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VSE Reports Financial Results for First Quarter 2011

Revenues & Operating Income Decline; Operating Margin Improves

ALEXANDRIA, Va.-- VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for its first quarter ended March 31, 2011.


Financial Results (Unaudited)

                                       Three Months Ended March 31

(in thousands, except per-share data   2011          2010            % Change
and percentages)

Revenues                               $ 151,244     $ 228,176       (33.7 )%

Operating income                       $ 6,909       $ 8,651         (20.1 )%

Operating margin                         4.6     %     3.8     %     Up 80 bp

Net income                             $ 4,172       $ 5,398         (22.7 )%

Diluted EPS                            $ 0.80        $ 1.04          (23.1 )%



"The federal government continues to experience funding delays and budget constraints, presenting certain challenges for firms operating in our industry," said Maurice "Mo" Gauthier, VSE CEO. "This challenging budget environment, along with emerging global insecurity, affirms our continuing strategy to focus on markets that are closely aligned with federal budget priorities. Our long term strategic diversification into selected federal markets and service offerings through acquisitions, combined with our planned efforts to grow organically in our sustainable markets, continues to show intended results. We remain committed to this strategy."

For the first quarter of 2011, revenues were $151.2 million compared to $228.2 million in the first quarter of 2010. Operating income for the first quarter of 2011 was $6.9 million compared to $8.7 million in the first quarter of 2010.

The decrease in revenue for the first quarter 2011 as compared to the first quarter 2010 was primarily due to the expiration of delivery orders on our U.S. Army CECOM Rapid Response "R2" contract in January 2011, including the delivery orders supporting our Assured Mobility Systems and Route Clearance Vehicle "RCV" Modernization Programs.

Operating margin for the first quarter of 2011 was 4.6%, an increase of 80 bp compared to 3.8% in the first quarter of 2010. The year-over-year increase in operating margin was primarily due to the inclusion of Akimeka, LLC, which we acquired in August 2010, improved profitability on services provided by our Systems Engineering Division, an increase in energy and management consulting work by our Energetics subsidiary, and a reduction in low margin revenue.

Net income for the first quarter of 2011 was $4.2 million, or $.80 per diluted share, compared to $5.4 million, or $1.04 per diluted share in the first quarter of 2010.

Bookings were $107 million in the first quarter of 2011 compared to $210 million in the first quarter of 2010. Funded contract backlog at March 31, 2011 was $357 million, compared to $407 million at December 31, 2010. Federal budget constraints have affected the timeliness of awards in our market and the decrease in government funding activity has impacted our bookings and funded backlog in the first quarter of 2011.

The Federal Group was awarded a $410M, 5-year LOGWORLD task order at the end of January 2011 to continue providing equipment engineering, maintenance, and logistics readiness support services to the U.S. Army Reserve Command (USARC) and the 63rd and 88th Regional Support Commands (RSC). The award represents a recompete of existing work for Federal Group's Engineering and Logistics Directorate supporting the U.S. Army Reserve.

About VSE

VSE is a diversified federal services company of choice with over 52 years of experience in solving issues of global significance with integrity, agility, and value. VSE is dedicated to making our clients successful by delivering talented people and innovative solutions for logistics, engineering, IT services, construction management and consulting. For additional information on VSE services and products, please see the Company's web site at www.vsecorp.com or contact Randy Hollstein, VSE Corporate Vice President of Sales and Marketing, at (703) 329-3206.

VSE encourages investors and others to review the detailed reporting and disclosures contained in VSE's public filings with the U.S. Securities and Exchange Commission for further information and analysis of VSE's financial condition and results of operations. The public filings include additional discussion about the status of specific customer programs and contract awards, risks, revenue sources and funding, dependence on material customers, and management's discussion of short and long term business challenges and opportunities.

Safe Harbor

This news release contains statements that to the extent they are not recitations of historical fact, constitute "forward looking statements" under federal securities laws. All such statements are intended to be subject to the safe harbor protection provided by applicable securities laws. For discussions identifying some important factors that could cause actual VSE results to differ materially from those anticipated in the forward looking statements in this news release, see VSE's public filings with the Securities and Exchange Commission, including VSE's annual report on Form 10-K for the year ended December 31, 2010 and subsequent reports filed with the Securities and Exchange Commission.


VSE Corporation and Subsidiaries

Unaudited Consolidated Financial Statements

Unaudited Consolidated Balance Sheets

(in thousands except share and per share amounts)

                                                      March 31,    December 31,

                                                      2011         2010

Assets

Current assets:

Cash and cash equivalents                             $ 2,303      $ 5,764

Receivables, principally U.S. Government, net           137,931      156,938

Deferred tax assets                                     403          1,602

Other current assets                                    9,894        9,552

Total current assets                                    150,531      173,856

Property and equipment, net                             43,324       42,315

Intangible assets                                       24,140       25,003

Goodwill                                                37,396       36,282

Deferred tax assets                                     958          838

Other assets                                            14,217       10,132

Total assets                                          $ 270,566    $ 288,426

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of long-term debt                     $ 6,667      $ 6,667

Accounts payable                                        59,609       75,724

Accrued expenses                                        29,413       36,584

Dividends payable                                       314          312

Total current liabilities                               96,003       119,287

Long-term debt                                          9,444        11,111

Deferred compensation                                   8,882        6,034

Long-term lease obligations                             21,868       20,258

Other liabilities                                       5,528        7,960

Total liabilities                                       141,725      164,650

Commitments and contingencies

Stockholders' equity:

Common stock, par value $0.05 per share, authorized
15,000,000 shares; issued and outstanding 5,235,947     262          260
and 5,193,891, respectively

Additional paid-in capital                              16,898       15,692

Retained earnings                                       111,681      107,824

Total stockholders' equity                              128,841      123,776

Total liabilities and stockholders' equity            $ 270,566    $ 288,426

VSE Corporation and Subsidiaries

Unaudited Consolidated Financial Statements

Unaudited Consolidated Statements of Income

(in thousands except share and per share amounts)

                                                      For the three months

                                                      ended March 31,

                                                      2011         2010

Revenues                                              $ 151,244    $ 228,176

Contract costs                                          143,514      219,227

Selling, general and administrative expenses            821          298

Operating income                                        6,909        8,651

Interest expense (income), net                          144          (5)

Income before income taxes                              6,765        8,656

Provision for income taxes                              2,593        3,258

Net income                                            $ 4,172      $ 5,398

Basic earnings per share:                             $ 0.80       $ 1.04

Basic weighted average shares outstanding               5,214,334    5,180,410

Diluted earnings per share:                           $ 0.80       $ 1.04

Diluted weighted average shares outstanding             5,214,334    5,180,410

Dividends declared per share                          $ 0.06       $ 0.05

VSE Corporation and Subsidiaries

Unaudited Consolidated Financial Statements

Unaudited Consolidated Statements of Cash Flows

(in thousands)

                                                      For the three months

                                                      ended March 31,

                                                      2011         2010

Cash flows from operating activities:

Net income                                            $ 4,172      $ 5,398

Adjustments to reconcile net income to net cash used
in operating activities:

Depreciation and amortization                           2,382        2,152

Loss on sale of property and equipment                  3            3

Deferred taxes                                          1,079        308

Stock-based compensation                                164          205

Changes in operating assets and liabilities:

Receivables, net                                        19,007       20,976

Other current assets and noncurrent assets              (4,456)      (544)

Accounts payable and deferred compensation              (13,267)     (26,041)

Accrued expenses                                        (6,971)      (6,577)

Long-term lease obligations                             10           6

Other liabilities                                       (2,432)      -

Net cash used in operating activities                   (309)        (4,114)

Cash flows from investing activities:

Purchases of property and equipment                     (904)        (1,019)

Proceeds from the sale of property and equipment        2            -

Contingent consideration payments                       (270)        (445)

Net cash used in investing activities                   (1,172)      (1,464)

Cash flows from financing activities:

Borrowings on loan arrangement                          78,661       56,808

Repayments on loan arrangement                          (80,328)     (56,808)

Dividends paid                                          (313)        (258)

Net cash used in financing activities                   (1,980)      (258)

Net decrease in cash and cash equivalents               (3,461)      (5,836)

Cash and cash equivalents at beginning of period        5,764        8,024

Cash and cash equivalents at end of period            $ 2,303      $ 2,188




    Source: VSE Corporation
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