VSE Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Business Segments and Customer Information

Business Segments and Customer Information

12 Months Ended

Dec. 31, 2019

Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]

Business Segments and Customer Information

Segment Information

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

Aviation Group – Our Aviation Group provides international parts supply and distribution, supply chain solutions, component and engine accessory repair services supporting global aftermarket commercial and business and general aviation customers through product distribution and MRO services.

Supply Chain Management Group – Our Supply Chain Management Group provides parts supply, inventory management, e-commerce fulfillment, logistics, data management, and other services to assist aftermarket United States Postal Service ("USPS"), DoD and aftermarket commercial high duty-cycle truck and fleet customers.

Federal Services Group – Our Federal Services Group provides aftermarket refurbishment and sustainment services to extend and maintain the life cycle of military vehicles, ships, and aircraft for the DoD. The group provides foreign military sales services, engineering, logistics, maintenance, configuration management, prototyping, technology, and field support services to the DoD and other customers. We also provide energy consulting services and healthcare IT and IT data solutions.

The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by our Chief Executive Officer in deciding how to allocate resources and in assessing performance. We evaluate segment performance based on consolidated revenues and operating income. Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation.

Our segment information is as follows (in thousands):



	For the years ended December 31,
	2019			2018			2017
Revenues
Aviation Group	$	224,546		$	145,423		$	134,809
Supply Chain Management Group	214,520			214,809			214,542
Federal Services Group	313,561			336,986			410,762
Total revenues	$	752,627		$	697,218		$	760,113

Operating income:
Aviation Group	$	17,901		$	11,076		$	9,695
Supply Chain Management Group	29,819			30,626			33,754
Federal Services Group	18,144			15,797			13,419
Corporate expenses	(5,607		)	(3,269		)	(2,543		)
Operating income	$	60,257		$	54,230		$	54,325

Depreciation and amortization expense:
Aviation Group	$	12,546		$	5,123		$	4,835
Supply Chain Management Group	11,085			7,299			6,536
Federal Services Group	3,296			12,802			14,511
Total depreciation and amortization	$	26,927		$	25,224		$	25,882

Capital expenditures:
Aviation Group	$	8,396		$	1,772		$	1,387
Supply Chain Management Group	1,076			802			1,376
Federal Services Group	58			209			177
Corporate	130			334			373
Total capital expenditures	$	9,660		$	3,117		$	3,313



	December 31,
	2019		2018
Total assets:
Aviation Group	$	522,446	$	316,197
Supply Chain Management Group	170,142		166,015
Federal Services Group	88,966		92,098
Corporate	64,310		64,518
Total assets	$	845,864	$	638,828

Revenues are net of inter-segment eliminations. Corporate expenses are primarily selling, general and administrative expenses not allocated to segments. In the third quarter of 2018, we completed the sale of a contract we had been awarded by the National Institutes of Health, which resulted in a $1.7 million gain recorded within our Federal Services Group. Corporate assets are primarily cash, property and equipment and investments held in separate trust.

In 2019, we allocated depreciation and amortization expense to each segment based on the segment in which each asset was utilized. In 2018 and 2017, the allocation method for certain amortization expenses was based on each segment’s percentage of overall cost. The primary reason for the change is to allocate depreciation and amortization expense to a specific segment depending on the asset deployment. Depreciation and amortization expense by segment for 2018 and 2017 was not recast for these allocation changes, and this change did not impact our previously reported consolidated financial results. The impact for 2018, under the new allocation method, would have been a decrease in depreciation and amortization expense for the Federal Services Group of $8.1 million, with a corresponding increase for Aviation Group and Supply Chain Group of $3.7 million and $4.4 million, respectively. The impact for 2017 would have been a decrease in depreciation and amortization expense for the Federal Services Group of $9.1 million, with a corresponding increase for Aviation Group and Supply Chain Group of $4.1 million and $5.0 million, respectively.

Customer Information

Our revenues are derived from contract services performed for DoD agencies or federal civilian agencies and from the delivery of products to our commercial clients. The USPS, U.S. Army and Army Reserve, and U.S. Navy are our largest customers. Our customers also include various other government agencies and commercial entities. Our revenue by customer is as follows for the years ended December 31, (in thousands):



	(in thousands) Years ended December 31,
Source of Revenues	2019		%	2018		%	2017		%
DoD	$	304,334	41	$	334,494	48	$	402,229	53
Other government	205,775		27	212,118		30	218,426		29
Commercial	242,518		32	150,606		22	139,458		18
Total Revenues	$	752,627	100	$	697,218	100	$	760,113	100

We do not measure revenue or profit by product or service lines, either for internal management or external financial reporting purposes, because it would be impractical to do so. Products offered and services performed are determined by contract requirements and the types of products and services provided for one contract bear no relation to similar products and services provided on another contract. Products and services provided vary when new contracts begin or current contracts expire. In many cases, more than one product or service is provided under a contract or contract task order. Accordingly, cost and revenue tracking are designed to best serve contract requirements and segregating costs and revenues by product or service lines in situations for which it is not required would be difficult and costly to both us and our customers.

Geographical Information

Revenue by geography is based on the billing address of the customer. Our revenue by geographic area is as follows (in thousands):



	Years ended December 31,
	2019		2018		2017
United States	$	659,451	$	647,168	$	708,474
Other Countries (1)	93,176		50,050		51,639
Total revenue	$	752,627	$	697,218	$	760,113

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