Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of "large accelerated filer," "accelerated filer"filer," "accelerated filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [ ]    No [ ]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [ ]☐ No [x]☒

The aggregate market value of outstanding voting stock held by non-affiliates of the Registrant as of June 30, 2017,2021, the last business day of the registrant's most recently completed second quarter, was approximately $384$521 million based on the last reported sales price of the registrant's common stock on Thethe NASDAQ Global Select Market as of that date.

Portions of Registrant's definitive proxy statement for the Annual Meeting of Stockholders expected to be held on May 4, 2022, which is expected to be filed with the Securities and Exchange Commission on or about April 30, 2018, are2, 2022, have been incorporated herein by reference into Part III of this report.

This Annual Report on Form 10-K ("Form 10-K") contains statements that, to the extent they are not recitations of historical fact, constitute "forward looking statements" under federal securities laws.within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All such statements are intended to be subject tocovered by the safe harbor protection provided by applicable securities laws. For discussions identifying some important factors that could cause actual VSE Corporation ("VSE," the "Company," "us," "our," or "we") results to differ materially from those anticipated in the forward lookingprovisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this filing, see below VSE's "Narrative Descriptionstatement for purposes of Business" (Items 1,such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified in Item 1A, 2"Risk Factors” in this Form 10-K. All forward-looking statements made herein are qualified by these cautionary statements and 3),risk factors and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.

Readers are cautioned not to place undue reliance on these forward lookingforward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward lookingforward-looking statements to reflect events or circumstances that occur or arise after the date hereof. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q filed by the Company subsequent to this Form 10-K and any Current Reports on Form 8-K filed by the Company.

We areVSE Corporation (“VSE,” the “Company,” “we,” “us,” or “our”) is a diversified aftermarket products and services andcompany providing repair services, parts distribution, logistics, supply chain management company that assists our clients in sustaining, extending the service life, and improving the performance of theirconsulting services for land, sea and air transportation equipment,assets to commercial and other assets and systems.government markets. We provide logistics and distribution services for legacy systems and equipment and professional and technical services to commercial customers; the United States Government (the "government"),government, including the United States Department of Defense ("DoD"), the United States Postal Service ("USPS"),; and federal civilian agencies, and commercial and other customers. Our largest customers are the DoD and the USPS.agencies. Our operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul (“MRO”("MRO") services for vehicle fleet, aviation, and other clients;customers. We also provide vehicle and equipment maintenance and refurbishment; logistics; engineering;refurbishment, logistics, engineering support, energy and environmental services;services, IT and health care IT solutions;solutions, and consulting services.

VSE was incorporated in Delaware in 1959 and the parent company serves as a centralized managing and consolidating entity for our three operating groups,segments, each of which consists of one or more wholly owned subsidiaries or unincorporated divisions that perform our services. VSE’sOur operating groupssegments include our Supply Chain Management Group,the Aviation Group,segment, Fleet segment, and Federal Services Group.and Defense segment. The term "VSE" or "Company" means VSE and its subsidiaries and divisionsoperating businesses unless the context indicates operations of only VSE as the parent company.

Our operationsAviation segment provides international parts supply and distribution, supply chain solutions, and component and engine accessory MRO services supporting global aftermarket commercial and business and general aviation customers. This business offers a range of services to a diversified global client base of commercial airlines, regional airlines, cargo transporters, MRO integrators and providers, aviation manufacturers, corporate and private aircraft owners, and fixed-base operators ("FBOs"). This segment did not have any one client that comprised more than 10% of our consolidated revenues in 2021, 2020 or 2019.

Our Fleet segment provides parts supply, inventory management, e-commerce fulfillment, logistics and other services to assist aftermarket commercial and federal customers with their supply chain management. Operations of this segment are conducted within three reportable segments alignedby our wholly owned subsidiary Wheeler Fleet Solutions, which supports the government and commercial truck fleets with our operating groups: (1) Supply Chain Management, which generatedparts, sustainment solutions and managed inventory services. Revenues for this business are derived from the sale of vehicle parts and mission critical supply chain services to support client truck fleets. The United States Postal Service ("USPS") comprised approximately 28.2%20%, 27%, and 22% of our consolidated revenues in 2017; (2) Aviation, which generated2021, 2020 and 2019, respectively.

In March 2021, we acquired HAECO Special Services, LLC ("HSS"), which offers scheduled depot maintenance, contract field deployment and unscheduled drop-in maintenance for the DoD, primarily for the sustainment of the U.S. Air Force ("USAF") KC-10 fleet. HSS is a subsidiary of VSE Corporation under our Federal & Defense Services which generatedsegment.

In February 2020, we sold our subsidiary Prime Turbines, LLC ("Prime Turbines") and certain related inventory assets for $20.0 million in cash and a $8.3 million note receivable to be paid over a period from 2020 through 2024. Our Aviation segment discontinued turboprop engine MRO services and will concentrate on higher growth potential component/accessory repair and parts distribution while further expanding our presence within the global commercial and general aviation markets. Prime Turbines' revenues totaled less than 1% and approximately 54.1%4% of our revenue for 2020 and 2019, respectively.

In June 2020, we sold all of the inventory of our subsidiary CT Aerospace, LLC ("CT Aerospace") for a $6.9 million note receivable to be paid to us over a period from 2020 through 2025. Our Aviation segment discontinued sales and leasing of engines and supply of used serviceable engine parts. CT Aerospace's revenues in 2017. Additional financial informationtotaled less than 1% and less than 2% of our revenue for 2020 and 2019, respectively.

See Note (2) "Acquisition and Divestitures" to our reportable segments appears in Item 7 "Management’s Discussion and Analysis ofConsolidated Financial Condition and Results of Operations” andStatements included in Item 8 "Financial Statements and Supplementary Data” of this annual report on Form 10-K.10-K for additional information regarding our acquisition and divestitures.

We applyprovide a broad array of capabilities and resources to support our clients’ aftermarket transportation assets, vehicle fleets, aircraft, systems, equipment and processes. We focus on creating value by sustaining and extending the life and improving the performance of our client assets through core offerings in supply chain management, parts supply and distribution, MRO, equipment refurbishment, logistics and engineering. We also provide IT solutions health care IT, and energy consulting services.

Typical offerings include supply chain and inventory management services; vehicle fleet sustainment programs; vehicle fleet parts supply and distribution; MRO of aircraft enginescomponents and engine components;accessories; aircraft engineand airframe parts supply and distribution; engineering support for military vehicles; military equipment refurbishment and modification; ship MRO and follow-on technical support; logistics management support; machinery condition analysis; specification preparation for ship alterations; ship’s force crew training; life cycle support for ships; ship communication systems; energy conservation, energy efficiency, sustainable energy supply and electric power grid modernization projects; technology road-mapping;projects, IT enterprise architecture development, information assurance/business continuity, security riskinfrastructure and data management, and network services; medical logistics;IT data services for health and medical command and control.public safety. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for more information regarding our business.

Our revenues are derived from the delivery of products and from contract services performed for our clients. We offer our products and professional and technical services through various ordering agreements and negotiated and competitive contract arrangements.

FundedOur funded backlog represents a measurethe estimated remaining value of work to be performed under firm contracts under our Federal and Defense segment. Bookings for our Aviation and Fleet segments occur at the time of sale, and therefore, these segments do not generally have funded contract backlog and backlog is not an indicator of their potential future revenues from work performed by our Federal Services Group on government contracts. Funded backlog is defined by us as the total value of contracts that has been appropriated and funded by the procuring agencies, less the amount of revenues that have already been recognized on such contracts. Our reported backlog is comprised of funding received by us in incremental amounts for work that is generally expected to be completed within six to 12 months following the award of the funding.revenues. Our funded backlog for our Federal Services Groupand Defense segment as of December 31, 2017,2021, 2020 and 2019 was approximately $324$185 million, $183 million and as of December 31, 2016 and 2015 it was approximately $322 million and $238$213 million, respectively. ChangesFor a complete description of our backlog, see "Bookings and Funded Backlog" in funded backlog on contracts are sometimes unpredictable due to uncertainties associated with changing government program priorities"Management's Discussion and availabilityAnalysis of funds, which is heavily dependent upon the congressional authorizationFinancial Condition and appropriation process. DelaysResults of Operations" in Part II of this process may temporarily diminish the availability of funds for ongoing and planned work.report.

Our marketing activities are conducted at the operating group level by each of our businesses by industry-specific sales representatives and professional marketing and business development staff and our professional staff of sales representatives, managers, and other personnel.staff. New customer contacts and information concerning new programs, requirements and opportunities become available through attendance atsales calls and client visits, negotiation with key business partners, and formal and informal briefings. We participate in various professional organizations and trade association, and also attend industry trade shows and events through sales callsin order to increase our brand awareness and client servicing, through negotiation with key business partners, through formal and informal briefings, from participation in professional organizations, in the course of contract performance, and from literature published by government, trade associations, professional organizations and commercial entities.strengthen our service offerings.

We are committed to providing a safe working environment for our employees. Supported by our customers frequently includes knowledgeHealth, Environmental and Safety Program, we strive to minimize the risk of government regulationsinjury or illness to workers. We provide our employees with upfront and procedures.ongoing safety trainings to ensure that safety policies and procedures are effectively communicated and implemented. We also provide our employees with any additional information, leadership, support and equipment needed to safely perform their job function.

The supply chain, logistics,All of our businesses operate in highly competitive industries that include numerous competitors, many of which are larger in size and MRO services offered by our Supply Chain Management and Aviation groups and the federally contracted professional and technical services offered by our Federal Services Group are conducted in very competitive operating environments.

Government agencies emphasize awarding contracts on a competitive basis, as opposed to a sole source or other noncompetitive basis. Most of the significant contracts under which weour Federal and Defense segment currently perform services were either initially awarded on a competitive basis or have been renewed at least once on a competitive basis. There isThese contracts may be indefinite delivery/indefinite quantity type contracts for which the government makes awards for work among several other eligible contract holders, or they may be single award contracts with multiple option years that may or may not be exercised. Accordingly, there can be no assurance regarding the level of work we may obtain under some of these contracts. Government budgets, and in particular the budgets of certain government agencies, can also affect competition in our business. A reallocation of government spending priorities or reallocation of work for small business set-aside programs that results in lower levels of potential business in the markets we serve or the services we offer willcan cause increased competition.

The extent of competition that we will encounter as a result of changing economic or competitive conditions, customer requirements or technological developments is unpredictable. We believe the principal competitive factors for our business are customer knowledge, technical and financial qualifications, past performance, government budgetary stress,priorities, sales force initiatives and price, which has been more heavily weighted in recent years.price.

Due to the impact of COVID-19 and decisions by our customers to delay contract awards and fundingthe use of, or permanently retire, certain aircraft, demand levels for aviation disruption inventory could decrease in the near term or midterm, which could result in a write-down of existing inventory to adjust to current market trends and adversely affect our abilityresults of operations. Furthermore, as a result of COVID-19, some of our commercial customers in the Aviation segment have been and could continue to continue work underbe negatively impacted as a result of disruption in demand, which has led to delays and could lead to defaults on collections of receivables from them. Such continued delays could further negatively impact our government contracts. Additionally, federal procurement directives could result in our lossbusiness, results of work on current programsoperations and financial condition. We are unable to small business set-asidespredict the extent, nature or duration of these impacts at this time.

Due to the ongoing pandemic, supply chain disruptions, and geopolitical uncertainty our business could be adversely impacted by delays or the inability to source products and services for our customers. If our suppliers experience increased disruptions to their operations as a result of these dynamics, they may be unable to fill our supply needs in a timely, compliant and cost-effective manner. We have incurred and may in the future incur additional costs and delays in our business, including higher prices, schedule delays or the costs associated with identifying alternative suppliers. In instances where we may not be able to mitigate these consequences, our ability to perform work under new and existing contracts. We have experienced delays in contract awards and funding on our contracts in recent years that have adversely affected our ability to continue existing work and to replace expiring work. Additionally, our government business is subject to the risk that one or more of our potential contracts or contract extensions may be diverted byimpacted, which could result in reduced revenues and profits.

We continue to monitor these dynamics and assess potential implications to our business, supply chain and customers, and take certain actions in an effort to mitigate potential adverse impacts. Given the contracting agencyuncertainties, we are unable to a smallpredict the extent, nature or disadvantaged or minority-owned business pursuant to set-aside programs administered by the Small Business Administration, or may be bundled into large multiple award contracts for very large businesses. These risks can potentially have an adverse effect on our revenue growth and profit margins.duration of these impacts at this time.

The eventual expiration of large government programs or the loss of or disruption of revenues on a single contract may reduce our revenues and profits. Such revenue losses could also erode profits on our remaining programs that would have to absorb a larger portion of the fixed corporate costs previously allocated to the expiring programs or discontinued contract work. Our USPS managed inventory program (“MIP”) and our foreign military sales program with the U.S. Navy (“FMS Program”)Program each constitute a material portion of our revenues.revenues and profits. This concentration of our revenue subjects us to the risk of material adverse revenue disruptions if customer operational decisions, government contractual or other issues prevent or delay the fulfillment of work requirements associated with these key programs. In recent years, revenue levels for our FMS Program have fluctuated widely enough to cause material changes in our overall revenue levels and affect our profit margins. Similarly, variations in volume and types of parts purchased by the USPS in recent years have caused changes in our profit margins.

The USPS has initiated a fleet replacement program for a next generation of the delivery vehicle fleet. The timing of both the roll out of a new fleet and the retirement of the current vehicles and their decision on how many of such vehicles will remain in the fleet could potentially have a significant affectimpact on our future revenues and profits.

Revenues from our government programs for which work is performed in or products delivered to foreign countries are subject to economic conditions in these countries and to political risks posed by ongoing foreign conflicts and potential terrorist activity. Services performed by our employees on our FMS Program are, to a certain extent, dependent on our placement of employees in a client country. Significant domestic and political unrest in client countries can constrain our ability to maintain consistent staffing levels, resulting in a fluctuating level of services performed by our employees. We cannot predict when these conditions will occur or the effect it will have on our FMS Program revenues. Regime changes in these countries can result in government restrictions upon the continuation of ongoing work.

Recently, inflation has increased throughout the natureU.S. economy. Inflation can adversely affect us by increasing the costs of labor, material and other costs. In addition, inflation is often accompanied by higher interest rates, which could increase the cost of our workoutstanding debt obligations. In an inflationary environment, depending on economic conditions, we could potentiallymay be exposedunable to legal actions arising fromraise prices enough to keep up with the rate of inflation, which would reduce our operations.

Our financial performance is heavily dependent on the abilities of our operating and administrative staff with respect to technical skills, operating performance, pricing, cost management, safety, and administrative and compliance efforts. A wide diversity of contract types, nature of work, work locations, and legal and regulatory complexities challenges our administrative staff and skill sets. We also face challenges associated with our quality of workforce, quality of work, safety, and labor relations compliance. Our current and projected work in foreign countries exposes us to challenges associated with export and ethics compliance, local laws and customs, workforce issues, extended supply chain, political unrest and war zone threats. Failure to attract or retain an adequately skilled workforce, lack of knowledge or training in critical functions, or inadequate staffing levels can result in lost work, reduced profit margins, losses from cost overruns, performance deficiencies, workplace accidents, and regulatory noncompliance.

Disruption of our operations due to internal or external system or service failures, accidents or incidents involving employees or third parties working in high-risk locations, or natural disasters, health crisis, epidemics or pandemics, including the COVID-19 pandemic, or other crises could adversely affect our financial performance and condition. The COVID-19 pandemic could potentially impact our global supply chain network for any of our segments. A fire, flood, earthquake, or other natural disaster, health crises, epidemic, pandemic or other crisis at or affecting physical facilities that support key revenue generating operations, or a procurement system or contractual delay could potentially interrupt the revenues from our operations.

Our government business is subject to funding delays, terminations (including at the impositiongovernment's convenience), reductions, in-sourcing, extensions and moratoriums associated with the government’s budgeting and contracting process. The federal procurement environment is unpredictable and could adversely affect our ability to perform work under new and existing contracts. We have experienced delays in contract awards and funding on our contracts in recent years that have adversely affected our ability to continue existing work and to replace expiring work. Additionally, our government business is subject to the risk that one or more of fines and penalties or the termination ofour potential contracts or debarmentcontract extensions may be diverted by the contracting agency to a small or disadvantaged or minority-owned business pursuant to set-aside programs administered by the U.S. Small Business Administration, or may be bundled into large multiple award contracts for very large businesses. These risks can potentially have an adverse effect on our revenue growth and profit margins.

The defense industry has experienced, and we expect will continue to experience, significant changes to business practices resulting from working or biddinggreater DoD focus on government contracts.

Government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and the Department of Labor, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The government also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed and any such costs already reimbursed must be refunded.

If an audit or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with the government. In addition, we could suffer serious harm to our reputation if allegations of impropriety were made. Performance of international work can expose us to risks associated with the Foreign Corrupt Practices Act and Export Control Act compliance.

We must comply with and are affected by laws and regulations relating to the award, administration and performance of government contracts. A violation of laws or regulations could result in the imposition of fines and penalties or the termination of contracts or debarment from working or bidding on government contracts.

The aviation industry is highly regulated by the FAA and similar regulatory agencies in other countries. Aviation engines, engine accessories and components that we sell must meet certain airworthiness standards established by the FAA or the equivalent agencies in certain other countries. We also operate repair facilities that are licensed by the FAA and equivalent agencies of certain other countries to perform such services. New and more stringent regulations may be adopted in the future that could have an adverse effect on us.

Our work includes many manual tasks, including warehousing, shipping and packing of truck parts inventory, maintaining and repairing military and non-military vehicles, aircraft and equipment, and maintaining and overhauling U.S. Navy ships. Some of our work efforts involve the handling of hazardous materials. These services may pose certain challenges that could cause losses if certainus to be exposed to legal and other liabilities arising from performance issues, work is disruptedrelated incidents or discontinued.

Some of our contract work includes the use of chemical solvents and the handling of hazardous materials to maintain, repair, and refurbish vehicles, aircraft engines, and equipment. This exposes us to certain environmental and pollution risks. Various federal, state, and local environmental laws and regulations impose restrictions on the discharge of pollutants into the environment and establish standards for the transportation, storage, and disposal of toxic and hazardous wastes. Substantial fines, penalties, and criminal sanctions may be imposed for noncompliance, and certain environmental laws impose joint and several "strict liability" for remediation of spills and releases of oil and hazardous substances. Such laws and regulations impose liability upon a party for environmental cleanup and remediation costs and damage without regard to negligence or fault on the part of such party and could expose us to liability for the conduct of or conditions caused by third parties.

Our executive and administrative headquarters are located in a five-story building in Alexandria, Virginia, with approximately 95,000 square feet of office space leased by us through April 2027.

We own facilities located in an industrial park in Somerset, Pennsylvania thatwhere we use to conduct the operations of our Supply Chain Management Group.Fleet segment operations. These properties consist of approximately 30 acres of land and buildings totaling approximately 271,000 square feet of office, engineering and warehouse space.

We own two properties that we use to conduct the operations of our Aviation Group. We own and operate asegment operations. The first property consisting of approximately one acre of land and a building with approximately 14,000 square feet of warehouse and office space in Miami, Florida. We own and operate a property consistingconsists of a building with approximately 30,500 square feet of warehouse and office space in Independence, Kansas that is located on leased municipal airport land. The second property consists of approximately nine acres of land and a building with approximately 60,000 square feet of warehouse and office space in Hebron, Kentucky, acquired in 2019.

We own and operate two facilities in Ladysmith, Virginia. One of these properties consists of approximately 44 acres of land and multiple storage and vehicle maintenance buildings totaling approximately 56,000 square feet of space. The other property consists of 30 acres of land and buildings totaling approximately 13,500 square feet of space. We also own and operate two propertiesa property in Texarkana, Arkansas consisting of an aggregate of approximately 1610 acres of land and buildingsa building totaling approximately 114,00079,000 square feet. We use these properties primarily to provide refurbishment services for military equipment, storage and maintenance.

Further, from time-to-time, government agencies investigate whether our operations are being conducted in accordance with applicable contractual and regulatory requirements. Government investigations of us, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future government contracting. Government investigations often take years to complete and many result in no adverse action against us. We believe, based upon current information, that the outcome of any such government disputes and investigations will not have a material adverse effect on our results of operations, financial position,condition or cash flows.

Not applicable.

VSE common stock, par value $0.05 per share, is traded on Thethe NASDAQ Global Select Market ("NASDAQ"), trading symbol, "VSEC," Newspaper listing, "VSE."VSEC."

Pursuant to our bank loan agreement, (seeas discussed in Note 7, Debt, of "Notes(8) "Debt" to our Consolidated Financial Statements"Statements included in Item 8 of this annual report on Form 10-K),10-K, the payment of cash dividends is subject to annual rate restrictions. We have paid cash dividends each year since 1973 and have increased our dividend each year since 2004.1973.

We have two compensation plans approved by our stockholders under which our equity securities are authorized for issuance to employees and directors: (i)the 2006 Plan and the VSE Corporation 2004 Non-Employee Directors2021 Employee Stock Purchase Plan ("ESPP"). The following table sets forth the amounts of securities authorized for issuance under the 2006 Plan and (ii) the VSE Corporation 2006 Restricted Stock Plan.

See Note (10) "Stock-Based Compensation Plans" to our Consolidated Financial Statements included in Item 8 of VSE common stock were availablethis annual report on Form 10-K for future issuance underadditional information regarding the VSE Corporation 2004 Non-Employee Directors Stock2006 Plan and 436,532 sharesthe ESPP.

We are a diversified aftermarket products and services andcompany providing repair services, parts distribution, logistics, supply chain management company that assists our clients in sustaining, extending the service life, and improving the performance of theirconsulting services for land, sea and air transportation equipment,assets to government and other assets and systems.commercial markets. We provide logistics and distribution services for legacy systems and equipment and professional and technical services to commercial customers and to the United States Government (the "government"),government, including federal civilian agencies and the United States Department of Defense ("DoD"), the United States Postal Service ("USPS") and federal civilian agencies, and to commercial and other customers. Our largest customers are the DoD and the USPS.. Our operations include supply chain management solutions, parts supply and distribution, and maintenance, repair and overhaul (“MRO”("MRO") services for vehicle fleet, aviation, and other clients;customers. We also provide vehicle and equipment maintenance and refurbishment; logistics; engineering;refurbishment, logistics, engineering support, energy and environmental services;services, IT and health care IT solutions;solutions, and consulting services. See Item 1, “Business - Revenues and Contracts”“Business-Customers” above for revenues by customer.

Our operations are conducted within three reportable segments aligned with our management groups: 1) Supply Chain Management; 2)operating segments: (1) Aviation; (2) Fleet; and 3)(3) Federal Services. Beginningand Defense. We provide more information about each of these reportable segments under Item 1, “Business-History and Organization.”

Our results of operations in 2017,fiscal 2021 continued to reflect the adverse impact from the COVID-19 global pandemic. Despite the challenges faced by the ongoing pandemic, all of our businesses have remained operational through the end of 2021, and we continue to operate with limited disruption. Our business operations are deemed critical and essential by Federal and State governments. All of our repair, distribution and base operations facilities remain open and operational, and we continue to deliver products and services to customers without interruption.

During the second quarter of 2021, we reviewed the assumptions and calculations utilized in the valuation of excess and obsolete inventory and recorded an additional reserve of $23.7 million primarily due to excess and slow-moving quantities of certain Aviation segment inventory, including inventory supporting specific international region distribution programs entered into prior to 2019 at levels higher than our updated forecasts of future demand. The increase in our inventory valuation reserves in the second quarter takes into consideration slower than anticipated air travel recovery in certain regions, primarily in the Asia Pacific region, impacted by the COVID-19 pandemic. While some countries have removed or eased travel restrictions, others have maintained international testing requirements and travel restrictions due to recent rebounds in the number of cases and low vaccination rates within those countries, which has lowered demand for our products. While the COVID-19 pandemic has slowed demand for certain aviation products in international regions, we do not expect any additional material adverse impact to the carrying value of our inventory. Additionally, we do not anticipate the lower international demand to materially impact the recovery of our Aviation segment, where our distribution business continues to operate with revenues in excess of pre-pandemic levels in 2021.

In the first quarter of 2020, we divested our Federal Services Group.Prime Turbines subsidiary, a business offering turboprop engine MRO services. In the second quarter of 2020, we sold all the inventory assets of our CT Aerospace subsidiary, a business offering turboprop engine and engine parts sales. We no longer offer these services, focusing instead on higher-growth component and accessory repair and parts distribution.

We continue to closely monitorexpect the USPS delivery vehicle procurement efforts and are positioning ourselves to support both newly procured vehicles as they are placed in service and aging vehicles that remain in service. While it will likely be several years before the planned custom next-generation delivery vehicle is placed in service in significant numbers, the USPS has begun some shorter term annual vehicle acquisitions through the procurement of commercial of-the-shelf ("COTS") mass-market vehicles and the retirement of some of its aging COTS vehicles. While we cannot predict with certainty the impact of the USPS delivery vehicle procurement and retirement transition cycle on our future revenues, we believe that our years of service and knowledge of this client’s needs strategically position usCOVID-19 pandemic to continue to servehave a limited adverse impact on revenues for this segment, as the U.S. government is expected to maintain critical DoD preparedness programs.

The following discussion provides a brief description of certain key vehicle fleet sustainment partner. We will remain agileitems that appear in our consolidated financial statements:

Revenues are derived from the delivery of products and support this client during its complex vehicle transition initiatives.

Costs and operating expenses consist primarily of cost of inventory and material associated with the delivery of products and labor and other indirect costs associated with services rendered for customers. Costs and operating expense also include other sales, general and administrative expenses associated with segment and corporate management and certain other costs and charges arising from events outside the ordinary course of business. These costs will generally increase or decrease in our Aviation Group in 2018. In conjunction with our Federal Services Group, we began extending our gas turbine MRO competency to maritime applications in 2017 and we are pursuing additional opportunities for this competency. We have also opened a Singapore office and signed an agreement with a key original equipment manufacturer that provides us the opportunity to expand our geographic distribution footprint and extend both current and new product lines to new markets. Revenueslevel of products sold or services performed. Costs and operating incomeexpenses also include expense for amortization of intangible assets acquired through our Aviation Group may experience fluctuations due to market demand andacquisitions. Expense for amortization of acquisition related intangible assets is included in the mixsegment results in which the acquisition is included. Segment results also include expense for an allocation of products sold.corporate management costs.

A summary of our bookings and revenues for our Federal Services Groupand Defense segment for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, and funded contract backlog for this groupsegment as of December 31, 2017, 20162021, 2020 and 20152019 is as follows (in millions):

For the year ended December 31, 2021, Federal and Defense segment bookings increased 16% year-over-year to $314 million, while total funded backlog increased 1% year-over-year to $185 million. In the fourth quarter of fiscal 2021, we included a descriptionvaluation adjustment for open unfulfilled contracts that, in our judgment, may not be converted to future sales, but which have not been closed or de-obligated by the customer. The effect of recently announced accounting standards, including the expected datesthis reduced backlog by $36 million as of adoption and estimated effects, if any, on our consolidated financial statements, see "Recently Issued Accounting Pronouncements" in Note 1 of the Notes to our Consolidated Financial Statements in this Form 10-K.December 31, 2021.

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles generally accepted in the United States,("U.S. GAAP"), which require us to make estimates and assumptions. We believe the followingCertain critical accounting policies affect the more significant accounts, particularly those that involve judgments, estimates and assumptions used in the preparation of our consolidated financial statements. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these policies, it is possible that different parties could choose different assumptions and reach different conclusions. We consider our policies relating to the following matters to be critical accounting policies.

RevenueWe account for revenue in accordance with ASC 606. The unit of account in ASC 606 is a performance obligation. At the inception of each contract with a customer, we determine our performance obligations under the contract and the contract's transaction price. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when persuasive evidencethe performance obligation is satisfied. The majority of an arrangement exists, delivery has occurredour contracts have a single performance obligation as the promise to transfer the respective goods or services have been rendered,is not separately identifiable from other promises in the feecontracts and is, fixedtherefore, not distinct. For product sales, each product sold to a customer typically represents a distinct performance obligation. Our performance obligations are satisfied over time as work progresses or determinable,at a point in time based on transfer of control of products and collection is probable.services to our customers.

Substantially all of our Supply Chain Management GroupFleet segment revenues result from the sale of vehicle parts to clients. We recognize revenuecustomers are recognized at the point in time of the transfer of control to the customer. Sales returns and allowances for vehicle parts are not significant.

Our Aviation segment revenues result from the sale of vehicleaircraft parts and performance of MRO services. Our Aviation segment recognizes revenues for the sale of aircraft parts at a point in time when control is transferred to the customer, which usually occurs when the customer takes ownership ofparts are shipped. Our Aviation segment recognizes revenues for MRO services over time as the parts.services are transferred to the customer. MRO services revenue recognized is measured based on the cost-to-cost input method, as costs incurred reflect the work completed, and therefore the services transferred to date. Sales returns and allowances are not significant.

Our Aviation GroupFederal and Defense segment revenues are recognized upon the shipment or delivery of products to customers based on when title or risk of loss transfers to the customer. Sales returnsresult from professional and allowances are not significant.

Revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned. Our FMS Program contractVariable consideration is included in the estimated transaction price, to the extent that it is probable that a significant reversal will not

occur, when there is a cost plusbasis to reasonably estimate the amount of the fee. These estimates are based on historical award fee contract. This contract has terms that specify award fee payments that are determined byexperience, anticipated performance and level of contract activity. Award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed. Award fee evaluations occur three times per yearour best judgment based on current facts and in 2017 and prior years we recognized award fee revenue and income in the period we received contractual notification of the award when the fees became fixed or determinable. We recognized award fee revenue and income in 2017 from three award fee notifications.circumstances.

Revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms. Revenues on fixed-price service contracts are recorded as work is performed typically ratably over the service period. Revenues on fixed-priceRevenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with the transfer of control to the customer. For such contracts, that require deliverywe estimate total costs at the inception of specific items are recordedthe contract based on our assumptions of the cost elements required to complete the associated tasks of the contract and assess the effects of the risks on our estimates of total costs to complete the contract. Our cost estimates are based on assumptions that include the complexity of the work, our employee labor costs, the cost of materials and the performance of our subcontractors. These cost estimates are subject to change as we perform under the contract and as a price per unitresult, the timing of revenues and amount of profit on a contract may change as unitsthere are delivered.changes in estimated costs to complete the contract. Such adjustments are recognized on a cumulative catch-up basis in the period we identify the changes.

Revenues for time and materials contracts are recorded based on the amount for which we have the right to invoice our customers, because the amount directly reflects the value of our work performed for the customer. Revenues are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates, plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract. Generally, profits on time and materials contracts result from the difference between the cost of services performed and the contract defined billing rates for these services.

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method. Inventories for our Fleet segment consist primarily of vehicle replacement parts, and also include related purchasing, storage and handling costs. Inventories for our Aviation segment consist primarily of aftermarket parts for distribution, and general aviation engine accessories and parts, and also include related purchasing, overhaul labor, storage and handling costs. We recognize this “risk funding”periodically evaluate the carrying value of inventory, giving consideration to factors such as revenueits physical condition, sales patterns and expected future demand in order to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory. These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels or competitive factors that were not foreseen or did not exist when the associatedestimated write-downs were made.

We account for business combinations under the acquisition method of accounting. The purchase price of each business acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on information regarding their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value of the separately identifiable assets acquired and liabilities assumed is allocated to goodwill. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. The valuation of assets acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair values becomes available. We will recognize any adjustments to provisional amounts that are identified during the period not to exceed twelve months from the acquisition date (the "measurement period") in which the adjustments are determined. Acquisition costs are incurredexpensed as incurred. The results of operations of businesses acquired are included in the consolidated financial statements from their dates of acquisition.

this approach, a set of potential future subsidiary earnings is estimated based on various revenue growth rate assumptions for each scenario. A probability of likelihood is then assigned to each potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate. The fair value is measured each reporting period subsequent to the acquisition date and any changes are recorded within cost and operating expenses within our consolidated statement of income. Changes in either the revenue growth rates, related earnings or the work is performed. We are at riskdiscount rate could result in a material change to the amount of loss for any risk funding not received. Revenues recognized as of December 31, 2017 include approximately $4.0 million for which we have not received formalized funding. We believe that we are entitled to reimbursement and expect to receive all of this funding.the contingent consideration accrued.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a negative changepattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives. Intangible assets with finite lives are assessed for impairment whenever events or changes in the key assumptions used in the annual impairment analysis or an increase incircumstances indicate that the carrying value may result in anot be recoverable.

Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future impairmenttax consequences attributable to differences between the financial statement carrying amounts of this reporting unit's goodwill. For example, keeping all other assumptionsexisting assets and liabilities and their respective tax basis. This method also requires the same, an additional 50 basis points increaserecognition of future tax benefits, such as net operating loss and capital loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the discount rateyears in which those temporary differences are expected to be recovered or an increasesettled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the carrying value would likely result in an impairment inperiod that includes the reporting unit's goodwill.enactment date.

Our revenues increased by approximately $68$89.2 million or 10%13.5% for the year ended December 31, 20172021 as compared to the prior year. The changeincrease in revenues for this period resulted from an increase in our Federal Services GroupAviation segment of approximately $58$82.8 million, an increase in our Supply Chain Management GroupFederal and Defense segment of approximately $9$15.1 million, and an increasewas partially offset by a decrease in our Aviation GroupFleet segment of approximately $1$8.6 million. See "Segment Operating Results" for a breakdown of our results of operations by segment.

Our revenuescosts and operating expenses increased by approximately $158$122 million or 30% for the year ended December 31, 201620% in 2021 as compared to the prior year. The change in revenues for this period resulted from an increase in our Federal Services Group of approximately $135 million, an increase in our Aviation Group of approximately $14 million, and an increase in our Supply Chain Management Group of approximately $9 million.

Our operating income increased by approximately $2.8$7.6 million or 5%54.6% in 20172021 as compared to 2016.the prior year. Operating group results included operating income increasesincreased approximately $21.1 million for our Aviation segment and was partially offset by a decrease of $6.2 million for our Fleet segment and a decrease of $6.4 million for our Federal Services Groupand Defense segment.

In 2020, the business recorded the following related to our Aviation segment (1) a loss on the sale of a business entity and certain assets of $8.2 million, (2) a gain on sale of property of $1.1 million, and operating income decreases(3) a goodwill and intangible asset impairment charge of $33.7 million.

See "Segment Operating Results" for a breakdown of our Aviation Groupresults of approximately $3.1 million and for our Supply Chain Management Group of approximately $878 thousand.operations by segment.

Interest expense decreased approximately $615 thousand$1.4 million or 10.6% in 20172021 as compared to 2016the prior year primarily due to the decline of our bank debt levels. Interest expense increased approximately $311 thousand in 2016 as compared to 2015, as our bank debt levels remained steady for most of the year. Interest expense also includesa lower average interest related to our executive and administrative headquarters facility lease. The amount of interest expense associated with our headquarters financing lease is approximately $1.5 million, $1.6 million and $1.6 million for 2017, 2016 and 2015, respectively.rate on borrowings outstanding.

    

Our effective tax rate was 13.3%15.7% for 2017, 35.7%2021 and 1,311.0% for 2016, and 39.2% for 2015.2020. The Tax Act passed in December 2017 lowered ourlower effective tax rate for 20172021 compared to 2020 primarily resulted from: (1) significantly lower pre-tax book income in 2020, (2) goodwill impairment loss recognized in 2020, of which $16.4 million was non-deductible for income tax purposes, and we expect(3) a full valuation allowance established in 2020 to offset the capital loss benefit in connection with our divestiture of Prime Turbines due to our effective tax rates and cash tax payments in future years. Due to the Tax Act, we recordeda lack of anticipated capital gain income in the fourth quarter of 2017 a one-time reduction in our deferred tax liabilities that resulted in a reduction in our provision for income taxes of approximately $10.6 million for the year.carryforward period.

Our tax rate is also affected by discrete items that may occur in any given year but may not be consistent from year to year. In addition to state income taxes, certain federal and state tax credits and other itemspermanent book-tax differences such as foreign derived intangible income ("FDII") deduction and unrealized investment income or loss from our COLI plan caused differences between ourthe statutory U.S. Federalfederal income tax rate and our effective tax rate. Our effective tax rate for 2016 was reduced due to fair value changes of approximately $1.3 million to our Aviation Acquisition earn-out obligation. Approximately $900 thousand of transaction costs associated with our Aviation Acquisition that were not deductible for tax purposes resulted in an increase to our effective tax rate for 2015. Other permanent differences and federal and state tax credits such as the work opportunity tax credit and a state educational improvement tax credit provided benefit to our tax rates for 2017, 2016 and 2015.