10-Q 1 vsec-20220930.htm VSE CORPORATION 10-Q SEPTEMBER 30, 2022 vsec-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission File Number:  000-03676
vsec-20220930_g1.jpg
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware54-0649263
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
6348 Walker Lane  
Alexandria,Virginia22310
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:  (703) 960-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.05 per shareVSECThe NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

Number of shares of Common Stock outstanding as of October 21, 2022: 12,799,678



 TABLE OF CONTENTS 
   
   
  Page
  
   
ITEM 1. 
   
 
   
 
   
 
   
 
   
 
   
ITEM 2.
   
ITEM 3.
   
ITEM 4.
   
  
   
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 6.
   
 
   


-2-

Forward-Looking Statements

This quarterly report on Form 10-Q (“Form 10-Q”) contains statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such statements are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, the impact of widespread health developments, such as the ongoing COVID-19 outbreak, the health and economic impact thereof and the governmental, commercial, consumer and other responses thereto, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified elsewhere in this document, including in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 11, 2022 (“2021 Form 10-K"). All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that occur or arise after the date hereof.


-3-

PART I.  Financial Information

Item 1.    Financial Statements

VSE Corporation and Subsidiaries
Unaudited Consolidated Balance Sheets
(in thousands except share and per share amounts)
September 30,December 31,
20222021
Assets
Current assets:
Cash and cash equivalents$90 $518 
Receivables (net of allowance of $3.4 million and $1.7 million, respectively)
91,093 76,587 
Unbilled receivables44,084 31,882 
Inventories349,917 322,702 
Other current assets28,154 32,304 
Total current assets513,338 463,993 
Property and equipment (net of accumulated depreciation of $72 million and $66 million, respectively)
44,564 42,486 
Intangible assets (net of accumulated amortization of $120 million and $135 million, respectively)
94,857 108,263 
Goodwill248,837 248,753 
Operating lease - right-of-use assets23,950 27,327 
Other assets31,980 27,736 
Total assets$957,526 $918,558 
Liabilities and Stockholders' equity  
Current liabilities:  
Current portion of long-term debt$9,162 $14,162 
Accounts payable119,093 115,064 
Accrued expenses and other current liabilities50,791 49,465 
Dividends payable1,280 1,273 
Total current liabilities180,326 179,964 
Long-term debt, less current portion288,531 270,407 
Deferred compensation10,128 14,328 
Long-term operating lease obligations22,947 27,168 
Deferred tax liabilities10,166 9,108 
Other long-term liabilities 250 
Total liabilities512,098 501,225 
Commitments and contingencies (Note 6)
Stockholders' equity:  
Common stock, par value $0.05 per share, authorized 23,000,000 shares; issued and outstanding 12,799,678 and 12,726,659, respectively
640 636 
Additional paid-in capital91,706 88,515 
Retained earnings347,730 328,358 
Accumulated other comprehensive income (loss)5,352 (176)
Total stockholders' equity445,428 417,333 
Total liabilities and stockholders' equity$957,526 $918,558 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
-4-

VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands except share and per share amounts)

 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Revenues:
Products$138,216 $113,005 $419,023 $276,048 
Services104,271 87,577 296,416 264,627 
Total revenues242,487 200,582 715,439 540,675 
Costs and operating expenses:    
Products123,348 101,044 376,781 273,081 
Services96,653 79,916 279,163 241,104 
Selling, general and administrative expenses981 809 2,752 1,897 
Amortization of intangible assets4,233 4,921 13,406 13,812 
Total costs and operating expenses225,215 186,690 672,102 529,894 
Operating income 17,272 13,892 43,337 10,781 
Interest expense, net4,818 2,780 12,299 8,476 
Income before income taxes12,454 11,112 31,038 2,305 
Provision for income taxes3,035 2,091 7,827 539 
Net income $9,419 $9,021 $23,211 $1,766 
Basic earnings per share$0.74 $0.71 $1.82 $0.14 
Basic weighted average shares outstanding12,797,727 12,704,165 12,772,731 12,496,646 
Diluted earnings per share$0.73 $0.71 $1.81 $0.14 
Diluted weighted average shares outstanding12,834,084 12,774,636 12,816,319 12,573,076 
Dividends declared per share$0.10 $0.09 $0.30 $0.27 












The accompanying notes are an integral part of these unaudited consolidated financial statements.
-5-

VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)

 For the three months ended September 30,For the nine months ended September 30,
 2022202120222021
Net income $9,419 $9,021 $23,211 $1,766 
Change in fair value of interest rate swap agreements, net of tax5,352 173 5,528 836 
Other comprehensive income, net of tax5,352 173 5,528 836 
Comprehensive income$14,771 $9,194 $28,739 $2,602 









































The accompanying notes are an integral part of these unaudited consolidated financial statements.
-6-

VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
(in thousands except per share data)


Three months ended September 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at June 30, 202212,795 $640 $91,051 $339,592 $ $431,283 
Net income— — — 9,419 — 9,419 
Stock-based compensation5 — 655 — — 655 
Other comprehensive income, net of tax— — — — 5,352 5,352 
Dividends declared ($0.10 per share)
— — — (1,281)— (1,281)
Balance at September 30, 202212,800 $640 $91,706 $347,730 $5,352 $445,428 


Three months ended September 30, 2021
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at June 30, 202112,704 $635 $85,844 $315,555 $(540)$401,494 
Net income— — — 9,021 — 9,021 
Stock-based compensation  1,478 — — 1,478 
Other comprehensive income, net of tax— — — — 173 173 
Dividends declared ($0.09 per share)
— — — (1,145)— (1,145)
Balance at September 30, 202112,704 $635 $87,322 $323,431 $(367)$411,021 



























The accompanying notes are an integral part of these unaudited consolidated financial statements.
-7-

VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity (continued)
(in thousands except per share data)


Nine months ended September 30, 2022
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202112,727 $636 $88,515 $328,358 $(176)$417,333 
Net income— — — 23,211 — 23,211 
Stock-based compensation73 4 3,191 — — 3,195 
Other comprehensive income, net of tax— — — — 5,528 5,528 
Dividends declared ($0.30 per share)
— — — (3,839)— (3,839)
Balance at September 30, 202212,800 $640 $91,706 $347,730 $5,352 $445,428 


Nine months ended September 30, 2021
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
 Common Stock
 SharesAmount
Balance at December 31, 202011,055 $553 $31,870 $325,097 $(1,203)$356,317 
Issuance of common stock1,599 80 51,937 — — 52,017 
Net income— — — 1,766 — 1,766 
Stock-based compensation50 2 3,515 — — 3,517 
Other comprehensive income, net of tax— — — — 836 836 
Dividends declared ($0.27 per share)
— — — (3,432)— (3,432)
Balance at September 30, 202112,704 $635 $87,322 $323,431 $(367)$411,021 


























The accompanying notes are an integral part of these unaudited consolidated financial statements.
-8-

VSE Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)

For the nine months ended September 30,
 20222021
Cash flows from operating activities:
Net income $23,211 $1,766 
Adjustments to reconcile net income to net cash used in operating activities:  
Depreciation and amortization19,277 18,996 
Deferred taxes(779)(4,803)
Stock-based compensation3,597 2,968 
Inventory valuation adjustment1,094 24,420 
Loss on sale of PPE (48)
  Changes in operating assets and liabilities, net of impact of acquisitions:  
Receivables(14,506)(9,321)
Unbilled receivables(12,202)(4,484)
Inventories(28,309)(66,518)
Other current assets and noncurrent assets6,189 (18,912)
Accounts payable and deferred compensation(171)17,955 
Accrued expenses and other current and noncurrent liabilities(1,607)7,458 
Net cash used in operating activities(4,206)(30,523)
Cash flows from investing activities:  
Purchases of property and equipment(7,416)(7,606)
Proceeds from the sale of property and equipment 199 
Proceeds from payments on notes receivable4,235 1,550 
Earn-out obligation payments (750)
Cash paid for acquisitions, net of cash acquired (53,232)
Net cash used in investing activities(3,181)(59,839)
Cash flows from financing activities:  
Borrowings on loan agreement358,051 394,079 
Repayments on loan agreement(345,554)(350,956)
Proceeds from issuance of common stock486 52,017 
Earn-out obligation payments(1,250)(808)
Payments of taxes for equity transactions(942)(681)
Dividends paid(3,832)(3,284)
Net cash provided by financing activities6,959 90,367 
Net (decrease) increase in cash and cash equivalents(428)5 
Cash and cash equivalents at beginning of period518 378 
Cash and cash equivalents at end of period$90 $383 
Supplemental disclosure of noncash investing and financing activities:
Earn-out obligation in connection with acquisitions$ $1,250 



The accompanying notes are an integral part of these unaudited consolidated financial statements.
-9-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022


(1) Nature of Operations and Basis of Presentation

Nature of Operations

VSE Corporation (“VSE,” the “Company,” “we,” “us,” or “our”) is a diversified aftermarket products and services company providing repair services, parts distribution, logistics, supply chain management and consulting services for land, sea and air transportation assets to commercial and government markets. We conduct our operations under three segments: (1) Aviation; (2) Fleet; and (3) Federal and Defense.

In February 2021, we completed the issuance and sale of 1,428,600 shares of the Company's common stock, in a public offering at a price of $35.00 per share. The underwriters exercised their option to purchase an additional 170,497 shares. The transaction closed on February 2, 2021. We received net proceeds of approximately $52 million after deducting underwriting discounts, commissions and offering related expenses, which were used for general corporate purposes, including financing strategic acquisitions and working capital requirements for new program launches.

Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to SEC Form 10-Q and Article 10 of SEC Regulation S-X. Therefore, such financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K"). In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 

Use of Estimates

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 contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include fair value measurements, inventory provisions, 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.

Recent Accounting Pronouncements

Recently 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.


(2) Acquisitions

Global Parts Group, Inc.

On July 26, 2021, we acquired Global Parts Group, Inc. ("Global Parts") for a purchase price of $40 million, net of cash acquired. The purchase price includes $2 million of contingent consideration, representing the fair value recognized for potential future earn-out payments. During the third quarter of fiscal 2022, we settled the final payment of the obligation. See Note (8) "Fair
-10-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

Value Measurements," for additional information regarding the earn-out obligation. Global Parts operating results are included in our Aviation segment.

During the three and nine months ended September 30, 2021, we incurred $0.3 million and $0.5 million, respectively, of acquisition-related expenses, which are included in selling, general and administrative expenses.

HAECO Special Services, LLC

On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of HAECO Americas ("HAECO") for the purchase price of $14.8 million. HSS operating results are included in our Federal and Defense segment. The acquisition was not material to our consolidated financial statements.

During the nine months ended September 30, 2021, we incurred $0.3 million of acquisition-related expenses, which are included in selling, general and administrative expenses.


(3) Revenue

Disaggregation of Revenues
Our revenues are derived from the delivery of products to our customers and from services performed for commercial customers, various government agencies, the United States Department of Defense ("DoD") or federal civilian agencies.

Revenues by customer for each of our operating segments for the three and nine months ended September 30, 2022 were as follows (in thousands):
Three months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Commercial$101,735 $25,394 $129 $127,258 
DoD 183 60,550 60,733 
Other government890 39,177 14,429 54,496 
     Total$102,625 $64,754 $75,108 $242,487 

Nine months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Commercial$296,996 $79,257 $387 $376,640 
DoD 3,176 170,205 173,381 
Other government3,938 114,093 47,387 165,418 
     Total$300,934 $196,526 $217,979 $715,439 

Revenues by customer for each of our operating segments for the three and nine months ended September 30, 2021 were as follows (in thousands):
Three months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Commercial$72,542 $20,690 $931 $94,163 
DoD 2,739 58,123 60,862 
Other government582 36,839 8,136 45,557 
     Total$73,124 $60,268 $67,190 $200,582 

-11-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

Nine months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Commercial$164,353 $52,757 $1,434 $218,544 
DoD 10,517 162,984 173,501 
Other government657 109,798 38,175 148,630 
     Total$165,010 $173,072 $202,593 $540,675 

Revenues by type for each of our operating segments for the three and nine months ended September 30, 2022 were as follows (in thousands):
Three months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Repair$28,979 $ $ $28,979 
Distribution73,646 64,754  138,400 
Cost Plus Contract  40,158 40,158 
Fixed Price Contract  18,430 18,430 
T&M Contract  16,520 16,520 
     Total$102,625 $64,754 $75,108 $242,487 

Nine months ended September 30, 2022
AviationFleetFederal and DefenseTotal
Repair$77,308 $ $ $77,308 
Distribution223,626 196,526  420,152 
Cost Plus Contract  105,290 105,290 
Fixed Price Contract  59,069 59,069 
T&M Contract  53,620 53,620 
     Total$300,934 $196,526 $217,979 $715,439 

Revenues by type for each of our operating segments for the three and nine months ended September 30, 2021 were as follows (in thousands):
Three months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Repair$18,714 $ $ $18,714 
Distribution54,410 60,268  114,678 
Cost Plus Contract  26,775 26,775 
Fixed Price Contract  25,729 25,729 
T&M Contract  14,686 14,686 
     Total$73,124 $60,268 $67,190 $200,582 

-12-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

Nine months ended September 30, 2021
AviationFleetFederal and DefenseTotal
Repair$56,051 $ $ $56,051 
Distribution108,959 173,072  282,031 
Cost Plus Contract  65,139 65,139 
Fixed Price Contract  82,090 82,090 
T&M Contract  55,364 55,364 
     Total$165,010 $173,072 $202,593 $540,675 

Contract Balances

Unbilled receivables (contract assets) 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 related 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 were $44.1 million as of September 30, 2022 and $31.9 million as of December 31, 2021. Contract liabilities, which are included in accrued expenses and other current liabilities in our consolidated balance sheets, were $7.7 million as of September 30, 2022 and $7.1 million as of December 31, 2021. For the nine months ended September 30, 2022 and 2021, we recognized revenue that was previously included in the beginning balance of contract liabilities of $2.7 million.

Performance Obligations

Our performance obligations are satisfied either at a point in time or over time as work progresses. Revenues from products and services transferred to customers at a point in time are primarily related to the sales of vehicle and aircraft parts in our Fleet and Aviation segments. Revenues from products and services transferred to customers at a point in time accounted for approximately 57% and 59% of our revenues for the three and nine months ended September 30, 2022, respectively, and approximately 57% and 52% for the three and nine months ended September 30, 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 from products and services transferred to customers over time accounted for approximately 43% and 41% of our revenues for the three and nine months ended September 30, 2022, respectively, and 43% and 48% of our revenues for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the aggregate amount of transaction prices allocated to unsatisfied or partially unsatisfied performance obligations was $199 million. The performance obligations expected to be satisfied within one year and greater than one year are 96% and 4%, respectively. We have applied the practical expedient for certain parts sales and MRO services to exclude the amount of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed.

During the nine months ended September 30, 2022 and 2021, revenue recognized from performance obligations satisfied in prior periods was not material.










-13-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

(4) Debt

Long-term debt consisted of the following (in thousands):
September 30,December 31,
 20222021
Bank credit facility - term loan$48,925 $60,175 
Bank credit facility - revolver loans250,305 226,559 
Principal amount of long-term debt299,230 286,734 
Less debt issuance costs(1,537)(2,165)
Total long-term debt297,693 284,569 
Less current portion(9,162)(14,162)
Long-term debt, less current portion$288,531 $270,407 

We had letters of credit outstanding totaling $1.2 million and $1.0 million as of September 30, 2022 and December 31, 2021, respectively.

We pay interest on the term and revolving loan borrowings at LIBOR plus a base margin or at a base rate (typically the prime rate) plus a base margin. As of September 30, 2022, the LIBOR margin was 2.25% and the base margin was 6.25%. The margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases. As of September 30, 2022, interest rates on our outstanding debt ranged from 6.13% to 8.50%, and the effective interest rate on our aggregate outstanding debt was 6.42%.

Interest expense incurred on bank loan borrowings, inclusive of the effect of interest rate hedges, was $4.6 million and $2.7 million for the three months ended September 30, 2022 and 2021, respectively, and $11.7 million and $7.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Our required term and revolver loan principal payments as of September 30, 2022 are as follows (in thousands):
Year EndingTerm LoanRevolver LoanTotal
Remainder of 2022$3,750 $ $3,750 
202315,000  15,000 
202430,175 250,305 280,480 
     Total$48,925 $250,305 $299,230 

We were in compliance with required ratios and other terms and conditions under our loan agreement as of September 30, 2022.

Subsequent Event

On October 7, 2022, we entered into a 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 $100.0 million, (iii) modified the quarterly amortization payments on the term loan from $3.75 million to $2.50 million, (iv) increased the maximum Total Funded Debt to EBITDA Ratio from 4.25x to 4.50x, with such ratios decreasing thereafter, (v) changed the benchmark rate from LIBOR to Secured Overnight Financing Rate (SOFR) with a SOFR floor of 0.00%; and (vi) modified pricing to account for the change from LIBOR to SOFR.

After the amendment, our scheduled term loan payments are approximately $2.5 million for the remainder of 2022, $10.0 million in 2023, $10.0 million in 2024 and $77.5 million in 2025. We have classified the current portion of long-term debt in our consolidated balance sheets as of September 30, 2022 based on the amended amortization payment terms.




-14-


VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

(5) Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Our calculation of diluted earnings per common share includes the dilutive effects for the assumed vesting of outstanding stock-based awards. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation for the three and nine month ended September 30, 2022 and 2021 were not material.

The weighted-average number of shares outstanding used to compute basic and diluted EPS were as follows:
Three months ended September 30,Nine months ended September 30,
 2022202120222021
Basic weighted average common shares outstanding12,797,727 12,704,165 12,772,731 12,496,646 
Effect of dilutive shares36,357 70,471 43,588 76,430 
Diluted weighted average common shares outstanding12,834,084 12,774,636 12,816,319 12,573,076 

(6) Commitments and Contingencies

Contingencies

We are involved in various claims and lawsuits arising in the normal conduct of its business, none of which we believe, based on current information, is expected to have a material adverse effect on our financial position, results of operations or cash flows.

Further, from time-to-time, government agencies audit or investigate whether our operations are being conducted in accordance with applicable contractual and regulatory requirements. Government audits or investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action against us. We believe, based upon current information, that the outcome of any such government disputes, audits and investigations will not have a material adverse effect on our results of operations, financial condition or cash flows.


(7) Business Segments and Customer Information

Business Segments

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

Aviation
Our Aviation segment provides aftermarket repair and distribution services to commercial, business and general aviation, cargo, military and defense, and rotorcraft customers globally. Core services include parts distribution, engine accessory maintenance, MRO services, rotable exchange and supply chain services.

Fleet
Our Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service ("USPS"), and the DoD. Core services include vehicle parts distribution, sourcing, IT solutions, customized fleet logistics, warehousing, kitting, just-in-time supply chain management, alternative product sourcing, and engineering and technical support.





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VSE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022

Federal and Defense

Our Federal and Defense segment provides aftermarket MRO and logistics services to improve operational readiness and extend the life cycle of military vehicles, ships and aircraft for the DoD, federal agencies and international defense customers. Core services include procurement; supply chain management; vehicle, maritime and aircraft sustainment services; base operations support; IT services and energy consulting.

We evaluate segment performance based on consolidated revenues and operating income. Net sales of our business segments exclude inter-segment sales as these activities are eliminated in consolidation. Corporate expenses are primarily selling, general and administrative expenses not allocated to segments. Our segment information is as follows (in thousands):

 Three months ended September 30,Nine months ended September 30,
 2022202120222021
Revenues:
Aviation$102,625 $73,124 $300,934 $165,010 
Fleet64,754 60,268 196,526 173,072 
Federal and Defense75,108 67,190 217,979 202,593 
Total revenues