2022
Annual Report
2022 Annual Report
Table of
Contents
VSE Year in Review
A Message to our Shareholders
About VSE Corporation
Board of Directors
FY22 Financial Overview
03.
04.
09.
10.
11.
2
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview
VSE Year in Review
+26% Growth Year-over-Year
Fiscal Year 2022 Revenue
Segment Financial Overview
F L E E T S O L U T I O N S
$408M Revenue
+65% Year-Over-Year Growth
$261M Revenue
+12% Year-Over-Year Growth
$280M Revenue
+4% Year-Over-Year Growth
Corporate ESG Highlights
Aviation Segment repaired, restored and redeployed ~126,000 pounds
of aircraft parts.
Fleet Segment recycled ~3.4 tons of cardboard boxes and utilized
recyclable packing materials.
Federal & Defense Segment recycled and reclaimed ~112,000 pounds
of used oil, bilge water and oily wastewater.
Enhanced the diversity of our Board’s experience, industry background,
race, and gender profiles
3
See our full 2022 ESG report here
A Message To
Our Shareholders
Total revenues of $950 million increased by 26%
compared to 2021, supported by growth across all our
business segments. GAAP Net Income of $28.1 million
increased 252%, while adjusted EBITDA of $92.1 million
increased by 27% compared to the previous year.
2022 was a defining year in our VSE transformation
This performance further validates the success of our
story, one defined by significant milestone achievements
transformation strategies and positions the business for
positioning VSE for future growth and success. We
an even stronger 2023.
enter 2023 with well-defined segment strategies, a clear
roadmap for growth, upgraded leadership teams, and
Aviation Segment
systems, processes, and facilities ready to support all that
The Aviation segment achieved record full year revenue
is ahead for VSE.
As we progressed with our business transformation
in 2022, we advanced three key strategic pillars, all
designed to support long-term value creation for our
shareholders. They are:
of $408 million, an increase of 65% compared to the
prior year, as well as record adjusted EBITDA of $52
million, an increase of 145% year over year.
The Aviation team won significant new distribution and
MRO awards in 2022 totaling more than $500 million,
• Building new business and long-term, sustainable
including:
revenue channels
• Growing profit
• Optimizing legacy programs
In 2022, we continued to invest in our people and our
• The renewal of a three-year, $180 million distribution
agreement with a global B&GA aircraft OEM,
supporting 30,000 airframe parts and 1,000 B&GA
customers.
culture. We implemented new culture-building initiatives,
• A new Honeywell Aerospace agreement to provide
training programs, and career development opportunities
repair services for avionics equipment across multiple
for our employees, and have worked to foster a more
airframes establishing OEM-authorized services in
inclusive and diverse workplace. During the year, we
our Miramar, FL facility.
continued to upgrade our leadership teams with strong
leaders equipped to scale the business and deliver for
our shareholders.
Additionally, we strengthened our commitment to
• Two new exclusive distribution agreements with
an established OEM for inertial reference systems
globally and fuselage mounted antenna (FMA)
systems in Europe, Middle East, Africa and India
sustainability and corporate social responsibility. We
(EMEAI).
made significant progress in reducing our environmental
impact, and established new employee and
community outreach programs that promote a spirit of
connectedness and collaboration within our organization
and the wider communities in which we operate.
2022 Business Segment Review
In 2022, VSE generated strong financial performance.
• A new two-year Embraer business jet distribution
agreement supporting over 200,000 spare parts
Total revenues of $950 mil-
lion increased by 26%
compared to 2021.
4
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview supporting Phenom, Praetor, Legacy, and Lineage
airframes.
• An expansion of the existing Pratt & Whitney
Canada engine components distribution agreement
into the Asia Pacific region for the next 15 years.
VSE Aviation’s customer-focused execution was
2022 Business Highlights
Aviation
• Record full year segment revenue of $408M
• $500M+ of new and renewed OEM distribution agree-
ments
• Fully integrated Global Parts (systems, processes,
recognized by customers, vendors, and peers during
organization)
the year. VSE Aviation was recognized as Honeywell
• B&GA MRO capability growth including new fuel control
Aerospace’s Regional Channel Partner of the Year
(EMEAI region) for its “unwavering commitment to
supporting Honeywell products and services.” This
repairs and exciter program expansion
• Commercial MRO Honeywell Avionics Authorized Re-
pair Agreement win
• Awarded Honeywell Aerospace’s Regional Channel
recognition further exemplifies VSE’s dedication to
Partner of the Year
excellence in service, and the value of the partnerships
between Honeywell and VSE Aviation. The segment
was also recognized by industry peers as the “Top
Shop” for both “Best Pneumatics Repair” and “Best
Interiors Repair” for our South Florida and Cincinnati
MRO facilities for the 8th consecutive year.
During the year, the VSE Aviation team successfully
completed the integration of our Global Parts
acquisition. This integration allows us to go to market
as a single company, making it easier for customers
to do business with us, and increasing the opportunity
to cross-sell MRO services and distribution products
to our broad customer base. This is in continued
support of our mission to be the industry-leading “tip to
tail” aftermarket service provider for commercial and
business and general aviation customers.
Fleet Segment
2022 was a record-setting year for the Fleet segment.
Fleet segment revenue of $261 million increased 12%
• Top Shop awards for “Best Pneumatics Repair” and
“Best Interiors Repair” for both VSE South Florida and
Cincinnati MRO facilities
Fleet
• Record full year revenue segment revenues of $261M
• Successful execution of customer diversification strate-
gy; grew commercial revenue to ~40% of 2022 revenue
• Implemented new ERP and Warehouse Management
System to drive process improvement and scalability
• Opened new, state-of-the-art 450,000 square foot dis-
tribution center in greater Memphis, TN area
Federal & Defense
• Revenue grew 4% to $280M
• Awarded bridge contract valued at $186M to support
Naval Sea Systems Command (NAVSEA) program
• NAVSEA funded backlog greater than $125M
• Invested in new leadership and business development
teams
• Submitted bids totaling $1.5B, currently awaiting award
Corporate
• 3 new VSE independent directors joined VSE board
• Continued uninterrupted cash dividend payments
• Celebrated 40th year as NASDAQ listed company by
ringing opening bell
over 2021, while adjusted EBITDA of $33.2 million was
• Environmental, Social and Governance progress and
up 9%.
The core of the Fleet segment strategy is customer
diversification while growing profit. We continue to
support the United States Postal Service (USPS)
and all its vehicle types as we concurrently grow our
5
inaugural company ESG report
• Launched inclusion and diversity employee resources
groups, specifically supporting Women, Latinos and
LGBTQ+ employees
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview
business with commercial customers.
system to streamline operational processes and improve
Commercial revenue increased 42% in 2022 driven
service to our customers across the segment.
by market share gains in e-commerce, commercial
Federal & Defense Segment
fleet customer growth, and through our own website
wheelerfleet.com. Over the last three years, commercial
revenue has grown to comprise ~40% of segment
revenue, up from 10% in 2019.
Federal & Defense segment revenue grew 4% in 2022 to
$280 million. Throughout the year, we delivered excellent
service levels on existing programs, recruited new
leadership talent, and prioritized business development
Fleet segment revenue from USPS increased 4% in
initiatives to bolster our long-term prospects.
2022. Fleet continues to provide aftermarket products
and supply chain services supporting the 230,000
vehicles in the USPS fleet. Fleet offerings support the
complex breadth of products needed for both legacy
vehicles and newer generation vehicles. As the USPS
fleet evolves, we expect to expand our offerings to
ensure steady aftermarket support for this mission
critical fleet.
The Naval Sea Systems Command (NAVSEA) program
for our Maritime division continues to be the flagship
program for the segment, highlighted by the Bahrain
Navy vessel transfer underway in 2022 which helped
to drive revenue higher by $50 million in the year.
Additionally, we received a $186 million bridge contract
to support follow-on technical services through 2024 for
key customers. At year-end, NAVSEA funded backlog
To support continued e-commerce and e-commerce
was greater than $125 million.
fulfillment growth, the Fleet segment announced a new
distribution warehouse and e-commerce fulfillment
center of excellence in the greater Memphis, Tennessee
area. This new, state-of-the-art 450,000 square foot
facility provides much-needed capacity for growth,
doubling the segment’s existing warehouse footprint,
and allows this team to optimally support commercial
customers with its proximity to a major transportation
hub, a later daily shipping window, and operational
efficiencies, all of which will result in faster delivery
times.
In addition to the new facility, the Fleet business
implemented a new Enterprise Resource Planning (ERP)
The Federal & Defense segment actively invested in
business development to ensure sustainable long-term
growth. In 2022, business development resources
increased five times over 2021, with a focus on core
capability competencies and new customer channels.
This deliberate, strategic approach resulted in a 60%
expansion in the pipeline for new business opportunities.
As of December 31, 2022, the segment submitted bids
totaling $1.5 billion, currently awaiting award.
Forty-years ago, VSE Corporation launched an IPO and
was listed on NASDAQ with a vision to support mission-
critical requirements for military customers. Four
decades later, that vision has not only been achieved,
but VSE has transformed into a multi-segment, market-
leading, global aftermarket services business. Today,
6
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview through our three segments, VSE is stronger than ever.
Every day, the VSE teams solve problems for our more
than 5,000 customers around the globe and supports:
• Global parts distribution and maintenance repair and
overhaul services for our commercial and business
and general aviation customers through VSE
Aviation,
• Parts distribution and technical services for our
vehicle fleet customers through our Wheeler Fleet
Solutions subsidiary,
• Mission-critical services, IT, energry consulting
services and sustainment support for our defense
clients through Federal & Defense segment.
As we enter our 64th year as VSE Corporation, we do
so with strong momentum from a year fueled by growth
in all our business segments. We are well positioned for
the future with our customer-focused value propositions,
our expansive product and service offerings, and a robust
pipeline of backlog and new business opportunities.
I am honored to lead this company toward its bright
future. I am confident about the journey ahead of us,
and proud of the remarkable strides we made in 2022.
I have full faith in our team’s ability to propel us toward
growth and generate significant returns for our esteemed
shareholders. Thank you for your continued support and
investment in VSE Corporation.
John A. Cuomo
President & CEO | VSE Corporation
7
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview We are delivering trusted
solutions to inspire
the performance of
tomorrow
VSE Corporation delivers parts and provides mainte-
nance and repair services that keep global transpora-
tion moving, and commercial and federal operations
running.
We’re delivering solutions that free our customers and
suppliers to perform better and faster.
What we do today makes tomorrow possible
Visit vsecorp.com to learn more.
About
VSE Corporation
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 foreign military sales services, engineering,
logistics, maintenance, repair and overhaul (MRO),
VSE Corporation is a diversified aftermarket products
refurbishment, configuration management, prototyping,
and services company providing repair services, parts
and field support services, as well as data management
distribution, logistics, supply chain management, and
and health care IT services. VSE’s Federal and Defense
consulting services for land, sea and air transportation
segment includes Energetics Incorporated, a provider of
assets to commercial and government markets. VSE
energy consulting services.
comprises three operating segments: Aviation, Fleet and
Federal & Defense.
Aviation
Distribution & MRO Services
VSE’s Aviation segment provides aftermarket MRO
and distribution services to commercial, business and
general aviation, cargo, military/defense and rotorcraft
customers. Core services include parts distribution,
component and engine accessory MRO services, rotable
exchange and supply chain services.
Fleet
Distribution & Fleet Services
VSE’s Fleet segment provides aftermarket parts,
inventory management, e-commerce fulfillment,
logistics, supply chain support and other services to the
commercial medium- and heavy-duty truck market and
the United States Postal Service. Core services include
Class 4-8 (light to heavy) vehicle parts distribution and
solutions; real-time inventory management; design,
protoyping and custom engineering solutions; alternate
part sourcing and technical support; and third party
distribution fulfillment. VSE’s Fleet segment operates as
wholly owned subsidiary Wheeler Fleet Solutions.
Federal & Defense
Logistics, Sustainment & Technical Services
VSE’s Federal and Defense segment provides
aftermarket MRO and logistics services to improve
9
F L E E T S O L U T I O N S
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview 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
Anita D. Britt
Former CFO, Perry Ellis
International
Certified Public Accountant
NACD Board Leadership
Fellow
Edward P. Dolanski
Co-Founder, First Watch Group
Former President & CEO,
Aviall Inc.
Former President,
U.S. Government Services,
Boeing Global Services
Mark E. Ferguson III
Admiral, USN (Ret.)
Former Vice Chair of Naval
Operations, U.S. Navy
Former Commander, U.S. Naval
Forces & NATO
Allied Joint Forces Command
Lloyd E. Johnson
Former Global Managing Director,
Accenture Corporation
Certified Public Accountant
Calvin S. Koonce, Ph.D.
President and Director,
Montgomery Investment
Management, Inc.
Sole Member of Koonce
Securities, LLC
James F. Lafond*
Former Washington Area
Managing Partner,
PwC LLP (Ret.)
John E. “Jack” Potter
President and CEO, Metropolitan
Washington Airports Authority
Former Postmaster General and
CEO of USPS
Bonnie K. Wachtel
Principal and Director,
Wachtel & Co., Inc.
*Mr. Lafond will retire from the Board
effective May 3, 2023.
Board of Directors Highlights
10
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Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview FY2022
Financial Overview
(in thousands except per share amount)
Years ended December 31,
2022
2021
2020
2019
2018
Revenues
$949,762
$750,853
$661,659
$752,627
$697,218
Net income (loss)
$28,059
$7,966
$(5,171)
$37,024
$35,080
Diluted earnings per share:
Net income (loss)
$2.19
$0.63
$(0.47)
$3.35
Cash dividends per common share
$0.40
$0.37
$0.36
$0.35
$3.21
$0.31
2022
2021
2020
2019
2018
As of December 31,
Working capital
$324,274
$284,029
$215,729
$191,158
$176,342
Total assets
$999,789
$918,558
$780,081
$845,864
$638,828
Long-term debt
$276,300
$270,407
$230,714
$253,128
$151,133
Stockholders' equity
$449,526
$417,333
$356,317
$363,101
$328,395
11
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Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview FY2022
Financial Overview
(in thousands)
Years ended December 31,
Reconciliation of Consolidated EBITDA and Adjusted EBITDA to Net Income
Net Income
Interest expense
Income taxes
Amortization of intangible assets
Depreciation and other amortization
EBITDA
Acquisition and restructuring costs
Inventory reserve
Non-recurring professional fees
Contract loss
Russia/Ukraine conflict
Adjusted EBITDA
2022
$28,059
17,885
9,187
17,639
6,963
79,733
2,076
-
329
7,582
2,335
$92,055
(in thousands)
Years ended December 31,
Reconciliation of Segment EBITDA and Adjusted EBITDA to Operating Income (Loss)
Aviation
Operating income (loss)
Depreciation and amortization
EBITDA
Acquisition and restructuring costs
Inventory reserve
Russia/Ukraine conflict
Adjusted EBITDA
Fleet
Operating income
Depreciation and amortization
EBITDA
Acquisition and restructuring costs
Inventory reserve
Adjusted EBITDA
Federal & Defense
Operating (loss) income
Depreciation and amortization
EBITDA
Contract loss
Acquisition and restructuring costs
Adjusted EBITDA
2022
$36,416
12,701
49,117
668
-
2,335
$52,120
$23,911
8,666
32,577
590
$33,167
$(805)
3,235
2,430
7,582
796
$10,808
12
2021
$7,966
12,069
1,485
18,482
6,018
46,020
1,809
24,420
357
-
-
$72,606
2021
$(14,373)
11,068
(3,305)
888
23,727
-
$21,310
$20,426
9,369
29,795
-
693
$30,488
$19,897
4,063
23,960
-
-
$23,960
Table of Contents VSE Year in Review About VSE Board of Directors Financial Overview 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, 2022
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 ☐
Table of Contents
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 ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by a check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
The aggregate market value of outstanding voting stock held by non-affiliates of the Registrant as of June 30, 2022, the last
business day of the registrant's most recently completed second quarter, was approximately $396 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, 2023: 12,835,927
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for the Annual Meeting of Stockholders expected to be held on May 3, 2023,
which is expected to be filed with the Securities and Exchange Commission on or about April 2, 2023, 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
29
30
58
59
61
61
61
61
61
61
61
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62
64
66
-3-
Table of Contents
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-
Table of Contents
ITEM 1. Business
History and Organization
PART I
VSE Corporation 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. The terms "we," "us," "our," "VSE" and the "Company" means VSE Corporation and its operating
businesses unless the context indicates otherwise. 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, maritime and
other customers. We also provide vehicle and equipment refurbishment, logistics, engineering support, data management and
healthcare IT solutions, and clean energy 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: Aviation, Fleet and
Federal and Defense, each of which consists of one or more wholly owned subsidiaries or unincorporated divisions that perform
our services.
We deliver trusted solutions to inspire the performance of tomorrow.
Aviation
Our Aviation segment accounted for 43%, 33%, and 25% of our consolidated revenues in 2022, 2021 and 2020, respectively.
The 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").
In 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.
Fleet
Our Fleet segment accounted for 27%, 31%, and 37% of our consolidated revenues in 2022, 2021 and 2020, respectively. The
Fleet segment provides parts distribution, inventory management, e-commerce fulfillment, logistics and other services to assist
aftermarket commercial and government agencies with their supply chain management. Fleet segment operations are conducted
under the brand Wheeler Fleet Solutions, which supports 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.
Federal and Defense
Our Federal and Defense segment accounted for 30%, 36%, and 38% of our consolidated revenues in 2022, 2021 and 2020,
respectively. The 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.
In 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.
-5-
Table of Contents
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 services through various ordering arrangements, including master service agreements
(MSAs), commercial contracts, and federal contract awards. 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 to private and
commercial aircraft owners, aviation MRO providers, 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.
Customers
Our customers include various commercial entities and government clients. In 2022, our commercial customers represented
53% of our consolidated revenues, up from 43% and 31% in 2021 and 2020, respectively. Our consolidated revenue by
customer type are as follows (in thousands):
Commercial
DoD
Other government (a)
Total
(a) Includes USPS revenue
Year ended December 31,
2022
%
2021
%
2020
%
$ 507,900
227,722
214,140
$ 949,762
53 $ 322,318
24
233,422
195,113
23
100 $ 750,853
43 $ 208,305
31
236,397
216,957
26
100 $ 661,659
31
36
33
100
Our largest customers by revenue for each of the last three fiscal years were the USPS and the U.S. Navy. The USPS revenues,
reported within our Fleet segment, comprised approximately 16%, 20%, and 27% of our consolidated revenues in 2022, 2021
and 2020, respectively. The U.S. Navy revenue, reported within our Federal and Defense segment, comprised approximately
15%, 13%, and 16% of our consolidated revenues in 2022, 2021 and 2020, respectively.
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, 2022, 2021 and 2020 was approximately $187 million, $185
million and $183 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.
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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 associations, 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, 2022, we employed over 2,000 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.
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 training to communicate and implement safety policies and procedures. 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.
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 help us 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.
Company culture is a priority. We model our values and focus on our cultural beliefs through recognition, storytelling and
creating experiences. Our people and teams remain a key market differentiator for our business.
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 bonus opportunities, a Company matched 401(k) plan, an employee stock purchase plan, healthcare insurance benefits,
health savings and flexible spending accounts, paid time off, holiday pay, flexible work schedules, and education
reimbursement and employee assistance programs.
Inclusion and Diversity
We embrace and encourage inclusion and strive to build a culture and company environment supporting inclusion and 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"), a leader-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. We believe our employee resource groups,
which include Women in the Workforce, Pride, and Latinos Unidos, help foster a diverse and inclusive workplace, build
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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 has 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 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 performs
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.
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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 incorporate 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
We face various risks related to health epidemics, pandemics and similar outbreaks, which could adversely affect our
business.
We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, including COVID-19. The
ongoing COVID-19 pandemic has adversely affected, and may continue to adversely affect, our operations, supply chains and
distribution systems. The global aviation market experienced a significant decline during the peak of the COVID-19 pandemic,
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. While we have seen recovery in the overall demand for commercial air travel and currently expect that recovery to
continue, any future outbreaks of COVID-19 or other epidemics, pandemics, crises or public health concerns in regions of the
world where we have operations or sell products, together with governmental and regulatory responses thereto, could adversely
impact the Aviation segment and our operating results.
The extent of the impact of COVID-19 or other epidemics, pandemics, crises or public health concerns on our business,
including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will
depend on numerous evolving factors that we cannot accurately predict or assess, including the negative impact it has on global
and regional economies and economic activity; decisions by our customers to delay the use of, or permanently retire, certain
aircraft, demand levels for aviation disruption inventory, which could result in a and adversely affect our results of operations;
write-down of existing inventory to adjust to current market trends; and disruption in demand, which adversely impacts our
commercial customers in the Aviation segment. Any of these events could exacerbate the other risks and uncertainties described
herein, or in other reports filed with the SEC from time to time, and could materially adversely affect our business, financial
condition, results of operations and/or stock price.
Supply chain delays, disruptions, and potential geopolitical uncertainty could adversely affect our business operations and
expenses
Due to current economic and geopolitical uncertainty and supply chain disruptions, 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
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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.
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, 2022, goodwill and intangible assets, net of amortization, accounted for 25% and 9%, 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.
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
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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
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.
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 workforce
management.
Our financial performance is heavily dependent on the abilities of our operating and administrative staff with respect to
technical skills, operating performance, pricing, cost management, safety, and administrative and compliance efforts. A wide
diversity of contract types, nature of work, work locations, and legal and regulatory complexities challenges our administrative
staff and skill sets. We also face challenges associated with our quality of workforce, quality of work, safety, and labor relations
compliance. Our current and projected work in foreign countries exposes us to challenges associated with export and ethics
compliance, local laws and customs, workforce issues, extended supply chain, political unrest and war zone threats. Failure to
attract or retain an adequately skilled workforce, lack of knowledge or training in critical functions, or inadequate staffing levels
can result in lost work, reduced profit margins, losses from cost overruns, performance deficiencies, workplace accidents, and
regulatory noncompliance.
Our 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
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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.
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
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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.
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
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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,
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.
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Our debt exposes us to certain risks.
As of December 31, 2022, we had $286 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
As of December 31, 2022, we owned or leased building space (including offices, warehouses, shops, and other facilities) at 30
locations. Our major operations are at the following locations:
Aviation - Doral and Miramar, Florida; Independence and Augusta, Kansas; Hebron, Kentucky; and Phoenix, Arizona
Fleet - Somerset, Pennsylvania; Olive Branch, Mississippi; and Grand Prairie, Texas
Federal and Defense - Alexandria, Virginia; Ladysmith, Virginia; Texarkana, Arkansas; Kahului, Hawaii; Columbia,
Maryland; Greensboro, North Carolina; Charleston, South Carolina; and Sterling Heights, Michigan
Corporate - Alexandria, Virginia
The following is a summary of the square footage our of floor space as of December 31, 2022 (in thousands):
Aviation Segment
Fleet Segment
Federal and Defense Segment
Corporate
Total
Owned
Leased
Total
91
271
148
—
510
180
592
344
95
271
863
492
95
1,211
1,721
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We consider our facilities to be in good operating condition and sufficient to meet our operational needs for the foreseeable
future.
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-
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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
2021
2022
$
$
$
$
$
0.10 $
0.10 $
0.10 $
0.10 $
0.40 $
0.09
0.09
0.09
0.10
0.37
As of February 1, 2023, VSE common stock, par value $0.05 per share, was held by approximately 216 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 (7) "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 23,044 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.
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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, 2022.
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)
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
136,086 $
— $
136,086 $
42.94
—
42.94
926,607
—
926,607
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.
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Performance Graph
The following graph compares the cumulative total return on our common stock with (i) a performance index for the broad
market, the NASDAQ Global Select Market, on which our common stock is traded, (ii) a published industry index, the S&P
500 Aerospace & Defense Index, and (iii) our previous peer group comprised of the following: Heico Corporation, Dorman
Products, Inc., V2X Inc., and CACI International Inc. Due to recent consolidations within our peer group, we replaced our peer
group with the S&P 500 Aerospace & Defense index.
The graph assumes an initial investment of $100 on 12/31/17 and that all dividends have been reinvested. The comparisons are
not intended to be indicative of future performance of our common stock.
*$100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Performance Graph Table
VSE
NASDAQ Composite
S&P Aerospace & Defense
Previous Peer Group
ITEM 6. [Reserved]
2017
100
100
100
100
2018
62.20
97.16
91.93
125.18
2019
79.97
132.81
119.81
179.30
2020
82.00
192.47
100.56
199.71
2021
130.82
235.15
113.86
220.89
2022
101.58
158.65
133.64
228.02
-20-
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among VSE Corporation, The NASDAQ Composite Index, and Peer GroupsVSENASDAQ CompositeS&P Aerospace & DefensePrevious Peer Group12/1712/1812/1912/2012/2112/22050100150200250
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated statements and related notes
included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. The following
generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and
year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found under Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-
K for fiscal year ended December 31, 2021, filed with the SEC on March 11, 2022.
Business Overview
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.
Our operations are conducted within three reportable segments aligned with our operating segments: Aviation, Fleet and
Federal and Defense.
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 has seen favorable results due to successful investments in growth initiatives, resulting in a 65% increase
in annual revenue, totaling $408 million. The expansion of our distribution services was driven by new initiatives offering
comprehensive “tip-to-tail” product-line solutions. Our repair business experienced growth from both the recovery of the
commercial market and increased market share in the business and general aviation sector. These factors, combined with our
growth initiatives, led to a 75% increase in distribution revenue and a 42% increase in repair revenue in 2022 compared to the
prior period. In 2022, we secured key multi-year distribution deals for both domestic and new international markets. The new
distribution initiatives are expected to bring in sustainable and recurring revenue with growth opportunities, contributing to
future positive results. With continued growth in the distribution business and recovery in commercial markets, our focus is on
investing in businesses and programs that will broaden our portfolio and reach new customers. The January 2023 acquisition of
Precision Fuel Components expands our product offerings and customer base, offering strategic cross-selling opportunities and
market share in niche B&GA related markets. The Aviation segment is expected to see continued growth due to progress on
new initiatives, offering a favorable outlook for 2023.
Fleet Segment
Our Fleet segment continues to see growth in revenue from commercial fleet customers and e-commerce fulfillment, as the
segment moves towards revenue diversification. Fleet is executing its revenue diversification strategy by acquiring new
customers and expanding product options for the e-commerce fulfillment business. Commercial customer revenue continues to
experience strong growth, increasing 42% in 2022 compared to the prior year. We anticipate continued growth as we extend our
reach to meet the increasing demand from the commercial market. In 2022, commercial revenues were 40% of total Fleet
segment revenue compared to 18% in 2020, demonstrating the continued success of our revenue diversification strategy. To
support commercial revenue, Fleet opened a new distribution warehouse and e-commerce center of excellence in Olive Branch,
MS (near Memphis, TN), in January 2023. The new facility, which doubles the existing warehouse space, enhances Fleet's
geographical coverage and product offerings for customers. The launch of the new location will allow Fleet to keep up with the
growing demand for e-commerce fulfillment. Additionally, we generated steady revenue from our support of the USPS delivery
vehicle fleet through supplying parts and managing inventory, with revenue increasing 4% in 2022 compared to the prior year.
We continue to monitor USPS vehicle procurement and are ready to support both new vehicles added to the fleet and existing
vehicles still in service. Our experience and understanding of the USPS's needs strategically position us to remain a key partner.
We are committed to remain agile and supporting the USPS during its vehicle transition. We expect continued growth within
our commercial channels, coupled with stable contributions from USPS.
Federal and Defense Segment
In 2022, our Federal and Defense segment experienced revenue growth driven by strong performance in our Naval Sea Systems
Command (NAVSEA) program in providing Foreign Military Sales (FMS), with the transfer of a U.S. Navy ship to Bahrain
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being a major contributor for the revenue increase. We experienced margin impacts from an unfavorable contract mix and
recognized a loss on a non-Department of Defense contract with a foreign customer that was completed in 2022. To address
these challenges, the Federal and Defense segment is reshaping its presence in the federal market by investing in business
development. This includes a change in leadership and a focus on maintaining core operations while expanding our client base
and capabilities. We aim to enhance our services and pursue new opportunities to support long-term growth for this segment.
Results of Operations
The following table summarizes our consolidated results of operations (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 income
Interest expense, net
Income before income taxes
Provision for income taxes
Net income (loss)
Years ended December 31,
2022
$ 949,762
894,631
%
2021
%
2020
%
100.0 $ 750,853
729,333
94.2
100.0 $ 661,659
606,896
97.1
100.0
91.7
—
—
—
55,131
17,885
37,246
9,187
28,059
$
—
—
—
5.8
1.9
3.9
1.0
2.9 $
—
—
—
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)
Revenues. Revenues increased $198.9 million, or 26.5%, in 2022 compared to 2021 due to revenue growth in our Aviation
segment of $160.3 million, our Fleet segment of $27.8 million and our Federal and Defense segment of $10.8 million. See
"Segment Operating Results" below for further information by segment. See Note (3) to the consolidated financial statements
for information regarding sales by type and customer type for each of our segments.
Costs and Operating Expenses. Costs and operating expenses increased $165 million, or 23%, in 2022 compared to 2021. 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" below for further information by segment.
Operating Income. Operating income increased $33.6 million, or 156%, in 2022 compared to 2021 attributable to increases of
$50.8 million for our Aviation segment and $3.5 million for our Fleet segment, partially offset by a decrease of $20.7 million
for our Federal and Defense segment. See "Segment Operating Results" below for further information by segment.
Interest Expense. Interest expense increased approximately $5.8 million or 48.2% in 2022 compared to 2021 primarily due to
higher average interest rates on borrowings outstanding.
Provision for Income Taxes. The effective tax rate was 24.7% in 2022 compared 15.7% in 2021. The increase in our effective
tax rate primarily resulted from book expense in connection with a decline in the fair market value of our corporate owned life
insurance ("COLI") assets in 2022 vs. book income recorded in 2021. For tax purposes, current year COLI book expense was
reversed resulting in an unfavorable adjustment to the effective tax rate as opposed to a favorable adjustment reported in 2021.
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, I.R.C. Section 162(m) executive compensation limitation 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.
-22-
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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 income (loss)
2022
$ 408,112
371,696
—
—
—
36,416
$
Years ended December 31,
2021
%
%
2020
%
100.0 $ 247,852
262,225
91.1
100.0 $ 165,070
159,743
105.8
—
—
—
8.9 $
—
—
—
(14,373)
—
—
(8,214)
1,108
—
(5.8) $
(33,734)
(35,513)
100.0
96.8
(5.0)
0.7
(20.4)
(21.5)
Revenues. Revenues increased $160 million, or 65%, in 2022 compared to 2021. Distribution revenue increased $129 million,
or 75%, driven by contributions from recently initiated distribution contract wins and contributions from the acquisition of
Global Parts (which occurred in the third quarter of the prior year). Repair revenue increased $32 million, or 42%, driven by
improved demand in end markets as a result of market recovery and share gains with business and general aviation customers.
Costs and Operating Expenses. Costs and operating expenses increased $109 million, or 42%, in 2022 compared to 2021
primarily due to revenues increase as noted above and a $2.3 million non-cash charge to write down accounts receivable and
inventory related to the Russian and Ukrainian markets, partially offset by a decrease in costs due to the absence of a $23.7
million inventory valuation reserve recognized in the prior year. Costs and operating expenses for this segment include
expenses for amortization of intangible assets associated with acquisitions and allocated corporate costs. Expense for
amortization of intangible assets was approximately $9.3 million and $8.7 million for 2022 and 2021, respectively. Expense for
allocated corporate costs was approximately $12.9 million and $8.8 million for 2022 and 2021, respectively.
Operating Income. Operating income increased $50.8 million, or 353%, in 2022 compared to 2021 primarily due to
contributions from new distribution programs, increases in higher margin repair revenue, and contributions from the Global
Parts acquisition.
Fleet Segment Results
The results of operations for our Fleet segment are as follows (in thousands):
Revenues
Costs and operating expenses
Operating income
2022
$ 261,336
237,425
23,911
$
%
2021
%
2020
%
100.0 $ 233,532
213,106
90.9
20,426
9.1 $
100.0 $ 242,170
215,511
91.3
26,659
8.7 $
100.0
89.0
11.0
Years ended December 31,
Revenues. Revenues increased $27.8 million, or 12%, in 2022 compared to 2021. The increase was primarily from commercial
customers of $31 million, or 42%, and other government customers of $7 million, or 5%. These increases were partially offset
by a decrease in sales to DoD customers of $9 million, or 74%.
Costs and Operating Expenses. Costs and operating expenses increased $24.3 million, or 11%, primarily due to increased
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 $6.4 million for 2022 and $7.1
million for 2021. Expense for allocated corporate costs was $7.5 million for 2022 and $8.5 million for 2021.
Operating Income. Operating income increased $3.5 million, or 17%, in 2022 compared to 2021, primarily due to a change in
mix of products sold, including increased commercial fleet customer and e-commerce fulfillment sales as described above.
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Federal and Defense Segment Results
The results of operations for our Federal and Defense segment are as follows (in thousands):
Revenues
2022
$ 280,314
Years ended December 31,
%
2021
%
2020
%
100.0 $ 269,469
100.0 $ 254,419
Costs and operating expenses
Operating (loss) income
281,119
100.3
$
(805)
(0.3) $
249,572
19,897
92.6
7.4 $
228,110
26,309
100.0
89.7
10.3
Revenues. Revenues increased $11 million, or 4%, in 2022 compared to 2021 due to revenues from our Foreign Military Sales
(FMS) program with the U.S. Navy, partially offset by declines in our U.S. Army work as a result of program completions.
Costs and Operating Expenses. Costs and operating expenses increased $32 million, or 13%, in 2022 compared to 2021 due to
increased revenue and a shift in our contract mix to a larger proportion of cost-plus contracts.
Operating (Loss) Income. Operating income decreased approximately $20.7 million, or 104%, in 2022 compared to 2021
primarily due to the completion of a U.S. Army program and a shift in our contract mix to a larger portion of cost-plus
contracts, which generally provide lower profit margins compared to fixed-price and T&M contract types. Additionally, we
recorded a $7.8 million loss in 2022 related to a specific fixed-price, non-DoD contract with a foreign customer. We have
completed work on this contract in 2022.
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.
A summary of our bookings, revenues and funded contract backlog for our Federal and Defense segment is as follows (in
millions):
Bookings
Revenues
Funded Backlog
Year Ended December 31,
2021
2020
2022
$
$
$
294 $
280 $
187 $
314 $
269 $
185 $
270
254
183
For the year ended December 31, 2022, Federal and Defense segment bookings decreased 6% year-over-year to $294 million,
while total funded backlog increased 1% year-over-year to $187 million.
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Financial Condition
There has been no material adverse change in our financial condition in 2022. Our bank debt increased $2 million, and we had
$160 million of unused bank loan commitments as of December 31, 2022. 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; and collections from our customers.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows (in thousands):
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
$
$
Year ended December 31,
2022
2021
2020
8,051 $
(17,602) $
35,761
20,219
(2,377)
(5,714)
(61,632)
79,374
(56,336)
(40) $
140 $
(356)
Cash provided by operating activities was $8.1 million in 2022 compared to cash used in operating activities of $17.6 million in
2021. The change was primarily due to lower use of cash for inventory purchases and timing of vendor payments, partially
offset by increased accounts receivable as a result of overall revenue growth and timing of collections.
Cash used in investing activities decreased $59.3 million in 2022 compared to 2021 primarily due to cash paid for acquisitions,
net of cash acquired, of $53.3 million related to the acquisitions of our HSS and Global Parts subsidiaries in the prior year.
Cash used in financing activities was $5.7 million in 2022 as compared to cash provided by financing activities of $79.4 million
in 2021. The change was primarily due to $52.0 million of proceeds received in the prior year related to our public underwritten
offering of our common stock in February 2021 and overall lower net borrowings of our debt in 2022.
We paid cash dividends totaling approximately $5.1 million or $0.40 per share in 2022. 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
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. In addition to operating cash flows, other significant
factors that affect our overall management of liquidity include capital expenditures; investments in expansion; improvement and
maintenance of our operational and administrative facilities; and investments in the acquisition of businesses.
Our primary source of external financing is our loan agreement with a bank group and includes a term loan facility and a
revolving loan facility, with an aggregate maximum borrowing capacity of $350 million. Under the loan agreement we may
elect to increase the maximum availability of the term loan facility, the revolving loan facility, or a combination of both
facilities, subject to customary lender commitment approvals. The aggregate limit of increases is $100 million.
On October 7, 2022, we entered into a fourth amendment to our loan agreement which, among other things, provides for the
following: (i) an extension of the maturity date from July 23, 2024 to October 7, 2025; (ii) a reset of the aggregate principal
amount of the term loan to $100.0 million; (iii) a modification to the amortization payments on the term loan from $3.75
million quarterly to $2.50 million quarterly; (iv) an increase in the maximum total leverage ratio from 4.25x to 4.50x, with such
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ratios decreasing thereafter as indicated in the table below; (v) a change in the benchmark rate from LIBOR to SOFR with a
SOFR floor of 0.00%; and (vi) a corresponding change in pricing to account for the change from LIBOR to SOFR.
Testing Period
Maximum Total Funded Debt
to EBITDA Ratio
From the Fourth Amendment Effective Date through and including June 30, 2023
From July 1, 2023 through and including December 31, 2023
From January 24, 2024 through and including June 30, 2024
From July 1, 2024 through and including September 30, 2024
From October 1, 2024 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
See Note (7) "Debt" to our Consolidated Financial Statements for information regarding our loan agreement.
Other Obligations and Commitments
See Note (7) "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 $20.6 million for 2023, $19.8
million for 2024 and $16.2 million for 2025. The estimates do not take into account future drawdowns and repayments on the
debt or changes in the variable interest rate, and actual interest may be different. The estimates included variable rate interest
obligations estimated based on rates as of December 31, 2022. 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) "Leases" to our Consolidated Financial Statements for information pertaining to future minimum lease payments
relating to our operating and lease 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.
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
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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
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. We generally recognize revenue using the
time-elapsed output method for our fixed-price service offering performance obligations. For certain deliverable-based fixed-
price performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at
completion. 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.
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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
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.
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The results of our annual goodwill impairment tests in fiscal 2022 and 2021, respectively, indicated that the estimated fair value
of each reporting unit exceeded its carrying value. There were no impairment charges recorded in the years ended December 31,
2022 and 2021.
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 within the carryback or carryforward periods provided for in the tax law for each
applicable tax jurisdiction. Deferred tax assets are evaluated quarterly to determine if valuation allowances are required or
should be adjusted.
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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rates
Our bank loan agreement provides available borrowing to us at variable interest rates. Our interest expense is impacted by the
overall global economic and interest rate environment. The inflationary environment has also resulted in central banks raising
short-term 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.
A hypothetical 1% increase to interest rates would have increased interest expense by approximately $3.3 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 (7) and Note (8), respectively, to our
Consolidated Financial Statements contained in this report.
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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, 2022 and 2021
Consolidated Statements of Income (Loss) for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and
2020
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
31
33
34
35
36
37
39
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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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2022, 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, 2022, 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 9, 2023 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 critical audit matters 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 records inventory within its Aviation
Segment at the lower of cost or net realizable value. The Company periodically evaluates the carrying value of inventory which
requires the write-down of slow-moving inventory for excess or obsolete inventory based on certain inputs and assumptions
used to determine the net realizable value. These assumptions include future demand and sales patterns. Changes in these
assumptions could have a significant impact on the valuation of the inventory for the Aviation Segment.
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 the magnitude of the inventory balance in the Aviation Segment and 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 includes the future demand and sales patterns, 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.
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Our audit procedures related to the write-down of inventory included the following, 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 the recovery rates applied to slow moving inventory are consistent with management’s forecasted
demand.
• We assessed the identification of specific inventory with declining usage trends by evaluating external industry
information.
• We conducted sensitivity analysis around the reserve assumptions applied to aged inventory included in the perpetual
listing as of year-end.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Arlington, Virginia
March 9, 2023
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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
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 13)
As of December 31,
2022
2021
$
478 $
$
$
103,193
38,307
380,707
26,193
548,878
47,969
90,624
248,837
34,412
29,069
999,789 $
10,000 $
159,600
53,722
1,282
224,604
276,300
7,398
32,340
9,621
—
550,263
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
Stockholders' equity:
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and
outstanding 12,816,613 and 12,726,659 respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
641
92,620
351,297
4,968
449,526
999,789 $
636
88,515
328,358
(176)
417,333
918,558
$
The accompanying notes are an integral part of these financial statements.
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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,
2022
2021
2020
$
562,482 $
387,280
949,762
400,935 $
349,918
750,853
318,324
343,335
661,659
503,932
367,897
5,163
17,639
894,631
385,065
322,161
3,625
18,482
729,333
283,814
302,458
3,120
17,504
606,896
55,131
21,520
54,763
—
—
—
—
—
—
(8,214)
1,108
(33,734)
55,131
21,520
13,923
17,885
12,069
13,496
37,246
9,451
427
9,187
1,485
5,598
$
$
28,059 $
7,966 $
(5,171)
2.20 $
0.63 $
(0.47)
Basic weighted average shares outstanding
12,780,117
12,551,459
11,034,256
Diluted earnings (loss) per share
$
2.19 $
0.63 $
(0.47)
Diluted weighted average shares outstanding
12,827,894
12,632,874
11,034,256
The accompanying notes are an integral part of these financial statements.
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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,
2022
2021
2020
$
$
28,059 $
5,144
5,144
33,203 $
7,966 $
1,027
1,027
8,993 $
(5,171)
(98)
(98)
(5,269)
The accompanying notes are an integral part of these financial statements.
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VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands except per share data)
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
Net income
Stock-based compensation
Change in fair value of interest rate
swap agreements, net of tax
Dividends declared ($0.40 per share)
Balance at December 31, 2022
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
10,970 $
—
85
549 $ 29,411 $ 334,246 $
(5,171)
—
—
4
—
2,459
(1,105) $
—
—
—
—
11,055
1,599
—
73
—
—
12,727
—
90
—
—
553
80
—
3
—
—
636
—
5
—
—
31,870
51,937
—
4,708
—
—
88,515
—
4,105
—
(3,978)
325,097
—
7,966
—
—
(4,705)
328,358
28,059
—
(98)
—
(1,203)
—
—
—
1,027
—
(176)
—
—
—
—
12,817 $
—
—
—
(5,120)
641 $ 92,620 $ 351,297 $
—
—
5,144
—
4,968 $
363,101
(5,171)
2,463
(98)
(3,978)
356,317
52,017
7,966
4,711
1,027
(4,705)
417,333
28,059
4,110
5,144
(5,120)
449,526
The accompanying notes are an integral part of these financial statements.
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VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31,
2021
2020
2022
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
$
28,059 $
7,966 $
(5,171)
Depreciation and amortization
Deferred taxes
Stock-based compensation
Provision for inventory
Loss on sale of a business entity and certain assets
Loss (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
25,570
(1,139)
4,465
1,094
—
122
—
—
(26,606)
(6,425)
(59,099)
(4,522)
36,193
10,339
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)
Net cash provided by (used in) operating activities
8,051
(17,602)
35,761
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
(11,212)
—
8,835
—
—
—
(10,520)
68
2,906
—
(750)
(53,336)
(4,427)
2,875
1,856
19,915
—
Net cash (used in) provided by investing activities
(2,377)
(61,632)
20,219
Cash flows from financing activities:
Borrowings on loan agreement
Repayments on loan agreement
Proceeds from issuance of common stock
Earn-out obligation payments
Payment of debt financing costs
Payment of taxes for equity transactions
Dividends paid
520,223
(518,347)
899
(1,250)
(1,113)
(1,015)
(5,111)
491,567
(458,294)
52,017
—
(808)
(681)
(4,427)
432,999
(452,338)
—
(31,701)
(636)
(690)
(3,970)
Net cash (used in) provided by financing activities
(5,714)
79,374
(56,336)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(40)
518
478 $
140
378
518 $
(356)
734
378
$
The accompanying notes are an integral part of these financial statements.
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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
$
$
$
$
16,423 $
10,332 $
12,146 $
7,536 $
13,936
4,759
— $
— $
— $
1,250 $
12,852
—
The accompanying notes are an integral part of these financial statements.
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VSE Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022
(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
other commercial customers.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements consist of the operations of our parent company and our wholly owned subsidiaries. All
intercompany transactions have been eliminated in consolidation.
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 contingencies 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 may include, but
are not limited to, fair value measurements, inventory provisions, collectability of receivables, 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 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
Cash and Cash Equivalents
Years Ended December 31,
2021
2020
2022
12,780,117
47,777
12,827,894
12,551,459
81,415
12,632,874
11,034,256
—
11,034,256
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.
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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. 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 47%, 57%, and 69% of revenues for the years ended December 31, 2022, 2021
and 2020, 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.
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
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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-plus 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. We generally recognize revenue using the
time-elapsed output method for our fixed-price service offering performance obligations. For certain deliverable-based fixed-
price performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at
completion. 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 2021 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.
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 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
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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 is 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 consist
primarily of finished goods replacement parts for our Fleet and Aviation segments, 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 established the VSE Corporation Deferred Supplemental Compensation Plan ("DSC Plan") for the benefit of certain key
management employees to be incentivized and rewarded based on overall company performance. We recognized DSC Plan
expenses of $0.3 million, $0.4 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
We invest in corporate owned life insurance ("COLI") products and in mutual funds that are held in a Rabbi Trust to fund the
DSC Plan obligations. 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 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 a net gain of $22 thousand and net losses of
$0.6 million and $0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Derivative Instruments
Derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives
designated as cash flow hedges are report in other comprehensive income (loss) and reclassified into earnings in a manner that
matches the timing of the earnings impact of the hedged transactions.
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.
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
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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 tested for potential impairment at the reporting unit level annually at the beginning of the
fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
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.
Recent Adopted Accounting Pronouncements
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 elected to early adopt this standard during the first quarter 2022 and will apply the guidance
prospectively to business combinations entered into subsequent to adoption.
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. We amended our loan agreement in October 2022, which is discussed in Note (7) "Debt". The change from LIBOR rates
did not have a material impact on our consolidated financial statements.
(2) Acquisitions and Divestitures
Acquisitions
Global Parts Group, Inc
On July 26, 2021, our Aviation segment 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
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platform offerings to include additional airframe components, while expanding our customer base of regional and global
B&GA customers.
The cash purchase price for Global Parts was approximately $40 million, net of cash acquired, which was funded using our
existing bank revolving loan. The purchase price included $2 million of contingent consideration. Refer to Note (17) "Fair
Value Measurements," for additional information regarding the earn-out obligation.
We completed the purchase accounting valuation for this transaction in 2021 and recorded the final purchase price allocation 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
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 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 was deductible for income tax purposes. Goodwill
resulting from the 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 $0.5 million 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, our Federal and Defense segment 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. 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
acquisition was not material to our consolidated financial statements.
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The final allocation of the purchase price resulted in approximately $7.0 million to the fair value of net tangible assets
(including $9.2 million of accounts receivable), $0.7 million 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 $0.3 million 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.
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.
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.
(3) Revenue Recognition
Disaggregated Revenue
Our revenues are derived from the delivery of products to our customers and from services performed for commercial
customers, the DoD, and various other government agencies.
A summary of revenues by customer for each of our operating segments for the years ended December 31, 2022, 2021 and
2020 were as follows (in thousands):
Year Ended December 31, 2022
Commercial
DoD
Other government
Total
Year Ended December 31, 2021
Commercial
DoD
Other government
Total
Year Ended December 31, 2020
Commercial
DoD
Other government
Total
Fleet
104,162 $
3,286
153,888
261,336 $
Aviation
Federal and
Defense
403,155 $
—
4,957
408,112 $
583 $
224,436
55,295
280,314 $
Total
507,900
227,722
214,140
949,762
73,606 $
12,689
147,237
233,532 $
245,380 $
—
2,472
247,852 $
3,332 $
220,733
45,404
269,469 $
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
$
$
$
$
$
$
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A summary of revenues by type for each of our operating segments for the year ended December 31, 2022, 2021 and 2020 were
as follows (in thousands):
Year Ended December 31, 2022
Repair
Distribution
Cost Plus Contract
Fixed Price Contract
T&M Contract
Total
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
Contract Balances
Fleet
Aviation
Federal and
Defense
$
— $
261,336
—
—
—
261,336 $
107,399 $
300,713
—
—
—
408,112 $
— $
—
139,958
98,674
41,682
280,314 $
— $
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 $
$
$
$
$
$
Total
107,399
562,049
139,958
98,674
41,682
949,762
75,725
405,659
93,694
105,495
70,280
750,853
82,445
324,795
79,064
138,406
36,949
661,659
Receivables, net, represent rights to consideration, which are unconditional other than the passage of time. A contract asset is a
right to consideration that is conditional upon factors other than the passage of time. Contract assets include unbilled
receivables and contract retentions but exclude billed receivables. Contract liabilities include customer advances, billings in
excess of revenues and deferred revenue. Contract assets and liabilities are recorded net on a contract-by-contract basis and are
generally classified as current based on our contract operating cycle.
Receivables, net and unbilled receivables as of December 31, 2022 and 2021, respectively, were as follows (in thousands):
Receivables, net(1)
Unbilled receivables
Total
2022
2021
$
$
103,193 $
38,307
141,500 $
76,587
31,882
108,469
(1) Net of allowance of $2.1 million and $1.7 million as of December 31, 2022 and 2021, respectively.
Unbilled receivables increased to $38.3 million as of December 31, 2022 from $31.9 million as of December 31, 2021,
primarily due to revenue recognized in excess of billings.
Contract liabilities, which are included in accrued expenses and other current liabilities in our consolidated balance sheet, were
$6.4 million as of December 31, 2022 and $7.1 million as of December 31, 2021. For the year ended December 31, 2022 and
2021, we recognized revenue of $3.9 million and $5.1 million, respectively, that was previously included in the beginning
balance of contract liabilities.
Performance Obligations
Our performance obligations are satisfied either at a point in time or over time as work progresses. Revenues from products and
services transferred to customers at a point in time are primarily related to the sales of vehicle and aircraft parts in our Fleet and
Aviation segments. Revenue recognized at a point in time accounted for approximately 59% and 54% of our revenues for the
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year ended December 31, 2022 and 2021, respectively. Revenues from products and services transferred to customers over time
are primarily related to revenues in our Federal and Defense segment and MRO services in our Aviation segment. Revenues
recognized over time accounted for approximately 41% and 46% of our revenues for the year ended December 31, 2022 and
2021, respectively.
As of December 31, 2022, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied
performance obligations was $187 million. Performance obligations expected to be satisfied within one year and greater than
one year are 97% and 3%, 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, 2022, revenue recognized from performance obligations satisfied in prior periods was not
material.
(4) Other Current Assets
Other current assets consisted of the following as of December 31, 2022 and 2021 (in thousands):
Self insurance trust assets
Current portion of notes receivable
Vendor advances
Other
Total
(5) Property and Equipment
2022
2021
— $
—
14,998
11,195
26,193 $
5,993
2,820
14,552
8,939
32,304
$
$
Property and equipment, net consisted of the following as of December 31, 2022 and 2021 (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
2022
2021
30,482 $
29,728
48,788
7,495
4,681
121,174
(73,205)
47,969 $
29,596
28,084
39,377
7,164
4,726
108,947
(66,461)
42,486
$
$
Depreciation and amortization expense for the years ended December 31, 2022, 2021 and 2020 was $7.1 million, $6.1 million
and $5.6 million, respectively.
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(6) Goodwill and Intangible Assets
Changes in goodwill for the years ended December 31, 2022 and 2021 by operating segment were as follows (in thousands):
Fleet
Federal and
Defense
Aviation (1)
Total
Balance as of December 31, 2020
Goodwill acquired
Balance as of December 31, 2021
Adjustments to goodwill
Balance as of December 31, 2022
(1) As of December 2022 and 2021, the Aviation segment accumulated goodwill impairment loss was $30.9 million.
63,190 $
—
63,190 $
—
63,190 $
$
$
$
608
30,883 $ 144,053 $ 238,126
10,627
10,019
31,491 $ 154,072 $ 248,753
84
31,575 $ 154,072 $ 248,837
84
—
Goodwill increased during the year ended December 31, 2021 in connection with acquisitions completed during the period as
discussed in Note (2) "Acquisitions and Divestitures." There were no impairments of goodwill during the years ended
December 31, 2022 and 2021. During the year ended December 31, 2020, we recognized a $30.9 million goodwill impairment
charge resulting from the negative impact of the COVID-19 pandemic on our Aviation reporting unit.
Intangible assets consisted of the following (in thousands):
December 31, 2022
Contract and customer-related
Trade names
Total
December 31, 2021
Contract and customer-related
Acquired technologies
Trade names
Total
Cost
Accumulated
Amortization
Net Intangible
Assets
206,291 $
8,670
214,961 $
(116,881) $
(7,456)
(124,337) $
89,410
1,214
90,624
221,796 $
12,400
8,670
242,866 $
(116,385) $
(11,915)
(6,303)
(134,603) $
105,411
485
2,367
108,263
$
$
$
$
Intangible assets with a gross carrying value of 27.9 million were fully amortized during the year and are no longer reflected in
the intangible asset values as of December 31, 2022. There were no impairment losses during 2022 and 2021. We recognized an
impairment expense, included in goodwill and intangible impairment, of $2.8 million within the Aviation segment during the
second quarter of 2020 in connection with the sale of all of the inventory of our CT Aerospace subsidiary.
Amortization expense for the years ended December 31, 2022, 2021 and 2020 was $17.6 million, $18.5 million and $17.5
million, respectively.
The estimated future annual amortization expense related to intangible assets are as follows (in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
$
$
13,639
10,059
9,015
8,190
6,444
43,277
90,624
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(7) 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,
2022
2021
100,000 $
188,610
288,610
(2,310)
286,300
(10,000)
276,300 $
60,175
226,559
286,734
(2,165)
284,569
(14,162)
270,407
$
$
As of December 31, 2022, the interest rate on our outstanding term debt and weighted average interest rate on our aggregate
outstanding revolver debt was 6.93% and 7.01%, respectively. Interest expense incurred on bank credit facilities was
approximately $17.4 million, $11.2 million and $12.7 million for the years ended December 31, 2022, 2021 and 2020,
respectively.
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. The maximum amount of credit available under the
loan agreement for revolving loans and letters of credit is $350 million. 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. The loan agreement also provides for letters of credit aggregating up to $25
million. As of December 31, 2022 and 2021, we had approximately $1.0 million in letters of credit outstanding.
On October 7, 2022, we entered into the Fourth Amendment to our loan agreement which, among other things, (i) extended the
maturity date from July 23, 2024 to October 7, 2025; (ii) reset the aggregate principal amount of the term loan to $100 million,
(iii) modified the quarterly amortization payments on the term loan from $3.75 million to $2.50 million, (iv) increased the
maximum Total Funded Debt to EBITDA Ratio from 4.25x to 4.50x, with such ratios decreasing thereafter, (v) changed the
benchmark rate from LIBOR to Secured Overnight Financing Rate (SOFR) with a SOFR floor of 0%; and (vi) modified pricing
to account for the change from LIBOR to SOFR.
Borrowings under our loan agreement bear interest at a variable rate of interest based on Term SOFR or a base rate, plus in each
case an applicable margin (based on our Total Funded Debt to EBITDA Ratio). The base rate for any day is a fluctuating rate
per annum equal to the highest of (i) the Federal Funds Rate plus .50%; (ii) the Prime Rate and (iii) the sum of Term SOFR for
a one month interest period, plus the difference between the additional Term SOFR interest margin for SOFR rate loans and the
additional base rate interest margin for base rate loans. The applicable margins for SOFR loans ranges from 1.50% to 3.75%
and .50% to 2.75% for base rate loans. We also pay a commitment fee with respect to undrawn amounts under the revolving
loan facility ranging from .25% to .50% (based on our Total Funded Debt to EBITDA Ratio) and fees on letters of credit that
are issued.
We incurred and deferred $1.1 million of debt issuance costs in connection with the Fourth Amendment to our loan agreement,
which are amortized to interest expense over the remaining term of the loan. Amortization of debt issuance costs was
$1.0 million, $1.0 million, $1.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Future required term and revolver loan payments as of December 31, 2022 are as follows (in thousands):
Year Ending
2023
2024
2025
Total
Term
Revolver
Total
$
10,000 $
10,000
80,000
— $
—
188,610
$
100,000 $
188,610 $
10,000
10,000
268,610
288,610
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The loan agreement contains collateral requirements to secure our loan agreement obligations, restrictive covenants, a limit on
annual dividends, and other affirmative and negative covenants, conditions, and limitations. Restrictive covenants include a
maximum 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, 2022.
(8) Derivative Instruments and Hedging Activities
We are party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks
associated with interest rate fluctuations on a portion of our floating rate debt.
Our derivative instruments designated as cash flow hedges as of December 31, 2022 were (in thousands):
Interest rate swap(1)
2.8%
(1) On July 22, 2022, we executed forward-starting fixed interest rate swap, the tenor of which began on October 31, 2022.
Notional Amount Paid Fixed Rate Receive Variable Rate
1-month term SOFR
$150,000
Settlement and Termination
Monthly through October 31, 2027
These derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized changes in the fair value
on cash flow hedges are recognized in other comprehensive income (loss) and the amounts are reclassified from accumulated
other comprehensive income (loss) into earnings in a manner that matches the timing of the earnings impact of the hedged
transactions. We estimate that we will reclassify $2.9 million of unrealized gains from accumulated other comprehensive
income into earnings in the twelve months following December 31, 2022.
(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
Current portion of lease liabilities
Other
Total
(10) Stock-Based Compensation Plans
December 31,
2022
2021
23,298 $
6,402
6,240
7,254
10,528
53,722 $
24,395
7,147
4,514
5,991
7,418
49,465
$
$
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, 2022, we are authorized to issue up to 1,500,000 shares of our
common stock and 598,637 shares remained available for issuance. As of December 31, 2022, 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
is 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.
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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, 2022, 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 $123 thousand. As of
December 31, 2022, 500,000 shares of VSE common stock are authorized for issuance under the ESPP.
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,
was 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
2022
2021
2020
$
$
$
1,186 $
2,089
1,067
4,342 $
1,083 $
820 $
2,273
784
3,877 $
967 $
1,265
1,593
—
2,858
713
In March 2022, the employees eligible for the 2021 awards, 2020 awards and 2019 awards received a total of 21,871 shares of
common stock. The grant-date fair value of these awards was $43.30 per share. The total compensation cost related to non-
vested stock-settled bonus awards not yet recognized was approximately $0.9 million with a weighted average amortization
period of 1.4 years as of December 31, 2022. The total fair value of stock-settled bonus awards that vested in the years ended
December 31, 2022, 2021 and 2020 was $0.9 million, $0.9 million and $1.2 million, respectively.
Vesting Stock Awards
Vesting stock award activity for the year ended December 31, 2022 was:
Unvested as of December 31, 2021
Granted
Vested
Forfeited
Unvested as of December 31, 2022
Number of Shares
Weighted
Average Grant
Date Fair Value
61,351 $
46,463 $
(38,509) $
(5,380) $
63,925 $
38.80
43.01
36.37
42.53
43.01
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, 2022, 2021
and 2020 was $43.01, $41.90 and $33.68, respectively. As of December 31, 2022 there was $2.0 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 total fair value of vesting stock awards that vested in the years ended December 31, 2022, 2021 and 2020 was $1.7
million, $1.7 million and $1.6 million, respectively.
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Performance Share Awards
Performance Share award activity for the year ended December 31, 2022 was:
Unvested as of December 31, 2021
Granted
Vested
Forfeited
Unvested as of December 31, 2022
Number of Shares
Weighted
Average Grant
Date Fair Value
42,173 $
51,441 $
(10,542) $
(10,911) $
72,161 $
42.01
43.30
42.01
42.36
42.88
The actual number of shares to be issued upon vesting range between 0-100% of the target number of shares granted. The
weighted average grant date fair value of the vesting stock awards granted for the year ended December 31, 2022 was $42.01.
As of December 31, 2022 there was $1.2 million of unrecognized compensation cost related to vesting stock awards, which is
expected to be recognized over a weighted-average period of 1.5 years. The total fair value of vesting stock awards that vested
in the year ended December 31, 2022 was $0.5 million.
(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 2017.
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, 2022, 2021 and 2020 were as follows (in
thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
2022
2021
2020
$
$
8,880 $
1,411
35
10,326
(1,050)
(89)
—
(1,139)
9,187 $
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
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The differences between the amount of tax computed at the federal statutory rate of 21% in 2022, 2021 and 2020, and the
provision for income taxes from continuing operations for the years ended December 31, 2022, 2021 and 2020 were 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
2022
2021
2020
$
7,822 $
1,985 $
89
1,523
(52)
(579)
189
338
(54)
9,187 $
383
(839)
(434)
83
331
(24)
1,485 $
(52)
(1,406)
(195)
397
6,716
49
5,598
$
The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2022 and 2021 was as
follows (in thousands):
Deferred compensation and accrued paid leave
Accrued Expense
Inventory reserve
Operating Lease Liabilities
Stock-based compensation
Interest rate swaps
Capitalized inventory
US operating and capital loss carryforward
Tax credit carryforward
Foreign country operating loss carryforward
Other
Valuation allowance (1)
Total gross deferred tax assets
Interest rate swaps
Depreciation
Deferred revenues
Goodwill and intangible assets
Operating Lease Right-of-Use Assets
Other
Total gross deferred tax liabilities
Net deferred tax liabilities
$
2022
2021
4,552 $
1,158
12,984
9,840
942
—
1,128
6,040
1,537
749
278
39,208
(8,337)
30,871
(1,652)
(3,017)
(1,087)
(26,226)
(8,510)
—
(40,492)
5,422
—
12,465
7,805
775
58
900
6,045
1,411
892
—
35,773
(8,257)
27,516
—
(3,895)
(1,358)
(24,836)
(6,375)
(160)
(36,624)
$
(9,621) $
(9,108)
(1) 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.
(2) 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 2018.
As of December 31, 2022, 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.
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(12) Leases
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
2022
2021
2020
$
$
6,804 $
204
(294)
6,714 $
5,868 $
202
(152)
5,918 $
5,032
622
(666)
4,988
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
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, net of
selling expenses.
The table below summarizes future minimum lease payments under operating leases, recorded on the balance sheet, as of
December 31, 2022 (in thousands):
Year ending December 31,
2023
2024
2025
2026
2027
Thereafter
Minimum lease payments
Less: imputed interest
Present value of minimum lease payments
Less: current portion of lease liabilities(1)
Long-term lease liabilities
$
$
9,217
9,424
9,192
7,785
3,666
6,843
46,127
(6,533)
39,594
(7,254)
32,340
(1) Current portion of lease liabilities are presented within Accrued expenses and other current liabilities on our consolidated balance sheets. Refer to Note
(9) "Accrued Expenses and Other Current Liabilities."
Other supplemental operating lease information for the year ended December 31, was as follows (in thousands):
Cash paid for amounts included in the measurement of operating lease
liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
$
$
7,372 $
12,295 $
6,309 $
11,175 $
3,681
4,728
2022
2021
2020
The weighted-average remaining lease term and the weighted-average discount rate was 5.1 years and 5.5% as of December 31,
2022, respectively, and 5.1 years and 4.8% as of December 31, 2021, respectively.
(13) Commitments and 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.
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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.
(14) 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,
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.
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Our segment information is as follows (in thousands):
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
Customer Information
For the years ended December 31,
2021
2020
2022
$
$
$
$
$
$
$
$
408,112 $
261,336
280,314
949,762 $
247,852 $
233,532
269,469
750,853 $
165,070
242,170
254,419
661,659
36,416 $
23,911
(805)
(4,391)
55,131 $
(14,373) $
20,426
19,897
(4,430)
21,520 $
(35,513)
26,659
26,309
(3,532)
13,923
13,174 $
8,783
3,613
25,570 $
11,374 $
9,679
4,547
25,600 $
10,874
10,260
3,001
24,135
5,961 $
5,502
26
1,162
12,651 $
7,468 $
1,669
124
1,259
10,520 $
3,445
675
148
159
4,427
December 31,
2022
2021
$
$
637,615 $
218,138
93,728
50,308
999,789 $
580,156
182,089
92,571
63,742
918,558
Our revenues are derived from the delivery of products and services performed for commercial customers and the U.S.
government, including the DoD and various other government agencies. The USPS revenues, reported within our Fleet
segment, comprised approximately 16%, 20%, and 27% of our consolidated revenues in 2022, 2021 and 2020, respectively.
U.S. Navy revenues, reported within our Federal and Defense segment, comprised approximately 15%, 13%, and 16% of our
consolidated revenues in 2022, 2021 and 2020, respectively. Our customers also include various other commercial entities and
government agencies. See Note (3) "Revenue Recognition" for revenue by customer.
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.
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Geographical Information
Revenue by geography is based on the billing address of the customer. Our revenue by geographic area is as follows (in
thousands):
United States
Other Countries(1)
Total revenue
Years ended December 31,
2021
2020
2022
$
$
837,929 $
111,833
949,762 $
668,892 $
81,961
750,853 $
598,142
63,517
661,659
(1) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented.
(15) 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.
In 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.
(16) 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 $7.1 million, $6.6 million and
$5.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.
(17) 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.
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The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of
December 31, 2022 and December 31, 2021 and the level they fall within the fair value hierarchy (in thousands):
Financial Statement
Classification
Fair Value Hierarchy
Fair Value
December 31,
2022
Fair Value
December 31,
2021
Amounts Recorded at Fair Value
Non-COLI assets held in Deferred
Supplemental Compensation Plan(1)
Interest rate swaps
Interest rate swaps
Earn-out obligation - short-term
Other assets
Other assets
Accrued expenses and other
current liabilities
Accrued expenses and other
current liabilities
Level 1
Level 2
Level 2
Level 3
Earn-out obligation - long-term
Other long-term liabilities
Level 3
$
$
$
$
$
539 $
6,620 $
— $
598
—
234
— $
1,000
— $
250
(1) Non-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.
Contingent Consideration
In connection with the acquisition of Global Parts in July 2021, we were 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. Final settlement of the obligation was made during the third quarter of fiscal
2022.
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, 2022 and 2021 are as follows (in thousands):
Balance as of December 31, 2020
Acquisition date fair value of contingent consideration
Earn-out payments
Balance as of December 31, 2021
Reclassifications from long-term to current
Earn-out payments
Balance as of December 31, 2022
(18) Subsequent Events
Acquisition of Precision Fuel Components, LLC
Current portion
$
— $
1,750
(750)
1,000
250
(1,250)
— $
$
Long-term
portion
Total
— $
250
—
250
(250)
—
— $
—
2,000
(750)
1,250
—
(1,250)
—
On February 1, 2023, our Aviation segment acquired Precision Fuel Components, LLC ("Precision Fuel"), a privately owned
company with operations out of Everett, Washington. Precision Fuel is a market-leading provider of MRO services for engine
accessory and fuel systems supporting the B&GA market. The acquisition will expand the Aviation segment's repair
capabilities across a diverse base of global rotorcraft, fixed wing, and B&GA customers and complement our existing service
capabilities. The aggregate initial cash purchase price for Precision Fuel was approximately $11.8 million, subject to certain
post-closing and working capital adjustments.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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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, 2022, 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,
2022 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, 2022. 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.
Change in Internal Controls
During the fourth quarter of fiscal year 2022, 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, 2022, 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, 2022, 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, 2022, and our
report dated March 9, 2023 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. 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.
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 9, 2023
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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, 2022 in respect of the Annual Meeting of VSE's
stockholders scheduled to be held on May 3, 2023 (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
(in thousands)
Allowance for credit losses on accounts receivable
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
Valuation allowance for deferred tax assets
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
Balance at
Beginning of
Year
Additions
Charged to
Statement of
Income
Accounts
Deductions
Balance at End
of Year
1,677
1,493
396
8,257
7,926
1,165
2,177
572
1,767 (1)
78
331
6,761 (2)
1,742
388
670
—
—
—
2,112
1,677
1,493
8,335
8,257
7,926
(1) Increase in 2020 primarily due to allowances booked as a result of the financial impact from the COVID-19 pandemic.
(2) 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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Table of Contents
Reference No.
Per Item 601 of
Regulation S-K
3.1
3.2
3.3
3.4
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
EXHIBIT INDEX
Description of Exhibit
Exhibit No.
In this Form 10-K
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)
*
*
Certificate of Amendment of the Restated Certificate of Incorporation of
VSE Corporation dated as of May 4, 2022
Exhibit No. 3.1
Amendment No. 3 to the By-Laws of VSE Corporation as amended
through October 1, 2022
Exhibit No. 3.2
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)
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)
* +
* +
* +
* +
* +
* +
* +
Separation and Release Agreement (dated as of December 31, 2022, by and
between VSE Corporation and Robert A. Moore)
Exhibit 10.2 +
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)
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)
10.10
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)
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* +
*
*
Table of Contents
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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
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.)
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)
Fourth Amendment to the Fourth Amended and Restated Business Loan
and Security Agreement, dated as of October 7, 2022, by and among the
Company, as a borrower, various subsidiaries of the Company party thereto
as borrowers or guarantors, the lenders from time to time party thereto and
Citizens Bank, N.A., as administrative agent (Exhibit 10.1 to Form 10-Q
dated October 27, 2022)
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.
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Table of Contents
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 9, 2023
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/ John E. Potter
John E. Potter
/s/ Mark E. Ferguson III
Mark E. Ferguson III
/s/ Edward P. Dolanski
Edward P. Dolanski
/s/ Anita D. Britt
Anita D. Britt
/s/ Lloyd E. Johnson
Lloyd E. Johnson
Director, Chief Executive
Officer and President
(Principal Executive Officer)
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
March 9, 2023
March 9, 2023
Chairman/Director
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
March 9, 2023
Director
Director
Director
Director
Director
Director
Director
Director
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