amortization of intangible assets associated with acquisitions and allocated
corporate costs. Expense for amortization of intangible assets was $7.1 million for 2021 and $7.4 million for 2020. Expense for
allocated corporate costs was $8.5 million for 2021 and $8.0 million for 2020.
Operating income decreased $6.2 million or 23% in 2021 as compared to the prior year, primarily due to a change in the mix of
products sold, including increased commercial customer revenues, an increase in allocated corporate costs, and a $0.7 million
inventory valuation reserve recognized in the second quarter of 2021.
Federal and Defense Segment Results
The results of operations for our Federal and Defense segment are as follows (in thousands):
Revenues
Costs and operating expenses
Operating income
2021
$ 269,469
249,572
19,897
$
%
2020
%
2019
%
100.0 $ 254,419
228,110
92.6
26,309
7.4 $
100.0 $ 313,561
295,417
89.7
18,144
10.3 $
100.0
94.2
5.8
Years ended December 31,
Revenues for our Federal and Defense segment increased $15 million or 5.9% and costs and operating expenses increased
approximately $21 million or 9% for 2021, as compared to the prior year primarily due to revenue performance on our U.S.
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Department of Justice program and new revenues from the U.S. Air Force work performed by our HSS acquisition. These
increases were partially offset by declines in our U.S. Army work due to program completions and a decline in our U.S. Navy
work.
Operating income decreased approximately $6.4 million or 24% for 2021 compared to the prior year primarily due to a
unfavorable mix of fixed priced awards in 2021 compared to 2020.
Financial Condition
There has been no material adverse change in our financial condition in 2021. Our bank debt increased $33 million, and we had
$122 million of unused bank loan commitments as of December 31, 2021. In February 2021, we completed an underwritten
public offering of 1,599,097 shares of common stock, inclusive of 170,497 shares pursuant to the underwriters' exercise of their
option to purchase additional shares, generating gross proceeds of approximately $56 million and net proceeds of
approximately $52 million. Changes to other asset and liability accounts were primarily due to our earnings; our level of
business activity; the timing and level of inventory purchases to support new distribution programs, contract delivery schedules,
and subcontractor and vendor payments required to perform our contract work; the timing of government contract funding
awarded; collections from our customers; and our acquisition of HSS and Global Parts.
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents increased by approximately $140 thousand during 2021.
Cash used in operating activities was $17.6 million for 2021 compared to cash provided by operating activities of $35.8 million
for the prior year. The change was comprised of a decrease of $13.5 million in other non-cash operating activities and a
decrease of $53 million due to changes in the levels of operating assets and liabilities, partially offset by a reduction of $13.1
million in net loss. The net decrease in the level of operating assets and liabilities was primarily due to $80 million used for
investments in new inventory to support recent distribution program wins and program launches within our Aviation segment
and $15 million increase in billed and unbilled receivables primarily due to the timing of collections and customer billings,
partially offset by $33.2 million increase in accounts payable and deferred compensation primarily resulting from timing of
payments. Our levels of accounts receivable and accounts payable may fluctuate depending on the timing of material and
inventory purchases, services ordered, product sales, government funding delays, the timing of billings received from
subcontractors and materials vendors, and the timing of payments received for services. Such timing differences have the
potential to cause significant increases and decreases in our inventory, accounts receivable, and accounts payable in short time
periods, and accordingly, can cause increases or decreases in our cash provided by operations. We have recently experienced
and expect to continue to experience delays in some of our Aviation segment receivables as a result of the COVID-19
pandemic.
Cash used in investing activities was $61.6 million for 2021 compared to cash provided by investing activities of $20.2 million
for the prior year. Net cash used in investing activities in 2021 related primarily to acquisitions of $53.3 million. In 2020, net
cash provided in investing activities related primarily to proceeds from the divestitures of our Prime Turbines business and CT
Aerospace inventory, the sale of a Miami, Florida real estate holding, and the sale of other property and equipment of $22.8
million. Other investing activities consisted of purchases of property and equipment and proceeds from payments on notes
receivable in connection with the divestiture of Prime Turbines and sale of CT Aerospace inventory.
Cash provided by financing activities was $79.4 million for 2021 as compared to cash used in financing activities of $56.3
million for the prior year. In 2021, we received $52.0 million in proceeds from the public underwritten offering of our common
stock in February 2021, which is net of underwriters' discounts and issuance costs. In 2020, $31.7 million was used for the
payment of an earn-out obligation in connection with the 2019 acquisition of our 1st Choice Aerospace subsidiary. Other
financing activities consisted primarily of borrowing and repayment of debt and payment of dividends.
We paid cash dividends totaling approximately $4.4 million or $0.37 per share in 2021. Pursuant to our bank loan agreement,
our payment of cash dividends is subject to annual restrictions. We have paid cash dividends each year since 1973.
Liquidity
Our internal sources of liquidity are primarily from operating activities, specifically from changes in our level of revenues and
associated inventory, accounts receivable and accounts payable, and from profitability. Significant increases or decreases in
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revenues and inventory, accounts receivable and accounts payable can affect our liquidity. Our inventory and accounts payable
levels can be affected by the timing of large opportunistic inventory purchases and by distributor agreement requirements. Our
accounts receivable and accounts payable levels can be affected by changes in the level of contract work we perform, by the
timing of large materials purchases and subcontractor efforts used in our contracts, and by delays in the award of contractual
coverage and funding and payments. Government funding delays can cause delays in our ability to invoice for revenues earned,
presenting a potential negative impact on our days sales outstanding.
We also purchase property and equipment; invest in expansion, improvement, and maintenance of our operational and
administrative facilities; and invest in the acquisition of other companies.
Our external financing consists of a loan agreement with a bank group that we amended in July 2021 and that expires in July
2024. The loan agreement includes a term loan facility and a revolving loan facility. The revolving loan facility provides for
revolving loans and letters of credit.
The term loan requires quarterly installment payments. Our required term loan payments after December 31, 2021 are
approximately $15.0 million in 2022, $15.0 million in 2023, and $30.2 million in 2024. The amount of term loan borrowings
outstanding as of December 31, 2021 was $60.2 million.
The maximum amount of credit available to us under the loan agreement for revolving loans and letters of credit as of
December 31, 2021 was $350 million. We pay an unused commitment fee and fees on letters of credit that are issued. We had
approximately $226.6 million in revolving loan amounts outstanding and $1.0 million of letters of credit outstanding as of
December 31, 2021.
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, subject to customary lender commitment approvals. The aggregate limit of
incremental increases is $100 million.
We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a base margin or at a base rate
(typically the prime rate) plus a base margin. The applicable LIBOR rate has a floor of 0.50%. As of December 31, 2021, the
LIBOR margin was 3.25% and the base margin was 2.25%. The amendment to the loan agreement in July 2021 provides
procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. The base margins increase
or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases.
We use interest rate hedges on a portion of our debt. As of December 31, 2021, interest rates on portions of our outstanding
debt ranged from 4.00% to 6.66%, and the effective interest rate on our aggregate outstanding debt was 4.39%.
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. The restrictive covenants require
that we maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00 and a maximum Total Funded Debt to EBITDA
Ratio that varies over future periods as indicated in the table below.
Testing Period
Maximum Total Funded Debt to
EBITDA Ratio
From July 23, 2021 through and including December 31, 2021
From January 1, 2022 through and including June 30, 2022
From July 1, 2022 through and including September 30, 2022
From October 1, 2022 through and including December 31, 2022
From January 1, 2023 through and including March 31, 2023
From April 1, 2023 and thereafter
4.50 to 1.00
4.25 to 1.00
4.00 to 1.00
3.75 to 1.00
3.50 to 1.00
3.25 to 1.00
We were in compliance with required ratios and other terms and conditions as of December 31, 2021. We continue to monitor
the impacts of COVID-19 on our results of operations and liquidity relative to compliance with financial covenants; at this time,
we expect that we will remain in compliance with such covenants over the next twelve months.
-32-
Other Obligations and Commitments
See Note (8) "Debt" to our Consolidated Financial Statements for information regarding our long-term debt obligations. We
estimate cash requirements for interest payments on our bank loan debt to be approximately $2.2 million for 2022, $1.5 million
for 2023 and $500 thousand for 2024. The estimates included variable rate interest obligations estimated based on rates as of
December 31, 2021. The interest payments are estimated through the maturity date of our term loan. Interest payments under
our revolver loans have been excluded because a reasonable estimate of timing and amount of cash out flows cannot be
determined.
See Note (12) "Commitments and Contingencies" to our Consolidated Financial Statements for information pertaining to future
minimum lease payments relating to our operating and lease obligations.
See Note (16) "Fair Value Measurements" to our Consolidated Financial Statements for information pertaining to contingent
consideration obligations.
Inflation and Pricing
Our Aviation and Fleet segments have experienced broad-based inflationary impacts consistent with overall trends in the
aerospace and industrial distribution market, due primarily to increased materials, labor and services costs. The effect of these
increased costs on total company net income has been mitigated with improved efficiency in our underlying business through
productivity improvements and pass-through price increases. Our Federal and Defense segment has limited inflation risk as
most of our contracts provide for estimates of future labor costs to be escalated for any option periods, while the non-labor costs
in our contracts are typically reimbursable at cost. Given broader inflation in the economy, we are monitoring the risk inflation
presents to active and future contracts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources.
-33-
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rates
Our bank loan agreement provides available borrowing to us at variable interest rates. Accordingly, future interest rate changes
could potentially put us at risk for a material adverse impact on future earnings and cash flows. To mitigate the risks associated
with future interest rate movements we have employed interest rate hedges to fix the rate on a portion of our outstanding
borrowings for various periods.
In February 2019, we entered into a LIBOR based interest rate swap on our revolving loan for a term of three years with a
notional amount of $75 million. This swap amount decreases in increments on an annual basis to $45 million for the second
year and to $25 million for the third year. We pay an effective interest rate of 2.805% plus our base margin on the debt matched
to it.
In March 2020, we entered into a LIBOR based interest rate swap on our revolving loan for a term of two years with a notional
amount of $50 million. We pay an effective interest rate of 0.73% plus our base margin on the debt matched to this swap.
A hypothetical 1% increase to interest rates would have increased interest expense by approximately $2.9 million, and would
have decreased our net income and operating cash flows by a comparable amount.
For additional information related to our debt and interest rate swap agreements, see Note (8) and Note (16), respectively, to our
Consolidated Financial Statements contained in this report.
LIBOR is used as a reference rate for borrowings under our loan agreement and related interest rate swap agreements. The
LIBOR benchmark has been the subject of regulatory guidance and proposals for reform and replacement, with most LIBOR
tenors, including those that we most commonly use, expected to no longer be available under our loan agreement after June 30,
2023. In connection with our loan amendment in July 2021, language was added to the agreement to provide procedures for
determining a replacement or alternative rate in the event that LIBOR becomes unavailable. At this time, there is no definitive
information regarding the future transition of LIBOR to a replacement rate; however, we continue to monitor the developments
with respect to the potential discontinuance of LIBOR and intend to work with our bank group to minimize the impact of such
discontinuance on our financial condition and results of operations. The consequences of the discontinuance of LIBOR cannot
be entirely predicted but could result in an increase in our variable rate debt.
-34-
ITEM 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income (Loss) for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and
2019
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Page
36
38
39
40
41
42
44
-35-
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
VSE Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of VSE Corporation (a Delaware corporation) and subsidiaries
(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income (loss), comprehensive
income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the
related notes and financial statement schedule included under Item 15.2 (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated March 10, 2022 expressed an unqualified opinion.
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.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Assessment of the write-down of Aviation inventories
As described further in Note 1 to the consolidated financial statements, the Company’s inventory balance as of December 31,
2021 was $322.7 million. The Company records inventory within its Aviation Segment at the lower of cost or net realizable
value. The write-down of slow moving inventory is recorded for excess or obsolete inventory based on certain inputs and
assumptions used to determine the net realizable value. These assumptions include the number of days transpiring from the
date the inventory was originally received and the historical sales of the inventory to determine recovery rates. Other inputs
include current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap
recovery rates.
The principal considerations for our determination that the assessment of the write-down of inventories within the Aviation
Segment is a critical audit matter are that the inputs and assumptions used in determining the write-down are subject to
significant management judgement. The inputs and assumptions used in determining the write-down of slow moving inventory
include the historical recovery rates, which are based on the number of dates transpiring from the date the inventory was
originally received, the historical sales of inventory, the identification of specific inventories associated with aircraft with
declining usage trends and the impact of recently executed distribution agreements. The assessment of these inputs required a
high degree of auditor judgement in evaluating the future customer demand for slow moving inventory.
-36-
Our audit procedures related to the write-down of inventory included the following procedures, among others:
• We tested the design and operating effectiveness of controls relating to the Company’s inventory process, including
controls over the Company’s evaluation of the impact on the estimate of net realizable value based on the number of
days transpiring from the date the inventory was original received, historical sales of the inventory, specific inventories
identified to relate to aircraft with declining usage and the approval and evaluation of new distribution agreements.
• We assessed that the recovery rates applied to slow moving inventory were consistent with forecasted demand.
• We assessed the completeness of management's identification of specific inventory with declining usage trends by
evaluating external industry information.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Arlington, Virginia
March 10, 2022
-37-
VSE Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Unbilled receivables, net
Inventories
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease - right-of-use assets
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 operating lease obligations
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
As of December 31,
2021
2020
$
518 $
$
$
76,587
31,882
322,702
32,304
463,993
42,486
108,263
248,753
27,327
27,736
918,558 $
14,162 $
115,064
49,465
1,273
179,964
270,407
14,328
27,168
9,108
250
501,225
378
55,471
22,358
253,422
23,328
354,957
36,363
103,595
238,126
20,515
26,525
780,081
20,379
72,682
45,172
995
139,228
230,714
16,027
22,815
14,897
83
423,764
Stockholders' equity:
Common stock, par value $0.05 per share, authorized 15,000,000 shares; issued and
outstanding 12,726,659 and 11,055,037 respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
636
88,515
328,358
(176)
417,333
918,558 $
553
31,870
325,097
(1,203)
356,317
780,081
$
The accompanying notes are an integral part of these financial statements.
-38-
VSE Corporation and Subsidiaries
Consolidated Statements of Income (Loss)
(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
Loss on sale of a business entity and certain assets
Gain on sale of property
Goodwill and intangible asset impairment
Operating income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income (loss)
Basic earnings (loss) per share
For the years ended December 31,
2021
2020
2019
$
400,935 $
349,918
750,853
318,324 $
343,335
661,659
311,617
441,010
752,627
385,065
322,161
3,625
18,482
729,333
283,814
302,458
3,120
17,504
606,896
266,443
402,418
4,192
19,317
692,370
21,520
54,763
60,257
—
—
—
(8,214)
1,108
(33,734)
—
—
—
21,520
13,923
60,257
12,069
13,496
13,830
9,451
427
46,427
1,485
5,598
9,403
7,966 $
(5,171) $
37,024
0.63 $
(0.47) $
3.38
$
$
Basic weighted average shares outstanding
12,551,459
11,034,256
10,957,750
Diluted earnings (loss) per share
$
0.63 $
(0.47) $
3.35
Diluted weighted average shares outstanding
12,632,874
11,034,256
11,044,731
The accompanying notes are an integral part of these financial statements.
-39-
VSE Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss)
Change in fair value of interest rate swap agreements, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
For the years ended December 31,
2021
2020
2019
$
$
7,966 $
1,027
1,027
8,993 $
(5,171) $
(98)
(98)
(5,269) $
37,024
(1,251)
(1,251)
35,773
The accompanying notes are an integral part of these financial statements.
-40-
VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands except per share data)
Balance at December 31, 2018
Cumulative effect of adoption of ASU
2016-02, net of tax
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.35 per share)
Balance at December 31, 2019
Net loss
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.36 per share)
Balance at December 31, 2020
Issuance of common stock
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.37 per share)
Balance at December 31, 2021
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
10,886 $
544 $ 26,632 $ 301,073 $
146 $
328,395
—
—
84
—
—
10,970
—
85
—
—
11,055
1,599
—
73
—
—
12,727 $
—
—
5
—
—
549
—
4
—
—
553
80
—
3
—
—
—
—
2,779
—
—
29,411
—
2,459
—
—
31,870
51,937
—
4,708
(9)
37,024
—
—
(3,842)
334,246
(5,171)
—
—
(3,978)
325,097
—
7,966
—
—
—
—
(4,705)
636 $ 88,515 $ 328,358 $
—
—
—
(1,251)
—
(1,105)
—
—
(98)
—
(1,203)
—
—
—
1,027
—
(176) $
(9)
37,024
2,784
(1,251)
(3,842)
363,101
(5,171)
2,463
(98)
(3,978)
356,317
52,017
7,966
4,711
1,027
(4,705)
417,333
The accompanying notes are an integral part of these financial statements.
-41-
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31,
2020
2019
2021
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Deferred taxes
Stock-based compensation
Provision for inventory
Loss on sale of a business entity and certain assets
Gain on sale of property and equipment
Goodwill and intangible asset impairment
Earn-out obligation fair value adjustment
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables
Unbilled receivables
Inventories
Other current assets and noncurrent assets
Accounts payable and deferred compensation
Accrued expenses and other current and noncurrent liabilities
$
7,966 $
(5,171) $
37,024
25,600
(4,356)
3,932
24,420
—
(64)
—
—
(9,413)
(5,542)
(80,021)
(14,247)
33,210
913
24,135
106
2,858
—
8,214
(1,051)
33,734
(4,999)
7,732
19,694
(50,172)
(1,722)
3,503
(1,100)
26,927
(505)
3,264
—
—
—
—
1,900
(3,331)
(4,593)
(44,219)
(7,405)
7,725
1,207
Net cash (used in) provided by operating activities
(17,602)
35,761
17,994
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from the sale of property and equipment
Proceeds from payments on notes receivable
Proceeds from sale of a business entity and certain assets
Earn-out obligation payments
Cash paid for acquisitions, net of cash acquired
(10,520)
68
2,906
—
(750)
(53,336)
(4,427)
2,875
1,856
19,915
—
—
(9,630)
4
—
—
—
(113,181)
Net cash (used in) provided by investing activities
(61,632)
20,219
(122,807)
Cash flows from financing activities:
Borrowings on loan agreement
Repayments on loan agreement
Proceeds from issuance of common stock, net of underwriters' discounts
and issuance costs
Earn-out obligation payments
Payment of debt financing costs
Payment of taxes for equity transactions
Dividends paid
491,567
(458,294)
432,999
(452,338)
752,259
(642,193)
52,017
—
(808)
(681)
(4,427)
—
(31,701)
(636)
(690)
(3,970)
—
—
—
(955)
(3,726)
Net cash provided by (used in) financing activities
79,374
(56,336)
105,385
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
140
378
518 $
(356)
734
378 $
572
162
734
$
The accompanying notes are an integral part of these financial statements.
-42-
Supplemental cash flow disclosures:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of noncash investing and financing activities:
Notes receivable from the sale of a business entity and certain assets
Earn-out obligation in connection with acquisitions
$
$
$
$
12,146 $
7,536 $
13,936 $
4,759 $
13,468
11,645
— $
1,250 $
12,852 $
— $
—
36,700
The accompanying notes are an integral part of these financial statements.
-43-
VSE Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2021
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
The term "VSE," the "Company," "us," "we," or "our" means VSE and its subsidiaries and divisions unless the context indicates
operations of only VSE as the parent company.
Our operations include aftermarket supply chain management solutions and parts supply for vehicle fleets; maintenance, repair,
and overhaul ("MRO") services and parts supply for aviation clients; vehicle and equipment maintenance and refurbishment;
logistics; engineering; energy services; IT and health care IT solutions; and consulting services. We serve the United States
Government (the "government"), including the United States Department of Defense ("DoD"), federal civilian agencies, and
commercial and other customers.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements consist of the operations of our parent company, our wholly owned subsidiaries, VSE
Aviation, Inc., a Delaware corporation ("VSE Aviation"), Energetics Incorporated, Akimeka, LLC, Wheeler Fleet Solutions,
Co., and our unincorporated divisions. All intercompany transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior periods' financial information in order to conform to the current period's
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("U.S.
GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial
statements include fair value measurements, inventory provisions, estimated profitability of long-term contracts, valuation
allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.
Stock-Based Compensation
We issue stock-based awards as compensation to employees and directors. Stock-based awards include stock-settled bonus
awards, vesting stock awards and performance share awards. We recognize stock-based compensation expense on a straight-
line basis over the underlying award’s requisite service period, as measured using the award’s grant date fair value. Our policy
is to recognize forfeitures as they occur. For performance share awards, we assess the probability of achieving the performance
conditions at each reporting period end and adjust compensation expense based on the number of shares we expect to ultimately
issue.
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
outstanding stock-based awards. As a result of incurring a net loss for the year ended December 31, 2020, potential dilutive
shares were excluded from diluted loss per share as the effect would have been anti-dilutive. The antidilutive common stock
equivalents excluded from the diluted per share calculation were not material.
Basic weighted average common shares outstanding
Effect of dilutive shares
Diluted weighted average common shares outstanding
-44-
Years Ended December 31,
2020
2019
2021
12,551,459
81,415
12,632,874
11,034,256
—
11,034,256
10,957,750
86,981
11,044,731
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Due to the
short maturity of these instruments, the carrying values on our consolidated balance sheets approximate fair value.
Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization is
generally provided on the straight-line method over the estimated useful lives of the various assets. Property and equipment is
generally depreciated over the following estimated useful lives: computer equipment, furniture, other equipment from three to
15 years; and buildings and land improvements from 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.
Leases
We determine at inception whether an arrangement that provides us control over the use of an asset is a lease. Substantially all
of our leases are long-term operating leases for facilities with fixed payment terms between two and 15 years. We recognize a
right-of-use ("ROU") asset and a lease liability upon commencement of our operating leases. The initial lease liability is equal
to the future fixed minimum lease payments discounted using our incremental borrowing rate, on a secured basis. The lease
term includes option renewal periods and early termination payments when it is reasonably certain that we will exercise those
rights. The initial measurement of the ROU asset is equal to the initial lease liability plus any initial indirect costs and
prepayments, less any lease incentives.
We recognize lease costs on a straight-line basis over the remaining lease term, except for variable lease payments that are
expensed in the period in which the obligation for those payments is incurred.
Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be
exercised are not recorded on the balance sheet. Operating lease cost is included in costs and operating expenses on our
consolidated statement of income.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist primarily of our trade receivables. Our
trade receivables consist of amounts due from various commercial entities and government clients. We believe that
concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the
customer base and their dispersion across many different geographic regions. Contracts with the government, either as a prime
or subcontractor, accounted for approximately 57%, 69%, and 68% of revenues for the years ended December 31, 2021, 2020
and 2019, respectively. The credit risk, with respect to contracts with the government, is limited due to the creditworthiness of
the respective governmental entity. We perform ongoing credit evaluations and monitoring of the financial condition of all our
customers. We maintain an allowance for credit losses based upon several factors, including historical collection experience,
current aging status of the customer accounts and financial condition of our customers.
Revenue Recognition
We account for revenue in accordance with ASC 606. The unit of account in ASC 606 is a performance obligation. At the
inception of each contract with a customer, we determine our performance obligations under the contract and the contract's
transaction price. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and
is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and
recognized as revenue when the performance obligation is satisfied. The majority of our contracts have a single performance
obligation as the promise to transfer the respective goods or services is not separately identifiable from other promises in the
contracts and is, therefore, not distinct. For product sales, each product sold to a customer typically represents a distinct
performance obligation. Our performance obligations are satisfied over time as work progresses or at a point in time based on
transfer of control of products and services to our customers.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in
contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct,
and therefore are accounted for as part of the existing contract.
-45-
Substantially all our Fleet segment revenues from the sale of vehicle parts to customers are recognized at the point in time of
the transfer of control to the customer. Sales returns and allowances for vehicle parts are not significant.
Our Aviation segment revenues result from the sale of aircraft parts and performance of MRO services for private and
commercial aircraft owners, other aviation MRO providers, and aviation original equipment manufacturers. Our Aviation
segment recognizes revenues for the sale of aircraft parts at a point in time when control is transferred to the customer, which
usually occurs when the parts are shipped. Our Aviation segment recognizes revenues for MRO services over time as the
services are transferred to the customer. MRO services revenue recognized is measured based on the cost-to-cost input method,
as costs incurred reflect the work completed, and therefore the services transferred to date. Sales returns and allowances are not
significant.
Our Federal and Defense segment revenues result from professional and technical services, which we perform for customers on
a contract basis. Revenue is recognized for performance obligations over time as we transfer the services to the customer. 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. Variable
consideration is included in the estimated transaction price, to the extent that it is probable that a significant reversal will not
occur, when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award
experience, anticipated performance and our best judgment based on current facts and circumstances.
Revenues on fixed-price contracts are recorded as work is performed over the period. Revenue is recognized over time using
costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance
obligations. Incurred cost represents work performed, which corresponds with the transfer of control to the customer. For such
contracts, we estimate total costs at the inception of the contract based on our assumptions of the cost elements required to
complete the associated tasks of the contract and assess the impact of the risks on our estimates of total costs to complete the
contract. Our cost estimates are based on assumptions that include the complexity of the work, our employee labor costs, the
cost of materials and the performance of our subcontractors. These cost estimates are subject to change as we perform under the
contract and as a result, the timing of revenues and amount of profit on a contract may change as there are changes in estimated
costs to complete the contract. Such adjustments are recognized on a cumulative catch-up basis in the period we identify the
changes.
Revenues for time and materials ("T&M") contracts are recorded based on the amount for which we have the right to invoice
our customers, because the amount directly reflects the value of our work performed for the customer. Revenues are recorded
on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates, plus the direct costs and
indirect cost burdens associated with materials and subcontract work used in performance on the contract. Generally, profits on
time and materials contracts result from the difference between the cost of services performed and the contract defined billing
rates for these services.
Revenues 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 2019 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, financial position, or cash flows.
Receivables and Unbilled Receivables
Receivables are recorded at amounts earned less an allowance. 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.
Unbilled receivables include amounts typically resulting from sales under contracts when the cost-to-cost method of revenue
recognition is utilized, and revenue recognized exceeds the amount billed to the customer. The amounts may not exceed their
estimated net realizable value. Unbilled receivables are classified as current based on our contract operating cycle.
-46-
Allowance for Credit Losses
We establish allowances for credit losses on our accounts receivable and unbilled receivables. To measure expected credit
losses, we have disaggregated pools of receivable balances, where we have elected to pool our receivables by segment. Within
each segment, receivables exhibit similar risk characteristics. In determining the amount of the allowance for credit losses, we
consider historical collectability based on past due status. We also consider current market conditions and forecasts of future
economic conditions to inform potential adjustments to historical loss data. In addition, we also record allowance for credit
losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables,
such as concerns about a specific customer's inability to meet its financial obligation to us. The adequacy of these allowances
are assessed quarterly through consideration of factors on a collective basis where similar characteristics exist and on an
individual basis.
Inventories
Inventories are stated at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method. Inventories for our
Fleet segment consist primarily of vehicle replacement parts, and also include related purchasing, storage and handling
costs. Inventories for our Aviation segment consist primarily of aftermarket parts for distribution, and general aviation engine
accessories and parts, and also include related purchasing, overhaul labor, storage and handling costs.
We periodically evaluate the carrying value of inventory, giving consideration to factors such as its physical condition, sales
patterns and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete or
damaged inventory. These estimates could vary significantly from actual amounts based upon future economic conditions,
customer inventory levels or competitive factors that were not foreseen or did not exist when the estimated write-downs were
made.
During 2021, we recorded a $24.4 million provision for inventory within cost and operating expenses primarily related to slow
moving and excess quantities of Aviation segment inventory supporting certain international region distribution programs
entered into prior to 2019.
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 key 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 recorded deferred compensation plan expenses of $433 thousand,
$970 thousand and $1.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
We invest the assets held by the Rabbi Trust in both corporate owned life insurance ("COLI") products and in mutual
funds. The COLI investments are recorded at cash surrender value and the mutual fund investments are recorded at fair value.
The DSC Plan assets are included in other assets and the obligation to the participants is included in deferred compensation on
the accompanying consolidated balance sheets. Gains and losses recognized on the changes in fair value of the investments are
recorded as selling, general and administrative expenses on the accompanying consolidated statements of income. We recorded
net losses of $626 thousand, $863 thousand, and $1.0 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
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.
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Business Combinations
We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective estimated fair values, with any excess recorded as goodwill. The operating results
of acquired businesses are included in our results of operations beginning as of their effective acquisition dates. For contingent
consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair value
adjustments recorded in operations.
Goodwill and Other Intangible Assets
Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a
business combination. Goodwill is not amortized, but rather tested for potential impairment annually at the beginning of the
fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Goodwill is tested for impairment at the reporting unit level. We estimate and compare the fair value of each reporting unit to
its respective carrying value including goodwill. The fair value of our reporting units is determined using a combination of the
income approach and the market approach, which involves the use of estimates and assumptions, including projected future
operating results and cash flows, the cost of capital, and financial measures derived from observable market data of comparable
public companies. If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference
between the reporting unit’s fair value and the reporting unit’s carrying value.
Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if
a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful
lives. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that
the carrying value may not be recoverable.
Impairment of Long-Lived Assets (Excluding Goodwill)
We review our long-lived assets, including amortizable intangible assets and property and equipment, for impairment whenever
events or changes in facts and circumstances indicate that their carrying values may not be fully 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential
burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying
U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are
met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate
expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied
prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31,
2022. Our credit facility contains provisions specifying alternative interest rate calculations to be employed when LIBOR
ceases to be available as a benchmark. We will continue to monitor the impact of this transition until it is completed.
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a
business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606,
"Revenue from Contracts with Customers," as if the acquirer had originated the contracts. The new standard is effective on a
prospective basis for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022,
with early adoption permitted. We are currently evaluating the effect, if any, the adoption of this guidance will have on its
consolidated results of operations, financial position and cash flows.
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(2) Acquisition and Divestitures
Acquisitions
Global Parts Group, Inc.
On July 26, 2021, we acquired Global Parts Group, Inc. ("Global Parts"), a privately owned company with operations in
Augusta, Kansas. Global Parts provides distribution and MRO services for business and general aviation ("B&GA") aircraft
families. The acquisition expands our existing B&GA focus and further diversifies our existing product and platform offerings
to include additional airframe components, while expanding our customer base of regional and global B&GA customers. Global
Parts will operate as a subsidiary of VSE Aviation, Inc. under our Aviation segment.
The cash purchase price for Global Parts was approximately $38 million, net of cash acquired, which was funded using our
existing bank revolving loan. We may also be required to make earn-out payments of up to $2 million should Global Parts meet
certain revenue targets during the first twelve months following the acquisition and a certain milestone event on or before
March 2023. See Note (16) "Fair Value Measurements," for additional information regarding the earn-out obligation.
The purchase price was allocated on a preliminary basis, among assets acquired and liabilities assumed at fair value on the
acquisition date based on the best available information, with the excess purchase price recorded as goodwill. The fair values
assigned to our Global Parts earn-out obligation, inventory and intangible assets acquired were based on preliminary estimates,
assumptions, and other information compiled by management, including independent valuations that utilized established
valuation techniques. We have not yet obtained all the information required to complete the purchase price allocation related to
this acquisition. We are in the process of finalizing our valuation and the allocation of the total consideration for the acquisition
to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information
regarding their fair values. We expect to have sufficient information available to resolve these items by the second quarter of
2022, which could potentially result in changes in assets or liabilities on Global Parts' opening balance sheet and an adjustment
to goodwill.
During the fourth quarter of 2021, we adjusted the purchase price allocation as a result of certain measurement period
adjustments to acquired assets and liabilities assumed due to updated valuation reports received from our external valuation
specialist, as well as revisions to internal estimates. These measurement period adjustments included: a decrease in inventories
of $5.5 million; a decrease in customer relationship intangible asset of $4.0 million; a decrease in long-term deferred tax
liabilities of $2.4 million; and $200 thousand decrease to net working capital. These adjustments resulted in an increase to
goodwill of $7.3 million. The adjusted preliminary purchase price is as follows (in thousands):
Description
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property and equipment
Intangibles - customer related
Goodwill
Operating lease right-of-use-assets
Long-term deferred tax assets
Accounts payable
Accrued expenses and other current liabilities
Long-term operating lease liabilities
Net assets acquired, excluding cash
Cash consideration, net of cash acquired
Acquisition date estimated fair value of earn-out obligation
Total consideration
-49-
Fair Value
6,410
13,240
620
368
16,000
10,019
3,043
1,775
(6,112)
(1,936)
(2,874)
40,553
38,553
2,000
40,553
$
$
$
$
The estimated value attributed to the customer relationship intangible asset is being amortized on a straight-line basis using a
useful life of 15 years. None of the value attributed to goodwill and customer relationships is deductible for income tax
purposes. The preliminary amount of goodwill recorded for our Global Parts acquisition reflects the strategic advantage of
expanding our supply chain management capabilities through the diversification of our existing product and platform offerings
to new customers.
We incurred approximately $532 thousand of acquisition-related expenses associated with our Global Parts acquisition for the
year ended December 31, 2021, which are included in selling, general and administrative expenses.
Global Parts' results of operations are included in our Aviation segment in the accompanying consolidated financial statements
beginning on the acquisition date of July 26, 2021. Had the acquisition occurred as of January 1, 2020, revenue and net income
(loss) from consolidated operations, and basic and diluted earnings (loss) per share on a pro forma basis for the year ended
December 31, 2021 and 2020 would not have been materially different than our reported amounts.
HAECO Special Services, LLC
On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of
HAECO Americas ("HAECO") for the purchase price of $14.8 million. HSS is a leading provider of fully integrated MRO
support solutions for military and government aircraft. HSS provides scheduled depot maintenance, contract field deployment
and unscheduled drop-in maintenance for a United States DoD contract specifically for the sustainment of the U.S. Air Force
("USAF") KC-10 fleet. The acquisition was not material to our consolidated financial statements. HSS operating results are
included in our Federal and Defense segment in the accompanying consolidated financial statements beginning on the
acquisition date of March 1, 2021.
The allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and
liabilities assumed is based on the best available information regarding their fair values. Based on estimates, we allocated
approximately $7.0 million to the fair value of net tangible assets (including $9.2 million of accounts receivable),
$608 thousand to goodwill, and $7.2 million to customer relationship intangible asset, which is being amortized over
approximately 4 years from the acquisition date.
We incurred approximately $333 thousand of acquisition-related expenses associated with our HSS acquisition for the year
ended December 31, 2021, which are included in selling, general and administrative expenses.
1st Choice Aerospace, Inc.
In January 2019, our wholly owned subsidiary VSE Aviation, Inc. acquired 100% of the equity of 1st Choice Aerospace, Inc.
("1st Choice Aerospace"), a provider of MRO services and products for new generation and legacy commercial aircraft
platforms with operations in Florida and Kentucky, for a purchase price of $113 million. In connection with the acquisition, we
were required to make earn-out payments of up to $40 million if 1st Choice Aerospace met certain financial targets during 2019
and 2020. In 2020, we made a payment of approximately $31.7 million to satisfy the earn-out payment for the 2019
performance year. During 2020 it was determined that the financial targets for the 2020 performance year were not met, and the
remaining fair value of the earn-out obligation was reversed. Changes in the fair value of the earn-out obligations are
recognized in earnings in the period of change through settlement. Refer to Note (16) "Fair Value Measurements" for additional
information regarding earn-out obligation.
We incurred approximately $408 thousand of acquisition-related expenses for the year ended December 31, 2019, which are
included in selling, general and administrative expenses.
Divestitures
Prime Turbines Sale
In January 2020, VSE’s subsidiary VSE Aviation, Inc. entered into two definitive agreements to sell (1) Prime Turbines LLC
("Prime Turbines") and (2) certain related inventory assets to PTB Holdings USA, LLC ("PTB"). The transaction was
completed on February 26, 2020 with cash proceeds of $20.0 million, including final working capital adjustments, and a note
receivable of $8.3 million received as consideration. As a result of the sale of the business and inventory, we derecognized the
assets and liabilities of Prime Turbines and recorded a $7.5 million loss in 2020 which is reflected within loss on sale of a
business entity and certain assets in the consolidated statements of income. As of December 31, 2021 and 2020, the total
outstanding balance of the note receivable from PTB was $4.7 million and $6.1 million, respectively, which represents the
-50-
present value of the consideration to be received with an imputed interest rate discount, of which $1.5 million and $1.4 million
were current as of December 31, 2021 and 2020, respectively. The note receivable balance is included in other assets and other
current assets in our consolidated balance sheets.
CT Aerospace Asset Sale
In June 2020, VSE's subsidiary VSE Aviation, Inc. entered into an asset purchase agreement to sell CT Aerospace, LLC ("CT
Aerospace") inventory and certain assets to Legacy Turbines, LLC ("Legacy Turbines") for $6.9 million, with a note receivable
received as consideration. As a result of the sale, we recorded a $678 thousand loss in 2020, which is reflected within loss on
sale of a business entity and certain assets in the consolidated statements of income. As of December 31, 2021 and 2020, the
total outstanding balance of the note receivable from Legacy Turbines was $5.2 million and $6.4 million, respectively, net of a
variable discount of $275 thousand, of which $1.3 million was current as of December 31, 2021 and 2020. The note receivable
balance is included in other assets and other current assets in our consolidated balance sheets.
(3) Revenue Recognition
Disaggregated Revenue
Our revenues are derived from the delivery of products to our customers and from services performed for commercial
customers, various government agencies, the DoD or federal civilian agencies.
A summary of revenues by customer for our operating segments for the years ended December 31, 2021, 2020 and 2019 are as
follows (in thousands):
Year Ended December 31, 2021
Commercial
DoD
Other government
Total
Year Ended December 31, 2020
Commercial
DoD
Other government
Total
Year Ended December 31, 2019
Commercial
DoD
Other government
Total
Fleet
Aviation
Federal and
Defense
73,606 $
12,689
147,237
233,532 $
245,380 $
—
2,472
247,852 $
3,332 $
220,733
45,404
269,469 $
Total
322,318
233,422
195,113
750,853
42,733 $
20,744
178,693
242,170 $
163,695 $
1,093
282
165,070 $
1,877 $
214,560
37,982
254,419 $
208,305
236,397
216,957
661,659
22,161 $
24,246
168,113
214,520 $
218,886 $
3,775
1,885
224,546 $
1,471 $
276,313
35,777
313,561 $
242,518
304,334
205,775
752,627
$
$
$
$
$
$
-51-
A summary of revenues by type for our operating segments for the year ended December 31, 2021, 2020 and 2019 are as
follows (in thousands):
Year Ended December 31, 2021
Repair
Distribution
Cost Plus Contract
Fixed Price Contract
T&M Contract
Total
Year Ended December 31, 2020
Repair
Distribution
Cost Plus Contract
Fixed Price Contract
T&M Contract
Total
Year Ended December 31, 2019 (a)
Repair
Distribution
Cost Plus Contract
Fixed Price Contract
T&M Contract
Total
Fleet
Aviation
Federal and
Defense
$
— $
233,532
—
—
—
233,532 $
75,725 $
172,127
—
—
—
247,852 $
— $
—
93,694
105,495
70,280
269,469 $
— $
242,170
—
—
—
242,170 $
82,445 $
82,625
—
—
—
165,070 $
— $
—
79,064
138,406
36,949
254,419 $
— $
214,520
—
—
—
214,520 $
119,044 $
105,502
—
—
—
224,546 $
— $
—
144,600
78,163
90,798
313,561 $
$
$
$
$
$
Total
75,725
405,659
93,694
105,495
70,280
750,853
82,445
324,795
79,064
138,406
36,949
661,659
119,044
320,022
144,600
78,163
90,798
752,627
(a) Historical presentation has been realigned to conform to its current period presentation and did not affect the reported results of operations for each reported
segment.
Contract Balances
Billed receivables, unbilled receivables (contract assets), and contract liabilities are the results of revenue recognition, customer
billing, and timing of payment receipts. Billed receivables, net, represent unconditional rights to consideration under the terms
of the contract and include amounts billed and currently due from our customers. Unbilled receivables represent our right to
consideration in exchange for goods or services that we have transferred to the customer prior to us having the right to payment
for such goods or services. Contract liabilities are recorded when customers remit contractual cash payments in advance of us
satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied
over a period of time.
We present our unbilled receivables and contract liabilities on a contract-by-contract basis. If a contract liability exists, it is
netted against the unbilled receivables balance for that contract. Unbilled receivables increased to $31.9 million as of
December 31, 2021 from $22.4 million as of December 31, 2020, primarily due to performance obligations satisfied in excess
of billings and unbilled receivables acquired as part of the HSS acquisition. Contract liabilities, which are included in accrued
expenses and other current liabilities in our consolidated balance sheet, were $7.1 million as of December 31, 2021 and $10.1
million as of December 31, 2020. For the year ended December 31, 2021 and 2020, we recognized revenue of $5.1 million and
$2.2 million, respectively, that was previously included in the beginning balance of contract liabilities.
Performance Obligations
Our performance obligations are satisfied over time as work progresses or at a point in time. Revenues from products and
services transferred to customers at a point in time accounted for approximately 54% and 49% of our revenues for the year
ended December 31, 2021 and 2020, respectively. The majority of our revenue recognized at a point in time is for the sale of
vehicle and aircraft parts in our Fleet and Aviation segments. Revenues from products and services transferred to customers
over time accounted for approximately 46% and 51% of our revenues for the year ended December 31, 2021 and 2020,
respectively, primarily related to revenues in our Federal and Defense segment and for MRO services in our Aviation segment.
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As of December 31, 2021, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied
performance obligations was $185 million. Performance obligations expected to be satisfied within one year and greater than
one year are 86% and 14%, respectively. We have applied the practical expedient for certain parts sales and MRO services to
exclude the amount of remaining performance obligations for (i) contracts with an original expected term of one year or less or
(ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed.
During the year ended December 31, 2021, revenue recognized from performance obligations satisfied in prior periods was not
material.
(4) Receivables and Unbilled Receivables
Receivables, net and unbilled receivables, net as of December 31, 2021 and 2020, respectively, were as follows (in thousands):
Receivables, net
Unbilled receivables, net
Total
2021
2020
$
$
76,587 $
31,882
108,469 $
55,471
22,358
77,829
Receivables, net are recorded at face value less an allowance for credit losses of approximately $1.7 million and $1.5 million as
of December 31, 2021 and 2020, respectively.
The unbilled receivables balance includes certain costs for work performed at risk but which we believe will be funded by the
government totaling $3.6 million and $2.6 million as of December 31, 2021 and 2020, respectively. We expect to invoice
substantially all unbilled receivables during 2022.
(5) Other Current Assets and Other Assets
Other current assets consisted of the following as of December 31, 2021 and 2020 (in thousands):
Self insurance trust assets
Current portion of notes receivable
Deferred contract costs
Vendor advances
Other
Total
Other assets consisted of the following as of December 31, 2021 and 2020 (in thousands):
Deferred compensation plan assets
Long-term portion of notes receivable
Other
Total
2021
2020
5,993 $
2,820
6,148
14,552
2,791
32,304 $
9,535
2,721
3,514
5,564
1,994
23,328
2021
2020
14,840 $
7,042
5,854
27,736 $
14,370
9,856
2,299
26,525
$
$
$
$
-53-
(6) Property and Equipment
Property and equipment, net consisted of the following as of December 31, 2021 and 2020 (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
2021
2020
$
$
29,596 $
28,084
39,377
7,164
4,726
108,947
(66,461)
42,486 $
29,537
26,492
33,322
3,140
4,726
97,217
(60,854)
36,363
Depreciation and amortization expense for property and equipment for the years ended December 31, 2021, 2020 and 2019 was
approximately $6.1 million, $5.6 million and $7.0 million, respectively.
(7) Goodwill and Intangible Assets
Changes in goodwill for the years ended December 31, 2021 and 2020 are as follows (in thousands):
Fleet
Federal and
Defense
Aviation
Total
Balance as of December 31, 2019
Impairment charge
Decrease from divestiture
Balance as of December 31, 2020
Increase from acquisitions
Balance as of December 31, 2021
$
$
$
63,190 $
—
—
63,190 $
—
63,190 $
—
—
30,883 $ 182,377 $ 276,450
(30,945)
(30,945)
(7,379)
(7,379)
30,883 $ 144,053 $ 238,126
10,627
10,019
31,491 $ 154,072 $ 248,753
608
Goodwill increased during the year ended December 31, 2021 in connection with acquisitions completed during the year. See
Note (2) "Acquisitions and Divestitures" for additional details regarding these acquisitions.
Based on our annual goodwill impairment test performed in the fourth quarter of 2021, it was determined there was no
impairment of goodwill and the fair value of each of the reporting units exceeded their carrying value.
During the second quarter of 2020, due to the negative impact of the COVID-19 pandemic on our Aviation reporting unit, we
recorded a $30.9 million goodwill interim impairment charge within goodwill and intangible impairment in the consolidated
statements of income. Our 2020 annual goodwill impairment test determined no incremental impairment.
In 2020, in connection with the sale of our Prime Turbines subsidiary within our Aviation segment, goodwill of $7.4 million
was allocated to the disposal group on a relative fair value basis and was written-off upon the completion of the sale.
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Intangible assets consisted of the following (in thousands):
December 31, 2021
Contract and customer-related
Acquired technologies
Trade names
Total
December 31, 2020
Contract and customer-related
Acquired technologies
Trade names
Total
Cost
Accumulated
Amortization
Accumulated
Impairment
Loss
Net
Intangible
Assets
$ 221,796 $
12,400
8,670
$ 242,866 $
(116,385) $
(11,915)
(6,303)
(134,603) $
— $ 105,411
485
—
—
2,367
— $ 108,263
$ 213,194 $
12,400
18,770
$ 244,364 $
(110,917) $
(10,787)
(15,251)
(136,955) $
(3,814) $
—
—
98,463
1,613
3,519
(3,814) $ 103,595
Intangible assets with a gross carrying value of $20.8 million are no longer reflected in the gross carrying value and
accumulated amortization as of December 31, 2021. The increase in the gross carrying amount of contract and customer-related
intangibles during the year ended December 31, 2021 relates to customer relationship intangible assets recognized in connection
with acquisitions completed during the year, partially offset by the removal of fully amortized assets of $10.7 million. See Note
(2) "Acquisitions and Divestitures" for additional details regarding these acquisitions. There were no impairment losses during
2021.
During 2020, we recorded an impairment charge of $2.8 million in connection with the sale of all of the inventory of our CT
Aerospace subsidiary, which was part of our Aviation segment. The impairment is presented within goodwill and intangible
impairment in the consolidated statements of income.
Amortization expense for the years ended December 31, 2021, 2020 and 2019 was approximately $18.5 million, $17.5 million
and $19.3 million, respectively.
Future expected amortization of intangible assets is as follows for the years ending December 31, (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
$
$
17,639
13,639
10,059
9,015
8,190
49,721
108,263
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(8) Debt
Long-term debt consisted of the following (in thousands):
Bank credit facility - term loan
Bank credit facility - revolver loans
Principal amount of long-term debt
Less debt issuance costs
Total long-term debt
Less current portion
Long-term debt, net of current portion
December 31,
2021
2020
60,175 $
226,559
286,734
(2,165)
284,569
(14,162)
270,407 $
77,988
175,473
253,461
(2,368)
251,093
(20,379)
230,714
$
$
We have a loan agreement with a group of banks from which we borrow amounts under the loan agreement to provide working
capital support, fund letters of credit, and finance acquisitions. The loan agreement includes term and revolving loan facilities.
The revolving loan facility provides for revolving loans and letters of credit.
On July 23, 2021, we entered into a third amendment to our loan agreement which, among other things, extended the maturity
dates with respect to the revolving credit facility and term loan facility to July 2024, lowered the applicable LIBOR rate floor,
and modified the maximum Total Funded Debt to EBITDA Ratio. Except as described above, the amended loan agreement has
substantially the same terms as the existing loan agreement, including covenants and events of default. Financing costs
associated with the loan agreement amendment of approximately $808 thousand were capitalized and are being amortized over
the remaining term of the loan.
Our required term and revolver loan payments after December 31, 2021 are as follows (in thousands):
Year ending December 31,
2022
2023
2024(a)
Total
(a) Includes the revolver loan required payment of $227 million.
$
$
15,000
15,000
256,734
286,734
The maximum amount of credit available under the loan agreement for revolving loans and letters of credit as of December 31,
2021 was $350 million. We pay an unused commitment fee and fees on letters of credit that are issued. We had $1.0 million
letters of credit outstanding as of December 31, 2021 and no letters of credit outstanding as of December 31, 2020.
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 $100 million subject to lender approvals.
We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a margin or at a base rate (typically
the prime rate) plus a base margin. As of December 31, 2021, the LIBOR margin was 3.25% and the base margin was 2.25%.
The margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases.
We use interest rate hedges on a portion of our debt. The amount of our debt with interest rate swap agreements was $75.0
million as of December 31, 2021. After taking into account the impact of hedging instruments, as of December 31, 2021 interest
rates on portions of our outstanding debt ranged from 4.00% to 6.66%, and the effective interest rate on our aggregate
outstanding debt was 4.39%.
Interest expense incurred on bank loan borrowings and interest rate hedges was approximately $11.2 million, $12.7 million and
$13.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.
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
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maximum Total Funded Debt to EBITDA Ratio and a minimum Fixed Charge Coverage Ratio. We were in compliance with
required ratios and other terms and conditions as of December 31, 2021.
(9) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued compensation and benefits
Contract liabilities
Accrued customer rebates and royalties
Customer advances
Interest rate swap liability
Current portion of lease liabilities
Other
Total
(10) Stock-Based Compensation Plans
December 31,
2021
2020
24,395 $
7,147
4,514
1,087
234
5,991
6,097
49,465 $
21,525
9,858
2,756
1,080
1,603
4,012
4,338
45,172
$
$
The VSE Corporation 2006 Restricted Stock Plan, as amended (the "2006 Plan"), provides VSE's employees and directors the
opportunity to receive various types of stock-based compensation and cash awards. In May 2020, the stockholders approved
amendments to the 2006 Plan extending its term until May 6, 2027 and authorizing an additional 500,000 shares of our common
stock for issuance under the 2006 Plan. As of December 31, 2021, we are authorized to issue up to 1,500,000 shares of our
common stock and 661,126 shares remained available for issuance. As of December 31, 2021, we have outstanding stock-
settled bonus awards, vesting stock awards, and performance share awards under this plan.
Stock-settled bonus awards are a fixed dollar-denominated award that vests over a three-year service period in three equal
tranches. As each tranche vests, the fixed dollar value of the vested portion of the award is converted into shares based on the
closing market price of our stock at the date of conversion. On each vesting date, 100% of the vested award is paid in stock that
are subject to a two-year stock sales restriction. Expense is recognized on a straight-line basis over the requisite service period
for each tranche, which results in an accelerated pattern for an award.
Employee vesting stock awards generally vest over a three-year service period in equal installments on each anniversary of the
grant date. Our directors receive a grant of vesting stock annually as part of their compensation and the stock vests immediately
upon grant.
We grant performance share awards to certain employees under the 2006 Plan. Performance share awards are rights to receive
shares of our stock on the satisfaction of service requirements and performance conditions. These awards vest ratably in equal
installments over a three-year period on the anniversary of each grant date, subject to meeting the minimum service
requirements and the achievement of certain annual or cumulative financial metrics of our performance, with the number of
shares ultimately issued, if any, ranging up to 100% of the specified target shares. If performance is below the minimum
threshold level of performance, no shares will be issued. For all performance share awards granted, the annual and cumulative
financial metrics are based on our achievement of a return on equity.
During fiscal 2021, we established the Employee Stock Purchase Plan (ESPP) to allow eligible employees to purchase shares of
our VSE common stock at a discount of up to 15% of the fair market value on specified dates. For ESPP offerings in the year
ended December 31, 2021, the purchase price was 12% off the lesser of the fair market value on the date of the offering and the
fair market value on the date of purchase, thereby resulting in stock compensation expense of $55 thousand. As of December
31, 2021, 500,000 shares of VSE common stock are authorized for issuance under the ESPP.
-57-
Expense and Related Tax Benefits Recognized
Stock-based compensation expense and related tax benefits recognized under the 2006 Plan for the years ended December 31,
are as follows (in thousands):
Stock-settled bonus awards
Vesting stock awards
Performance share awards
Total
Tax benefit recognized from stock-based compensation
Stock-Settled Bonus Awards
2021
2020
2019
$
$
$
820 $
2,273
784
3,877 $
967 $
1,265 $
1,593
—
2,858 $
713 $
1,685
1,579
—
3,264
663
In March 2021, the employees eligible for the 2020 awards, 2019 awards and 2018 awards received a total of 21,336 shares of
common stock. The grant-date fair value of these awards was $41.42 per share. The total compensation cost related to non-
vested stock-settled bonus awards not yet recognized was approximately $649 thousand with a weighted average amortization
period of 1.9 years as of December 31, 2021. The fair value of stock-settled bonus awards that vested in the years ended
December 31, 2021, 2020 and 2019 was $884 thousand, $1.2 million and $1.6 million, respectively.
Vesting Stock Awards
Vesting stock award activity for the year ended December 31, 2021 was:
Unvested as of December 31, 2020
Granted
Vested
Forfeited
Unvested as of December 31, 2021
Number of Shares
Weighted
Average Grant
Date Fair Value
56,284 $
54,449 $
(49,382) $
— $
61,351 $
32.23
41.90
34.55
—
38.80
The grant date fair value of vesting stock awards is based on the closing market price of our common stock on the grant date.
The weighted average grant date fair value of the vesting stock awards granted for the years ended December 31, 2021, 2020
and 2019 was $41.90, $33.68 and $32.16, respectively. As of December 31, 2021 there was $1.4 million of unrecognized
compensation cost related to vesting stock awards, which is expected to be recognized over a weighted-average period of 1.9
years. The weighted average fair value of vesting stock awards that vested in the years ended December 31, 2021, 2020 and
2019 was $1.7 million, $1.6 million and $597 thousand, respectively.
Performance Share Awards
During the year ended December 31, 2021, we granted 42,000 performance share awards at target with a weighted average
grant date fair value of $42.01. The actual number of shares to be issued upon vesting range between 0-100% of the target
number of shares granted. For those awards outstanding as of December 31, 2021, we expect to issue approximately 36,000
shares of our common stock in the future based on estimated target achievement of the performance goals. The grant date fair
value of performance share awards is based on the closing market price of our common stock on the grant date. As of
December 31, 2021, there was $722 thousand of unrecognized compensation cost related to performance share awards, which is
expected to be recognized over a weighted-average period of 2 years.
(11) 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 2016.
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We file consolidated federal income tax returns that include all of our U.S. subsidiaries. The components of the provision for
income taxes from continuing operations for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
2021
2020
2019
$
$
3,919 $
856
1,066
5,841
(3,318)
(1,038)
—
(4,356)
1,485 $
4,086 $
1,262
144
5,492
(78)
163
21
106
5,598 $
7,739
1,344
825
9,908
(66)
(490)
51
(505)
9,403
The differences between the amount of tax computed at the federal statutory rate of 21% in 2021, 2020 and 2019, and the
provision for income taxes from continuing operations for the years ended December 31, 2021, 2020 and 2019 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
Tax credits
Prior year true-up adjustment
Valuation allowance
Other provision adjustments
Provision for income taxes
2021
2020
2019
$
1,985 $
89 $
9,749
383
(839)
(434)
83
331
(24)
1,485 $
(52)
(1,406)
(195)
397
6,716
49
5,598 $
1,805
(195)
(612)
(1,274)
(137)
67
9,403
$
Certain amounts from prior years have been reclassified to conform to the current year presentation.
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The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2021 and 2020 are as
follows (in thousands):
Gross deferred tax assets
Deferred compensation and accrued paid leave
Inventory reserve
Operating lease liabilities
Stock-based compensation
Interest rate swaps
Reserve for contract disallowance
Capitalized inventory
US operating and capital loss carryforward
Tax credit carryforward
Foreign country operating loss carryforward
Valuation allowance(a)
Total gross deferred tax assets
Gross deferred tax liabilities
Depreciation
Deferred revenues
Goodwill and intangible assets
Operating lease right-of-use assets
Other
Total gross deferred tax liabilities
Net deferred tax liabilities
$
2021
2020
5,422 $
12,465
7,805
775
58
114
900
6,045
1,411
892
35,887
(8,257)
27,630
6,302
432
6,984
605
400
195
573
5,989
1,412
583
23,475
(7,926)
15,549
(3,895)
(1,358)
(24,836)
(6,375)
(274)
(36,738)
(3,061)
(1,816)
(19,470)
(5,384)
(715)
(30,446)
$
(9,108) $
(14,897)
(a) A valuation allowance was provided against US capital loss in connection with the stock sale of Prime Turbines, certain state net operating loss, tax credit,
and foreign tax loss deferred tax assets arising from carryforwards of unused tax benefits.
(b) Certain amounts from prior year have been reclassified to conform with current year presentation.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. With few exceptions,
the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2017.
As of December 31, 2021, we have various tax losses and tax credits that may be applied against future taxable income. The
majority of such tax attributes will expire in 2026 through 2034; however, some may be carried forward indefinitely.
(12) Commitments and Contingencies
Leases and Other Commitments
Our operating lease cost included the following components for the year ended December 31, (in thousands):
Operating lease cost
Short-term lease cost
Less: sublease income
Total lease cost, net
2021
2020
2019
5,868 $
202
(152)
5,918 $
5,032 $
622
(666)
4,988 $
6,106
698
(1,022)
5,782
$
$
Our lease arrangements do not contain any material residual guarantees, variable payment provisions, or restrictive covenants.
In 2020, we closed on a sale-leaseback agreement involving land and an office building utilized by our Aviation segment to
conduct operations in Miami, Florida. Under the agreement, the land and building, with a net book value of $1.3 million was
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sold for a sale price of $2.6 million and leased back under a 6-year term operating lease commencing upon the closing of the
transaction. The lease provides us with an option to extend the lease upon the expiration of its term in April 2026 for two
additional five-year periods. In connection with the sale and leaseback transaction, we recognized a gain of $1.1 million after
incurring $200 thousand in selling expenses.
The table below summarizes future minimum lease payments under operating leases, recorded on the balance sheet, as of
December 31, 2021 (in thousands):
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Minimum lease payments
Less: imputed interest
Present value of minimum lease payments
Less: current maturities of lease liabilities
Long-term lease liabilities
$
$
7,428
7,374
7,228
6,930
5,585
3,236
37,781
(4,622)
33,159
(5,991)
27,168
We made cash payments of approximately $6.3 million, $3.7 million and $5.7 million for operating leases during the year
ended December 31, 2021, 2020 and 2019, respectively, which are included in cash flows from operating activities in our
consolidated statement of cash flows. As of December 31, 2021, the weighted average remaining lease term and discount rate
for our operating leases were approximately 5.1 years and 4.8%, respectively.
Contingencies
We may have certain claims in the normal course of business, including legal proceedings, against us and against other parties.
In our opinion, the resolution of these claims will not have a material adverse effect on our results of operations, financial
position or cash flows. However, because the results of any legal proceedings cannot be predicted with certainty, the amount of
loss, if any, cannot be reasonably estimated.
Further, from time-to-time, government agencies audit or investigate whether our operations are being conducted in accordance
with applicable contractual and regulatory requirements. Government audits or investigations of us, whether relating to
government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including
repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future government
contracting. Government investigations often take years to complete and many result in no adverse action against us. We
believe, based upon current information, that the outcome of any such government disputes, audits and investigations will not
have a material adverse effect on our results of operations, financial condition or cash flows.
(13) Business Segments and Customer Information
Segment Information
Management of our business operations is conducted under three reportable operating segments:
Aviation
Our Aviation segment provides aftermarket repair and distribution services to commercial, business and general aviation, cargo,
military and defense, and rotorcraft customers globally. Core services include parts distribution, engine accessory maintenance,
MRO services, rotable exchange and supply chain services.
Fleet
Our Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other
services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service
("USPS"), and the DoD. Core services include vehicle parts distribution, sourcing, IT solutions, customized fleet logistics,
-61-
warehousing, kitting, just-in-time supply chain management, alternative product sourcing, and engineering and technical
support.
Federal and Defense
Our Federal and Defense segment provides aftermarket MRO and logistics and sustainment services to improve operational
readiness and extend the life cycle of military vehicles, ships and aircraft for the DoD, federal agencies and international
defense customers. Core services include base operations support; procurement; supply chain management; vehicle, maritime
and aircraft sustainment services; IT services and energy consulting.
The operating segments reported below are our segments for which separate financial information is available and for which
segment results are evaluated regularly by our Chief Executive Officer in deciding how to allocate resources and in assessing
performance. We evaluate segment performance based on consolidated revenues and operating income. Net sales of our
business segments exclude inter-segment sales as these activities are eliminated in consolidation. Corporate expenses are
primarily selling, general and administrative expenses not allocated to segments. Corporate assets are primarily cash, property
and equipment and investments held in separate trust.
Our segment information is as follows (in thousands):
For the years ended December 31,
2020
2019
2021
Revenues
Aviation
Fleet
Federal and Defense
Total revenues
Operating income (loss):
Aviation
Fleet
Federal and Defense
Corporate expenses
Operating income
Depreciation and amortization expense:
Aviation
Fleet
Federal and Defense
Total depreciation and amortization
Capital expenditures:
Aviation
Fleet
Federal and Defense
Corporate
Total capital expenditures
Total assets:
Aviation
Fleet
Federal and Defense
Corporate
Total assets
$
$
$
$
$
$
$
$
247,852 $
233,532
269,469
750,853 $
165,070 $
242,170
254,419
661,659 $
224,546
214,520
313,561
752,627
(14,373) $
20,426
19,897
(4,430)
21,520 $
(35,513) $
26,659
26,309
(3,532)
13,923 $
11,374 $
9,679
4,547
25,600 $
10,874 $
10,260
3,001
24,135 $
7,468 $
1,669
124
1,259
10,520 $
3,445 $
675
148
159
4,427 $
17,901
29,819
18,144
(5,607)
60,257
12,546
11,085
3,296
26,927
8,396
1,076
58
130
9,660
December 31,
2021
2020
$
$
580,156 $
182,089
92,571
63,742
918,558 $
478,861
161,088
66,808
73,324
780,081
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Customer Information
Our revenues are derived from the delivery of products and services performed for commercial clients, DoD agencies or federal
civilian agencies. The USPS and U.S. Navy are our largest customers. Our customers also include various other commercial
entities and government agencies. Our revenue by customer is as follows (in thousands):
Source of Revenues
Commercial
DoD
Other government
Total Revenues
Years ended December 31,
2021
$ 322,318
233,422
195,113
$ 750,853
%
2020
%
2019
%
43 $ 208,305
236,397
31
26
216,957
100 $ 661,659
31 $ 242,518
304,334
36
33
205,775
100 $ 752,627
32
41
27
100
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 are 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(a)
Total revenue
Years ended December 31,
2020
2021
2019
$
$
668,892 $
81,961
750,853 $
598,142 $
63,517
661,659 $
659,451
93,176
752,627
(a) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented.
(14) 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.
On January 29, 2021, we completed the issuance and sale of 1,428,600 shares of the Company's common stock, in a public
offering at a price of $35.00 per share. The underwriters exercised their option to purchase an additional 170,497 shares. The
transaction closed on February 2, 2021. We received net proceeds of approximately $52 million after deducting underwriting
discounts, commissions and offering related expenses.
(15) 401(k) Plan
We maintain a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers
substantially all of our employees. Under the provisions of our 401(k) plan, employees' eligible contributions are matched at
rates specified in the plan documents. Our expense associated with this plan was approximately $6.6 million, $5.9 million and
$5.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.
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(16) Fair Value Measurements
We utilize fair value measurement guidance prescribed by GAAP to value our financial instruments. The accounting standard
for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as
follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active
markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market
data, which requires the Company to develop its own assumptions (Level 3).
The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in other current assets
and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to
their relatively short maturity. The carrying value of our outstanding debt obligations approximates its fair value. The fair value
of long-term debt is calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar
to our existing debt arrangements.
Non-financial assets acquired and liabilities assumed in business combinations were measured at fair value using income,
market and cost valuation methodologies. See Note (2), "Acquisitions and Divestitures." The fair value measurements were
estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of
December 31, 2021 and December 31, 2020 and the level they fall within the fair value hierarchy (in thousands):
Financial Statement
Classification
Fair Value Hierarchy
Amounts Recorded at Fair Value
Non-COLI assets held in Deferred
Supplemental Compensation Plan
Interest rate swaps
Earn-out obligation-current
Other assets
Accrued expenses
Accrued expenses
Earn-out obligation-long-term
Other long-term liabilities
Level 1
Level 2
Level 3
Level 3
Fair Value
December 31,
2021
Fair Value
December 31,
2020
$
$
$
$
598 $
234 $
1,000 $
250 $
1,120
1,603
—
—
COLI assets held in our 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 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 highly effective cash flow hedges. We evaluate our hedges to determine their
effectiveness and as of December 31, 2021 and 2020, the swaps were determined to be fully effective. Accordingly, the fair
value of the swap agreements, which is a liability recorded in accrued expenses and other current liabilities in our consolidated
balance sheets, of $234 thousand and $1.6 million as of December 31, 2021 and 2020, respectively. The offset, net of an
income tax effect of $58 thousand and $400 thousand was included in accumulated other comprehensive income in the
accompanying balance sheets as of December 31, 2021 and 2020, 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 expect
the hedges to remain fully effective during the remaining terms of the swap agreements. We determine the fair value of the
swap agreements based on a valuation model using primarily observable market data inputs.
In connection with the acquisition of Global Parts in July 2021, we may be required to make earn-out obligation payments of up
to $2.0 million should Global Parts meet certain financial targets during the twelve months following the acquisition and meet a
certain milestone event on or before March 2023. The preliminary fair value of the earn-out obligation was determined using a
probability-based scenario analysis approach. Any change in the fair value of contingent consideration from events after the
acquisition date will be recognized in earnings of the period when the event occurs. The probability-based approach used to fair
value earn-out obligation is based on significant inputs not observed in the market and thus represents a Level 3 measurement.
The significant unobservable inputs include projected revenues and percentage probability of occurrence. Changes in the
revenue assumptions could result in a material change to the amount of the fair value measurement. Under the agreement, we
were required to make an advanced payment of the earn-out obligation. The payment was made in August 2021.
In 2020, in connection with the 2019 acquisition of 1st Choice Aerospace, we made a payment of approximately $31.7 million
to satisfy the earn-out and the remaining fair value of the earn-out obligation of $5 million was reversed and recognized in
earnings.
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Changes in earn-out obligation measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for
the years ended December 31, 2021 and 2020 are as follows (in thousands):
Balance as of December 31, 2019
Earn-out payments
Reclassification from long-term to current
Fair value adjustment included in costs and operating expenses
Balance as of December 31, 2020
Acquisition date fair value of contingent consideration
Earn-out payments
Balance as of December 31, 2021
Current portion
$
Long-term
portion
Total
5,000 $
—
(5,000)
—
—
250
—
250 $
36,700
(31,700)
—
(5,000)
—
2,000
(750)
1,250
31,700 $
(31,700)
5,000
(5,000)
—
1,750
(750)
1,000 $
$
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 Exchange
Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2021, 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 SEC rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, with the participation of the Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31,
2021 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework). Based on its assessment, management concluded that our
internal control over financial reporting was effective as of December 31, 2021. Grant Thornton LLP, an independent registered
public accounting firm, audited our consolidated financial statements included in this report and our internal control over
financial reporting, and the firm's report on our internal control over financial reporting are set forth below.
As permitted by the SEC rules, management's assessment and conclusion on the effectiveness of the Company's internal control
over financial reporting as of December 31, 2021, excludes an assessment of internal control over financial reporting of HSS
and Global Parts, acquired in March 2021 and July 2021, respectively. HSS and Global Parts combined total assets, excluding
goodwill and intangible assets, and revenues represented 5.6% and 7.8%, respectively, of our consolidated financial statement
amounts as of and for the year ended December 31, 2021.
Change in Internal Controls
During the fourth quarter of fiscal year 2021, there were no changes in our internal control over financial reporting, as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), that have materially affected these controls or are reasonably likely
to materially affect these controls subsequent to the evaluation of these controls.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
VSE Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of VSE Corporation (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on
criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our
report dated March 10, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over
financial reporting of Global Parts Group, Inc. (“Global Parts”) and HAECO Special Services, LLC (“HSS”), wholly-owned
subsidiaries, whose combined financial statements reflect total assets, excluding goodwill and identifiable intangible assets, and
revenues constituting 5.6% and 7.8%, respectively, of the related consolidated financial statement amounts as of and for the
year ended December 31, 2021. As indicated in Management’s Report, Global Parts and HSS were acquired during 2021.
Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal
control over financial reporting of Global Parts and HSS.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Arlington, Virginia
March 10, 2022
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ITEM 9B. Other Information
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Except as otherwise indicated below, the information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K has been
omitted in reliance of General Instruction G(3) to Form 10-K and is incorporated herein by reference to our definitive proxy
statement to be filed with the SEC not later than 120 days after December 31, 2021 in respect of the Annual Meeting of VSE's
stockholders scheduled to be held on May 4, 2022 (the "Proxy Statement").
ITEM 10. Directors, Executive Officers and Corporate Governance
Information called on by Item 10 will be set forth in our Proxy Statement, which information is incorporated herein by
reference.
ITEM 11. Executive Compensation
Information called on by Item 11 will be set forth in our Proxy Statement, which information is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except for the "Equity Compensation Plan Information" disclosed in Item 5 above, the information called on by this Item 12
will be set forth in our Proxy Statement, which information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Information called on by Item 13 will be set forth in our Proxy Statement, which information is incorporated herein by
reference.
ITEM 14. Principal Accountant Fees and Services
Information called on by Item 14 will be set forth in our Proxy Statement, which information is incorporated herein by
reference.
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PART IV
ITEM 15. Exhibits and Financial Statement Schedules
1.
Financial Statements
The consolidated financial statements are listed under Item 8 of this Form 10-K.
2.
Supplemental Financial Statement Schedules
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable, not required, or the information has been otherwise
supplied in the financial statements or notes to the financial statements.
3.
Exhibits
See "Exhibit Index" hereinafter contained and incorporated by reference.
ITEM 16. Form 10-K Summary
None.
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VSE Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
Additions
Charged to
Statement of
Income
Accounts
Balance at
Beginning
of Year
Other (1)
Deductions
Balance at
End of Year
(in thousands)
Allowance for credit losses on accounts receivable
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
Valuation allowance for deferred tax assets
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
1,493
396
79
7,926
1,165
107
572
1,767 (2)
244
331
6,761 (3)
1,165
—
—
148
—
—
—
388
670
75
—
—
107
1,677
1,493
396
8,257
7,926
1,165
(1) Represents opening allowance balance related to acquisition made during the period indicated.
(2) Increase in 2020 primarily due to allowances booked as a result of the financial impact from the COVID-19 pandemic.
(3) Increase in 2020 primarily due to full valuation allowance established against capital loss DTA in connection with the Prime Turbines
stock sale and full valuation allowance against foreign tax loss DTA.
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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
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Restated Certificate of Incorporation of VSE Corporation dated as of
March 4, 1996 (filed herewith)
Certificate of Amendment of the Restated Certificate of Incorporation of
VSE Corporation dated as of May 2, 2006 (Exhibit 3.1 to Form 10-Q dated
August 1, 2006)
By-Laws of VSE Corporation as amended through July 31, 2013 (Exhibit
3.1 to Form 8-K dated August 23, 2013)
*
*
*
Specimen Stock Certificate as of May 19, 1983 (Exhibit 4 to Registration
Statement No. 2-83255 dated April 22, 1983 on Form S-2)
* + P
Description of VSE Corporation Securities Registered Pursuant to Section
12 of the Securities Act of 1934 (filed herewith)
Separation and Release Agreement dated as of April 26, 2021, by and
between VSE Corporation and Thomas M. Kiernan (Exhibit 10.1 to Form
10-Q dated April 29, 2021)
Executive Employment Agreement dated as of September 24, 2019, by and
between VSE Corporation and Robert Moore (Exhibit 10.1 to Form 8-K
dated September 27, 2019)
Executive Employment Agreement dated as of July 28, 2021, by and
between VSE Corporation and Farinaz S. Tehrani. (Exhibit 10.1 to Form 8-
K dated July 30, 2021
Amended & Restated Executive Employment Agreement dated as of
December 7, 2021, by and between VSE Corporation and John A. Cuomo
(Exhibit 10.1 to Form 8-K dated December 9, 2021)
Amended & Restated Executive Employment Agreement dated as of
December 7, 2021, by and between VSE Corporation and Stephen D.
Griffin (Exhibit 10.2 to Form 8-K dated December 9, 2021)
Amended & Restated Executive Employment Agreement dated as of
December 7, 2021, by and between VSE Corporation and Benjamin E.
Thomas (Exhibit 10.3 to Form 8-K dated December 9, 2021)
Executive Employment Agreement dated as of December 7, 2021, by and
between VSE Corporation and Chad Wheeler (Exhibit 10.4 to Form 8-K
dated December 9, 2021)
Fourth Amended and Restated Business Loan and Security Agreement
dated January 5, 2018 among VSE Corporation and its wholly
owned subsidiaries, Citizens Bank N.A. and a syndicate of eight other
banks (Exhibit 10.1 to Form 8-K dated January 8, 2018)
First Amendment to Fourth Amended and Restated Business Loan and
Security Agreement dated November 26, 2019 among VSE Corporation
and its wholly owned subsidiaries, Citizens Bank N.A. and a syndicate of
nine other banks (Exhibit 10.1 to Form 8-K dated December 2, 2019)
Second Amendment to Fourth Amended and Restated Business Loan and
Security Agreement dated June 29, 2020 among VSE Corporation and its
wholly owned subsidiaries, Citizens Bank N.A. and certain other banks
(Exhibit 10.1 to Form 10-Q dated July 31, 2020.)
-70-
* +
* +
* +
* +
* +
* +
* +
* +
*
*
*
10.11
10.12
10.13
10.14
10.15
21.1
23.1
31.1
31.2
32.1
32.2
99.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Third Amended and Restated Business Loan and Security Agreement dated
July 23, 2021 among VSE Corporation and its wholly owned subsidiaries,
Citizens Bank N.A. and certain other banks (Exhibit 10.1 to Form 10-Q
dated July 29, 2021)
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 2006 Restricted Stock Plan, as amended in February
2020
VSE Corporation 2021 Employee Stock Purchase Plan (Appendix A to the
Registrant’s Proxy Statement on Schedule 14A (Commission File No.
000-03676) filed on April 2, 2021
Exhibit 10.1
* +
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
*
Subsidiaries of the Registrant
Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm
Section 302 CEO Certification
Section 302 CFO and PAO Certification
Section 906 CEO Certification
Section 906 CFO and PAO Certification
Audit Committee Charter (as adopted by the Board Of Directors of VSE
Corporation on March 9, 2004)(Appendix A to Registrant's
definitive proxy statement for the Annual Meeting of Stockholders held on
May 3, 2004)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
The cover page from VSE Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 2021 has been formatted in Inline
XBRL.
* Document has been filed as indicated and is incorporated by reference herein.
+ Indicates management contract or compensatory plan or arrangement.
P Indicates exhibit was submitted to the Securities and Exchange Commission as a paper filing prior to the time that electronic
filing on EDGAR became mandatory.
-71-
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 10, 2022
VSE CORPORATION
By:
/s/ John A. Cuomo
John A. Cuomo
Chief Executive Officer and President
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/ John A. Cuomo
John A. Cuomo
/s/ Stephen D. Griffin
Stephen D. Griffin
/s/ Ralph E. Eberhart
Ralph E. Eberhart
/s/ Calvin S. Koonce
Calvin S. Koonce
/s/ James F. Lafond
James F. Lafond
/s/ Bonnie K. Wachtel
Bonnie K. Wachtel
/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 and President
(Principal Executive Officer)
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
March 10, 2022
March 10, 2022
Chairman/Director
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
Director
Director
Director
Director
Director
Director
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6348 Walker Lane
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vsecorp.com
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