VSE Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

Discontinued Operations

6 Months Ended

Jun. 30, 2024

Discontinued Operations and Disposal Groups [Abstract]

In February 2024, we entered into two separate agreements to sell substantially all the Federal and Defense segment's operational assets ("FDS Sale") for a cash consideration of $44.0 million, including amounts in escrow, subject to post-closing adjustments. The FDS Sale is consistent with our long-term strategic growth strategy focused on higher margin and higher growth aftermarket parts distribution and MRO businesses.

We recorded a pre-tax loss on the FDS sale of $12.7 million and transaction fees of $2.5 million during the first quarter of 2024, which are included in loss from discontinued operations, net of tax in the consolidated statements of (loss) income.

The components of loss from discontinued operations, net of tax for the three and six months ended June 30, 2024 and 2023, consist of the following (in thousands):


	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Revenues	$	—	$	67,039	$	26,268	$	133,885
Costs and operating expenses	—		68,818		34,629		134,506
Loss from discontinued operations	—		(1,779)		(8,361)		(621)
Other FDS impairment	—		—		4,204		—
Loss on the sale of discontinued operations	—		—		12,663		—
Total loss before income taxes	—		(1,779)		(25,228)		(621)
Provision for income taxes	—		(545)		(6,517)		(384)
Loss from discontinued operations, net of tax	$	—	$	(1,234)	$	(18,711)	$	(237)

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


		December 31,
		2023
Assets
	Cash and cash equivalents	$	162
	Receivables, net	10,805
	Contract assets	25,109
	Inventories	472
	Other current assets	6,154
	Property and equipment, net	6,102
	Intangible assets, net	3,505
	Goodwill	31,575
	Operating lease right-of-use assets	9,097
	Other assets	21
	Total assets held-for-sale	$	93,002
Liabilities
	Accounts payable	$	20,893
	Accrued expenses and other current liabilities	19,537
	Long-term operating lease obligations	8,942
	Deferred tax liabilities	4,019
	Total liabilities held-for-sale	$	53,391

Certain assets and liabilities previously reported as held-for-sale were excluded from the FDS sale and were reclassified as held and used, at their respective fair values, on the consolidated balance sheets during the first quarter of 2024. The reclassification related to our Alexandria, VA headquarters office space and consisted of an operating lease right-of-use-asset of $7.1 million, property and equipment of $2.6 million, and an operating lease obligation of $11.0 million. During the second quarter of 2024, we vacated the headquarters office space and, as a result, wrote down the associated lease right-of-use asset and property and equipment. See Note (13) "Lease Abandonment and Other Restructuring Costs" for further information.

The FDS sale resulted in the divestiture of certain government contracts requiring novation. Until the novation process is finalized, we continue to receive cash collections related to these contracts, which are due to the purchaser. As of June 30, 2024, we have recorded a $7.0 million liability for these collections within accrued expenses and other current liabilities on our consolidated balance sheets.

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


	For the six months ended June 30,
	2024		2023
Depreciation and amortization	$	150	$	1,437
Purchases of property and equipment	$	—	$	92
Stock-based compensation	$	—	$	73