What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-10 · 418 added, 338 removed, 538 unchanged (58% of the section changed)

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Consolidated Balance Sheets as of December 31, 202 3 and 2 0 2 2

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 Income for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Comprehensive Income for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 3 , 202 2 and 20 21

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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”).

We have audited the accompanying consolidated balance sheets of VSE Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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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.

As described further in note 1 to the 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.

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The assessment of these inputs required a high degree of auditor judgement in evaluating the future customer demand for slow moving inventory.

Our audit procedures related to the write-down of inventory included the following, among others.

Our audit procedures related to the write-down of inventories, within the Aviation Segment, 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.

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Consolidated Balance Sheets

(in thousands, except share and per share amounts)

As of December 31,

(in thousands, except share and per share amounts)

Current assets:

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Receivables, net 127,958 90,599

Unbilled receivables 38,307 31,882

Contract assets

Inventories 500,864 380,438

Other current assets 36,389 15,202

Current assets held-for-sale 93,002 54,925

Total current assets 774,030 548,878

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Operating lease right-of-use assets

28,684 21,558

Other assets 23,637 29,019

Non-current assets held-for-sale

Total assets $ 1,350,338 $ 999,789

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Dividends payable 1,576 1,282

Current liabilities held-for-sale 53,391 52,929

Total current liabilities 286,886 224,604

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Deferred tax liabilities 6,985 4,759

Other long-term liabilities — 250

Non-current liabilities held-for-sale

Total liabilities 733,613 550,263

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Retained earnings 384,702 351,297

Accumulated other comprehensive income (loss) 4,968 ( 176 )

Accumulated other comprehensive income

Total stockholders' equity 616,725 449,526

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VSE Corporation and Subsidiaries

Consolidated Statements of Income (Loss)

(in thousands, except share and per share amounts)

Consolidated Statements of Income

For the years ended December 31,

(in thousands, except share and per share amounts)

2023 2022 2021

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Total costs and operating expenses 772,492 615,844 484,089

Operating income (loss)

87,996 53,604 ( 2,705 )

Loss on sale of a business entity and certain assets — — ( 8,214 )

Gain on sale of property — — 1,108

Goodwill and intangible asset impairment — — ( 33,734 )

Operating income 55,131 21,520 13,923

Interest expense, net 31,083 17,893 12,063

Income before income taxes 37,246 9,451 427

Provision for income taxes 9,187 1,485 5,598

Net income (loss) $ 28,059 $ 7,966 $ ( 5,171 )

Basic earnings (loss) per share $ 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

Income (loss) from continuing operations before income taxes

56,913 35,711 ( 14,768 )

Provision (benefit) for income taxes

13,761 9,052 ( 3,768 )

Net income (loss) from continuing operations

43,152 26,659 ( 11,000 )

(Loss) income from discontinued operations, net of tax ( 4,018 ) 1,400 18,966

Net income $ 39,134 $ 28,059 $ 7,966

Earnings (loss) per share:

Continuing operations $ 3.05 $ 2.09 $ ( 0.88 )

Discontinued operations ( 0.28 ) 0.11 1.51

$ 2.77 $ 2.20 $ 0.63

Continuing operations $ 3.04 $ 2.08 $ ( 0.87 )

Discontinued operations ( 0.28 ) 0.11 1.50

$ 2.76 $ 2.19 $ 0.63

Weighted average shares outstanding:

Basic 14,130,334 12,780,117 12,551,459

Diluted 14,184,729 12,827,894 12,632,874

The accompanying notes are an integral part of these financial statements.

VSE Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Consolidated Statements of Comprehensive Income

For the years ended December 31,

2023 2022 2021

Net income (loss) $ 28,059 $ 7,966 $ ( 5,171 )

(in thousands)

$ 39,134 $ 28,059 $ 7,966

Other comprehensive income, net of tax:

Change in fair value of interest rate swap agreements, net of tax ( 2,836 ) 5,144 1,027

Other comprehensive income (loss), net of tax 5,144 1,027 ( 98 )

Comprehensive income (loss) $ 33,203 $ 8,993 $ ( 5,269 )

Total other comprehensive (loss) income, net of tax ( 2,836 ) 5,144 1,027

Comprehensive income

$ 36,298 $ 33,203 $ 8,993

The accompanying notes are an integral part of these financial statements.

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Consolidated Statements of Stockholders' Equity

(in thousands except per share data)

Capital Retained

Earnings Accumulated Other Comprehensive Income (Loss) Total

Earnings Accumulated Other Comprehensive Income (Loss)

Stockholders'

(in thousands)

Shares Amount

Balance at December 31, 2020 11,055 $ 553 $ 31,870 $ 325,097 $ ( 1,203 ) $ 356,317

Net loss — — — ( 5,171 ) — ( 5,171 )

Net income — — — 7,966 — 7,966

Issuance of common stock 1,599 80 51,937 — 52,017

Stock-based compensation 73 3 4,708 — — 4,711

Change in fair value of interest rate swap agreements, net of tax — — — — ( 98 ) ( 98 )

Other comprehensive income, net of tax — — — — 1,027 1,027

Dividends declared ($ 0.37 per share)

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Balance at December 31, 2021 12,727 636 88,515 328,358 ( 176 ) 417,333

Issuance of common stock 1,599 80 51,937 — — 52,017

Net income — — — 28,059 — 28,059

Stock-based compensation 90 5 4,105 — — 4,110

Change in fair value of interest rate swap agreements, net of tax — — — — 1,027 1,027

Other comprehensive income, net of tax — — — — 5,144 5,144

Dividends declared ($ 0.40 per share)

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Net income — — — 39,134 — 39,134

Issuance of common stock 2,846 142 128,968 — — 129,110

Stock-based compensation 94 5 7,515 — — 7,520

Change in fair value of interest rate swap agreements, net of tax — — — — 5,144 5,144

Other comprehensive loss, net of tax — — — — ( 2,836 ) ( 2,836 )

Dividends declared ($ 0.40 per share)

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Consolidated Statements of Cash Flows

(in thousands)

For the years ended December 31,

(in thousands)

2023 2022 2021

Cash flows from operating activities:

Net income (loss) $ 28,059 $ 7,966 $ ( 5,171 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net income $ 39,134 $ 28,059 $ 7,966

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization 23,416 24,602 24,589

Amortization of debt issuance costs

1,544 968 1,011

Deferred taxes ( 1,979 ) ( 1,139 ) ( 4,356 )

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Provision for inventory 742 1,094 24,420

Loss on sale of a business entity and certain assets — — 8,214

Loss (gain) on sale of property and equipment 122 ( 64 ) ( 1,051 )

Goodwill and intangible asset impairment — — 33,734

Earn-out obligation fair value adjustment — — ( 4,999 )

Gain (loss) on sale of property and equipment — 122 ( 64 )

Changes in operating assets and liabilities, net of impact of acquisitions:

Receivables ( 25,923 ) ( 26,606 ) ( 9,413 )

Unbilled receivables ( 6,425 ) ( 5,542 ) 19,694

Contract assets

5,148 ( 6,425 ) ( 5,542 )

Inventories ( 87,529 ) ( 59,099 ) ( 80,021 )

Other current assets and noncurrent assets ( 4,522 ) ( 14,247 ) ( 1,722 )

Other current assets and other assets

( 3,191 ) 2,563 ( 7,435 )

Operating lease assets and liabilities, net

( 390 ) ( 486 ) ( 651 )

Accounts payable and deferred compensation 23,913 36,193 33,210

Accrued expenses and other current and noncurrent liabilities ( 4,452 ) 3,740 ( 5,248 )

Net cash provided by (used in) operating activities 8,051 ( 17,602 ) 35,761

Net cash (used in) provided by operating activities

( 21,829 ) 8,051 ( 17,602 )

Cash flows from investing activities:

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Proceeds from payments on notes receivable 1,557 8,835 2,906

Proceeds from sale of a business entity and certain assets — — 19,915

Earn-out obligation payments — — ( 750 )

Cash paid for acquisitions, net of cash acquired ( 218,581 ) — ( 53,336 )

Net cash (used in) provided by investing activities ( 2,377 ) ( 61,632 ) 20,219

Net cash used in investing activities

( 235,690 ) ( 2,377 ) ( 61,632 )

Cash flows from financing activities:

Borrowings on loan agreement 520,223 491,567 432,999

Repayments on loan agreement ( 518,347 ) ( 458,294 ) ( 452,338 )

Borrowings on bank credit facilities 844,262 520,223 491,567

Repayments on bank credit facilities ( 699,872 ) ( 518,347 ) ( 458,294 )

Proceeds from issuance of common stock 130,020 899 52,017

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Dividends paid ( 5,436 ) ( 5,111 ) ( 4,427 )

Net cash (used in) provided by financing activities ( 5,714 ) 79,374 ( 56,336 )

Net (decrease) increase in cash and cash equivalents ( 40 ) 140 ( 356 )

Cash and cash equivalents at beginning of year 518 378 734

Cash and cash equivalents at end of year $ 478 $ 518 $ 378

Net cash provided by (used in) financing activities

264,971 ( 5,714 ) 79,374

Net increase (decrease) in cash and cash equivalents

7,452 ( 40 ) 140

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$ 7,930 $ 478 $ 518

(a) The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated and remain included in the major classes of assets and liabilities.

Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.

The accompanying notes are an integral part of these financial statements.

Supplemental cash flow disclosures:

Cash paid for interest $ 16,423 $ 12,146 $ 13,936

Cash paid for income taxes $ 10,332 $ 7,536 $ 4,759

Supplemental disclosure of noncash investing and financing activities:

Notes receivable from the sale of a business entity and certain assets $ — $ — $ 12,852

VSE Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

For the years ended December 31,

(in thousands) 2023 2022 2021

Supplemental disclosures of cash flow information:

Cash paid for:

$ 35,039 $ 16,423 $ 12,146

$ 13,944 $ 10,332 $ 7,536

Non-cash investing and financing activities:

Earn-out obligation in connection with acquisitions

$ — $ — $ 1,250

The accompanying notes are an integral part of these financial statements.

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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;

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.

VSE Corporation (collectively, with its consolidated subsidiaries), "VSE," the "Company," "us," "we," or "our" is a diversified aftermarket products and services company.

Our operations include aircraft and airframe parts supply and distribution, supply chain and inventory management services;

MRO of aircraft components and engine accessories;

vehicle fleet sustainment programs;

vehicle fleet parts supply and distribution.

We serve commercial and government markets.

We operate in two reportable segments aligned with our operating segments:

Aviation and Fleet.

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and include the assets, liabilities, results of operations and cash flows our parent company and our wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

In May 2023, we entered into a definitive agreement to sell our Federal and Defense segment which we mutually agreed to terminate in September 2023, with neither party paying any termination fees.

In February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets.

See Note (3) "Discontinued Operations" and Note (18) "Subsequent Events" for further information.

The consolidated financial statements reflect the Federal and Defense segment's results of operations as discontinued operations, and the related assets and liabilities as held-for-sale for all periods presented.

Certain reclassifications have been made to the prior period financial information to reflect discontinued operations presentation.

Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.

Summary of Significant Accounting Policies

Use of Estimates

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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.

Stock-based awards include stock-settled bonus awards, time-vested 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.

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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.

There were no antidilutive common stock equivalents excluded from the diluted per share calculation.

The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows:

Years Ended December 31,

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Due to the short maturity of these instruments, the carrying values on our consolidated balance sheets approximate fair value.

As of December 31, 2023, we held approximately $ 6.0 million of cash in foreign bank accounts, primarily in connection with our acquisition of Desser Holding Company LLC ("Desser Aerospace").

Refer to Note (2) "Acquisitions," for details regarding our acquisitions.

Property and Equipment

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Operating lease cost is included in costs and operating expenses on our consolidated statement of income.

Concentration of Credit Risk

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist primarily of our trade receivables.

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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.

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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.

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.

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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.

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Our Aviation segment revenues result from the sale of aircraft parts and performance of MRO services for private and commercial aircraft owners, other aviation MRO providers, and aviation original equipment manufacturers.

Our Aviation segment recognizes revenues for the sale of aircraft parts at a point in time when control is transferred to the customer, which

usually occurs when the parts are shipped.

Our Aviation segment recognizes revenues for 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.

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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 and Contract Assets

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.

Contract assets include unbilled 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.

Contract assets 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.

We establish allowances for credit losses on our accounts receivable and contract assets.

To measure expected credit losses, we have disaggregated pools of receivable balances by segment.

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In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status.

We also consider current market conditions and forecasts of future economic conditions to inform potential

adjustments to historical loss data.

In addition, we also record allowance for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables, such as concerns about a specific customer's inability to meet its financial obligation to us.

We also consider current market conditions and forecasts of future economic conditions to inform potential adjustments to historical loss data.

In addition, we also record allowances 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.

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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.

We periodically evaluate the carrying value of inventory, considering 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.

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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.

We recorded net gains of $ 0.6 million and $ 22 thousand for the years ended December 31, 2023 and 2022, respectively, and a net loss of $ 0.6 million for the year ended December 31, 2021.

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.

Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income and reclassified into earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

Income taxes are accounted for under the asset and liability method.

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The operating results of acquired businesses are included in our results of operations beginning as of their effective acquisition dates.

For contingent

consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations.

For contingent consideration arrangements, a liability is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations.

Goodwill and Other Intangible Assets

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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

We review our long-lived assets, including amortizable intangible assets, operating lease right-of-use 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 and the carrying amount of the asset exceeds its estimated future undiscounted cash flows.

When the carrying

amount of the asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of its estimated future cash flows.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

This guidance is required to be adopted by us beginning with the annual period of 2024.

We are currently evaluating the impact that adoption of ASU 2023-07 may have on our consolidated financial statements and disclosure.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

This guidance is required to be adopted by us in the first quarter of 2025.

We are currently evaluating the impact that adoption of ASU 2023-09 may have on our consolidated financial statements and disclosure.

(2) Acquisitions

Precision Fuel Components, LLC

On February 1, 2023, our Aviation segment acquired Precision Fuel Components, LLC ("Precision Fuel") for a purchase price of $ 11.7 million.

Precision Fuel provides MRO services for engine accessory and fuel systems supporting the business and general aviation ("B&GA") market.

Our acquisition of Precision Fuel expanded our MRO capabilities and client base.

Precision Fuel operating results are included in the accompanying consolidated financial statements beginning on the acquisition date.

The acquisition was not material to our consolidated financial statements.

The final allocation of the purchase price resulted in net tangible assets of $ 3.2 million, goodwill of $ 4.8 million, and contract and customer-related intangible asset of $ 3.8 million, which is being amortized over a period of five years .

During the year ended December 31, 2023, we incurred $ 0.2 million of acquisition-related expenses related to the acquisition of Precision Fuel, which are included in selling, general and administrative expenses.

Desser Aerospace

On July 3, 2023, we completed the acquisition of Desser Holding Company LLC ("Desser Aerospace"), a global aftermarket solutions provider of specialty distribution and MRO services.

We purchased Desser Aerospace for a preliminary cash consideration of $ 133.7 million, which included $ 9.5 million as an estimated net working capital adjustment (subject to post-closing adjustments).

Concurrent with the closing of the transaction, we immediately sold, in a separate transaction, Desser Aerospace’s propriety solutions businesses to Loar Group Inc.

(“Loar”) for a cash consideration of $ 31.8 million, which included $ 1.8 million as an estimated net working capital adjustment (the “Loar Sale”).

The purchase price for Desser Aerospace was allocated on a preliminary basis, among assets acquired, and liabilities assumed, at fair value based on the best available information on the acquisition date, with the excess purchase price recorded as goodwill.

The fair values of the non-financial assets acquired, and liabilities assumed, were determined based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations utilizing established industry valuation techniques.

We have not yet finalized the determination of the fair values allocated to various assets and liabilities, including, but not limited to, working capital and income taxes.

Therefore, the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired, and liabilities assumed, is preliminary until we obtain final information regarding their fair values, which could potentially result in changes to the Desser Aerospace opening balance sheet.

Adjustments or changes to goodwill, assets or liabilities remain possible.

During the fourth quarter of 2023, we adjusted the purchase price allocation as a result of certain measurement period adjustments to acquired assets and liabilities assumed due to updated valuation reports received from our external valuation specialist, revisions to internal estimates, and new information obtained about facts and circumstances that existed as of the acquisition date.

The measurement period adjustments included:

an increase in the purchase price of $ 0.6 million, a decrease in inventories of $ 8.0 million, a decrease in accounts payable of $ 4.6 million, and a decrease in net other tangible assets of $ 1.0 million.

These adjustments resulted in an increase to goodwill of $ 5.0 million.

The adjusted preliminary purchase price is as follows (in thousands):

Inventories 31,112

Other current assets

Property and equipment 2,527

Intangible assets

Goodwill 55,681

Operating lease right-of-use-assets 6,680

Total assets acquired

Accounts payable ( 10,128 )

Accrued expenses and other current liabilities ( 5,793 )

Long-term operating lease obligations

Deferred tax liabilities

Other long-term liabilities

Total liabilities assumed

Net assets acquired, excluding cash $ 99,683

Cash consideration, net of cash acquired

Estimated post-close adjustment

Goodwill resulting from the acquisition of Desser Aerospace reflects the strategic advantage of expanding our specialty distribution and MRO services to new customers.

The value attributed to goodwill and customer relationships is not fully deductible for income tax purposes.

The estimated value attributed to the customer relationship intangible assets is being amortized on a straight-line basis using a weighted average useful life of 8.5 years.

The operating results of Desser Aerospace were included in our consolidated results of operations from the date of acquisition.

From the date of acquisition, our consolidated revenues and operating income include $ 48.5 million and $ 4.8 million, respectively, for Desser Aerospace.

Desser Aerospace's operating income does not include the impact of acquisition-related expenses incurred by VSE Corporation.

We incurred $ 3.2 million of acquisition-related expenses related to the Desser Aerospace acquisition during the year ended December 31, 2023, which are included in selling, general and administrative expenses.

The following unaudited pro forma financial information presents the combined results of operations for Desser Aerospace and VSE Corporation for the years ended December 31, 2023, and 2022, respectively.

The unaudited consolidated pro forma results of operations are as follows (in thousands):

For the years ended December 31,

$ 908,243 $ 749,489

Income from continuing operations

$ 46,265 $ 25,541

The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Desser Aerospace as though it had occurred on January 1,

2022 and includes adjustments for intangible asset amortization;

interest expense and debt issuance costs on long-term debt;

acquisition and other transaction costs;

and certain costs allocated from the former parent.

The unaudited pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2022, nor is it indicative of future operating results.

Honeywell Fuel Control Systems

On September 27, 2023, our Aviation segment entered into an Asset Purchase and License Agreement with Honeywell International Inc.

("Honeywell"), for a purchase price of $ 105.0 million, to exclusively manufacture, sell, market, distribute, and repair certain Honeywell fuel control systems (the "Honeywell FCS Acquisition").

The purchase price of this acquisition was funded by borrowings under our revolving credit facility.

This agreement expands existing distribution and MRO capabilities supporting certain Honeywell fuel control systems and associated subcomponents.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations .

The purchase price for the acquisition was allocated on a preliminary basis, among assets acquired, at fair value based on the best available information on the acquisition date, with the excess purchase price recorded as goodwill.

The fair values of the non-financial assets acquired were determined based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations utilizing established industry valuation techniques.

We have not yet finalized the purchase price allocation related to this acquisition due to the fact that while legal control has occurred, we have not received physical possession of the prepaid inventory and property and equipment, and thus these assets will be subject to settlement adjustments upon transfer as outlined in the Asset Purchase and License Agreement with Honeywell.

Therefore, the allocation of the total consideration for the acquisition is preliminary until we obtain final information regarding their fair values, which could potentially result in changes in the fair values and an adjustment to goodwill.

During the fourth quarter of 2023, we adjusted the purchase price allocation as a result of certain measurement period adjustments to acquired assets due to updated valuation report received from our external valuation specialist.

The measurement period adjustments included:

a decrease in intangible assets of $ 1.1 million and a corresponding increase to goodwill.

The adjusted preliminary purchase price allocation is as follows (in thousands):

Other current assets (a)

Property and equipment

Intangible assets

Total assets acquired

Cash consideration

Total consideration

(a) Represents prepaid inventory consisting of finished goods acquired but not in our physical possession as of the acquisition date.

Goodwill resulting from the acquisition reflects the expected synergies from the acquisition.

The value attributed to goodwill and customer relationship is deductible for income tax purposes.

The estimated value attributed to the customer relationship intangible asset is being amortized on a straight-line basis using a useful life of 10 years.

We incurred $ 0.3 million of acquisition-related expenses related to the Honeywell FCS Acquisition during the year ended December 31, 2023, which are included in selling, general and administrative expenses.

The pro-forma impact of the acquisition is not material to the Company’s results of operations.

Global Parts Group, Inc.

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("Global Parts"), a privately owned company with operations in Augusta, Kansas.

Global Parts provides distribution and MRO services for business and general aviation ("B&GA") aircraft families.

The acquisition expands our existing B&GA focus and further diversifies our existing product and

platform offerings to include additional airframe components, while expanding our customer base of regional and global B&GA customers.

The cash purchase price for Global Parts was approximately $ 40 million, net of cash acquired, which was funded using our existing bank revolving loan.

Global Parts provides distribution and MRO services for B&GA aircraft families.

The acquisition expands our existing B&GA focus and further diversifies our existing product and platform offerings to include additional airframe components, while expanding our customer base of regional and global B&GA customers.

purchase price for Global Parts was approximately $ 40.0 million, net of cash acquired, which was funded using our existing bank revolving loan.

The purchase price included $ 2.0 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 Fair Value

Accounts receivable $ 6,410

We completed the purchase accounting valuation for this transaction in 2021 and the final purchase price allocation was as follows (in thousands):

Inventories 13,240

Prepaid expenses and other current assets 620

Other current assets

Property and equipment 368

Intangibles - customer related 16,000

Intangibles assets

Goodwill 10,019

Operating lease right-of-use-assets 3,043

Long-term deferred tax assets 1,775

Deferred tax assets

Accounts payable ( 6,112 )

Accrued expenses and other current liabilities ( 1,936 )

Long-term operating lease liabilities ( 2,874 )

Long-term operating lease obligations

Net assets acquired, excluding cash $ 40,553

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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.

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.

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) Discontinued Operations

In May 2023, we entered into a definitive agreement to sell our Federal and Defense segment which we mutually agreed to terminate in September 2023, with neither party paying any termination fees.

As discussed in Note (18) "Subsequent Events," in February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets.

The results of operations for the Federal and Defense segment are reported in income from discontinued operations within the consolidated statements of operations for the years ended December 31, 2023, 2022, and 2021, and the related assets and liabilities are presented within assets and liabilities held-for-sale on the consolidated balance sheets as of December 31, 2023, and 2022.

The results of operations from discontinued operations for the years ended December 31, 2023, 2022 and 2021, consist of the following (in thousands):

For the years ended December 31,

2023 2022 2021

Revenues $ 252,466 $ 280,314 $ 269,469

Costs and operating expenses 258,125 278,779 245,250

(Loss) income from discontinued operations before income taxes

( 5,659 ) 1,535 24,219

(Benefit) provision for income taxes

( 1,641 ) 135 5,253

Net (loss) income from discontinued operations

$ ( 4,018 ) $ 1,400 $ 18,966

The assets and liabilities reported as held-for-sale consist of the following (in thousands):

December 31, December 31,

Cash and cash equivalents $ 162 $ 173

Receivables, net 10,805 14,340

Contract assets

25,109 30,898

Inventories 472 270

Other current assets 6,154 9,244

Property and equipment, net 6,102 7,467

Intangible assets, net 3,505 4,066

Goodwill 31,575 31,575

Operating lease right-of-use assets 9,097 12,854

Other assets 21 51

Total assets held-for-sale (a)

$ 93,002 $ 110,938

Accounts payable $ 20,893 $ 31,096

Accrued expenses and other current liabilities 19,537 21,833

Long-term operating lease obligations 8,942 13,186

Deferred tax liabilities 4,019 4,862

Total liabilities held-for-sale (a)

$ 53,391 $ 70,977

(a) Amounts have been classified as current for the current period consolidated balance sheet and as current and non-current in the consolidated balance sheet for the prior year period.

Selected financial information related to cash flows from discontinued operations is as follows (in thousands):

For the years ended December 31,

2023 2022 2021

Depreciation and amortization $ 2,289 $ 3,576 $ 4,584

Purchases of property and equipment $ 295 $ 331 $ 540

Stock-based compensation $ 139 $ 63 $ 91

(4) 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.

Our revenues are derived from the delivery of products to our customers and from services performed for commercial and government customers.

A summary of revenues by customer for each of our operating segments for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

Year Ended December 31, 2022 Fleet Aviation Federal and Defense Total

Year Ended December 31, 2023 Aviation Fleet Total

Commercial $ 539,592 $ 150,835 $ 690,427

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Total $ 247,852 $ 233,532 $ 481,384

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 Fleet Aviation Federal and Defense Total

A summary of revenues by type for each of our operating segments for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

Year Ended December 31, 2023 Aviation Fleet Total

Repair $ 157,154 $ — $ 157,154

Distribution 386,866 316,468 703,334

Cost Plus Contract — — 139,958 139,958

Fixed Price Contract — — 98,674 98,674

T&M Contract — — 41,682 41,682

Total $ 544,020 $ 316,468 $ 860,488

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Distribution 300,713 261,336 562,049

Cost Plus Contract — — 93,694 93,694

Fixed Price Contract — — 105,495 105,495

T&M Contract — — 70,280 70,280

Total $ 408,112 $ 261,336 $ 669,448

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Distribution 172,127 233,532 405,659

Cost Plus Contract — — 79,064 79,064

Fixed Price Contract — — 138,406 138,406

T&M Contract — — 36,949 36,949

Total $ 247,852 $ 233,532 $ 481,384

Contract Balances

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)

Contract balances were as follows (in thousands):

As of December 31,

Financial Statement Classification 2023 2022

Billed and billable receivables

Receivables, net (a)

$ 127,958 $ 90,599

Unbilled receivables 38,307 31,882

Total $ 141,500 $ 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.

Contract assets - unbilled receivables

Contract assets

$ 8,049 $ 7,409

Contract liabilities Accrued expenses and other current liabilities $ 2,785 $ 963

(a) Net of allowance of $ 3.4 million and $ 2.0 million as of December 31, 2023 and 2022, respectively.

During fiscal 2023 and 2022, respectively, we recognized $ 0.9 million and $ 0.8 million of revenue that was included in a previously recorded contract liability as of the beginning of the period.

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

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 $ — $ 5,993

Current portion of notes receivable — 2,820

Vendor advances 14,998 14,552

Other 11,195 8,939

Total $ 26,193 $ 32,304

We applied the practical expedient for our 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.

(5) Property and Equipment

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Computer equipment 8,309 7,037

Furniture, fixtures, equipment and other 48,788 39,377

Furniture, fixtures, equipment and other (a)

54,883 37,218

Leasehold improvements 6,151 4,438

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Total property and equipment, net $ 58,076 $ 40,501

(a) Other includes construction in progress.

Depreciation and amortization expense for the years ended December 31, 2023, 2022 and 2021 was $ 6.8 million, $ 5.3 million, and $ 4.2 million, respectively.

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Changes in goodwill for the years ended December 31, 2023 and 2022 by operating segment were as follows (in thousands):

Fleet Federal and Defense Aviation (1)

Fleet Aviation

Balance as of December 31, 2021 $ 63,190 $ 154,072 $ 217,262

Goodwill acquired — 608 10,019 10,627

Balance as of December 31, 2022 $ 63,190 $ 154,072 $ 217,262

Adjustments to goodwill — 84 — 84

Goodwill acquired — 134,519 134,519

Balance as of December 31, 2023 $ 63,190 $ 288,591 $ 351,781

(1) As of December 2022 and 2021, the Aviation segment accumulated goodwill impairment loss was $ 30.9 million.

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.

Goodwill increased during the year ended December 31, 2023 in connection with acquisitions completed during the period as discussed in Note (2) "Acquisitions." There were no impairments of goodwill during the years ended December 31, 2023, 2022 and 2021.

Intangible Assets

Intangible assets consisted of the following (in thousands):

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Contract and customer-related $ 199,140 $ ( 113,796 ) $ 85,344

Acquired technologies 12,400 ( 11,915 ) 485

Trade names 8,670 ( 7,456 ) 1,214

Total $ 207,810 $ ( 121,252 ) $ 86,558

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 increase in the gross carrying amount of contract and customer-related intangibles during the year ended December 31, 2023 relates to customer relationship intangible assets recognized in connection with acquisitions completed during the year as discussed in Note (2) "Acquisitions." There were no impairment losses during the years ended December 31, 2023, 2022 and 2021.

The weighted-average useful life for all intangible assets of December 31, 2023 is 13.9 years.

The estimated future annual amortization expense related to intangible assets are as follows (in thousands):

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Bank credit facility - term loan $ 300,000 $ 100,000

Bank credit facility - revolver loans 188,610 226,559

Bank credit facility - revolving facility 133,000 188,610

Principal amount of long-term debt 433,000 288,610

Less debt issuance costs ( 2,310 ) ( 2,165 )

debt issuance costs

( 3,656 ) ( 2,310 )

Total long-term debt 429,344 286,300

Less current portion ( 10,000 ) ( 14,162 )

current portion

( 22,500 ) ( 10,000 )

Long-term debt, net of current portion $ 406,844 $ 276,300

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 4.25 x to 4.50 x, 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).

We have a credit agreement with a bank group from which we borrow amounts under the agreement to provide working capital support, fund letters of credit, and finance acquisitions.

The credit agreement includes term and revolving facilities.

The revolving facility provides for revolving loans and letters of credit.

On July 2, 2023, we entered into a fifth amendment to our credit agreement which provided for the following:

(i) the extension of a new term loan in the aggregate principal amount of $ 90.0 million, (ii) a reduction in our capacity to incur incremental revolving or term loan credit facilities from $ 100.0 million to $ 25.0 million;

(iii) quarterly amortization payments for the new term loan in the amount of $ 2.25 million;

(iv) an increase in the maximum Total Funded Debt to EBITDA Ratio from 4.50 x to 5.00 x, with such ratios decreasing thereafter;

(v) the addition of a tier to the top of the pricing grid if the Total Funded Debt to

EBITDA ratio exceeds 4.50 x;

and (vi) expressly permitting the Desser Aerospace acquisition and the subsequent and simultaneous sale of the propriety solutions businesses to Loar (the "Loar Sale").

The net proceeds received under the new term loan were used to fund a portion of the cash consideration for the Desser Aerospace acquisition.

On December 28, 2023, we entered into a sixth amendment to our credit agreement which provided for the following:

(i) an increase in the aggregate principal amount of the term loan to $ 300 million and an extension of the maturity date by one year to October 7, 2026;

(ii) a modification to the amortization payments on the term loan from $ 5.0 million quarterly to $ 7.5 million quarterly, commencing with the first quarterly amortization payment due on April 1, 2024;

and (iii) an extension of the maturity date of the revolving credit facility by one year to October 7, 2026.

The maximum amount of credit available under the credit agreement for revolving loans and letters of credit is $ 350 million.

We may elect to increase the maximum availability of the term loan facility, the revolving facility, or both facilities up to an aggregate additional amount of $ 25 million subject to lender approvals.

The credit agreement also provides for letters of credit aggregating up to $ 25 million.

Borrowings under our credit 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 %;

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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 Term Revolver Total

As of December 31, 2023, the interest rate on our outstanding term debt and weighted average interest rate on our aggregate outstanding revolver debt was 8.21 % and 8.25 %, respectively.

We had letters of credit outstanding of $ 0.8 million and $ 1.0 million as of December 31, 2023 and 2022, respectively.

Future required term loan and revolving facility payments as of December 31, 2023 are as follows (in thousands):

Year Ending December 31, Term Revolving Facility Total

2024 $ 30,000 $ — $ 30,000

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Total $ 300,000 $ 133,000 $ 433,000

The loan agreement contains collateral requirements to secure our loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative covenants, conditions, and limitations.

The credit 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.

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Notional Amount Paid Fixed Rate Receive Variable Rate Settlement and Termination

Interest rate swap (1)

Interest rate swap (a)

$ 150,000 2.8 % 1-month term SOFR Monthly through October 31, 2027

(1) On July 22, 2022, we executed forward-starting fixed interest rate swap, the tenor of which began on October 31, 2022.

Interest rate swap (b)

$ 100,000 4.5 % 1-month term SOFR Monthly through July 31, 2026

(a) In July 2022, we executed forward-starting fixed interest rate swap, the tenor of which began on October 31, 2022.

(b) In July 2023, we executed a fixed interest rate swap that hedges the variability in interest payments on floating rate debt.

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.

transactions.

For the years ended December 31, 2023 and 2022, we reclassified $ 3.8 million and $ 0.3 million, respectively, from accumulated other comprehensive income to interest expense, net.

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, 2023.

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Accrued compensation and benefits $ 15,734 $ 13,942

Contract liabilities 6,402 7,147

Accrued customer rebates and royalties 5,545 6,240

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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.

The total number of shares authorized for issuance under this plan was 1,875,000 and, as of December 31, 2023, 591,337 shares remained available for issuance.

As of December 31, 2023, we have outstanding stock-settled bonus awards, time-vested stock awards, and performance share awards under this plan.

Stock-settled bonus awards are a fixed dollar-denominated award.

On the first anniversary of the grant date, the total fixed dollar value of the award is converted into shares based on our closing stock price on the date of conversion.

Vesting occurs over a three-year service period in three equal tranches.

Beginning with the 2023 stock-settled bonus awards, the first vesting occurs one year after the award is converted into shares.

For awards granted prior to 2023, the first vesting occurs one year after the grant date.

On each vesting date, 100 % of the vested award is paid in stock.

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.

Time-vested 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 stock annually as part of their compensation and the stock vests immediately upon grant.

We grant performance share awards to certain employees under the 2006 Plan.

Performance share awards are rights to receive shares of our stock on the satisfaction of service requirements and performance conditions.

These awards vest ratably in equal installments over a three-year period on the anniversary of each grant date, subject to meeting the minimum service requirements and the achievement of certain annual or cumulative financial metrics of our performance, with the number of shares ultimately issued, if any, ranging up to 100 % of the specified target shares.

If performance is below the minimum threshold level of performance, no shares will be issued.

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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.

For ESPP offerings in the year ended December 31, 2023, 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 $ 0.1 million.

As of December 31, 2023, 500,000 shares of VSE common stock are authorized for issuance under the ESPP.

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Stock-settled bonus awards $ 1,166 $ 1,186 $ 820

Vesting stock awards 2,089 2,273 1,593

Time-vested stock awards

2,639 2,089 2,273

Performance share awards

3,807 1,067 784

Total $ 7,612 $ 4,342 $ 3,877

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Stock-Settled Bonus Awards

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.

In March 2023, the employees eligible for the 2022 awards, 2021 awards, and the 2020 awards received a total of 27,252 shares of common stock.

The grant-date fair value of these awards was $ 42.23 per share.

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The total fair value of stock-settled bonus awards that vested in the years ended December 31, 2023, 2022 and 2021 was $ 1.2 million, $ 0.9 million, and $ 0.9 million, respectively.

Vesting Stock Awards

Vesting stock award activity for the year ended December 31, 2022 was:

Time-Vested Stock Awards

Time-vested stock award activity for the year ended December 31, 2023 was:

Number of Shares

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Unvested as of December 31, 2023 97,843 $ 44.68

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.

The grant date fair value of time-vested 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 time-vested stock awards granted for the years ended December 31, 2023, 2022 and 2021 was $ 45.78 , $ 43.01 , and $ 41.90 , respectively.

As of December 31, 2023 there was $ 3.0 million of unrecognized compensation cost related to time-vested stock awards, which is expected to be recognized over a weighted-average period of 2.0 years.

The total fair value of time-vested stock awards that vested in the years ended December 31, 2023, 2022 and 2021 was $ 1.2 million, $ 1.7 million, and $ 1.7 million, respectively.

Performance Share Awards

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The actual number of shares to be issued upon vesting range between 0 - 200 % 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 .

The weighted average grant date fair value of the performance share awards granted for the year ended December 31, 2023 was $ 42.83 .

As of December 31, 2023 there was $ 2.6 million of unrecognized compensation cost related to performance share

awards, which is expected to be recognized over a weighted-average period of 1.4 years.

The total fair value of performance share awards that vested in the year ended December 31, 2023 was $ 1.1 million .

(11) Income Taxes

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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.

With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2018 for federal and state income taxes in the U.S.

We file consolidated federal income tax returns that include all of our U.S.

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Stock-based compensation 1,697 869

Interest rate swaps — 58

Capitalized inventory 1,335 1,128

US operating and capital loss carryforward 7,637 6,040

Disallowed interest expense 1,663 236

Tax credit carryforward 1,492 1,640

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39,291 34,074

Valuation allowance (1)

Valuation allowance (a)

( 9,906 ) ( 8,337 )

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Depreciation ( 2,925 ) ( 3,091 )

Deferred revenues ( 1,087 ) ( 1,358 )

Goodwill and intangible assets ( 26,666 ) ( 20,355 )

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Net deferred tax liabilities $ ( 6,985 ) $ ( 4,759 )

(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.

(a) A valuation allowance was provided against US capital loss in connection with the stock sale of Prime Turbines, certain state net operating loss, tax credit, and foreign tax loss deferred tax assets arising from carryforwards of unused tax benefits.

(b) Certain amounts from prior year have been reclassified to conform with current year presentation.

We file income tax returns in the U.S.

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With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2019.

As of December 31, 2022, we have various tax losses and tax credits that may be applied against future taxable income.

As of December 31, 2023, we had 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.

Our operating lease cost included the following components for the year ended December 31, (in thousands):

The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024.

While the US has not yet adopted the Pillar Two rules, many countries took steps to incorporate Pillar Two model rule concepts into their domestic laws in 2023.

Considering that we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, we do not expect these rules will significantly increase our global tax costs.

We will continue to monitor US and global legislative action related to Pillar Two for future potential impacts.

Our operating lease cost was as follows for the years ended December 31, (in thousands):

2023 2022 2021

Operating lease cost $ 6,804 $ 5,868 $ 5,032

Short-term lease cost 204 202 622

sublease income ( 294 ) ( 152 ) ( 666 )

Total lease cost, net $ 6,714 $ 5,918 $ 4,988

Operating lease cost (a)

$ 6,480 $ 2,714 $ 1,731

(a) Excludes short-term lease expense, which is not material.

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, 2023 (in thousands):

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Present value of minimum lease payments 29,916

current portion of lease liabilities (1)

current portion of lease liabilities (a)

Long-term lease liabilities $ 24,959

(1) Current portion of lease liabilities are presented within Accrued expenses and other current liabilities on our consolidated balance sheets.

(a) The 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."

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Right-of-use assets obtained in exchange for new operating lease liabilities $ 11,812 $ 11,876 $ 8,182

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.

The weighted-average discount rate was 5.9 % and 5.4 % and the weighted-average remaining lease term was 5.7 years and 6.0 years as of December 31, 2023, and 2022, respectively.

(13) Commitments and Contingencies

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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.

Government audits or investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties imposed, 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.

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.

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Segment Information

Management of our business operations is conducted under three reportable operating segments:

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.

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.

The sale of the Federal and Defense segment is intended to allow us to focus on a long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses.

Following the completion of the Federal and Defense segment sale transaction, management of our business operations is conducted under two reportable operating segments:

Our Aviation segment provides aftermarket MRO and distribution services to commercial, business and general aviation, cargo, military and defense, and rotorcraft customers globally.

Core services include parts distribution, MRO services including fuel controls, avionics, pneumatics, hydraulics, wheel and brake, and rotable exchange and supply chain services.

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;

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.

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Fleet 316,468 261,336 233,532

Federal and Defense 280,314 269,469 254,419

Total revenues $ 860,488 $ 669,448 $ 481,384

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Fleet 31,257 23,911 20,426

Federal and Defense ( 805 ) 19,897 26,309

Corporate expenses ( 4,391 ) ( 4,430 ) ( 3,532 )

Operating income $ 55,131 $ 21,520 $ 13,923

Corporate/unallocated expenses (a)

( 14,429 ) ( 6,723 ) ( 8,758 )

Total operating income (loss)

$ 87,996 $ 53,604 $ ( 2,705 )

Depreciation and amortization expense:

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Fleet 5,300 8,783 9,679

Federal and Defense 3,613 4,547 3,001

Total depreciation and amortization $ 21,380 $ 21,957 $ 21,053

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Fleet 2,198 5,502 1,669

Federal and Defense 26 124 148

Corporate 269 861 843

Total capital expenditures $ 18,934 $ 12,324 $ 9,980

(a) Certain corporate costs previously allocated to the Federal and Defense business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations.

Total assets:

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Fleet 274,382 218,138

Federal and Defense 93,728 92,571

Corporate 32,811 33,097

Assets held-for-sale

93,002 110,939

Total assets $ 1,350,338 $ 999,789

Customer Information

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.

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 revenues are derived from the delivery of products and services performed for commercial and government customers.

Revenues from the USPS, reported within our Fleet segment, represented 19 %, 23 %, and 30 % of consolidated revenues for 2023, 2022 and 2021, respectively.

Our customers also include various other commercial entities and government agencies.

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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.

In many cases, more than one product or service is provided under a contract.

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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United States $ 656,767 $ 557,615 $ 399,423

Other Countries (1)

Other Countries (a)

203,721 111,833 81,961

Total revenue $ 860,488 $ 669,448 $ 481,384

(1) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented .

(a) No individual country, other than disclosed above, exceeded 10% of our total revenue for any period presented.

(15) Capital Stock

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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.

In July 2023, we entered into an underwriting agreement with William Blair & Company, L.L.C and RBC Capital Markets, acting as representatives of several underwriters, relating to the issuance and sale of 2,846,250 shares of the Company's common stock at a public offering price of $ 48.50 per share.

The issuance and sale of shares pursuant to the agreement was executed in two transactions, with the first transaction closing on July 24, 2023, and the second transaction, which represented shares issued and sold pursuant to the underwriters' exercise of their option to purchase additional shares, closing on July 28, 2023.

We received proceeds of $ 129.1 million in connection with the offering, net of issuance costs.

(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.

We maintain a defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, that covers substantially all our employees.

Under the provisions of our 401(k) plan, employees' eligible contributions are matched at rates specified in the plan documents.

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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.

See Note (2), "Acquisitions." The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023, and December 31, 2022 and the level they fall within the fair value hierarchy (in thousands):

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy Fair Value December 31, 2022 Fair Value December 31, 2021

Non-COLI assets held in Deferred Supplemental Compensation Plan (1)

Fair Value December 31,

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy 2023 2022

Non-COLI assets held in Deferred Supplemental Compensation Plan (a)

Other assets Level 1 $ 594 $ 539

Interest rate swaps Other assets Level 2 $ 2,840 $ 6,620

Interest rate swaps Accrued expenses and other current liabilities Level 2 $ — $ 234

Earn-out obligation - short-term Accrued expenses and other current liabilities Level 3 $ — $ 1,000

Earn-out obligation - long-term Other long-term liabilities Level 3 $ — $ 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):

Current portion Long-term portion Total

Balance as of December 31, 2020 $ — $ — $ —

Acquisition date fair value of contingent consideration 1,750 250 2,000

Earn-out payments ( 750 ) — ( 750 )

Balance as of December 31, 2021 1,000 250 1,250

Reclassifications from long-term to current 250 ( 250 ) —

Earn-out payments ( 1,250 ) — ( 1,250 )

Balance as of December 31, 2022 $ — $ — $ —

(a) 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.

(18) Subsequent Events

Acquisition of Precision Fuel Components, LLC

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.

Sale of Federal and Defense Segment

In February 2024, we entered into two separate agreements to sell substantially all the Federal and Defense operational assets ("FDS Sale") for cash proceeds of $ 44.0 million, which included $ 10.0 million of an estimated net working capital adjustment (subject to post-closing adjustments).

The FDS Sale excluded our Alexandria, VA headquarters and the Greensboro MRO facility.

We estimate incurring a non-cash impairment loss of approximately $ 4.2 million related to the cancellation of a contract at the Greensboro MRO facility.

Acquisition of Turbine Controls, Inc.

On February 29, 2024, we signed a definitive agreement to acquire Turbine Controls, Inc.

("TCI"), a leading provider of aftermarket MRO support services for complex engine components, as well as engine and airframe accessories, across commercial and military applications.

The acquisition will allow our Aviation segment to broaden OEM Authorized MRO capabilities, expand into new markets, and serve new customers.

Total consideration is approximately $ 120.0 million, comprising $ 110.0 million in cash and $ 10.0 million in shares of VSE common stock, subject to certain post-closing and working capital adjustments.

The acquisition is expected to close in the second quarter of 2024, subject to customary closing conditions.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data