What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-10 compared with 2022-03-11 · 201 added, 239 removed, 675 unchanged (39% of the section changed)

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

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

Assessment of the write-down of Aviation inventories

As described further in Note 1 to the consolidated financial statements, the Company’s inventory balance as of December 31, 2021 was $322.7 million.

The Company records inventory within its Aviation Segment at the lower of cost or net realizable value.

The write-down of slow moving inventory is recorded for excess or obsolete inventory based on certain inputs and assumptions used to determine the net realizable value.

These assumptions include the number of days transpiring from the date the inventory was originally received and the historical sales of the inventory to determine recovery rates.

Other inputs include current and expected future aviation usage trends, replacement values, expected future demand, and historical scrap recovery rates.

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

The inputs and assumptions used in determining the write-down of slow moving inventory include the historical recovery rates, which are based on the number of dates transpiring from the date the inventory was originally received, the historical sales of inventory, the identification of specific inventories associated with aircraft with declining usage trends and the impact of recently executed distribution agreements.

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

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

These assumptions include future demand and sales patterns.

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

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

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

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

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

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

• We tested the design and operating effectiveness of controls relating to the Company’s inventory process, including controls over the Company’s evaluation of the impact on the estimate of net realizable value based on the number of days transpiring from the date the inventory was original received, historical sales of the inventory, specific inventories identified to relate to aircraft with declining usage and the approval and evaluation of new distribution agreements.

• We assessed that the recovery rates applied to slow moving inventory were consistent with forecasted demand.

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

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

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

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

/s/ GRANT THORNTON LLP

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Receivables, net 103,193 76,587

Unbilled receivables, net 31,882 22,358

Unbilled receivables 38,307 31,882

Inventories 380,707 322,702

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Retained earnings 351,297 328,358

Accumulated other comprehensive loss ( 176 ) ( 1,203 )

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

Total stockholders' equity 449,526 417,333

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Balance at December 31, 2019 10,970 $ 549 $ 29,411 $ 334,246 $ ( 1,105 ) $ 363,101

Cumulative effect of adoption of ASU 2016-02 , net of tax

— — — ( 9 ) — ( 9 )

Net income — — — 37,024 — 37,024

Net loss — — — ( 5,171 ) — ( 5,171 )

Stock-based compensation 85 4 2,459 — — 2,463

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

Net loss — — — ( 5,171 ) — ( 5,171 )

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

Net income — — — 7,966 — 7,966

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

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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

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

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

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

Depreciation and amortization 25,570 25,600 24,135

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

Gain on sale of property and equipment ( 64 ) ( 1,051 ) —

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

Goodwill and intangible asset impairment — — 33,734

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Accrued expenses and other current and noncurrent liabilities 10,339 913 ( 1,100 )

Net cash (used in) provided by operating activities ( 17,602 ) 35,761 17,994

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

Cash flows from investing activities:

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

Proceeds from issuance of common stock, net of underwriters' discounts and issuance costs 52,017 — —

Proceeds from issuance of common stock 899 52,017 —

Earn-out obligation payments ( 1,250 ) — ( 31,701 )

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Dividends paid ( 5,111 ) ( 4,427 ) ( 3,970 )

Net cash provided by (used in) financing activities 79,374 ( 56,336 ) 105,385

Net increase (decrease) in cash and cash equivalents 140 ( 356 ) 572

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

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and consulting services.

We serve the United States Government (the "government"), including the United States Department of Defense ("DoD"), federal civilian agencies, and commercial and other customers.

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, our wholly owned subsidiaries, VSE Aviation, Inc., a Delaware corporation ("VSE Aviation"), Energetics Incorporated, Akimeka, LLC, Wheeler Fleet Solutions, Co., and our unincorporated divisions.

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.

Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation.

Use of Estimates

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

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

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 include fair value measurements, inventory provisions, estimated profitability of long-term contracts, valuation allowances on deferred tax assets, fair value of goodwill and other intangible assets and contingencies.

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

Stock-Based Compensation

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Stock-based awards include stock-settled bonus awards, vesting stock awards and performance share awards.

We recognize stock-based compensation expense on a straight-line basis over the underlying award’s requisite service period, as measured using the award’s grant date fair value.

We recognize stock-based compensation expense over the underlying award’s requisite service period, as measured using the award’s grant date fair value.

Our policy is to recognize forfeitures as they occur.

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We determine at inception whether an arrangement that provides us control over the use of an asset is a lease.

Substantially all of our leases are long-term operating leases for facilities with fixed payment terms between two and 15 years.

Substantially all of our leases are long-term operating leases for facilities with fixed payment terms.

We recognize a right-of-use ("ROU") asset and a lease liability upon commencement of our operating leases.

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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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Revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work-related costs allowed under our contracts.

Revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned.

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.

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Revenues on fixed-price contracts are recorded as work is performed over the period.

Revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations.

Incurred cost represents work performed, which corresponds with the transfer of control to the customer.

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.

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We establish allowances for credit losses on our accounts receivable and unbilled receivables.

To measure expected credit losses, we have disaggregated pools of receivable balances, where we have elected to pool our receivables by segment.

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

Within each segment, receivables exhibit similar risk characteristics.

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

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

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

adjustments to historical loss data.

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

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

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 for our Fleet segment consist primarily of vehicle replacement parts, and also include related purchasing, storage and handling costs.

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.

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Deferred Compensation Plans

We have a deferred compensation plan, the VSE Corporation Deferred Supplemental Compensation Plan ("DSC Plan"), to provide incentive and reward for certain key management employees based on overall corporate performance.

We maintain the underlying assets of the DSC Plan in a Rabbi Trust and changes in asset values are included in costs and operating expenses on the accompanying consolidated statements of income.

We recorded deferred compensation plan expenses of $ 433 thousand, $ 970 thousand and $ 1.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We invest the assets held by the Rabbi Trust in both corporate owned life insurance ("COLI") products and in mutual funds.

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

We recognized DSC Plan expenses of $ 0.3 million, $ 0.4 million and $ 1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

We invest in corporate owned life insurance ("COLI") products and in mutual funds that are held in a Rabbi Trust to fund the DSC Plan obligations.

The COLI investments are recorded at cash surrender value and the mutual fund investments are recorded at fair value.

The DSC Plan assets are included in other assets and the obligation to the participants is included in deferred compensation on the accompanying consolidated balance sheets.

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

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

We recorded net losses of $ 626 thousand, $ 863 thousand, and $ 1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We recorded a net gain of $ 22 thousand and net losses of $ 0.6 million and $ 0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Derivative Instruments

Derivative instruments are recorded on the consolidated balance sheets at fair value.

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

Income taxes 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

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

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

Goodwill is tested for impairment at the reporting unit level.

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.

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If an asset is determined to be impaired, we recognize an impairment charge in the current period for the difference between the fair value of the asset and its carrying value.

Recently Issued Accounting Pronouncements Not Yet Adopted

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):

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These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

Our credit facility contains provisions specifying alternative interest rate calculations to be employed when LIBOR ceases to be available as a benchmark.

We will continue to monitor the impact of this transition until it is completed.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805):

The new standard is effective on a prospective basis for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022, with early adoption permitted.

We are currently evaluating the effect, if any, the adoption of this guidance will have on its consolidated results of operations, financial position and cash flows.

(2) Acquisition and Divestitures

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

Global Parts Group, Inc

On July 26, 2021, we acquired Global Parts Group, Inc.

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

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

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

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

Global Parts will operate as a subsidiary of VSE Aviation, Inc.

under our Aviation segment.

The 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.

We may also be required to make earn-out payments of up to $ 2 million should Global Parts meet certain revenue targets during the first twelve months following the acquisition and a certain milestone event on or before March 2023.

See Note (16) "Fair Value Measurements," for additional information regarding the earn-out obligation.

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

The fair values assigned to our Global Parts earn-out obligation, inventory and intangible assets acquired were based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations that utilized established valuation techniques.

We have not yet obtained all the information required to complete the purchase price allocation related to this acquisition.

We are in the process of finalizing our valuation and the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information regarding their fair values.

We expect to have sufficient information available to resolve these items by the second quarter of 2022, which could potentially result in changes in assets or liabilities on Global Parts' opening balance sheet and an adjustment to goodwill.

During the fourth quarter of 2021, we adjusted the purchase price allocation as a result of certain measurement period adjustments to acquired assets and liabilities assumed due to updated valuation reports received from our external valuation specialist, as well as revisions to internal estimates.

These measurement period adjustments included:

a decrease in inventories of $ 5.5 million;

a decrease in customer relationship intangible asset of $ 4.0 million;

a decrease in long-term deferred tax liabilities of $ 2.4 million;

and $ 200 thousand decrease to net working capital.

These adjustments resulted in an increase to goodwill of $ 7.3 million.

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

The purchase price included $ 2 million of contingent consideration.

Refer to Note (17) "Fair Value Measurements," for additional information regarding the earn-out obligation.

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

Description Fair Value

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Total consideration $ 40,553

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

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

The preliminary amount of goodwill recorded for our Global Parts acquisition reflects the strategic advantage of expanding our supply chain management capabilities through the diversification of our existing product and platform offerings to new customers.

We incurred approximately $ 532 thousand of acquisition-related expenses associated with our Global Parts acquisition for the year ended December 31, 2021, which are included in selling, general and administrative expenses.

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.

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HAECO Special Services, LLC

On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of HAECO Americas ("HAECO") for the purchase price of $ 14.8 million.

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.

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Air Force ("USAF") KC-10 fleet.

The acquisition was not material to our consolidated financial statements.

HSS operating results are included in our Federal and Defense segment in the accompanying consolidated financial statements beginning on the acquisition date of March 1, 2021.

The allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is based on the best available information regarding their fair values.

Based on estimates, we allocated approximately $ 7.0 million to the fair value of net tangible assets (including $ 9.2 million of accounts receivable), $ 608 thousand to goodwill, and $ 7.2 million to customer relationship intangible asset, which is being amortized over approximately 4 years from the acquisition date.

We incurred approximately $ 333 thousand of acquisition-related expenses associated with our HSS acquisition for the year ended December 31, 2021, which are included in selling, general and administrative expenses.

1st Choice Aerospace, Inc.

In January 2019, our wholly owned subsidiary VSE Aviation, Inc.

acquired 100 % of the equity of 1st Choice Aerospace, Inc.

("1st Choice Aerospace"), a provider of MRO services and products for new generation and legacy commercial aircraft platforms with operations in Florida and Kentucky, for a purchase price of $ 113 million.

In connection with the acquisition, we were required to make earn-out payments of up to $ 40 million if 1st Choice Aerospace met certain financial targets during 2019 and 2020.

In 2020, we made a payment of approximately $ 31.7 million to satisfy the earn-out payment for the 2019 performance year.

During 2020 it was determined that the financial targets for the 2020 performance year were not met, and the remaining fair value of the earn-out obligation was reversed.

Changes in the fair value of the earn-out obligations are recognized in earnings in the period of change through settlement.

Refer to Note (16) "Fair Value Measurements" for additional information regarding earn-out obligation.

We incurred approximately $ 408 thousand of acquisition-related expenses for the year ended December 31, 2019, which are included in selling, general and administrative expenses.

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

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As a result of the sale of the business and inventory, we derecognized the assets and liabilities of Prime Turbines and recorded a $ 7.5 million loss in 2020 which is reflected within loss on sale of a business entity and certain assets in the consolidated statements of income.

As of December 31, 2021 and 2020, the total outstanding balance of the note receivable from PTB was $ 4.7 million and $ 6.1 million, respectively, which represents the

present value of the consideration to be received with an imputed interest rate discount, of which $ 1.5 million and $ 1.4 million were current as of December 31, 2021 and 2020, respectively.

The note receivable balance is included in other assets and other current assets in our consolidated balance sheets.

CT Aerospace Asset Sale

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As a result of the sale, we recorded a $ 678 thousand loss in 2020, which is reflected within loss on sale of a business entity and certain assets in the consolidated statements of income.

As of December 31, 2021 and 2020, the total outstanding balance of the note receivable from Legacy Turbines was $ 5.2 million and $ 6.4 million, respectively, net of a variable discount of $ 275 thousand, of which $ 1.3 million was current as of December 31, 2021 and 2020.

The note receivable balance is included in other assets and other current assets in our consolidated balance sheets.

(3) Revenue Recognition

Disaggregated Revenue

Our revenues are derived from the delivery of products to our customers and from services performed for commercial customers, various government agencies, the DoD or federal civilian agencies.

A summary of revenues by customer for our operating segments for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

Our revenues are derived from the delivery of products to our customers and from services performed for commercial customers, the DoD, and various other government agencies.

A summary of revenues by customer for each of our operating segments for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

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

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Total $ 242,170 $ 165,070 $ 254,419 $ 661,659

A summary of revenues by type for our operating segments for the year ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

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

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Total $ 233,532 $ 247,852 $ 269,469 $ 750,853

Year Ended December 31, 2019 (a)

Year Ended December 31, 2020

Repair $ — $ 82,445 $ — $ 82,445

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Total $ 242,170 $ 165,070 $ 254,419 $ 661,659

(a) Historical presentation has been realigned to conform to its current period presentation and did not affect the reported results of operations for each reported segment.

Contract Balances

Billed receivables, unbilled receivables (contract assets), and contract liabilities are the results of revenue recognition, customer billing, and timing of payment receipts.

Billed receivables, net, represent unconditional rights to consideration under the terms of the contract and include amounts billed and currently due from our customers.

Unbilled receivables represent our right to consideration in exchange for goods or services that we have transferred to the customer prior to us having the right to payment for such goods or services.

Contract liabilities are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time.

We present our unbilled receivables and contract liabilities on a contract-by-contract basis.

If a contract liability exists, it is netted against the unbilled receivables balance for that contract.

Unbilled receivables increased to $ 31.9 million as of December 31, 2021 from $ 22.4 million as of December 31, 2020, primarily due to performance obligations satisfied in excess of billings and unbilled receivables acquired as part of the HSS acquisition.

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)

$ 103,193 $ 76,587

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.

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Performance Obligations

Our performance obligations are satisfied over time as work progresses or at a point in time.

Revenues from products and services transferred to customers at a point in time accounted for approximately 54 % and 49 % of our revenues for the year ended December 31, 2021 and 2020, respectively.

The majority of our revenue recognized at a point in time is for the sale of vehicle and aircraft parts in our Fleet and Aviation segments.

Revenues from products and services transferred to customers over time accounted for approximately 46 % and 51 % of our revenues for the year ended December 31, 2021 and 2020, respectively, primarily related to revenues in our Federal and Defense segment and for MRO services in our Aviation segment.

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.

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During the year ended December 31, 2022, revenue recognized from performance obligations satisfied in prior periods was not material.

(4) Receivables and Unbilled Receivables

Receivables, net and unbilled receivables, net as of December 31, 2021 and 2020, respectively, were as follows (in thousands):

Receivables, net $ 76,587 $ 55,471

Unbilled receivables, net 31,882 22,358

Total $ 108,469 $ 77,829

Receivables, net are recorded at face value less an allowance for credit losses of approximately $ 1.7 million and $ 1.5 million as of December 31, 2021 and 2020, respectively.

The unbilled receivables balance includes certain costs for work performed at risk but which we believe will be funded by the government totaling $ 3.6 million and $ 2.6 million as of December 31, 2021 and 2020, respectively.

We expect to invoice substantially all unbilled receivables during 2022.

(5) Other Current Assets and Other Assets

(4) Other Current Assets

Other current assets consisted of the following as of December 31, 2022 and 2021 (in thousands):

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Current portion of notes receivable — 2,820

Deferred contract costs 6,148 3,514

Vendor advances 14,998 14,552

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Total $ 26,193 $ 32,304

Other assets consisted of the following as of December 31, 2021 and 2020 (in thousands):

Deferred compensation plan assets $ 14,840 $ 14,370

Long-term portion of notes receivable 7,042 9,856

Other 5,854 2,299

Total $ 27,736 $ 26,525

(5) Property and Equipment

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Total property and equipment, net $ 47,969 $ 42,486

Depreciation and amortization expense for property and equipment for the years ended December 31, 2021, 2020 and 2019 was approximately $ 6.1 million, $ 5.6 million and $ 7.0 million, respectively.

Depreciation and amortization expense for the years ended December 31, 2022, 2021 and 2020 was $ 7.1 million, $ 6.1 million and $ 5.6 million, respectively.

(6) Goodwill and Intangible Assets

Changes in goodwill for the years ended December 31, 2021 and 2020 are as follows (in thousands):

Fleet Federal and Defense Aviation Total

Changes in goodwill for the years ended December 31, 2022 and 2021 by operating segment were as follows (in thousands):

Fleet Federal and Defense Aviation (1)

Balance as of December 31, 2020 $ 63,190 $ 30,883 $ 144,053 $ 238,126

Impairment charge — — ( 30,945 ) ( 30,945 )

Decrease from divestiture — — ( 7,379 ) ( 7,379 )

Goodwill acquired — 608 10,019 10,627

Balance as of December 31, 2021 $ 63,190 $ 31,491 $ 154,072 $ 248,753

Increase from acquisitions — 608 10,019 10,627

Adjustments to goodwill — 84 — 84

Balance as of December 31, 2022 $ 63,190 $ 31,575 $ 154,072 $ 248,837

Goodwill increased during the year ended December 31, 2021 in connection with acquisitions completed during the year.

See Note (2) "Acquisitions and Divestitures" for additional details regarding these acquisitions.

Based on our annual goodwill impairment test performed in the fourth quarter of 2021, it was determined there was no impairment of goodwill and the fair value of each of the reporting units exceeded their carrying value.

During the second quarter of 2020, due to the negative impact of the COVID-19 pandemic on our Aviation reporting unit, we recorded a $ 30.9 million goodwill interim impairment charge within goodwill and intangible impairment in the consolidated statements of income.

Our 2020 annual goodwill impairment test determined no incremental impairment.

In 2020, in connection with the sale of our Prime Turbines subsidiary within our Aviation segment, goodwill of $ 7.4 million was allocated to the disposal group on a relative fair value basis and was written-off upon the completion of the sale.

(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.

Intangible assets consisted of the following (in thousands):

Cost Accumulated Amortization Accumulated Impairment Loss Net Intangible Assets

Cost Accumulated Amortization Net Intangible Assets

December 31, 2022

Contract and customer-related $ 206,291 $ ( 116,881 ) $ 89,410

Acquired technologies 12,400 ( 11,915 ) — 485

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

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Total $ 242,866 $ ( 134,603 ) $ 108,263

Intangible assets with a gross carrying value of $ 20.8 million are no longer reflected in the gross carrying value and accumulated amortization as of December 31, 2021.

The increase in the gross carrying amount of contract and customer-related intangibles during the year ended December 31, 2021 relates to customer relationship intangible assets recognized in connection with acquisitions completed during the year, partially offset by the removal of fully amortized assets of $ 10.7 million.

See Note (2) "Acquisitions and Divestitures" for additional details regarding these acquisitions.

There were no impairment losses during 2021.

During 2020, we recorded an impairment charge of $ 2.8 million in connection with the sale of all of the inventory of our CT Aerospace subsidiary, which was part of our Aviation segment.

The impairment is presented within goodwill and intangible impairment in the consolidated statements of income.

Amortization expense for the years ended December 31, 2021, 2020 and 2019 was approximately $ 18.5 million, $ 17.5 million and $ 19.3 million, respectively.

Future expected amortization of intangible assets is as follows for the years ending December 31, (in thousands):

Intangible assets with a gross carrying value of 27.9 million were fully amortized during the year and are no longer reflected in the intangible asset values as of December 31, 2022.

There were no impairment losses during 2022 and 2021.

We recognized an impairment expense, included in goodwill and intangible impairment, of $ 2.8 million within the Aviation segment during the second quarter of 2020 in connection with the sale of all of the inventory of our CT Aerospace subsidiary.

Amortization expense for the years ended December 31, 2022, 2021 and 2020 was $ 17.6 million, $ 18.5 million and $ 17.5 million, respectively.

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

Year Ending December 31,

2023 $ 13,639

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Long-term debt, net of current portion $ 276,300 $ 270,407

As of December 31, 2022, the interest rate on our outstanding term debt and weighted average interest rate on our aggregate outstanding revolver debt was 6.93 % and 7.01 %, respectively.

Interest expense incurred on bank credit facilities was approximately $ 17.4 million, $ 11.2 million and $ 12.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

On July 23, 2021, we entered into a third amendment to our loan agreement which, among other things, extended the maturity dates with respect to the revolving credit facility and term loan facility to July 2024, lowered the applicable LIBOR rate floor, and modified the maximum Total Funded Debt to EBITDA Ratio.

Except as described above, the amended loan agreement has substantially the same terms as the existing loan agreement, including covenants and events of default.

Financing costs associated with the loan agreement amendment of approximately $ 808 thousand were capitalized and are being amortized over the remaining term of the loan.

Our required term and revolver loan payments after December 31, 2021 are as follows (in thousands):

Year ending December 31,

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).

The base rate for any day is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate plus .50 %;

(ii) the Prime Rate and (iii) the sum of Term SOFR for a one month interest period, plus the difference between the additional Term SOFR interest margin for SOFR rate loans and the additional base rate interest margin for base rate loans.

The applicable margins for SOFR loans ranges from 1.50 % to 3.75 % and .50 % to 2.75 % for base rate loans.

We also pay a commitment fee with respect to undrawn amounts under the revolving loan facility ranging from .25 % to .50 % (based on our Total Funded Debt to EBITDA Ratio) and fees on letters of credit that are issued.

We incurred and deferred $ 1.1 million of debt issuance costs in connection with the Fourth Amendment to our loan agreement, which are amortized to interest expense over the remaining term of the loan.

Amortization of debt issuance costs was $ 1.0 million, $ 1.0 million, $ 1.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Future required term and revolver loan payments as of December 31, 2022 are as follows (in thousands):

Year Ending Term Revolver Total

2023 $ 10,000 $ — $ 10,000

2024 10,000 — 10,000

2025 80,000 188,610 268,610

Total $ 100,000 $ 188,610 $ 288,610

(a) Includes the revolver loan required payment of $ 227 million.

The maximum amount of credit available under the loan agreement for revolving loans and letters of credit as of December 31, 2021 was $ 350 million.

We pay an unused commitment fee and fees on letters of credit that are issued.

We had $ 1.0 million letters of credit outstanding as of December 31, 2021 and no letters of credit outstanding as of December 31, 2020.

We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a margin or at a base rate (typically the prime rate) plus a base margin.

As of December 31, 2021, the LIBOR margin was 3.25 % and the base margin was 2.25 %.

The margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases.

We use interest rate hedges on a portion of our debt.

The amount of our debt with interest rate swap agreements was $ 75.0 million as of December 31, 2021.

After taking into account the impact of hedging instruments, as of December 31, 2021 interest rates on portions of our outstanding debt ranged from 4.00 % to 6.66 %, and the effective interest rate on our aggregate outstanding debt was 4.39 %.

Interest expense incurred on bank loan borrowings and interest rate hedges was approximately $ 11.2 million, $ 12.7 million and $ 13.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Restrictive covenants include a

maximum Total Funded Debt to EBITDA Ratio and a minimum Fixed Charge Coverage Ratio.

Restrictive covenants include a maximum Total Funded Debt to EBITDA Ratio and a minimum Fixed Charge Coverage Ratio.

We were in compliance with required ratios and other terms and conditions as of December 31, 2022.

(8) Derivative Instruments and Hedging Activities

We are party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of our floating rate debt.

Our derivative instruments designated as cash flow hedges as of December 31, 2022 were (in thousands):

Notional Amount Paid Fixed Rate Receive Variable Rate Settlement and Termination

Interest rate swap (1)

$ 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.

These derivative instruments are recorded on the consolidated balance sheets at fair value.

Unrealized changes in the fair value on cash flow hedges are recognized in other comprehensive income (loss) and the amounts are reclassified from accumulated other comprehensive income (loss) into earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

We estimate that we will reclassify $ 2.9 million of unrealized gains from accumulated other comprehensive income into earnings in the twelve months following December 31, 2022.

(9) Accrued Expenses and Other Current Liabilities

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Accrued customer rebates and royalties 6,240 4,514

Customer advances 1,087 1,080

Interest rate swap liability 234 1,603

Current portion of lease liabilities 7,254 5,991

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As each tranche vests, the fixed dollar value of the vested portion of the award is converted into shares based on the closing market price of our stock at the date of conversion.

On each vesting date, 100 % of the vested award is paid in stock that are subject to a two-year stock sales restriction.

On each vesting date, 100 % of the vested award is paid in stock that is subject to a two-year stock sales restriction.

Expense is recognized on a straight-line basis over the requisite service period for each tranche, which results in an accelerated pattern for an award.

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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, are as follows (in thousands):

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

2022 2021 2020

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The grant-date fair value of these awards was $ 43.30 per share.

The total compensation cost related to non-vested stock-settled bonus awards not yet recognized was approximately $ 649 thousand with a weighted average amortization period of 1.9 years as of December 31, 2021.

The fair value of stock-settled bonus awards that vested in the years ended December 31, 2021, 2020 and 2019 was $ 884 thousand, $ 1.2 million and $ 1.6 million, respectively.

The total compensation cost related to non-vested stock-settled bonus awards not yet recognized was approximately $ 0.9 million with a weighted average amortization period of 1.4 years as of December 31, 2022.

The total fair value of stock-settled bonus awards that vested in the years ended December 31, 2022, 2021 and 2020 was $ 0.9 million, $ 0.9 million and $ 1.2 million, respectively.

Vesting Stock Awards

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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 weighted average fair value of vesting stock awards that vested in the years ended December 31, 2021, 2020 and 2019 was $ 1.7 million, $ 1.6 million and $ 597 thousand, respectively.

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.

Performance Share Awards

During the year ended December 31, 2021, we granted 42,000 performance share awards at target with a weighted average grant date fair value of $ 42.01 .

Performance Share award activity for the year ended December 31, 2022 was:

Number of Shares

Weighted Average Grant Date Fair Value

Unvested as of December 31, 2021 42,173 $ 42.01

Granted 51,441 $ 43.30

Vested ( 10,542 ) $ 42.01

Forfeited ( 10,911 ) $ 42.36

Unvested as of December 31, 2022 72,161 $ 42.88

The actual number of shares to be issued upon vesting range between 0 - 100 % of the target number of shares granted.

For those awards outstanding as of December 31, 2021, we expect to issue approximately 36,000 shares of our common stock in the future based on estimated target achievement of the performance goals.

The grant date fair value of performance share awards is based on the closing market price of our common stock on the grant date.

As of December 31, 2021, there was $ 722 thousand of unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 2 years.

The weighted average grant date fair value of the vesting stock awards granted for the year ended December 31, 2022 was $ 42.01 .

As of December 31, 2022 there was $ 1.2 million of unrecognized compensation cost related to vesting stock awards, which is expected to be recognized over a weighted-average period of 1.5 years.

The total fair value of vesting stock awards that vested in the year ended December 31, 2022 was $ 0.5 million .

(11) Income Taxes

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subsidiaries.

The components of the provision for income taxes from continuing operations for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

The components of the provision for income taxes from continuing operations for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

2022 2021 2020

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

The differences between the amount of tax computed at the federal statutory rate of 21% in 2021, 2020 and 2019, and the provision for income taxes from continuing operations for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

The differences between the amount of tax computed at the federal statutory rate of 21% in 2022, 2021 and 2020, and the provision for income taxes from continuing operations for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

2022 2021 2020

8 unchanged sentences

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

Certain amounts from prior years have been reclassified to conform to the current year presentation.

The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands):

Gross deferred tax assets

The tax effect of temporary differences representing deferred tax assets and liabilities as of December 31, 2022 and 2021 was as follows (in thousands):

Deferred compensation and accrued paid leave $ 4,552 $ 5,422

Accrued Expense 1,158 —

Inventory reserve 12,984 12,465

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Interest rate swaps — 58

Reserve for contract disallowance 114 195

Capitalized inventory 1,128 900

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39,208 35,773

Valuation allowance (a)

Valuation allowance (1)

( 8,337 ) ( 8,257 )

Total gross deferred tax assets 30,871 27,516

Gross deferred tax liabilities

Interest rate swaps ( 1,652 ) —

Depreciation ( 3,017 ) ( 3,895 )

5 unchanged sentences

Net deferred tax liabilities $ ( 9,621 ) $ ( 9,108 )

(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.

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

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

We file income tax returns in the U.S.

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however, some may be carried forward indefinitely.

(12) Commitments and Contingencies

Leases and Other Commitments

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

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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.

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 after incurring $ 200 thousand in selling expenses.

In connection with the sale and leaseback transaction, we recognized a gain of $ 1.1 million, net of selling expenses.

The table below summarizes future minimum lease payments under operating leases, recorded on the balance sheet, as of December 31, 2022 (in thousands):

4 unchanged sentences

Present value of minimum lease payments 39,594

current maturities of lease liabilities ( 5,991 )

current portion of lease liabilities (1)

Long-term lease liabilities $ 32,340

We made cash payments of approximately $ 6.3 million, $ 3.7 million and $ 5.7 million for operating leases during the year ended December 31, 2021, 2020 and 2019, respectively, which are included in cash flows from operating activities in our consolidated statement of cash flows.

As of December 31, 2021, the weighted average remaining lease term and discount rate for our operating leases were approximately 5.1 years and 4.8 %, respectively.

Contingencies

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

Refer to Note (9) "Accrued Expenses and Other Current Liabilities."

Other supplemental operating lease information for the year ended December 31, was as follows (in thousands):

2022 2021 2020

Cash paid for amounts included in the measurement of operating lease liabilities $ 7,372 $ 6,309 $ 3,681

Right-of-use assets obtained in exchange for new operating lease liabilities $ 12,295 $ 11,175 $ 4,728

The weighted-average remaining lease term and the weighted-average discount rate was 5.1 years and 5.5 % as of December 31, 2022, respectively, and 5.1 years and 4.8 % as of December 31, 2021, respectively.

(13) Commitments and Contingencies

We may have certain claims in the normal course of business, including legal proceedings, against us and against other parties.

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Our Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service ("USPS"), and the DoD.

Core services include vehicle parts distribution, sourcing, IT solutions, customized fleet logistics,

warehousing, kitting, just-in-time supply chain management, alternative product sourcing, and engineering and technical support.

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

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Customer Information

Our revenues are derived from the delivery of products and services performed for commercial clients, DoD agencies or federal civilian agencies.

The USPS and U.S.

Navy are our largest customers.

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

Our revenue by customer is as follows (in thousands):

Years ended December 31,

Source of Revenues 2021 % 2020 % 2019 %

Commercial $ 322,318 43 $ 208,305 31 $ 242,518 32

DoD 233,422 31 236,397 36 304,334 41

Other government 195,113 26 216,957 33 205,775 27

Total Revenues $ 750,853 100 $ 661,659 100 $ 752,627 100

See Note (3) "Revenue Recognition" for revenue by customer.

We do not measure revenue or profit by product or service lines, either for internal management or external financial reporting purposes, because it would be impractical to do so.

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United States $ 837,929 $ 668,892 $ 598,142

Other Countries (a)

Other Countries (1)

111,833 81,961 63,517

Total revenue $ 949,762 $ 750,853 $ 661,659

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

(1) 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.

On January 29, 2021, we completed the issuance and sale of 1,428,600 shares of the Company's common stock, in a public offering at a price of $ 35.00 per share.

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.

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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 Other assets Level 1 $ 598 $ 1,120

Interest rate swaps Accrued expenses Level 2 $ 234 $ 1,603

Earn-out obligation-current Accrued expenses Level 3 $ 1,000 $ —

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

Other assets Level 1 $ 539 $ 598

Interest rate swaps Other assets Level 2 $ 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

COLI assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.

We account for our interest rate swap agreements under the provisions of ASC 815, Derivatives and Hedging , and have determined that our swap agreements qualify as highly effective cash flow hedges.

We evaluate our hedges to determine their effectiveness and as of December 31, 2021 and 2020, the swaps were determined to be fully effective.

Accordingly, the fair value of the swap agreements, which is a liability recorded in accrued expenses and other current liabilities in our consolidated balance sheets, of $ 234 thousand and $ 1.6 million as of December 31, 2021 and 2020, respectively.

The offset, net of an income tax effect of $ 58 thousand and $ 400 thousand was included in accumulated other comprehensive income in the accompanying balance sheets as of December 31, 2021 and 2020, respectively.

The amounts paid and received on the swap agreements are recorded in interest expense in the period during which the related floating-rate interest is incurred.

We expect the hedges to remain fully effective during the remaining terms of the swap agreements.

We determine the fair value of the swap agreements based on a valuation model using primarily observable market data inputs.

In connection with the acquisition of Global Parts in July 2021, we may be required to make earn-out obligation payments of up to $ 2.0 million should Global Parts meet certain financial targets during the twelve months following the acquisition and meet a certain milestone event on or before March 2023.

The preliminary fair value of the earn-out obligation was determined using a probability-based scenario analysis approach.

Any change in the fair value of contingent consideration from events after the acquisition date will be recognized in earnings of the period when the event occurs.

The probability-based approach used to fair value earn-out obligation is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

The significant unobservable inputs include projected revenues and percentage probability of occurrence.

Changes in the revenue assumptions could result in a material change to the amount of the fair value measurement.

Under the agreement, we were required to make an advanced payment of the earn-out obligation.

The payment was made in August 2021.

In 2020, in connection with the 2019 acquisition of 1st Choice Aerospace, we made a payment of approximately $ 31.7 million to satisfy the earn-out and the remaining fair value of the earn-out obligation of $ 5 million was reversed and recognized in earnings.

(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):

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

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

Earn-out payments ( 750 ) — ( 750 )

Reclassification from long-term to current 5,000 ( 5,000 ) —

Fair value adjustment included in costs and operating expenses ( 5,000 ) — ( 5,000 )

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

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

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

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

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

(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.

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