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, 2018

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 was combined with our Federal Services Group. Consequently, our segment financial information for 2016 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 USPS and to other customers.

Aviation Group – Our Aviation Group provides MRO services, parts supply and distribution, and supply chain solutions for commercial and 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 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,
	2018			2017			2016
Revenues
Supply Chain Management Group	$	214,809		$	214,542		$	205,475
Aviation Group	145,423			134,809			133,466
Federal Services Group	336,986			410,762			352,849
Total revenues	$	697,218		$	760,113		$	691,790

Operating income:
Supply Chain Management Group	$	30,626		$	33,754		$	34,632
Aviation Group	11,076			9,695			12,823
Federal Services Group	15,797			13,419			7,796
Corporate expenses	(3,269		)	(2,543		)	(3,722		)
Operating income	$	54,230		$	54,325		$	51,529

Depreciation and amortization expense:
Supply Chain Management Group	$	7,299		$	6,536		$	6,445
Aviation Group	5,123			4,835			5,461
Federal Services Group	12,802			14,511			14,140
Total depreciation and amortization	$	25,224		$	25,882		$	26,046

Capital expenditures:
Supply Chain Management Group	$	802		$	1,376		$	4,195
Aviation Group	1,772			1,387			1,459
Federal Services Group	209			177			94
Corporate	334			373			1,624
Total capital expenditures	$	3,117		$	3,313		$	7,372



	December 31,
	2018		2017
Total assets:
Supply Chain Management Group	$	166,015	$	176,860
Aviation Group	316,197		282,738
Federal Services Group	92,098		102,372
Corporate	64,518		67,043
Total assets	$	638,828	$	629,013

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. 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	2018		%	2017		%	2016		%
USPS	$	175,339	25.1	$	180,205	23.7	$	181,215	26.2

U.S. Navy	160,952		23.1	206,644		27.2	190,155		27.5
U.S. Army	156,519		22.5	188,462		24.8	139,764		20.2
U.S. Air Force	17,023		2.4	7,123		0.9	3,482		0.5
Total - DoD	334,494		48.0	402,229		52.9	333,401		48.2

Commercial Aviation	135,864		19.5	126,960		16.7	131,067		19.0
Other Commercial	14,742		2.1	12,498		1.7	10,721		1.5
Total - Commercial	150,606		21.6	139,458		18.4	141,788		20.5

Other Government	36,779		5.3	38,221		5.0	35,386		5.1

Total	$	697,218	100.0	$	760,113	100.0	$	691,790	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,
	2018		2017		2016
United States	$	647,168	$	708,474	$	638,726
Other Countries (1)	50,050		51,639		53,064
Total revenue	$	697,218	$	760,113	$	691,790

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