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

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements

12 Months Ended

Dec. 31, 2022

We utilize fair value measurement guidance prescribed by GAAP to value our financial instruments. The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3).

The carrying amounts of cash and cash equivalents, receivables, accounts payable and amounts included in other current assets and accrued expenses and other current liabilities that meet the definition of a financial instrument approximate fair value due to their relatively short maturity. The carrying value of our outstanding debt obligations approximates its fair value. The fair value of long-term debt is calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to our existing debt arrangements.

Non-financial assets acquired and liabilities assumed in business combinations were measured at fair value using income, market and cost valuation methodologies. See Note (2), "Acquisitions and Divestitures." The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021 and the level they fall within the fair value hierarchy (in thousands):


Amounts Recorded at Fair Value	Financial Statement Classification	Fair Value Hierarchy	Fair Value December 31, 2022		Fair Value December 31, 2021
Non-COLI assets held in Deferred Supplemental Compensation Plan(1)	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
(1) Non-COLI assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.

Contingent Consideration

In connection with the acquisition of Global Parts in July 2021, we were required to make earn-out obligation payments of up to $2.0 million should Global Parts meet certain financial targets during the twelve months following the acquisition and meet a certain milestone event on or before March 2023. Final settlement of the obligation was made during the third quarter of fiscal 2022.

Changes in earn-out obligation measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2022 and 2021 are as follows (in thousands):


	Current portion		Long-term portion		Total
Balance as of December 31, 2020	$	—	$	—	$	—
Acquisition date fair value of contingent consideration	1,750		250		2,000
Earn-out payments	(750)		—		(750)
Balance as of December 31, 2021	1,000		250		1,250
Reclassifications from long-term to current	250		(250)		—
Earn-out payments	(1,250)		—		(1,250)
Balance as of December 31, 2022	$	—	$	—	$	—