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, 2017

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

Business Segments and Customer Information

Segment Information

Beginning in 2017, we changed our structure and as a result our former IT, Energy and Management Consulting Group is now combined with our Federal Services Group. Consequently, our segment financial information for 2016 and 2015 has been restated to reflect such change. Management of our business operations is conducted under three reportable operating segments:

Supply Chain Management Group – Our Supply Chain Management Group supplies vehicle parts primarily through a Managed Inventory Program ("MIP") and direct sales to the United States Postal Service ("USPS") and to other customers.

Aviation Group – Our Aviation Group provides MRO services, parts supply and distribution, and supply chain solutions for general aviation jet aircraft engines and engine accessories.

Federal Services Group – Our Federal Services Group provides engineering, industrial, logistics, foreign military sales, legacy equipment sustainment services, IT and technical and consulting services primarily to the United States Department of Defense ("DoD") and other government agencies.

These segments operate under separate management teams and financial information is produced for each segment. 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,
	2017			2016			2015
Revenues
Supply Chain Management Group	$	214,542		$	205,475		$	196,772
Aviation Group	134,809			133,466			119,729
Federal Services Group	410,762			352,849			217,481
Total revenues	$	760,113		$	691,790		$	533,982

Operating income:
Supply Chain Management Group	$	33,754		$	34,632		$	35,453
Aviation Group	9,695			12,823			10,635
Federal Services Group	13,419			7,796			6,802
Corporate expenses	(2,543		)	(3,722		)	(2,351		)
Operating income	$	54,325		$	51,529		$	50,539

Depreciation and amortization expense:
Supply Chain Management Group	$	6,536		$	6,445		$	7,074
Aviation Group	4,835			5,461			5,865
Federal Services Group	14,511			14,140			12,602
Total depreciation and amortization	$	25,882		$	26,046		$	25,541

Capital expenditures:
Supply Chain Management Group	$	1,376		$	4,195		$	7,544
Aviation Group	1,387			1,459			959
Federal Services Group	177			94			94
Corporate	373			1,624			1,965
Total capital expenditures	$	3,313		$	7,372		$	10,562



	December 31,
	2017		2016
Total assets:
Supply Chain Management Group	$	176,860	$	185,004
Aviation Group	282,738		291,500
Federal Services Group	102,372		107,549
Corporate	67,043		77,786
Total assets	$	629,013	$	661,839

Revenues are net of inter-segment eliminations. Corporate expenses are primarily selling, general and administrative expenses not allocated to segments. Included in our Corporate expenses for 2016 is a charge of approximately $3.3 million for the settlement of the Heritage Litigation offset by a gain of approximately $1.4 million resulting primarily from the Maritime Administration contract close-outs. Corporate assets are primarily cash, property and equipment and investments held in separate trust.

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 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):



	Revenues by Customer Years ended December 31,
Customer	2017		%	2016		%	2015		%
U.S. Postal Service	$	180,205	23.7	$	181,215	26.2	$	184,876	34.6

U.S. Navy	206,644		27.2	190,155		27.5	98,887		18.5
U.S. Army	188,462		24.8	139,764		20.2	80,086		15.0
U.S. Air Force	7,123		0.9	3,482		0.5	3,558		0.7
Total - DoD	402,229		52.9	333,401		48.2	182,531		34.2

Commercial Aviation	126,960		16.7	131,067		19.0	119,729		22.4
Other Commercial	12,498		1.7	10,721		1.5	4,653		0.9
Total - Commercial	139,458		18.4	141,788		20.5	124,382		23.3

Other Government	38,221		5.0	35,386		5.1	42,193		7.9

Total	$	760,113	100.0	$	691,790	100.0	$	533,982	100.0

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 is 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,
	2017		2016		2015
United States	$	708,474	$	638,726	$	481,466
Other Countries (1)	51,639		53,064		52,516
Total revenue	$	760,113	$	691,790	$	533,982

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