VSE Reports Financial Results for First Quarter 2010

Earnings per Share Increases 14% Year over Year

ALEXANDRIA, Va.-- VSE Corporation (Nasdaq: VSEC) reported the following consolidated financial results for its first quarter ended March 31, 2010.

Financial Results

                                          Quarter ended March 31,

(in thousands, except per-share data and  2010       2009          % Change

Revenues                                  $228,176   $240,455      (5.1)%

Operating income                          $8,651     $7,444        16.2%

Operating margin                          3.8%       3.1%          22.6%

Net income                                $5,398     $4,640        16.3%

Diluted EPS                               $1.04      $0.91         14.3%

For the first quarter of 2010, revenues were $228.2 million compared to $240.5 million in the first quarter of 2009. Operating income for the first quarter of 2010 was $8.7 million compared to $7.4 million in the first quarter of 2009.

The decrease in revenue for the first quarter of 2010 as compared to the first quarter of 2009 was primarily caused by the expiration of the Army Equipment Support Program under U.S. Army CECOM's Rapid Response contract and decreases in engineering and technical services provided to the U.S. Navy. This decline was partially offset by increased equipment repair and refurbishment services performed in Southwest Asia for the U.S. Army and increased ship repair and transfer services.

Operating income for the first quarter of 2010 was $8.7 million, an increase of 16.2% compared to $7.4 million in the first quarter of 2009. The year-over-year increases in operating income and operating margin were primarily due to an increase in equipment repair and refurbishment services performed in Southwest Asia for the U.S. Army, which is primarily our direct labor generated revenue; and to other direct labor revenue increases associated with our ship transfer services and work performed by our G&B Solutions and Energetics subsidiaries.

Net income for the first quarter of 2010 was $5.4 million, or $1.04 per diluted share, compared to $4.6 million, or $0.91 per diluted share in the first quarter of 2009.

Bookings were $210 million in the first quarter of 2010 compared to $232 million in the first quarter of 2009. Funded contract backlog at March 31, 2010 was $457 million, compared to $476 million at December 31, 2009.

Operational Highlights in First Quarter 2010

    --  International Group's GLOBAL Division was awarded contracts with a
        combined value of $40 million to provide management, engineering,
        technical, training and logistics support for the Egyptian Navy and
        Taiwan Navy Foreign Military Sales programs.
    --  Additionally, GLOBAL Division completed the reactivation of ex-USNS
        Andrew J. Higgins (renamed Almirante Montt) for Chile. GLOBAL also
        received a firm fixed-price contract directly from the government of
        Chile to perform follow-on technical services on Almirante Montt. This
        contract is our GLOBAL Division's first direct commercial sale with a
        foreign customer.
    --  Federal Group received a $61 million task order ceiling award in
        February 2010 to continue depot maintenance support for the Army Reserve
        Legacy Systems.
    --  G&B Solutions achieved Capability Level 3 of the Software Engineering
        Institute's (SEI) Capability Maturity Model Integration (CMMI) (R) v1.2.
        The CMMI(R) rating is a prerequisite and an evaluation factor for the
        acquisition of many military and government programs with significant
        systems and software engineering content.
    --  Our subsidiary ICRC was awarded an indefinite delivery/indefinite
        quantity Professional Engineering Services contract by the GSA that has
        a five-year base period and 15 option years, rendering ICRC qualified to
        provide construction management services to the federal government as
        well as certain state and international assistance organizations.

Commenting on VSE's financial results for the first quarter of 2010, Maurice "Mo" Gauthier, VSE's CEO said, "Our markets have been impacted by pressure on federal discretionary spending. Our revenues in the first quarter declined as a result of reduced subcontract work. The increase in operating income and operating margin in the first quarter was driven by continued expansion of our direct labor workforce. We continue to pursue new business opportunities, independently as well as with our business partners, as we extend our capabilities and presence in the marketplace for professional services provided to the United States government, in both defense and civilian agencies."

"Our core areas of expertise - sustainment of legacy systems, operational support for the warfighter, engineering support for foreign military sales, IT services, construction management, and technical and management consulting for federal civilian agencies - remain well-aligned with national funding priorities. We are well positioned for the future, and expect to see continued bottom-line improvement in 2010."

About VSE

VSE is a diversified Federal Services company of choice with over 50 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, 2009 and subsequent reports filed with the Securities and Exchange Commission.

VSE Corporation and Subsidiaries

Unaudited Consolidated Financial Statements

Consolidated Balance Sheets (Unaudited)

(in thousands except share and per share amounts)

                                                         March 31,  December 31,

                                                         2010       2009


Current assets:

Cash and cash equivalents                                $ 2,188    $ 8,024

Receivables, principally U.S. Government, net              154,209    175,185

Deferred tax assets                                        1,586      2,036

Other current assets                                       8,113      7,979

Total current assets                                       166,096    193,224

Property and equipment, net                                24,035     24,683

Intangible assets                                          8,877      9,336

Goodwill                                                   20,930     19,530

Other assets                                               7,598      7,217

Total assets                                             $ 227,536  $ 253,990

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable                                         $ 86,877   $ 112,995

Accrued expenses                                           28,849     34,069

Dividends payable                                          260        258

Total current liabilities                                  115,986    147,322

Deferred compensation                                      4,011      3,934

Deferred income taxes                                      182        324

Other liabilities                                          1,106      1,100

Total liabilities                                          121,285    152,680

Commitments and contingencies

Stockholders' equity:

Common stock, par value $0.05 per share, authorized
15,000,000 shares; issued and outstanding 5,191,213 and    260        258
5,170,190, respectively

Additional paid-in capital                                 15,521     15,720

Retained earnings                                          90,470     85,332

Total stockholders' equity                                 106,251    101,310

Total liabilities and stockholders' equity               $ 227,536  $ 253,990

VSE Corporation and Subsidiaries

Consolidated Financial Statements

Consolidated Statements of Income (Unaudited)

(in thousands except share and per share amounts)

                                                     For the three months

                                                     ended March 31,

                                                     2010         2009

Revenues                                             $ 228,176    $ 240,455

Contract costs                                         219,227      232,809

Selling, general and                                   298          202
administrative expenses

Operating income                                       8,651        7,444

Interest income, net                                   5            59

Income before income taxes                             8,656        7,503

Provision for income taxes                             3,258        2,863

Net income                                           $ 5,398      $ 4,640

Basic earnings per share:                            $ 1.04       $ 0.91

Basic weighted average shares                          5,180,410    5,112,356

Diluted earnings per share:                          $ 1.04       $ 0.91

Diluted weighted average shares                        5,180,410    5,126,629

Dividends declared per share                         $ 0.050      $ 0.045

VSE Corporation and Subsidiaries

Consolidated Financial Statements

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

                                                      For the three months

                                                      ended March 31,

                                                      2010         2009

Cash flows from operating activities:

Net income                                            $ 5,398      $ 4,640

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

Depreciation and amortization                           2,152        1,633

Loss (gain) on sale of property and equipment           3            (147    )

Deferred taxes                                          308          (156    )

Stock-based compensation                                205          294

Changes in operating assets and liabilities:

Receivables, net                                        20,976       (15,299 )

Other current assets and noncurrent assets              (544    )    1,028

Accounts payable and deferred compensation              (26,041 )    402

Accrued expenses                                        (6,577  )    (3,818  )

Other liabilities                                       6            132

Net cash used in operating activities                   (4,114  )    (11,291 )

Cash flows from investing activities:

Purchases of property and equipment                     (1,019  )    (2,484  )

Contingent consideration payments                       (445    )    (1,624  )

Net cash used in investing activities                   (1,464  )    (4,108  )

Cash flows from financing activities:

Borrowings on loan arrangement                          56,808       75,490

Repayments on loan arrangement                          (56,808 )    (60,342 )

Dividends paid                                          (258    )    (229    )

Net cash (used in) provided by financing activities     (258    )    14,919

Net decrease in cash and cash equivalents               (5,836  )    (480    )

Cash and cash equivalents at beginning of year          8,024        638

Cash and cash equivalents at end of year              $ 2,188      $ 158

    Source: VSE Corporation