What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-03 compared with 2024-03-08 · 372 added, 256 removed, 700 unchanged (47% of the section changed)

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Board of Directors and Shareholders

VSE Corporation

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of VSE Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 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.

We have audited the accompanying consolidated balance sheets of VSE Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, 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, 2024, and the related notes and financial statement schedule included under Item 15.2 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 3, 2025 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the write-down of Aviation inventories

As described further in note 1 to the financial statements, the Company records inventory within its Aviation Segment at the lower of cost or net realizable value.

The Company periodically evaluates the carrying value of inventory which requires the write-down of slow-moving inventory for excess or obsolete inventory based on certain inputs and assumptions used to determine the net realizable value.

These assumptions include future demand and sales patterns.

Assessment of the write-down of slow moving inventory at certain locations within the Aviation segment

As described further in note 1 to the consolidated financial statements, the Company records inventory within its Aviation Segment at the lower of cost or net realizable value.

The Company periodically evaluates the carrying value of inventory which requires the write-down of slow-moving inventory for excess or obsolescence based on certain inputs and assumptions used to determine the net realizable value.

These assumptions include the recovery rates applied to slow moving inventory.

Changes in these assumptions could have a significant impact on the valuation of the inventory for the Aviation Segment.

The principal considerations for our determination that the assessment of the write-down of inventories, within the Aviation Segment, is a critical audit matter are the magnitude of the inventory balance in the Aviation Segment and that the inputs and assumptions used in determining the write-down are subject to significant management judgement.

The inputs and assumptions used in determining the write-down of slow-moving inventory includes the future demand and sales patterns, the identification of specific inventories associated with aircraft with declining usage trends and the impact of recently executed distribution agreements.

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

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.

• We assessed the recovery rates applied to slow moving inventory are consistent with management’s forecasted demand.

The principal considerations for our determination that the assessment of the write-down of slow moving inventory at certain locations within the Aviation Segment are the magnitude of the inventory balance and that the inputs and assumptions used in determining the write-down are subject to significant management judgement.

The inputs and assumptions used in determining the write-down of slow-moving inventory includes the recovery rates applied to slow moving inventory, the identification of specific inventories associated with aircraft with declining usage trends and the impact of exclusive distribution agreements.

The assessment of these inputs required a high degree of auditor judgement in evaluating the recovery rates for slow moving inventory.

Our audit procedures related to the write-down of slow moving inventories at certain locations, 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 originally received, sales of the inventory, specific inventories identified to relate to aircraft with declining usage and the approval and evaluation of distribution agreements.

• We assessed the recovery rates applied to slow moving inventory.

• We assessed the identification of specific inventory with declining usage trends by evaluating external industry information.

• We conducted sensitivity analysis around the reserve assumptions applied to aged inventory included in the perpetual listing as of year-end.

• We conducted sensitivity analysis around the reserve assumptions applied to aged inventory.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2019.

Arlington, Virginia

Charlotte, North Carolina

March 3, 2025

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As of December 31,

(in thousands, except share and per share amounts)

(in thousands, except share data)

Current assets:

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Inventories 576,318 500,864

Other current assets 36,389 15,202

Prepaid expenses and other current assets

41,956 36,389

Current assets held-for-sale — 93,002

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Other assets 32,147 23,637

Non-current assets held-for-sale

Total assets $ 1,734,620 $ 1,350,338

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Deferred tax liabilities — 6,985

Non-current liabilities held-for-sale

Other long-term liabilities 9,011 —

Total liabilities 746,434 733,613

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Selling, general and administrative expenses 14,576 7,619 3,635

Lease abandonment and termination costs

Amortization of intangible assets 17,749 14,378 15,735

Total costs and operating expenses 998,713 772,492 615,844

Operating income (loss)

Operating income

81,419 87,996 53,604

Interest expense, net 34,939 31,083 17,893

Income (loss) from continuing operations before income taxes

Income from continuing operations before income taxes

46,480 56,913 35,711

Provision (benefit) for income taxes

Provision for income taxes

9,982 13,761 9,052

Net income (loss) from continuing operations

Net income from continuing operations

36,498 43,152 26,659

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$ 15,324 $ 39,134 $ 28,059

Other comprehensive income, net of tax:

Other comprehensive income (loss), net of tax:

Change in fair value of interest rate swap agreements, net of tax 940 ( 2,836 ) 5,144

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

Total other comprehensive income (loss), net of tax

940 ( 2,836 ) 5,144

Comprehensive income

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Net income — — — 28,059 — 28,059

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

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

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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

Other comprehensive income, 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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Issuance of common stock 4,412 221 324,960 — — 325,181

Stock issuance in connection with acquisitions 300 15 30,252 30,267

Stock-based compensation 122 6 7,285 — — 7,291

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

Other comprehensive income, net of tax — — — — 940 940

Dividends declared ($ 0.40 per share)

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Stock-based compensation 8,315 7,738 4,465

Provision for inventory 742 1,094 24,420

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

Specific provision for inventory — 742 1,094

Impairment and loss on sale of business segment

Loss on sale of property and equipment

Lease abandonment and termination costs

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

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Inventories ( 31,668 ) ( 87,529 ) ( 59,099 )

Other current assets and other assets

Prepaid expenses and other current assets and other assets

( 6,685 ) ( 3,191 ) 2,563

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Purchases of property and equipment ( 20,704 ) ( 18,666 ) ( 11,212 )

Proceeds from the sale of property and equipment — — 68

Proceeds from the sale of business segment

Proceeds from payments on notes receivable — 1,557 8,835

Earn-out obligation payments — — ( 750 )

Cash paid for acquisitions, net of cash acquired ( 283,122 ) ( 218,581 ) —

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Cash and cash equivalents, beginning of period

7,930 478 518

Cash and cash equivalents, end of period

$ 29,030 $ 7,930 $ 478

(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.

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

Cash paid for interest

$ 37,076 $ 35,039 $ 16,423

Non-cash investing and financing activities:

Earn-out obligation in connection with acquisitions

Cash paid for income taxes

$ 12,230 $ 13,944 $ 10,332

(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

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Nature of Business

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

VSE is a diversified aftermarket products and services company serving commercial and government markets.

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

MRO of aircraft components and engine accessories;

MRO services of aircraft components and engine accessories;

vehicle fleet sustainment programs;

vehicle fleet parts supply and distribution.

We serve commercial and government markets.

and vehicle fleet parts supply and distribution.

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

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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.

See Note (3) "Discontinued Operations" 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.

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Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("U.S.

The preparation of financial statements in conformity with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant estimates affecting the financial statements may include, but are not limited to, fair value measurements, inventory provisions, collectability of receivables, estimated profitability of long-term contracts, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.

Significant estimates affecting the financial statements may include, but are not limited to, fair value measurements, inventory provisions, collectability of receivables, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.

Stock-Based Compensation

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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.

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

The antidilutive common stock equivalents excluded from the diluted per share calculation are not material.

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

Years Ended December 31,

For the years ended December 31,

2024 2023 2022

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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").

Although certain cash balances exceed insurance limits of the Federal Deposit Insurance Corporation, we do not limit our credit exposure to any one financial institution and utilize financial institutions with high credit quality.

As of December 31, 2024, we held approximately $ 5.9 million of cash in foreign bank accounts, primarily in connection with our acquisitions of Desser Holding Company, LLC ("Desser Aerospace") and Kellstrom Aerospace.

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

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The unit of account in ASC 606 is a performance obligation.

At the inception of each contract with a customer, we determine our performance obligations under the contract and the contract's transaction price.

At the inception of each contract with a customer, we determine our performance obligations under the contract and the contract's

transaction price.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account.

A contract’s transaction price is allocated to each distinct performance obligation and

recognized as revenue when the performance obligation is satisfied.

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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Sales returns and allowances are not significant.

Receivables and Contract Assets

Receivables and Contract Balances

Receivables are recorded at amounts earned less an allowance.

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Contract assets are classified as current based on our contract operating cycle.

Contract liabilities include customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in our consolidated balance sheets.

Allowance for Credit Losses

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The adequacy of these allowances is assessed quarterly through consideration of factors on a collective basis where similar characteristics exist and on an individual basis.

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method.

Inventories are stated at the lower of cost or net realizable value using the FIFO method.

Inventories consist primarily of finished goods replacement parts for our Fleet and Aviation segments, and also include related purchasing, storage, and handling costs.

Inventories for our Aviation segment consist primarily of aftermarket parts for distribution, and general aviation engine accessories and parts, and also include related purchasing, overhaul labor, storage, and handling costs.

We periodically evaluate the carrying value of inventory, 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.

We periodically evaluate the carrying value of inventory, considering factors such as its physical condition, sales patterns and demand in order to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen or did not exist when the estimated write-downs were made.

During 2021, we recorded a $ 24.4 million provision for inventory within cost and operating expenses primarily related to slow moving and excess quantities of Aviation segment inventory supporting certain international region distribution programs entered into prior to 2019.

Deferred Compensation Plans

We established the VSE Corporation Deferred Supplemental Compensation Plan ("DSC Plan") for the benefit of certain key management employees to be incentivized and rewarded based on overall company performance.

We provide for certain key management employees to be incentivized and rewarded based on overall company performance through the VSE Corporation Deferred Supplemental Compensation Plan (the "DSC Plan").

We recognized DSC Plan expenses of $ 0.3 million, $ 0.4 million, and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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The DSC Plan assets are included in other assets on the accompanying consolidated balance sheets.

Our DSC Plan assets were $ 12.0 million and $ 11.0 million as of December 31, 2024 and December 31, 2023, respectively.

Gains and losses recognized on the changes in fair value of the investments are recorded as selling, general and administrative expenses on the accompanying consolidated statements of income.

We recorded net 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.

We recorded net gains of $ 0.6 million for the years ended December 31, 2024 and 2023 and $ 22 thousand for the year ended December 31, 2022.

Derivative Instruments

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

Goodwill and Other Intangible Assets

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination.

Goodwill is tested for potential impairment at the reporting unit level annually at the beginning of the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

We estimate and compare the fair value of each reporting unit to its respective carrying value including goodwill.

When testing goodwill for impairment, we may initially qualitatively assess whether it is necessary to perform a quantitative goodwill impairment test, which is only required if we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount.

In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we considered the totality of all relevant events and circumstances that affect the fair value or carrying amount of a reporting unit in accordance with ASC 350-20-35-3C.

In the event we deem a quantitative impairment test necessary, we estimate and compare the fair value of each reporting unit to its respective carrying value including goodwill.

The fair value of our reporting units is determined using a combination of the income approach and the market approach, which involves the use of estimates and assumptions, including projected future operating results and cash flows, the cost of capital, and financial measures derived from observable market data of comparable public companies.

If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives.

Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Impairment of Long-Lived Assets (Excluding Goodwill)

Impairment of Long-Lived Assets

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.

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Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Adopted Accounting Pronouncements

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.

We adopted the standard in the fourth quarter of 2024 and applied the disclosure retrospectively to all prior periods presented in the financial statements.

The adoption of ASU 2023-07 did not have an impact on our consolidated financial position, results of operations or cash flows.

See Note (14) "Business Segments and Customer Information" for further information.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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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.

We are currently evaluating the disclosure impact of this ASU, however, the standard will not have an impact on our consolidated financial position, results of operations or cash flows.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

We are currently evaluating the impact that adoption of ASU 2024-03 may have on our consolidated financial statements and disclosures.

(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.

Turbine Controls, Inc.

On April 24, 2024, we completed the acquisition of TCI for a total consideration of $ 122.4 million, consisting of net cash consideration of $ 112.4 million, which included $ 1.5 million as a net working capital adjustment, and in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $ 10.0 million.

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

TCI is 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 presents an opportunity for VSE's Aviation segment to accelerate its MRO strategy, including expanding our repair capability offerings and adding several new OEM relationships.

The purchase price for TCI 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, 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 TCI opening balance sheet.

During the year ended December 31, 2024, we adjusted the purchase price allocation as a result of working capital and measurement period adjustments.

The adjustments were recorded as a result of new information obtained about facts and circumstances that existed as of the acquisition date and resulted in immaterial impacts to accrued expense and other current liabilities, goodwill, and cash consideration, net of cash acquired.

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

Receivables $ 9,122

Contract assets 16,193

Inventories 5,512

Prepaid expenses and other current assets

Other assets 214

Property and equipment, net 6,434

Intangible asset - customer related 59,000

Goodwill 40,201

Operating lease right-of-use assets 7,832

Total assets acquired 145,078

Accounts payable ( 9,764 )

Accrued expense and other current liabilities ( 5,624 )

Long-term operating lease obligations ( 7,339 )

Total liabilities assumed ( 22,727 )

Net assets acquired, excluding cash $ 122,351

Cash consideration, net of cash acquired $ 112,351

VSE common stock, at fair value

Total $ 122,351

Goodwill resulting from the acquisition of TCI reflects the strategic advantage of expanding our MRO services to new customers.

The value attributed to goodwill and customer relationships is 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 useful life of 10 years.

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

Our consolidated revenues and operating income for the year ended December 31, 2024 include $ 84.4 million and $ 7.1 million, respectively, from the acquisition of TCI.

Operating income does not include the impact of acquisition-related expenses incurred by VSE Corporation.

Acquisition-related expenses related to the TCI acquisition totaled $ 2.2 million for the year ended December 31, 2024, and are included in selling, general and administrative expenses.

The following unaudited pro forma financial information presents the combined results of operations for TCI and VSE Corporation for the years ended December 31, 2024, and 2023, respectively.

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

For the years ended December 31,

$ 1,111,915 $ 949,019

Income from continuing operations

$ 37,226 $ 38,981

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 TCI as though it had occurred on January 1, 2023 and includes adjustments for intangible asset amortization;

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

and acquisition and other transaction costs.

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, 2023, nor is it indicative of future operating results.

Kellstrom Aerospace Group, Inc.

On December 3, 2024, we completed the acquisition of Kellstrom Aerospace for a total consideration of approximately $ 191.0 million, subject to post-closing adjustments, consisting of net cash consideration of $ 170.8 million and in-kind payment in the form of shares of the Company's common stock with a value equal to approximately $ 20.3 million.

The purchase price of this acquisition was funded by our October 2024 underwritten public offering and borrowings under our revolving credit facility.

Kellstrom Aerospace is a diversified global distributor and service provider supporting the commercial aerospace engine aftermarket.

The acquisition provides an opportunity to improve our position in the commercial aviation aftermarket by expanding product and capability offerings both domestically and internationally, including our participation in aircraft engine maintenance events.

The purchase price for Kellstrom 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.

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.

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 preliminary purchase price is as follows (in thousands):

Receivables $ 27,379

Contract assets 2,925

Inventories 37,686

Prepaid expenses and other current assets

Property and equipment, net 10,301

Intangible asset - customer related 41,900

Goodwill 100,711

Operating lease right-of-use assets 10,793

Total assets acquired 234,418

Accounts payable ( 27,750 )

Accrued expense and other current liabilities ( 6,096 )

Deferred tax liabilities ( 201 )

Long-term operating lease obligations ( 9,348 )

Total liabilities assumed ( 43,395 )

Net assets acquired, excluding cash $ 191,023

Cash consideration, net of cash acquired $ 170,756

VSE common stock, at fair value

Total $ 191,023

Goodwill resulting from the acquisition reflects the strategic advantage of growing our distribution and MRO capabilities in the commercial aerospace aftermarket.

The value attributed to goodwill and customer relationships is not 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 useful life of 8 years.

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

Our consolidated revenues and operating income for the year ended December 31, 2024 include $ 17.0 million and $ 1.2 million, respectively, from the acquisition of Kellstrom Aerospace.

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

Acquisition-related expenses related to the

Kellstrom Aerospace acquisition totaled $ 2.7 million for the year ended December 31, 2024, and are included in selling, general and administrative expenses.

The following unaudited pro forma financial information presents the combined results of operations for Kellstrom Aerospace and VSE Corporation for the years ended December 31, 2024, and 2023, respectively.

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

For the years ended December 31,

$ 1,244,344 $ 1,021,260

Income from continuing operations

$ 45,241 $ 48,528

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 Kellstrom Aerospace as though it had occurred on January 1, 2023 and includes adjustments for intangible asset amortization;

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

and acquisition and other transaction costs.

Precision Fuel Components, LLC ("Precision Fuel")

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

Precision Fuel's operating results are included in our Aviation segment beginning on the acquisition date.

The acquisition was not material to our consolidated financial statements.

Desser Holding Company, LLC

On July 3, 2023, we completed the acquisition of Desser Aerospace, a global aftermarket solutions provider of specialty distribution and MRO services.

We purchased Desser Aerospace for cash consideration of $ 131.5 million.

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.

During the year ended December 31, 2024, 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):

a decrease in deferred tax liabilities of $ 1.6 million and an increase in inventories of $ 0.1 million.

These adjustments resulted in a decrease to goodwill of $ 1.7 million.

We completed the purchase accounting valuation for Desser Aerospace during the second quarter of 2024.

The final purchase price is as follows (in thousands):

Inventories 31,228

Other current assets

Prepaid expenses and other current assets

Property and equipment 2,527

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Deferred tax liabilities

Other long-term liabilities

Total liabilities assumed

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Cash consideration, net of cash acquired

Estimated post-close adjustment

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.

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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 8.3 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.

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$ 36,498 $ 46,265

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;

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, 2023 and includes adjustments for intangible asset amortization;

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

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Honeywell Fuel Control Systems

Honeywell Fuel Control Systems ("Honeywell FCS Acquisition")

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.

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

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)

During the year ended December 31, 2024, we adjusted the purchase price allocation as a result of a measurement period adjustment to acquired assets due to updated valuation reports received from Honeywell.

The measurement period adjustment resulted in a decrease in prepaid expenses and other current assets of $ 0.5 million, with a corresponding increase to goodwill.

We completed the purchase accounting valuation for the Honeywell FCS Acquisition during the third quarter of 2024.

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

Prepaid expenses and other current assets (a)

Property and equipment

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

Global Parts Group, Inc.

On July 26, 2021, our Aviation segment acquired Global Parts Group, Inc.

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

Global Parts provides distribution and MRO services for 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.

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

Other current assets

Property and equipment 368

Intangibles assets

Goodwill 10,019

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

Deferred tax assets

Accounts payable ( 6,112 )

Accrued expenses and other current liabilities ( 1,936 )

Long-term operating lease obligations

Net assets acquired, excluding cash $ 40,553

Cash consideration, net of cash acquired $ 38,553

Acquisition date estimated fair value of earn-out obligation 2,000

Total consideration $ 40,553

The value attributed to the customer relationship intangible asset is being amortized on a straight-line basis using a useful life of 15 years.

No ne of the value attributed to goodwill and customer relationships was deductible for income tax purposes.

Goodwill resulting from the acquisition reflects the strategic advantage of expanding our supply chain management capabilities through the diversification of our existing product and platform offerings to new customers.

We incurred approximately $ 0.5 million of acquisition-related expenses associated with our Global Parts acquisition for the year ended December 31, 2021, which are included in selling, general and administrative expenses.

Global Parts' results of operations are included in our Aviation segment in the accompanying consolidated financial statements beginning on the acquisition date of July 26, 2021.

(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):

In February 2024, we entered into two separate agreements to sell substantially all of the Federal and Defense segment assets for a cash consideration of $ 43.0 million, including amounts in escrow, subject to post-closing adjustments.

The FDS Sale is consistent with our long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses.

We recorded a pre-tax loss on the FDS Sale of $ 15.2 million and transaction fees of $ 2.5 million during the year ended December 31, 2024, which are included in (loss) income from discontinued operations, net of tax in the consolidated statements of income.

The results of operations for the Federal and Defense segment are reported in (loss) income from discontinued operations, net of tax within the consolidated statements of income for the years ended December 31, 2024, 2023, and 2022, 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.

The components of (loss) income from discontinued operations, net of tax consist of the following (in thousands):

For the years ended December 31,

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( 8,416 ) ( 5,659 ) 1,535

Other FDS impairment 4,204 — —

Loss on the sale of discontinued operations 15,199 — —

(Loss) income from discontinued operations before income taxes ( 27,819 ) ( 5,659 ) 1,535

(Benefit) provision for income taxes

( 6,645 ) ( 1,641 ) 135

Net (loss) income from discontinued operations

(Loss) income from discontinued operations, net of tax

$ ( 21,174 ) $ ( 4,018 ) $ 1,400

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

December 31, December 31,

As of December 31,

Cash and cash equivalents $ 162

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Contract assets

25,109 30,898

Inventories 472

Other current assets 6,154 9,244

Prepaid expenses and other current assets

Property and equipment, net 6,102

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Total assets held-for-sale (a)

$ 93,002 $ 110,938

Accounts payable $ 20,893

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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.

(a) Amounts were classified as current for the prior period consolidated balance sheet.

Certain assets and liabilities previously reported as held-for-sale were excluded from the FDS sale and were reclassified in 2024 as held and used, at their respective fair values, on the consolidated balance sheets.

The reclassification related to our Alexandria, VA headquarters office space and consisted of an operating lease right-of-use-asset of $ 7.1 million, property and equipment of $ 2.6 million, and an operating lease obligation of $ 11.0 million.

In 2024, we vacated the headquarters office space, resulting in a write down of the associated lease right-of-use asset and property and equipment, and then subsequently terminated the lease for the vacated headquarters office space.

See Note (12) "Leases" for further information.

The FDS Sale resulted in the divestiture of certain government contracts requiring novation.

Until the novation process is finalized, we continue to receive cash collections related to these contracts, which are due to the purchaser.

As of December 31, 2024, we have recorded a $ 0.3 million liability for these collections within accrued expenses and other current liabilities on our consolidated balance sheets.

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

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Disaggregated Revenue

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):

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

A summary of revenues by customer for each of our operating segments is as follows (in thousands):

Year Ended December 31, 2024 Aviation Fleet Total

Commercial $ 779,008 $ 178,509 $ 957,517

DoD — 209 209

Other government 7,248 115,367 122,615

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

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):

A summary of revenues by type for each of our operating segments is as follows (in thousands):

Year Ended December 31, 2024 Aviation Fleet Total

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(a) Net of allowance of $ 6.5 million and $ 3.4 million as of December 31, 2024 and 2023, 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

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.

The increase in contract assets during fiscal 2024 is primarily in connection with the acquisition of TCI during the current period.

Refer to Note (2) "Acquisitions" for further information.

During fiscal 2024 and 2023, respectively, we recognized $ 2.1 million and $ 0.9 million of revenue that was previously included in the beginning balance of contract liabilities.

(5) Property and Equipment

Property and equipment, net consisted of the following as of December 31, 2023 and 2022 (in thousands):

Property and equipment, net consisted of the following (in thousands):

As of December 31,

Buildings and building improvements $ 25,279 $ 24,555

Computer equipment 14,490 8,309

Furniture, fixtures, equipment and other (a)

Furniture, fixtures, and equipment (a)

64,185 41,208

Leasehold improvements 10,104 6,151

Construction in process 16,722 13,675

Land and land improvements 1,454 1,617

132,234 95,515

Less accumulated depreciation and amortization ( 37,439 ) ( 30,677 )

accumulated depreciation and amortization ( 46,648 ) ( 37,439 )

Total property and equipment, net $ 85,586 $ 58,076

(a) Other includes construction in progress.

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

Depreciation and amortization expense for the years ended December 31, 2024, 2023 and 2022 was $ 10.9 million, $ 6.8 million, and $ 5.3 million, respectively.

(6) Goodwill and Intangible Assets

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

(6) Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2024 and 2023 were as follows (in thousands):

Fleet Aviation

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

Goodwill acquired — 134,519 134,519

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

Goodwill acquired — 140,804 140,804

Measurement period adjustments — ( 1,132 ) ( 1,132 )

Balance as of December 31, 2024 $ 63,190 $ 428,263 $ 491,453

Goodwill increased during the year ended December 31, 2024 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, 2024, 2023 and 2022.

Intangible Assets

Other Intangible Assets

Intangible assets consisted of the following (in thousands):

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Total $ 249,760 $ ( 135,630 ) $ 114,130

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 gross carrying amount of contract and customer-related intangibles increased during the year ended December 31, 2024 in connection with acquisitions completed during the year as discussed in Note (2) "Acquisitions." This increase was partially offset by intangible assets with a cost of $ 69.4 million being fully amortized and no longer reflected in the intangible asset values as of December 31, 2024.

There were no impairment losses during the years ended December 31, 2024, 2023 and 2022.

The weighted-average useful life for all intangible assets as of December 31, 2024 is 12.2 years.

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

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Long-term debt consisted of the following (in thousands):

As of December 31,

Bank credit facility - term loan $ 277,500 $ 300,000

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( 2,327 ) ( 3,656 )

Total long-term debt 429,344 286,300

430,173 429,344

current portion

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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.

Borrowings under our term loan and revolving facility mature in October 2026.

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

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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.

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.

As of December 31, 2024, the interest rate on our outstanding term loan and weighted average interest rate on our aggregate outstanding revolving facility was 7.40 % and 7.21 %, respectively.

We had letters of credit outstanding of $ 0.8 million as of December 31, 2024 and 2023.

Future required term loan and revolving facility payments as of December 31, 2024 are as follows (in thousands):

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2026 247,500 155,000 402,500

2026 240,000 133,000 373,000

Total $ 277,500 $ 155,000 $ 432,500

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Notional Amount Paid Fixed Rate Receive Variable Rate Settlement and Termination

Interest rate swap (a)

Interest rate swap

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

Interest rate swap (b)

Interest rate swap

$ 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.

For the years ended December 31, 2024 and 2023, we reclassified $ 4.3 million and $ 3.8 million, respectively, from accumulated other comprehensive income to interest expense, net.

We estimate that we will reclassify $ 1.5 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following December 31, 2024.

See Note (17) "Fair Value Measurements" for the fair value of the interest rate swaps.

(9) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

As of December 31,

Accrued compensation and benefits $ 19,527 $ 15,734

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Current portion of lease liabilities 6,889 4,957

Other 10,147 8,525

Accrued lease termination fee 6,010 —

Contract liabilities 4,479 2,785

Accrued interest 1,734 469

Accrued warranty 1,541 1,282

Accrued income taxes 839 116

Total $ 62,195 $ 36,383

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

(10) Stock-Based Compensation Plans

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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 200 % of the specified target shares beginning in 2023.

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 200 % of the specified target shares beginning in 2023.

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

For all performance share awards granted, the annual and cumulative financial metrics are based on our achievement of a return on equity.

For all performance share awards granted, the annual and cumulative financial metrics are based on our achievement of adjusted EBITDA.

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.

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Expense and Related Tax Benefits Recognized

Stock-based compensation expense and related tax benefits recognized under the 2006 Plan for the years ended December 31, was as follows (in thousands):

Stock-based compensation expense is recognized within products and services costs within our consolidated statements of income.

Stock-based compensation expense and related tax benefits recognized under the 2006 Plan were as follows (in thousands):

For the years ended December 31,

2024 2023 2022

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In March 2024, the employees eligible for the 2023 awards, 2022 awards, and the 2021 awards received a total of 9,972 shares of common stock.

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

The grant-date fair value of these awards for the years ended December 31, 2024, 2023 and 2022 was $ 75.12 , $ 42.23 , and $ 43.30 per share, respectively.

The total compensation cost related to non-vested stock-settled bonus awards not yet recognized was approximately $ 1.0 million with a weighted average amortization period of 2.2 years as of December 31, 2024.

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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 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 weighted average grant date fair value of the performance share awards granted for the years ended December 31, 2024, 2023 and 2022 was $ 77.54 , $ 42.23 , and $ 43.30 , respectively.

As of December 31, 2024 there was $ 3.3 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, 2024 was $ 5.6 million .

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subsidiaries.

The components of the provision for income taxes from continuing operations for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

The components of income from continuing operations before income taxes were as follows (in thousands):

For the years ended December 31,

2024 2023 2022

$ 41,599 $ 52,137 $ 36,694

Foreign 4,881 4,776 ( 983 )

Income from continuing operations before income taxes

$ 46,480 $ 56,913 $ 35,711

The components of the provision for income taxes from continuing operations were as follows (in thousands):

For the years ended December 31,

2024 2023 2022

Federal $ 11,670 $ 11,556 $ 9,483

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Foreign 1,573 1,138 35

Total current

15,375 14,899 11,003

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Foreign ( 179 ) 7 —

Total deferred

( 5,393 ) ( 1,138 ) ( 1,951 )

Provision for income taxes $ 9,982 $ 13,761 $ 9,052

The differences between the amount of tax computed at the federal statutory rate of 21% in 2023, 2022 and 2021, and the provision for income taxes from continuing operations for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

The Company's effective tax rate differs from the federal statutory rate.

A reconciliation of the provision for income taxes from continuing operations to the amount computed by applying the statutory federal income tax rate is as follows (in thousands):

For the years ended December 31,

2024 2023 2022

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Provision for income taxes $ 9,982 $ 13,761 $ 9,052

The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2023 and 2022 was as follows (in thousands):

Effective tax rate

21.5 % 24.2 % 25.3 %

The tax effect of temporary differences representing deferred tax assets and liabilities was as follows (in thousands):

As of December 31,

Deferred compensation and accrued paid leave $ 2,767 $ 3,003

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Foreign country operating loss carryforward 1,364 806

Interest capitalized 2,030 —

Transaction costs 357 —

73,910 39,291

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Total gross deferred tax liabilities ( 54,491 ) ( 36,370 )

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

Net deferred tax assets (liabilities) (b)

$ 118 $ ( 6,985 )

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

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

We file income tax returns in the U.S.

federal jurisdiction and in various state and foreign jurisdictions.

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

(b) Deferred tax assets are included within other assets in our consolidated balance sheets.

As of December 31, 2024, we had various tax losses and tax credits that may be applied against future taxable income.

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Year ending December 31,

2025 $ 10,178

Thereafter 27,520

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The weighted-average discount rate was 6.5 % and 5.9 % and the weighted-average remaining lease term was 8.6 years and 5.7 years as of December 31, 2024, and 2023, respectively.

Lease Abandonment and Termination

In connection with the FDS sale as described in Note (3) "Discontinued Operations", we implemented changes that resulted in one-time charges primarily related to the lease abandonment and termination of our headquarters office space.

On June 28, 2024, we ceased use of our 95,000 sq.

leased office space in Alexandria, VA.

We relocated our VA-based corporate staff to a 4,000 sq.

office space in Vienna, VA under a new short-term lease.

We recognized one-time lease abandonment costs of $ 12.9 million, which comprised of a reduction in our operating lease right-of-use assets of $ 6.7 million, exit costs of $ 3.7 million, and a non-cash write-off of certain property and equipment of $ 2.5 million.

These one-time costs are included within lease abandonment and termination costs on our consolidated statements of income.

On September 4, 2024, we entered into an agreement to immediately terminate the Alexandria, VA, office space lease in exchange for $ 12.0 million, payable in two equal installments due in January 2025 and January 2026.

As a result, we recognized a lease termination gain of $ 0.7 million, which comprised of a $ 1.1 million net liability reduction, partially offset by a $ 0.4 million decrease in our remaining operating lease right-of-use asset.

The lease termination gain is included within lease abandonment and termination costs on our consolidated statements of income.

As of December 31, 2024, $ 6.0 million of the $ 12.0 million due as a result of the lease termination is classified within accrued expenses and other current liabilities, while the remaining $ 6.0 million is classified within other long-term liabilities.

(13) Commitments and Contingencies

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Segment Information

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:

The sale of the Federal and Defense segment allows 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 sale of the Federal and Defense segment, 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.

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, and the United States Postal Service ("USPS").

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.

The operating segments reported below are our segments for which separate financial information is available and for which segment results are evaluated regularly by our Chief Executive Officer in deciding how to allocate resources and in assessing performance.

We evaluate segment performance based on consolidated revenues and operating income.

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 President and Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and in assessing performance.

Our CODM evaluates segment performance based on consolidated revenues and operating income and considers budget-to-actual, sequential period and prior period variances on a monthly basis when making decisions about allocating capital and personnel to the segments.

Segment costs, depreciation and amortization, and allocated corporate costs are viewed as significant segment expenses as part of the CODM’s evaluation.

Net sales of our business segments exclude inter-segment sales as these activities are eliminated in consolidation.

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Our segment information is as follows (in thousands):

For the years ended December 31,

Year Ended December 31, 2024

Aviation Fleet Corporate /

unallocated expenses Consolidated

Revenues $ 786,256 $ 293,876 $ — $ 1,080,132

Costs and operating expenses:

Segment costs (a)

640,895 266,689 36,831 944,415

Aviation $ 544,020 $ 408,112 $ 247,852

Fleet 316,468 261,336 233,532

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

Operating income (loss):

Aviation $ 71,168 $ 36,416 $ ( 14,373 )

Fleet 31,257 23,911 20,426

Corporate/unallocated expenses (a)

Depreciation and amortization 25,500 2,957 155 28,612

Allocated corporate cost (b)

18,474 7,212 — 25,686

Total operating income (loss)

Total costs and operating expenses 684,869 276,858 36,986 998,713

Operating income (loss) (c)

$ 101,387 $ 17,018 $ ( 36,986 ) $ 81,419

Depreciation and amortization expense:

Aviation $ 16,080 $ 13,174 $ 11,374

Fleet 5,300 8,783 9,679

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

Capital expenditures:

Aviation $ 16,467 $ 5,961 $ 7,468

Fleet 2,198 5,502 1,669

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:

Aviation $ 950,143 $ 637,615

Fleet 274,382 218,138

Corporate 32,811 33,097

Assets held-for-sale

Capital Expenditures (d)

$ 19,030 $ 2,386 $ 215 $ 21,631

Total Assets $ 1,409,426 $ 282,820 $ 42,374 $ 1,734,620

Year Ended December 31, 2023

Aviation Fleet Corporate /

unallocated expenses Consolidated

Revenues $ 544,020 $ 316,468 $ — $ 860,488

Costs and operating expenses:

Segment costs (a)

443,909 272,084 14,682 730,675

Depreciation and amortization 16,080 5,300 ( 253 ) 21,127

Allocated corporate cost (b)

12,863 7,827 — 20,690

Total costs and operating expenses 472,852 285,211 14,429 772,492

Operating income (loss) (c)

$ 71,168 $ 31,257 $ ( 14,429 ) $ 87,996

Capital Expenditures (d)

$ 16,467 $ 2,198 $ 269 $ 18,934

Total Assets (e)

$ 950,143 $ 274,382 $ 125,813 $ 1,350,338

For the Year Ended December 31, 2022

Aviation Fleet Corporate /

unallocated expenses Consolidated

Revenues $ 408,112 $ 261,336 $ — $ 669,448

Costs and operating expenses:

Segment costs (a)

345,614 221,137 7,654 574,405

Depreciation and amortization 13,174 8,783 ( 931 ) 21,026

Allocated corporate cost (b)

12,908 7,505 — 20,413

Total costs and operating expenses 371,696 237,425 6,723 615,844

Operating income (loss) (c)

$ 36,416 $ 23,911 $ ( 6,723 ) $ 53,604

Capital Expenditures (d)

$ 5,961 $ 5,502 $ 861 $ 12,324

(a) Segment costs consist of material, labor, overhead, and selling, general, and administrative costs not separately disclosed within this footnote.

(b) Primarily includes costs for information technology, human resources, accounting, and legal support services.

(c) 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.

(d) Amounts differ from consolidated statements of cash flows due to inclusion of capital expenditures for which payment has not yet been remitted.

(e) Corporate assets in 2023 include $ 93,002 of assets held-for-sale.

Customer Information

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Our revenue by geographic area is as follows (in thousands):

Years ended December 31,

For the years ended December 31,

2024 2023 2022

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Stockholders of record are entitled to the amount of dividends declared per common share held.

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.

In May 2024, we entered into an underwriting agreement with certain underwriters relating to the issuance and sale of up to 2,429,577 shares of the Company's common stock at a public offering price of $ 71.00 per share.

On May 17, 2024, the Company issued 2,429,577 shares, which included the exercise by the underwriters of their option to purchase additional shares, pursuant to the underwriting agreement.

Net proceeds of $ 162.0 million were received by the Company, which were used to repay outstanding borrowings under our revolving credit facility, including amounts borrowed to pay the purchase price of the acquisition of TCI and for general corporate purposes.

We incurred legal and accounting fees of $ 0.4 million associated with the May 2024 public offering.

In October 2024, we entered into an underwriting agreement with certain underwriters relating to the issuance and sale of 1,724,137 shares of the Company's common stock at a public offering price of $ 87.00 per share.

Under the terms of the agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 258,620 shares of common stock.

The offering closed on October 17, 2024, resulting in the issuance of 1,982,757 shares, which included the exercise by the underwriters of their option to purchase additional shares, pursuant to the underwriting agreement, for which we received net proceeds of $ 163.8 million, net of issuance costs.

Additionally, we incurred legal and accounting fees of $ 0.3 million associated with the October 2024 public offering.

The net proceeds were used to finance a portion of the cash consideration for the Kellstrom Aerospace acquisition and general corporate purposes, including repaying outstanding borrowings under our revolving facility.

(16) 401(k) Plan

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and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3).

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity.

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in prepaid expenses and other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity.

The carrying value of our outstanding debt obligations approximates its fair value.

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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):

Fair Value December 31,

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy (in thousands):

As of December 31,

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy 2024 2023

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(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

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.

(18) Restructuring Costs

During the year ended December 31, 2024, we incurred $ 4.2 million of corporate restructuring expenses , which are included in selling, general and administrative expenses, primarily related to the cancellation of contracts and leasing agreements associated with the FDS Sale.

As of December 31, 2024, approximately $ 0.8 million of these costs are included within accrued expenses and other current liabilities on our consolidated balance sheets.

Our corporate restructuring activities related to the FDS Sale are substantially complete, and we do not expect to incur additional material costs associated with these activities .

(19) Subsequent Event

On February 17, 2025, we signed a definitive agreement to sell all of the issued and outstanding shares of common stock of our Fleet segment for a total consideration of up to $ 230 million (the “Fleet Sale”).

This consideration assumes a $ 140 million cash payment at the closing of the Fleet Sale, a $ 25 million seller note, and an earn-out payment of up to $ 65 million, subject to the achievement of certain milestones.

The Fleet Sale is expected to close in the second quarter of 2025 and is subject to customary closing conditions and approvals.

We currently intend to use the net proceeds from the Fleet Sale to reduce existing borrowings under the credit agreement.

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