SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995 Commission File Number: 0-3676
VSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 54-0649263
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2550 Huntington Avenue
Alexandria, Virginia 22303-1499
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (703) 960-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.05 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of March 1, 1996: $10,400,000.
Number of shares of Common Stock outstanding as of March 1, 1996: 869,167.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's 1995 Annual Report to Stockholders for the year
ended December 31, 1995, are incorporated into Parts I and II of this report.
2. Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders expected to be held on May 4, 1996, are incorporated by reference
into Part III of this report.
PART I
ITEM 1. Business
Refer to the discussions captioned "Report from the Chairman and CEO" and
"Description of Business" in VSE Corporation's ("VSE" or the "Registrant") 1995
Annual Report to Stockholders which is incorporated herein by reference.
ITEM 2. Properties
Refer to the discussion captioned "Description of Business" in VSE's 1995
Annual Report to Stockholders which is incorporated herein by reference.
ITEM 3. Legal Proceedings
Refer to Note 8 (Commitments and Contingencies - Litigation) of the "Notes
to Consolidated Financial Statements" in VSE's 1995 Annual Report to
Stockholders which is incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Stockholders
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
Refer to discussion captioned "VSE Common Stock" in VSE's 1995 Annual
Report to Stockholders which is incorporated herein by reference.
ITEM 6. Selected Financial Data
Refer to table captioned "Financial Highlights" in VSE's 1995 Annual Report
to Stockholders which is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Refer to discussion captioned "Management Discussion and Analysis" in VSE's
1995 Annual Report to Stockholders which is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
Refer to section captioned "Consolidated Financial Statements" and "Notes
to Consolidated Financial Statements" in VSE's 1995 Annual Report to
Stockholders which is incorporated herein by reference. Also refer to the
schedule on page S-1 of this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to VSE Directors is incorporated by reference to
VSE's definitive proxy statement for its annual meeting of stockholders to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after December 31, 1995. The
executive officers are chosen annually at the board of directors meeting next
following the annual meetings of stockholders and serve until their successors
have been duly elected and qualified, or until resignation or removal. Also
refer to section captioned "Executive Officers" in VSE's 1995 Annual Report to
Stockholders which is incorporated herein by reference.
ITEM 11. Executive Compensation
Information with respect to this item is incorporated by reference to the
discussion captioned "1995 Director Compensation," "Changes in Director
Compensation," and "Certain Relationships and Related Transactions" in Item No.
1 (Election of Directors); Item No. 3 (VSE Corporation 1996 Stock Option Plan);
and "All Other Compensation," "Employment Agreements," and "Summary Compensation
Table" in "Compensation Committee Report" in the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item is incorporated by reference to the
discussion captioned "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
Information with respect to this item is incorporated by reference to the
discussion captioned "Certain Relationships and Related Transactions" in Item
No. 1 (Election of Directors) in the Proxy Statement.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements from VSE's 1995 Annual Report to Stockholders
which is incorporated herein by reference:
Report of Independent Public Accountants
In section captioned "Consolidated Financial Statements":
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Investment for the Years
Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
2. Financial Statement schedules required to be filed by Item 8 of this
Form:
Form 10-K Schedule
Page Number Description
5 -- Report of Independent Public Accountants
S-1 II Valuation and Qualifying Accounts
Schedules not included herein have been omitted because of the absence
of conditions under which they are required or because the required informa-
tion, where material, is shown in the consolidated financial statements,
financial notes, or supplementary financial information.
3. Exhibits:
Exhibits filed with this Form:
I Subsidiaries of the Registrant
II VSE Corporation 1995 Annual Report
III Employment Agreement entered into as of January 1, 1996, by
and between VSE Corporation and Donald M. Ervine
IV Employment Agreement entered into as of January 1, 1996, by
and between VSE Corporation and Richard B. McFarland
V Restated Certificate of Incorporation of VSE Corporation
dated as of February 6, 1996
VI By-Laws of VSE Corporation as Amended through February 6,
1996
Exhibits not filed with this Form:
Specimen Stock Certificate as of May 19, 1983 (Exhibit 4 to
Registration Statement No. 2-83255 dated April 22, 1983 on
Form S-2).
Exchange Agreement dated as of March 25, 1992, amended as of
September 1, 1992, by and between VSE Corporation and JBT
Holding Corp., et al (Exhibit A to Exhibit 1, Proxy
Statement, filed on Form 8-K on November 2, 1992).
VSE Corporation Deferred Supplemental Compensation Plan (Exhibit
III to Form 10-K dated March 23, 1995).
Stock Purchase Agreement dated August 29, 1995 by and between VSE
Corporation and the shareholders of Energetics Incorporated
(Exhibit 2 to Form 8-K dated September 13, 1995 and Amendment
1 on Form 8-K/A dated November 9, 1995).
(b) Reports on Form 8-K:
On November 9, 1995, the Registrant filed a Current Report
on Form 8-K/A, Amendment No. 1, to the Current Report on
Form 8-K filed on September 13, 1995. The amendment reported
Energetics' unaudited Financial Statements as of June 30,
1995 and for the seven months ended June 30, 1994 and 1995,
and audited Financial Statements for the year ended November 27,
1994, together with auditors' report. The Current Report also
reported the Registrant's unaudited pro forma combined condensed
financial statements and notes to the unaudited pro forma
combined condensed financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VSE CORPORATION
Date: March 22, 1996 By: /s/ C. S. Weber
C. S. Weber, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 22, 1996, by the following persons
on behalf of the Registrant and in the capacities indicated.
(a) Principal Executive Officers:
/s/ D. M. Ervine
D. M. Ervine, Chairman of the Board and Chief Executive Officer
/s/ R. B. McFarland
R. B. McFarland, President and Chief Operating Officer
(b) Principal Financial Officer: (c) Principal Accounting Officer:
/s/ C. S. Weber /s/ T. J. Corridon
C.S. Weber, Senior Vice President T. J. Corridon, Senior Vice
Secretary and Treasurer President and Comptroller
(d) Directors:
/s/ Sarah Clements /s/ R. B. McFarland
Sarah Clements R. B. McFarland
/s/ D. M. Ervine /s/ D. M. Osnos
D. M. Ervine D. M. Osnos
/s/ J. D. Ross
R. J. Kelly J. D. Ross
/s/ C. S. Koonce /s/ B. K. Wachtel
C. S. Koonce B. K. Wachtel
/s/ J. M. Marchello
J. M. Marchello
Report of Independent Public Accountants
To the Stockholders of VSE Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in VSE Corporation's annual
report to stockholders incorporated by reference in this Form 10-K and have
issued our report thereon dated March 1, 1996. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index is the responsibility of the company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states, in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.,
March 1, 1996
VSE CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
to and
Balance Charged Deductions Balance
December 31, to from December 31,
Description 1994 Income Reserves 1995
- ----------- --------- --------- -------- ---------
Allowance for
doubtful accounts $ 247 $ (87) $ 0 $ 160
======== ======== ======== =========
Allowance for contract
disallowances $ 1,338 $ (651) $ 662 $ 1,349
======== ======== ======== =========
Valuation allowance
for income taxes $ 50 $ 0 $ 0 $ 50
======== ======== ======== =========
Additions
to and
Balance Charged Deductions Balance
December 31, to from December 31,
Description 1993 Income Reserves 1994
- ----------- -------- -------- -------- --------
Allowance for
doubtful accounts $ 251 $ 0 $ (4) $ 247
======== ======== ======== =========
Allowance for contract
disallowances $ 1,384 $ 0 $ (46) $ 1,338
======== ======== ======== =========
Valuation allowance
for income taxes $ 50 $ 0 $ 0 $ 50
======== ======== ======== =========
Additions
to and
Balance Charged Deductions Balance
December 31, to from December 31,
Description 1992 Income Reserves 1993
- ----------- -------- -------- -------- --------
Allowance for
doubtful accounts $ 246 $ 0 $ 5 $ 251
======== ======== ======== =========
Allowance for contract
disallowances $ 1,391 $ 0 $ (7) $ 1,384
======== ======== ======== =========
Valuation allowance
for income taxes $ 0 $ 0 $ 50 $ 50
======== ======== ======== =========
S-1
EXHIBIT INDEX
Reference No. Exhibit No.
per Item 601 of in this
Regulation S-K Description of Exhibit Form 10-K
- ------------------------------------------------------------------------------
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession
Exchange Agreement dated as of March 25, 1992,
amended as of September 1, 1992, by and between VSE
Corporation and JBT Holding Corp., et al. (Exhibit A
to Exhibit 1, Proxy Statement, filed on
Form 8-K on November 2, 1992) *
3 Articles of incorporation and by-laws
Restated Certificate of Incorporation of VSE
Corporation dated as of February 6, 1996 Exhibit V
By-Laws of VSE Corporation as amended through
February 6, 1996 Exhibit VI
4 Instruments defining the rights of security holders,
including indentures
Specimen Stock Certificate as of May 19, 1983
(Exhibit 4 to Registration Statement No. 2-83255
dated April 22, 1983 on Form S-2). *
9 Voting trust agreement Not Applicable
10 Material contracts
Employment Agreement entered into as of January 1,
1996, by and between VSE Corporation and
Donald M. Ervine Exhibit III
Employment Agreement entered into as of January 1,
1996, by and between VSE Corporation and
Richard B. McFarland Exhibit IV
VSE Corporation Deferred Supplemental Compensation
Plan effective January 1, 1994 (Exhibit III to
Form 10-K dated March 23, 1995) *
Stock Purchase Agreement dated August 29, 1995 by
and between VSE Corporation and the shareholders
of Energetics Incorporated (Exhibit 2 to Form 8-K
dated September 13, 1995 and Amendment 1 on Form
8-K/A dated November 9, 1995) *
11 Statement re computation of per share earnings Not Applicable
12 Statements re computation of ratios Not Applicable
13 Annual report to security holders, Form 10-Q
or quarterly report to security holders Exhibit II
16 Letter re change in certifying accountant Not Applicable
18 Letter re change in accounting principles Not Applicable
19 Previously unfiled documents Not Applicable
22 Subsidiaries of the registrant Exhibit I
23 Published report regarding matters submitted
to vote of security holders Not Applicable
24 Consents of experts and counsel Not Applicable
25 Power of attorney Not Applicable
28 Additional exhibits Not Applicable
29 Information from reports furnished to State
insurance regulatory authorities Not Applicable
*Document has been filed as indicated and is incorporated by reference herein.
E-1
EXHIBIT I
SUBSIDIARIES OF THE REGISTRANT
The following is a listing of the subsidiaries of the Registrant:
Jurisdiction of
Organization
---------------
CMstat Corporation Delaware
Energetics Incorporated Maryland
Human Resource Systems, Inc. Delaware
Schmoldt Engineering Services Company * Oklahoma
VSE Corona, Inc. Delaware
VSE Services Corporation Delaware
* On February 7, 1996, the Registrant sold its wholly owned subsidiary
Schmoldt Engineering Services Company.
E-2
Exhibit II
VSE Corporation
1995 Annual Report
Engineering Solutions
Financial Highlights
Selected Financial Data (Unaudited)
(In thousands, except per share data)
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Revenues, principally from
contracts . . . . . . . . . $75,067 $65,581 $79,609 $78,305 $68,317
======= ======= ======= ======= =======
Income (loss) from continuing
operations . . . . . . . . $ 1,646 $ 1,553 $ 1,159 $ 1,316 $ (610)
Cumulative effect of change in
accounting for income taxes. 0 0 284 0 0
Loss from discontinued
operations . . . . . . . . 0 0 0 0 (4,068)
Gain on sale of discontinued
operations. . . . . . . . . 0 0 0 776 0
------- ------- ------- ------- -------
Net income (loss) . . . $ 1,646 $ 1,553 $ 1,443 $ 2,092 $(4,678)
======= ======= ======= ======= =======
Earnings per common share:
Income (loss) from continuing
operations . . . . . . . . $ 1.90 $ 1.80 $ 1.34 $ .85 $ (.36)
Cumulative effect of change in
accounting for income
taxes . . . . . . . . . . 0 0 .33 0 0
Loss from discontinued
operations . . . . . . . . 0 0 0 0 (2.42)
Gain on sale of discontinued
operations . . . . . . . . 0 0 0 .50 0
------- ------- ------- ------- -------
Net income (loss) . . . . $ 1.90 $ 1.80 $ 1.67 $ 1.35 $ (2.78)
======= ======= ======= ======= =======
Total assets . . . . . . . . . $29,106 $21,272 $23,546 $20,820 $34,326
======= ======= ======= ======= =======
Long-term obligations . . . . $ 6,546 $ 886 $ 3,834 $ 3,282 $ 3,789
======= ======= ======= ======= =======
Stockholders' investment . . . $13,553 $12,101 $10,816 $ 9,623 $21,599
======= ======= ======= ======= =======
Book value per common share . $ 15.59 $ 14.02 $ 12.53 $ 11.15 $ 12.92
======= ======= ======= ======= =======
Cash dividends per common
share . . . . . . . . . . . $ .33 $ .31 $ .29 $ .28 $ .28
======= ======= ======= ======= =======
This consolidated summary of selected financial data should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this Annual Report.
Contents
Financial Highlights 1
Report from the Chairman and CEO 2
Description of Business 6
Management Discussion and Analysis 11
Executive Officers 17
VSE Common Stock 17
Report of Independent Public Accountants 18
Consolidated Financial Statements 19
Notes to Consolidated Financial Statements 23
Selected Quarterly Data 31
Form 10-K 32
Form 10-K Cross-Reference Index 33
VSE Team Members 34
Officers and Directors 37
Report from the Chairman and CEO
The company put on seven-league boots in 1995. During the year we reported a
landmark contract award, aggressive acquisitions, important additions to our
technology, and most importantly, the excitement we feel as new employees,
managers, and directors join the VSE team. In this report I want to share with
you some of our accomplishments in 1995 and our vision and strategies for
continued growth in the years ahead.
The BAV Contract
VSE has been an important player in America's defense community since 1959, and
we are determined to build on our reputation and strengths as a dependable and
innovative contractor. Several years ago we identified a potential Navy program
which could help meet the Navy's need to realize cost savings in the engineer-
ing, overhaul, maintenance, training, and logistic support associated with the
transfer of Navy ships to foreign governments. Through the privatization of
this effort, the Navy could complete the drawdown of its active and reserve
ship inventory from the six hundred ship Navy previously required to the
restated requirements of the post Cold War era.
Putting together a world-class team of subcontractors with the resources,
skills, and global presence required to execute the contract (see inside cover),
VSE's BAV Division submitted a proposal which was judged by the Navy to be
technically superior to eight other competing proposals. Award of a cost plus
award fee contract was made to BAV in August 1995. The award was protested by
two of the other competitors, and in late January 1996 the General Accounting
Office (GAO) denied the protests, upholding the Navy's selection of BAV. The
contract, including option periods which may be exercised by the Navy, provides
for a ten-year effort. Revenues under the contract will depend on the number
and size of the delivery orders for ships and services which may be ordered by
foreign governments. The Navy has estimated that up to $1 billion, and possibly
more, may be ordered under the contract during the ten-year period.
The Navy's ship transfer program is good for America. It means challenging work
for American engineers and naval architects, technicians, suppliers and
shipyards from Virginia to Oregon and New York to Louisiana, and many other
states. The program will be substantially funded by foreign governments, and
the additional capability gained by our allies as we transfer destroyers,
frigates, and auxiliary ships to them will reduce the burden on our country in
meeting mutual defense needs around the globe.
Work under the contract will be managed by BAV from VSE's headquarters facility
in Alexandria, Virginia. During the initial years of the contract, we expect
that the bulk of the work will be performed in U. S. shipyards by BAV's teaming
partners. Because it is a delivery order contract, we are unable to predict
the amount of work which will be ordered each year. While there are no
assurances, our initial preparations are targeted towards revenues, principally
subcontract revenues, of between $100 and $200 million a year. In terms of
earnings, we do not expect the BAV work to be as profitable as some of our other
contract operations. For example, we anticipate a substantial amount of
nonbillable interest expense associated with financing large subcontracts.
Notwithstanding the lower margins, the contract is expected to provide a
substantial base for developing other business opportunities. Significant
revenues under the contract are not expected to be recorded until later in 1996.
Report from the Chairman and CEO
The BAV contract represents the kind of opportunity for growth which VSE will
continue to pursue in the years ahead. There are a number of other privatiza-
tion programs which may develop in the defense establishment. We have
identified some of these programs, and we are excited about our prospects. The
BAV contract has increased our profile and reputation, and we hope to build
rapidly on this success.
Other Business Developments
In previous years we outlined the key components of our strategy following the
completion of the spin-off of our non-engineering subsidiaries in 1992. As the
government downsizes its budget for new procurements, we streamlined our
operations and targeted high profile defense opportunities such as ensuring
logistics support for Navy aircraft, engineering support for Army wheeled and
tracked vehicles, military readiness programs centered on technology insertion,
product improvement, service life extension, prototype development, and
information technology, and the growth of our non-defense business.
One of our largest program efforts in 1995, with option periods through 1999, is
providing logistics support for Navy and Marine Corps aircraft such as the
F/A-18 (Hornet), F-14 (Tomcat), A-6 (Intruder), AV-8B (Harrier), V-22 (Osprey),
and a number of military helicopters, missiles, and cruise missiles. Our tech-
nical logistics support extends to data management and documentation; cost,
readiness, and supportability analyses; logistics plans; and systems engineer-
ing and configuration management. We enjoyed significant growth in this
program in 1995, and we anticipate further growth in 1996.
For Army clients, we continue to provide a broad range of engineering services.
One high profile program is the effort of VSE engineers to develop an improved
combat bridging vehicle design to assist in the rapid deployment of bridge
sections like those being used by the Army on the rivers in Bosnia. Another
important program is providing systems technical support services for a variety
of military vehicles and trailers. Among the improvements recently developed
are vehicle fire detection and suppression systems to improve the safety of
military vehicles for U. S. combat personnel. Other efforts are directed to
incorporating advanced technology in such areas as tires, tire inflation,
lubrication, engine cooling, exhaust systems, anti-lock brakes, LED lights,
collision avoidance, and other improvements to enhance the safety and extend
the life-cycle of vehicle systems.
The use and development of information technology to solve client problems is
an integral part of VSE's service approach. Since acquiring CMstat Corporation
in May 1995, CMstat has doubled its revenues, nearly doubled its staff, and
recorded important sales to major corporations in a number of key industries in-
cluding aerospace, electronics, defense, and telecommunications. CMstat is a
leading developer of cross-platform configuration management and product data
management (CM/PDM) software.
VSE's growth in non-defense government agencies accelerated rapidly in 1995.
With the acquisition of Energetics Incorporated in August 1995, VSE allied
itself with one of the premiere companies supporting technology research,
development, and demonstration programs, principally for the Department of
Energy and other clients. Energy conservation and efficiency, advanced tech-
nology transfer, and feasibility, assessment, and development programs affecting
industrial, transportation, and building concerns of the present and future are
a few of the
Report from the Chairman and CEO
growth areas served by Energetics. Working with scientists, engineers, and
policy experts from around the world, Energetics has established a reputation as
a reliable management partner for energy and advanced technology programs.
Our engineering support services contract for the U. S. Postal Service continued
in 1995 under a new, five-year competitive contract. Under effective manage-
ment, and supported by contractor efforts such as those provided by VSE at the
Engineering Center in Merrifield, Virginia, the Postal Service reported a
surplus in 1995. We believe that VSE's record during the last twenty years in
performing engineering and support service tasks for the Postal Service will
assist us in expanding our business in 1996 with this important client.
Upgrading our technical capabilities is a strategic goal in VSE. We performed
work in a number of new areas in 1995 which we hope will translate into
contracts in the years ahead. Some of the new areas include sensor systems,
facial recognition and imaging software, fastener classification and testing
systems, automated data collection, antenna assembly transport systems, and
battlefield power management products.
Our goal as always in everything we do is to provide clients with engineering
solutions that work better and cost less. This is our promise, and this is
the challenge met everyday by the employees who comprise the VSE Team.
Business Strategy
Based on the success obtained during the past three years, the Board of
Directors reviewed its strategic guidance to management. Stated very simply,
the Board determined that the company was on the right track to achieve growth
and an increase in shareholder value.
The principal aim of our business is and remains to provide engineering
solutions and other support services and products, primarily to the federal
government, to maintain and modernize equipment and systems. Where our
experience and qualifications permit, we also provide these services in
related industries, such as the health care industry, and to commercial, state
and local government customers.
The Board directed us to pursue revenue growth by increasing our existing
business base and by accelerating our search for well-managed acquisition
candidates. With the award of the BAV contract and the successful acquisitions
of CMstat and Energetics in 1995, we believe this approach has the best
potential to achieve future growth and income.
The defense industry and the government market continue to experience
significant downsizing and consolidation. However, the market remains very
large with substantial opportunities for growth. In recent years, government
agencies have begun to emphasize corporate experience and best value in
determining contract awards in addition to low price criteria. VSE and its
subsidiaries and divisions are well positioned to compete in this environment.
At the same time, making superior acquisitions is a prerequisite for growth
because smaller government budgets and larger, more cost-effective omnibus
contracts intensify the competition. Given the competition, it is not likely
that any one company can present the required depth of corporate experience
necessary to win the large number of contracts necessary to grow at a sustained
Report from the Chairman and CEO
rate. Large teaming agreements (such as that proposed by VSE in winning the
BAV contract), joint ventures, and strategic acquisitions will be necessary to
achieve a sustained rate of revenue growth.
Substantial per share earnings and share price appreciation are important
company and management goals. To achieve these goals, VSE is committed to (a)
providing customers with quality services and products, and (b) observing all
legal, ethical, industry, and regulatory standards in everything we do. We
believe there is no other way to increase shareholder value.
In February 1996 VSE divested its wholly owned subsidiary Schmoldt Engineering
Services Company of Bartlesville, Oklahoma. Schmoldt recorded a pretax loss in
1995, and it did not fit well into our current or prospective business lines and
expectations for growth, income, and increased shareholder value.
The VSE Team
On December 31, 1995, Harold P. Weinberg retired from the Board of Directors,
having devoted more than 34 years of service to VSE. Also in 1995, Jack Z.
Moore, Vice President, retired after more than 30 years of service, and in early
1996, Edwin Barrineau, Senior Vice President, retired after 13 years of service.
William J. Nelson, Vice President, was advanced to relieve Ed Barrineau as
general manager of our systems engineering center operations. My thanks to each
of these dedicated managers and to all other VSE service employees who retired
during the year.
We are very pleased to report that Admiral Robert J. Kelly, USN, (Ret.) joined
VSE's Board of Directors as of January 1, 1996. Admiral Kelly, formerly
Commander in Chief of the U.S. Pacific Fleet, brings a wealth of experience and
judgment to VSE that will materially assist us in sharpening our performance and
expanding our horizons for the future. We are also delighted to welcome all the
other men and women of talent and experience who joined VSE's service team in
1995, including Major General Thomas L. Prather, Jr., USA (Ret.), formerly
Deputy Chief of Staff for Research, Development and Engineering, Army Materiel
Command.
Continuing the precedent established last year, at the end of the Annual Report
you will find the names of the VSE team members who served our customers at
year-end. They are the people who make VSE the exciting growth company it has
become, and we are happy to have the opportunity to recognize them.
As always, we welcome the support and interest of VSE's shareholders, and we
look forward to meeting you at our Annual Meeting of Stockholders or at one of
our offices. This is your company. Your considered questions, comments, and
suggestions are always appreciated.
D. M. Ervine
Chairman and CEO
March 1996
Description of Business
General. During 1995 VSE Corporation ("VSE" or the "company") and its
subsidiaries and divisions operated in a single industry, the professional and
technical services industry.
Introduction. The company's engineering, technical, and management services
operations are performed by VSE and its subsidiaries and divisions including
the BAV Division, CMstat Corporation, Energetics Incorporated, Human Resource
Systems, Inc., Schmoldt Engineering Services Company, Value Systems Services,
and VSE Services Corporation. Engineering, technical, and management services
accounted for 100% of VSE's revenues from continuing operations in 1995, 1994,
and 1993.
Services, Facilities, Personnel, and Contracts. VSE was established in
1959. For the past 37 years, the company has provided diversified engineering,
technical, and management services, principally to agencies of the United States
Government (the "government") and to government prime contractors. VSE provides
engineering, information technology, technical support, and management services
to assist customers in their efforts to reduce the cost and improve the
reliability and maintainability of various equipment and systems.
VSE services include program planning; design and engineering, including
prototype development; electronic warfare support; logistics management; ship
reactivation, maintenance, repair, overhaul planning, and follow on technical
support; office automation systems and support; training; technology research,
development, and demonstration programs involving energy conservation and
efficiency, advanced technology transfers, and feasibility, assessment, and
development programs; and information systems and products, including cross-
platform technical data, product data, and configuration management (CM/PDM)
support. Typical projects include sustaining engineering support for military
vehicles, combat trailers, bridging systems, and amphibious transport; ocean
engineering and mooring systems; depot repair operations; electronic warfare
software development; machinery condition analysis; specification preparation
for ship alterations and repairs; training and video aids for air-launched
missiles; and technical data package preparation.
VSE's principal offices are located in a five-story building in Alexandria,
Virginia, leased by VSE through the year 2003, cancelable as of 1998. This
building contains approximately 108,000 square feet of engineering, shop, and
administrative space. In addition, engineering services customers are also
served from more than 20 branch offices located at or near customer sites to
facilitate communications and enhance project performance. The branch offices
are generally occupied under short-term leases and include an aggregate of
approximately 160,000 square feet of office, shop, and warehouse space.
VSE also owns and operates an engineering test center in Ladysmith,
Virginia, consisting of approximately 44 acres of land and an improved storage
and vehicle maintenance facility. This facility has been used by VSE to test
military and commercial equipment for which VSE provides system technical
support and other engineering services and to supplement the Alexandria,
Virginia, shop requirements.
VSE services are provided by a staff of approximately 1,200 employees
(including about 285 part-time employees). These employees are professional
and technical personnel having high levels of education, training, and skills,
including (a) mechanical, electrical, electronic, chemical, industrial, energy
and environmental services, marine, and ocean engineers, (b) computer systems,
applications, and data management specialists, (c) technical editors and
writers, and (d) graphic designers and technicians. The expertise required by
VSE's customers also frequently includes knowledge of government administrative
Description of Business
procedures. Many VSE employees have had experience as government employees in
the past. The company considers its relationships with employees to be
excellent.
VSE seeks to provide its customers with competitive, cost effective
solutions to specific problems. These problems generally require a detailed
technical knowledge of materials, processes, functional characteristics,
information systems, technology and products, and an in-depth understanding of
the basic requirements for effective systems and equipment. Billing for
services is generally accomplished by billing customers for a specified level-
of-effort incurred in performing a project or providing a service or for
installed products, systems, and maintenance charges.
During 1995, VSE provided services to the government under approximately
120 contracts, some of which are of an indefinite quantity/ordering nature.
These contracts permit the contracting agency to issue delivery orders or task
orders in an expeditious manner to satisfy relatively short-term requirements
for engineering and technical services. The services ordered pursuant to
indefinite quantity/ordering arrangements are normally performed and completed
within a one year period. During 1995 VSE provided services under approximately
525 such task orders.
The following table shows the revenues of VSE, its subsidiaries and
divisions by customer or agency:
VSE Revenues by Customer or Agency
(dollars in thousands)
1995 1994 1993
Group or Agency Revenues % Revenues % Revenues %
- --------------- ------- ----- ------- ----- ------- -----
U. S. Navy $42,402 56.5% $36,086 55.0% $47,462 59.6%
U. S. Army 18,291 24.4 17,860 27.2 19,502 24.5
Other government customers 10,563 14.1 8,443 12.9 8,865 11.1
Commercial 3,811 5.0 3,192 4.9 3,780 4.8
------- ----- ------- ----- ------- -----
Total $75,067 100.0% $65,581 100.0% $79,609 100.0%
======= ===== ======= ===== ======= =====
During 1995 VSE's 15 largest contracts accounted for approximately 80% of
total revenues, and one such contract with the U. S. Navy accounted for more
than 13% of such revenues. This contract included a base year and option
periods which expired in June 1995. See "Results of Operations-Revenues" in
"Management Discussion and Analysis" for a discussion of this contract.
The company's services are typically provided under cost-plus-fee,
time-and-materials, or fixed-price contracts. Under cost-plus-fee contracts,
the customer reimburses VSE for its allowable costs permitted by regulations
and pays a fee based on negotiated terms. Under time-and-materials contracts,
the customer pays VSE at fixed hourly rates for direct labor costs and the
related overhead and profit, and reimburses VSE for the cost of materials with-
out profit. Under fixed-price contracts, the customer pays an agreed price for
services or products. Under fixed-price contracts and time-and-materials
contracts, VSE bears the risk that increased or unexpected costs may reduce its
profit or cause it to sustain a loss. To the extent VSE incurs actual costs
below anticipated costs on these contracts, VSE realizes greater profit
margins.
Marketing, Backlog, Competition and Risks. VSE marketing activities are
conducted by its professional staff of engineers, analysts, program managers,
contract administrators, and other personnel. Information concerning new
programs and requirements becomes available in the course of contract perform-
Description of Business
ance, through formal and informal briefings, from participation in professional
organizations, and from literature published by the Government, trade
associations, professional organizations, and commercial entities.
As of December 31, 1995, VSE had proposals pending for engineering services
contracts covering approximately $224 million in services for the Department of
Defense or other government agencies or prime contractors. If these contracts
are awarded to VSE, resulting ordering periods could extend through 2001.
However, there is no assurance that VSE will be the successful bidder for any
of these contracts. Moreover, there can be no assurance that contract awards,
if any, will result in any revenues to VSE because (a) contract awards are
often rescinded as a result of the government's bid protest procedures,
(b) contracts may not be funded at the nominal amounts cited in competitive bid
announcements, and (c) contracts when funded may be terminated at the
convenience of the government.
During 1995 and 1994 VSE was awarded contracts having potential ceiling
values of approximately $1.1 billion and $330 million, respectively.
VSE's funded backlog of work as of December 31, 1995, 1994, and 1993 was
approximately $37.6 million, $36.9 million and $33.8 million, respectively.
"Funded" backlog is defined as orders for services that have not been fully
rendered and for which funding has been provided either at the time of award or
thereafter. Substantially all of the funded backlog is expected to be
completed within one year.
The excess of unfulfilled contract estimates over the incremental funding
authorized represents an "unfunded" backlog. Based on the total estimated
value of contracts actually awarded, the potential revenues for work remaining
to be performed under existing engineering services contracts (both funded and
unfunded backlog) was approximately $1.3 billion, $350 million, and $113
million, as of December 31, 1995, 1994 and 1993, respectively. VSE has no
reasonable basis on which to determine when or if such backlog may be funded.
However, because of uncertainties associated with changing program require-
ments and the ultimate availability of funds, VSE believes that measurements
of unfunded backlog are of limited use in evaluating its future workload.
The services business in which VSE is engaged is very competitive. There
area substantial number of other organizations, some of which are large,
diversified firms with greater financial resources and larger technical staffs,
which are capable of rendering essentially the same services as those offered
by VSE. Such companies may be publicly owned or privately held and may be
divisions of much larger organizations including large manufacturing
corporations. The government's own "in-house" capabilities are also, in effect,
competitors of VSE (including the government's own non-profit federally funded
research and development centers) because government employees often perform
many of the services that might otherwise be performed by VSE.
Government agencies have placed an increased emphasis on awarding contracts
of the types performed by VSE on a competitive basis as opposed to a non-
competitive basis. All significant contracts currently being performed by VSE
were either initially awarded on a competitive basis or have been renewed at
least once on a competitive basis. In addition, the United States defense
budget has been restrained by the federal budget deficit in recent years. As a
result, there is increased competition for the remaining government work.
It is not possible to predict the extent of competition which VSE will
encounter as a result of changing economic or competitive conditions, customer
requirements, or technological developments. VSE believes the principal com-
Description of Business
petitive factors for the engineering services business in which VSE is engaged
are technical and financial qualifications, quality of services and products,
and price.
VSE's business with the government is subject to the risk that one or more
of its potential contracts or extensions of existing contracts may be awarded
by the contracting agency to a competitor, including "small and disadvantaged"
or minority-owned businesses pursuant to "set-aside" programs administered by
the Small Business Administration or may be "bundled" into omnibus contracts
for very large businesses. In addition, VSE's business is subject to funding
delays, extensions, and moratoriums caused by political and administrative
disagreements such as occurred during the 1995 U.S. budget negotiations. To
date, the effect of such negotiations and disagreements on VSE has not been
material; however, no assurances can be given about such risks with respect to
future years.
Government contracts are subject to termination at the government's conve-
nience, which means that the government may terminate the contract at any time,
without cause. However, during VSE's 37-year history the aggregate amount of
such government terminations for convenience has not been material. If a
government contract is terminated for convenience, generally VSE is reimbursed
for its allowable costs to the date of termination and is paid a proportionate
amount of the stipulated profit or fee for the work actually performed.
The books and records of the company are subject to audit by the Defense
Contract Audit Agency, which audits can result in adjustments to contract costs
and fees. Audits by such agency have been completed for all years through 1992
without material adjustments. However, there is no assurance that future
adjustments will not be required.
Depending on solicitation requirements and other factors, VSE offers its
professional and technical services and products through various competitive
contract arrangements and business units which are responsive to customer
requirements and which may also provide an opportunity for diversification.
Such arrangements include prime contracts, subcontracts, cooperative arrange-
ments, joint ventures, dedicated ventures, dedicated cost centers, separate
profit centers (divisions), and subsidiaries.
In 1991 VSE formed the Value Systems Services ("VSS") division to join with
a prime contractor on a bid for a U. S. Marine Corps contract. Services under
the subcontract commenced in January 1992. The subcontract generated revenues
to VSS of approximately $4 million in 1994 and $11 million in 1993 equal to
about 10% of VSE's total business volume over these two years. In April 1994,
work on this contract ceased.
In 1991 VSE also formed VSE Services Corporation ("VSES") as a subsidiary
to compete for certain contracts, including security systems work and other
commercial opportunities. VSES has been inactive since 1992.
In 1994 VSS was awarded a new contract with a different Navy customer to
provide logistic support services for Naval aircraft, helicopters, and airborne
weapons systems. This contract has the potential to generate revenues to VSE
of about $77 million over a five-year period ending in 1999.
VSE has sought to expand its engineering services customer base to
non-defense clients, such as the U. S. Postal Service. In 1994, VSE won a
recompete of a contract worth approximately $30 million for five years with the
U. S. Postal Service.
Description of Business
VSE's subsidiary, Human Resource Systems, Inc. ("HRSI") provides health care
staffing personnel such as nurses, pharmacists, and technicians, primarily to
the U. S. Navy. HRSI has approximately 70 employees. HRSI has been awarded
additional contracts from the U. S. Postal Service for real estate and
environmental consulting.
In 1995 VSE made two acquisitions to expand and diversify its business base.
In May 1995, VSE acquired CMstat Corporation, an information technology company
located in San Diego, California. CMstat is a leading supplier of commercial
(off-the-shelf) software products and technology to manage engineering, product,
and configuration management data. In August 1995, VSE acquired Energetics
Incorporated, an energy management and environmental technology company located
in Columbia, Maryland. Energetics provides technical and management services
for advanced technology programs, primarily for the Department of Energy and
other government and commercial clients.
In 1995 VSE also established the BAV Division to provide engineering,
technical and support services for U.S. Navy ships to be sold, leased, or
otherwise transferred to foreign governments. BAV was awarded a Navy contract
in August 1995, which has the potential to generate revenues of up to $1
billion depending on delivery order requirements and option periods exercised
over the next ten years.
Schmoldt Engineering Services Company, which was acquired by VSE in 1990,
was divested in February 1996.
Management Discussion and Analysis
The discussion and analysis which follows is intended to assist in under-
standing and evaluating the results of operations, financial condition, and
certain other matters of VSE Corporation and its wholly owned subsidiaries
("VSE" or the "company"), CMstat Corporation ("CMstat"), acquired in May 1995,
Energetics Incorporated ("Energetics"), acquired in August 1995, Human Resource
Systems, Inc. ("HRSI"), Schmoldt Engineering Services Company ("Schmoldt
Engineering"), VSE Corona, Inc. ("VCI"), VSE Services Corporation ("VSES"), and
Value Systems Services ("VSS") and BAV, unincorporated divisions of VSE. The
company is engaged principally in providing engineering, software development,
testing, and management services to the U. S. Government (the "government").
VCI and VSES have generally been inactive after 1992. Intercompany sales are
principally at cost.
Results of Operations
Revenues
The following table shows the revenues from operations of VSE and
subsidiaries and such revenues as a percent of total revenues:
Revenues from Operations
(dollars in thousands)
1995 1994 1993
Company or Business Unit Revenues % Revenues % Revenues %
- ------------------------ ------- ----- ------- ----- ------- -----
VSE (parent only) . . . . . . . $56,888 75.8 $57,042 87.0 $65,332 82.1
VSS . . . . . . . . . . . . . . 8,396 11.2 5,503 8.4 11,222 14.1
Energetics . . . . . . . . . . 4,007 5.3 0 0.0 0 0.0
HRSI . . . . . . . . . . . . . 1,655 2.2 1,138 1.7 896 1.1
BAV . . . . . . . . . . . . . . 1,431 1.9 0 0.0 0 0.0
CMstat . . . . . . . . . . . . 1,412 1.9 0 0.0 0 0.0
Schmoldt Engineering . . . . . 1,278 1.7 1,898 2.9 2,159 2.7
------- ----- ------- ----- ------- -----
Total revenues . . . . . . . . $75,067 100.0 $65,581 100.0 $79,609 100.0
======= ===== ======= ===== ======= =====
The largest customer for the engineering services rendered by the company
is the U. S. Department of Defense ("Defense"), including agencies of the U. S.
Army, Navy, and Air Force. The Defense budget has been restrained by the
federal budget deficit in recent years, and as a result of this and increased
competition, VSE's engineering services revenues have decreased from the levels
attained in prior years. There can be no assurance that future reductions in
the Defense budget will not have a material adverse impact on the company's
results of operations or financial position.
Substantially all of the company's revenues from operations depend on the
award of new contracts, on current contracts not being terminated for the
convenience of the government, and on the exercise of option periods and the
satisfaction of incremental funding requirements on current contracts. In
1995, 1994 and 1993, the company did not experience any termination of
contracts for the convenience of the government nor any non-exercise of option
periods on current contracts which were material to the company's results of
operations or financial position.
BAV Contract. In August 1995, VSE's BAV Division was awarded a contract
with the U. S. Navy to provide engineering, technical and logistical support
services associated with the sale, lease, or transfer of Navy ships to foreign
Management Discussion and Analysis
governments. The contract award was protested and in January 1996 the General
Accounting Office ("GAO") ruled in favor of BAV and denied the protest. BAV
began work on the contract in September 1995 and continued to perform work
under the contract during the protest period. This contract has the potential,
if all options are exercised, to generate revenues in excess of one billion
dollars over a ten year period from 1995 through 2005.
VSE Contracts. VSE had a contract with the U. S. Navy which accounted for
approximately 14% of total revenues in 1995, 17% in 1994, and more than 20% in
1993. This contract was scheduled to expire in September 1992, but was
extended through September 1995. The Navy combined the work performed under
this contract with other related work, and VSE was not the successful bidder
for the new contract. Substantially all work on the contract ended by
September 1995.
VSE has another contract with the U. S. Navy which accounted for
approximately 13% of revenues in 1995. Revenues for this contract have
increased substantially compared to prior years due to increased requirements
for materials and subcontract work. Although work on the contract is expected
to continue through its completion date of September 1996, future levels of
materials sales and subcontractor work are not expected to continue at the in-
creased levels experienced during 1995.
VSS Subcontract. Beginning in January 1992, VSS provided services to the
U. S. Marine Corps under a subcontract. The subcontract generated revenues to
VSS of about $15.4 million during 1994 and 1993, equal to about 10.6% of VSE's
consolidated revenues over these two years. A protest against the award of the
prime contract was sustained by the GAO, and in October 1993, a new prime
contract was awarded to a different contractor. Substantially all work on the
VSS subcontract terminated effective April 1994. There was no revenue
associated with this subcontract during 1995.
VSS Contract. In February 1994 VSS was awarded a new contract with a
U. S. Navy customer. In September 1994 VSS began work on the contract. The
contract generated revenues to VSS equal to approximately 11% of consolidated
revenues in 1995.
Management Discussion and Analysis
Income from Operations
The following table shows consolidated revenues and income from operations
of VSE and subsidiaries, other items of income and expense, and such amounts as
a percent of total revenues:
Income from Operations
(dollars in thousands)
Description 1995 % 1994 % 1993 %
- ----------- ------- ----- ------- ----- ------- -----
Revenues . . . . . . . $75,067 100.0% $65,581 100.0% $79,609 100.0%
Costs and expenses . . 71,458 95.2 61,468 93.7 75,905 95.3
------- ----- ------- ----- ------- -----
Gross profit . . . . . 3,609 4.8 4,113 6.3 3,704 4.7
Selling, general and
administrative expenses 763 1.0 1,577 2.4 1,751 2.2
Interest expense . . . 136 0.2 23 0.1 60 0.1
------- ----- ------- ----- ------- -----
Income from operations
before income taxes . $ 2,710 3.6% $ 2,513 3.8% $ 1,893 2.4%
======= ===== ======= ===== ======= =====
Costs and expenses of operations, as a percentage of revenues, remained
relatively stable during 1995, 1994, and 1993. The percentage differences
between 1995 and 1994 and between 1994 and 1993 are primarily due to a
combination of factors, some of which are offsetting, including (a) differences
between costs incurred and whether they may be billed based on contract
provisions, (b) the effects of increases or decreases in facility and equipment
lease renewals, fringe benefit programs, and similar period expenses, (c) costs
associated with contract start-up and termination phases, and (d) effective
project and cost management.
Selling, general and administrative expenses decreased in 1995 as compared
to 1994 and in 1994 as compared to 1993, primarily due to a reduction in
nonreimbursable administrative expenses.
Interest expense increased in 1995 as compared to 1994 due to the depletion
of cash to consummate the acquisitions of CMstat and Energetics in 1995 (see
"Acquisitions and Divestitures" below) and the use of bank borrowings to finance
operations. Interest expense declined in 1994 as compared to 1993 primarily due
to reduced bank borrowings attributable in part to a lower receivables financing
requirement resulting from a lower sales volume.
Management Discussion and Analysis
Pretax Income
The following table sets forth the pretax income from consolidated
operations of VSE and subsidiaries and the amount of changes of such items
as compared with the prior period:
Pretax Income from Operations
(dollars in thousands)
1995 1994
to to
1995 1994 1993 1994 1993
------ ------ ------ ------ ------
Pretax income from
operations:
VSE (parent only) . . . . $2,094 $2,071 $1,308 $ 23 $ 763
VSS . . . . . . . . . . . 387 418 538 (31) (120)
Energetics . . . . . . . 197 0 0 197 0
CMstat . . . . . . . . . 166 0 0 166 0
HRSI . . . . . . . . . . 11 0 (52) 11 52
BAV . . . . . . . . . . . (8) 0 0 (8) 0
Schmoldt Engineering . . (137) 24 99 (161) (75)
------ ------ ------ ------ ------
Income from operations,
before income taxes . . $2,710 $2,513 $1,893 $ 197 $ 620
====== ====== ====== ====== ======
Pretax income from operations increased by approximately 8% in 1995 as
compared to 1994. The increase in pretax income is primarily due to profits
associated with the new business provided by the acquisitions of Energetics and
CMstat and to the elimination of losses on certain VSE fixed price contracts.
These increases to pretax income were partially offset by reductions in pretax
income due to the reduced level of sales activity of Schmoldt Engineering and
increased interest expense and other costs associated with the acquisitions of
CMstat and Energetics.
Pretax income from operations increased by approximately 33% in 1994 as
compared to 1993 due primarily to increases in income associated with VSE cost
reductions, a nonrecurring reduction in income in 1993 due to a resolution of
a claim against the company, increased profit margins on VSE time and material
contracts, and increased income from invested cash surpluses. These increases
to pretax income were offset by reductions in pretax income due to losses on
certain VSE fixed price contracts, the termination of work associated with the
VSS subcontract in 1994, and the reduced level of sales activity of Schmoldt
Engineering.
Acquisitions and Divestitures
On May 31, 1995 the company acquired all of the outstanding capital stock
of CMstat, which develops and supports software for commercial and government
customers. On August 29, 1995 the company acquired all of the outstanding stock
of Energetics, which supports government and industry technology programs in the
fields of energy use and the environment.
Management Discussion and Analysis
On February 7, 1996, VSE sold its wholly owned subsidiary Schmoldt
Engineering. Under the terms of the transaction, VSE sold all of the
outstanding capital stock of Schmoldt Engineering to certain officers of
Schmoldt Engineering in exchange for cash and a promissory note for which
principal and interest is payable in installments between March 1, 1996 and
September 1, 2001. The transaction resulted in a pretax loss of approximately
$300 thousand to VSE.
Liquidity and Capital Resources
Cash Flows
A net decrease in cash and cash equivalents of approximately $2.4 million
during 1995 resulted from approximately $6.6 million used in investing
activities, approximately $4.6 million provided by financing activities, and
approximately $450 thousand used in operations. Significant investing
activities included approximately $3.5 million associated with the acquisition
of Energetics, approximately $900 thousand associated with the acquisition of
CMstat, and $2.1 million associated with the purchase of property and
equipment, including property and equipment purchases to support the new BAV
contract. Significant financing activities included borrowing on the company's
$45 million revolving term loan, including commitments for checks outstanding
at year end, of approximately $4.9 million. Cash flows from operations
declined by approximately $6.5 million as compared to 1994 primarily due to
the absence of the decline in receivables experienced in 1994 due to the
terminated VSS subcontract and the additional accounts receivable associated
with BAV, CMstat and Energetics in 1995.
A net increase in cash and cash equivalents of approximately $2.1 million
during 1994 resulted from approximately $6.1 million provided by operations,
approximately $700 thousand used in investing activities, and approximately
$3.3 million used in financing activities. Cash flows from operations
increased by approximately $4.8 million as compared to 1993 primarily due to a
reduction in the level of accounts receivable attributable to a decrease in the
sales of VSE and the termination of work associated with the VSS subcontract.
Investing activities consisted of the purchase of property and equipment.
Significant financing activities included reductions of borrowings on the
company's revolving term bank loan of approximately $2.7 million.
A net increase in cash and cash equivalents of approximately $200 thousand
during 1993 resulted from approximately $1.3 million provided by operations and
approximately $1.1 million used in investing activities. Investing activities
consisted of the purchase of property and equipment.
The company's principal requirements for cash are to finance the costs of
operations pending the collection of accounts receivable, to acquire capital
assets for office and computer support, and to pay cash dividends. Performance
of work under the BAV contract is expected to substantially increase the
company's requirements for cash, however, management believes that the cash
flows from operations and the bank loan commitment are adequate to meet current
operating cash requirements.
Management Discussion and Analysis
Working Capital
VSE's requirements for working capital are affected significantly by its
revenues and accounts receivable, which are primarily from billings made by
the company to the government or other government prime contractors for
services rendered. Such accounts receivable generally do not present liquidity
or collection problems. Working capital is also affected by (a) contract
retainages, (b) start-up and termination costs associated with new or complete
contracts, (c) capital equipment requirements, and (d) differences between the
provisional billing rates authorized by the government compared to the costs
actually incurred by the company.
Government contracts generally require VSE to pay for material and
subcontract costs included in VSE's contract billings prior to receiving pay-
ment for such costs from the government. However, such contracts generally
provide for progress payments on a monthly or semimonthly basis, thereby
reducing requirements for working capital.
Dividends
Cash dividends were declared at the rate of $.325 per share during 1995,
$.305 per share during 1994, and $.29 per share during 1993. Pursuant to its
bank loan agreement (see Note 4 of "Notes to Consolidated Financial
Statements"), the payment of cash dividends by VSE is subject to annual rate
restrictions. VSE has paid cash dividends each year since 1973.
Income Taxes
The Financial Accounting Standards Board issued SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109, which was implemented by VSE in fiscal year
1993, requires an asset and liability approach for financial accounting and
reporting purposes. The implementation of SFAS No. 109 added approximately
$284 thousand to net income in 1993.
Inflation and Pricing
Most of the contracts performed by VSE provide for estimates of future
labor costs to be escalated for any option periods provided by the contracts,
while the non-labor costs included in such contracts are normally considered
reimbursable at cost. VSE property and equipment consists principally of
computer systems equipment and furniture and fixtures. The overall impact of
inflation on replacement costs of such property and equipment is expected to be
insignificant.
Executive Officers
Byron S. Bartholomew, 68
Executive Vice President - Business Development since 1993. Senior Vice
President, Program Management, from 1979 to 1992. Service with the Company -
26 years.
Thomas J. Corridon, 38
Senior Vice President since 1995 and Comptroller since 1993. Vice President
since 1992. Assistant Vice President since 1991 and Director of Accounting
since 1990. Service with the Company - 8 years.
Donald M. Ervine, 59
Chairman and Chief Executive Officer since 1992. President of VSE from 1988
to 1992. Service with the Company - 12 years.
Edward V. Karl, 58
Senior Vice President since 1995. Vice President and General Manager, Applied
Engineering and Information Systems Center since 1993. Assistant Vice
President since 1991. Service with the Company - 8 years.
James M. Knowlton, 53
Senior Vice President since 1993 and General Manager, Engineering and Logis-
tics Center. Vice President since 1990. Service with the Company - 11 years.
Richard B. McFarland, 62
President and Chief Operating Officer since 1993, and a director of VSE since
1988. Service with the Company - 8 years.
Mark A. Robin, 42
Senior Vice President since 1995. Vice President and Director of Human
Resources since 1993. Assistant Vice President since 1991. Service with the
Company - 14 years.
Craig S. Weber, 50
Chief Financial Officer since 1993. Senior Vice President, Secretary and
Treasurer since 1987. Service with the Company - 24 years.
VSE Common Stock
VSE common stock (par value $.05 per share) is traded in The Nasdaq National
Market System, trading symbol: VSEC; newspaper listing: VSE.
The following table sets forth the range of high and low sales price
information on VSE common stock during the last two years based on information
reported by the Nasdaq National Market System. Trading in the VSE common
stock has been sporadic.
Quarter High Low Dividends
- ------- ------ ------ ---------
1994:
March 31 . . . 13-1/2 12 $.075
June 30 . . . 12-1/4 12 .075
September 30 . 13-1/8 11-1/2 .075
December 31 . 14-3/4 14-1/4 .08
For the year 14-3/4 11-1/2 $.305
1995:
March 31 . . . 15-3/4 14 $.08
June 30 . . . 16-1/4 14-1/4 .08
September 30 . 29 14-3/4 .08
December 31 . 27 19-1/2 .085
For the year 29 14 $.325
There were approximately 1,400 stockholders of VSE common stock as of
March 1, 1996, consisting of about 330 stockholders of record plus the number
of beneficial owner proxy sets provided in connection with VSE's 1995 Annual
Meeting of Stockholders to (a) brokers, banks, and nominees and (b)
participants in the VSE Corporation Employee Stock Ownership/401(k) Plan.
VSE has a revolving term loan agreement with a bank which permits the
payment of cash dividends at an annual rate not to exceed $.60 per share, sub-
ject to maintaining a minimum consolidated tangible net worth and a maximum
consolidated leverage ratio as defined in the loan agreement. See Note 4
(Debt) of "Notes to Consolidated Financial Statements" included elsewhere
in this Annual Report.
Report of Independent Public Accountants
To the Stockholders of VSE Corporation:
We have audited the accompanying consolidated balance sheets of VSE
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, stockholders'
investment and cash flows for the years ended December 31, 1995, 1994, and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VSE Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.,
March 1, 1996
Consolidated Financial Statements
Consolidated Balance Sheets
(in thousands, except share amounts)
As of December 31,
1995 1994
------- -------
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 711 $ 3,124
Accounts receivable, principally
U. S. Government, net . . . . . . . . . . . . . . . . 16,367 10,922
Deferred tax assets . . . . . . . . . . . . . . . . . . 822 1,491
Other current assets . . . . . . . . . . . . . . . . . . 1,068 858
------- -------
Total current assets . . . . . . . . . . . . . . . . . 18,968 16,395
Property and equipment, net . . . . . . . . . . . . . . . 4,498 3,078
Deferred tax assets . . . . . . . . . . . . . . . . . . . 0 248
Intangible assets, net . . . . . . . . . . . . . . . . . . 3,874 102
Other assets . . . . . . . . . . . . . . . . . . . . . . . 1,766 1,449
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . $29,106 $21,272
======= =======
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable and other current liabilities . . . . . $ 3,204 $ 2,555
Accrued expenses . . . . . . . . . . . . . . . . . . . . 5,729 5,661
Dividends payable . . . . . . . . . . . . . . . . . . . 74 69
------- -------
Total current liabilities . . . . . . . . . . . . . . 9,007 8,285
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 4,992 0
Deferred tax liabilities . . . . . . . . . . . . . . . . . 427 0
Deferred compensation . . . . . . . . . . . . . . . . . . 1,127 886
------- -------
Total liabilities . . . . . . . . . . . . . . . . . . 15,553 9,171
------- -------
Commitments and contingencies (Notes 8 and 9)
Stockholders' investment:
Common stock, par value $.05 per share, authorized
5,000,000 shares; issued 1,954,044 in 1995 and
1,948,044 shares in 1994 . . . . . . . . . . . . . . . 98 97
Paid-in surplus . . . . . . . . . . . . . . . . . . . . 8,338 8,247
Retained earnings . . . . . . . . . . . . . . . . . . . 21,402 20,042
Treasury stock, at cost (1,084,877 shares) . . . . . . . (16,285) (16,285)
------- -------
Total stockholders' investment . . . . . . . . . . . . 13,553 12,101
------- -------
Total liabilities and stockholders' investment . . . . $29,106 $21,272
======= =======
See accompanying notes
Consolidated Financial Statements
Consolidated Statements of Income
(in thousands, except share amounts)
For the years ended December 31,
1995 1994 1993
------- ------- -------
Revenues, principally from contracts . . . . . . $75,067 $65,581 $79,609
Costs and expenses of contracts . . . . . . . . 71,458 61,468 75,905
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . 3,609 4,113 3,704
Selling, general and administrative expenses . . 763 1,577 1,751
Interest expense . . . . . . . . . . . . . . . . 136 23 60
------- ------- -------
Income before income taxes . . . . . . . . . . . 2,710 2,513 1,893
Provision for income taxes . . . . . . . . . . . 1,064 960 734
------- ------- -------
Income before cumulative effect of
change in accounting principle . . . . . . . . 1,646 1,553 1,159
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . 0 0 284
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 1,646 $ 1,553 $ 1,443
======= ======= =======
Earnings per common share, based on weighted
average shares outstanding:
Income before cumulative effect of
change in accounting principle . . . . . . . $ 1.90 $ 1.80 $ 1.34
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . 0 0 .33
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 1.90 $ 1.80 $ 1.67
======= ======= =======
Weighted average shares outstanding 866,398 863,167 863,167
======= ======= =======
See accompanying notes
Consolidated Financial Statements
Consolidated Statements of Stockholders' Investment
(in thousands)
Common Stock Paid-In Retained Treasury
Shares Amount Surplus Earnings Stock
------ ------ ------- -------- ---------
Balance at December 31, 1992 . . 1,948 $97 $8,247 $17,564 $(16,285)
Net income for the year . . . . -- -- -- 1,443 --
Dividends declared ($.29). . . . -- -- -- (250) --
----- --- ------ ------- --------
Balance at December 31, 1993 . . 1,948 97 8,247 18,757 (16,285)
Net income for the year . . . . -- -- -- 1,553 --
Dividends declared ($.305) . . . -- -- -- (268) --
----- --- ------ ------- --------
Balance at December 31, 1994 . . 1,948 97 8,247 20,042 (16,285)
Net income for the year . . . . -- -- -- 1,646 --
Dividends declared ($.325) . . . -- -- -- (286) --
Issuance of stock . . . . . . . 6 1 91 -- --
----- --- ------ ------- --------
Balance at December 31, 1995 . . 1,954 $98 $8,338 $21,402 $(16,285)
===== === ====== ======= ========
See accompanying notes
Consolidated Financial Statements
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31,
1995 1994 1993
------ ------ ------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $1,646 $1,553 $1,443
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . 1,326 1,142 1,320
Loss (Gain) on sale of property and
equipment . . . . . . . . . . . . . . . . . . 17 (10) 26
Deferred compensation plan expense . . . . . . 188 125 207
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . 0 0 (284)
Change in assets and liabilities, net of
acquisitions -
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . (2,761) 4,241 (2,255)
Other current assets and noncurrent assets. . (457) (119) (65)
Deferred taxes . . . . . . . . . . . . . . . 571 (232) (145)
Increase (decrease) in:
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . . (385) (294) 348
Accrued expenses. . . . . . . . . . . . . . . (543) 34 338
Accrued taxes . . . . . . . . . . . . . . . . (51) (370) 364
------ ------ ------
Net cash provided by operations (449) 6,070 1,297
------ ------ ------
Cash flows from investing activities:
Acquisition of CMstat, net of cash received. . . . (901) 0 0
Acquisition of Energetics, net of cash received . (3,531) 0 0
Purchase of property and equipment . . . . . . . . (2,139) (656) (1,095)
------ ------ ------
Net cash used in investing activities (6,571) (656) (1,095)
------ ------ ------
Cash flows from financing activities:
Net proceeds from (payments of) revolving term
loan . . . . . . . . . . . . . . . . . . . . . 4,939 (2,683) 442
Payments of other long-term debt . . . . . . . . (212) 0 0
Cash dividends paid . . . . . . . . . . . . . . . (281) (264) (246)
Net proceeds from (payments of) deferred
compensation . . . . . . . . . . . . . . . . . 69 (375) (151)
Issuance of common stock . . . . . . . . . . . . 92 0 0
------ ------ ------
Net cash provided by (used in) financing
activities 4,607 (3,322) 45
------ ------ ------
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . (2,413) 2,092 247
Cash and cash equivalents at beginning of year. 3,124 1,032 785
------ ------ ------
Cash and cash equivalents at end of year. . . . $ 711 $3,124 $1,032
====== ====== ======
See accompanying notes
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include VSE Corporation and its wholly
owned subsidiaries ("VSE" or the "company"), CMstat Corporation ("CMstat"),
Energetics Incorporated ("Energetics"), Human Resource Systems, Inc. ("HRSI"),
Schmoldt Engineering Services ("Schmoldt Engineering"), VSE Corona, Inc.
("VCI"), VSE Services Corporation ("VSES"), and Value Systems Services ("VSS")
and BAV, unincorporated divisions of VSE. The company is engaged principally
in providing engineering, software development, testing, and management
services to the U. S. Government. Intercompany sales are principally at cost.
All significant intercompany transactions have been eliminated in consolida-
tion. Certain prior year balances have been reclassified for comparative
purposes.
Cash and Cash Equivalents
The company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. In 1994, the company adopted
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The adoption was not
material to the company's financial position or results of operations.
The company has classified all debt securities as available-for-sale.
Available-for-sale securities are carried at fair value with unrealized gains
and losses, net of tax, reported in a separate component of stockholders'
investment. Realized gains and losses are included in other income.
Available-for-sale securities at December 31, 1995 consisted of commercial
paper of $200 thousand. Available-for-sale securities at December 31, 1994
consisted of tax exempt master notes of $1.6 million, 90 day commercial paper
of $1.2 million, and overnight repurchase agreements of $883 thousand secured
by U. S. Government agency securities. The estimated fair value of these
securities approximated cost, and the amount of gross unrealized gains and
losses was not significant.
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The company believes that concentrations of credit risk with
respect to trade accounts receivable are limited as they are primarily U. S.
Government receivables.
Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the three years ended
December 31, are presented below (in thousands):
1995 1994 1993
-------- -------- --------
Interest payments . . . . . . . . . . . . $ 107 $ 44 $ 39
Income tax payments . . . . . . . . . . . 841 1,566 528
Contract Revenues
Substantially all of the company's revenues result from contract services
performed for the U. S. Government or for contractors engaged in work for the
U. S. Government under a variety of contracts. Revenues on cost-type contracts
are recorded on the basis of recoverable costs incurred and fees earned.
Notes to Consolidated Financial Statements
Revenues on fixed price contracts are recorded as services are performed, using
the percentage-of-completion method of accounting, primarily based on contract
costs incurred to date compared with total estimated costs at completion.
Revenues on time and material contracts are recorded on the basis of hours
delivered plus other allowable direct costs as incurred.
The company provides for anticipated losses on contracts by a charge to income
during the period in which losses are first identified.
A substantial portion of the contract and administrative costs is subject to
audit by the Defense Contract Audit Agency. The company's indirect cost rates
have been audited and approved for 1992 and prior years. In the opinion of
management the audits of 1995, 1994 and 1993 will not result in adjustments, if
any, having a material adverse effect on the company's results of operations or
financial position.
The company's software revenues result from sales of software licenses and post
contract customer support. Revenue from the sale of licenses is recognized
upon delivery of the software. Revenue from the support is recognized ratably
over the period to which the support agreement relates.
Income Taxes
Effective January 1, 1993, the company implemented the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability approach to accounting for income taxes for financial statement
purposes. Under SFAS No. 109, deferred tax assets and liabilities represent
the tax effects of temporary differences between tax and financial accounting
bases of assets and liabilities and are measured using presently enacted tax
rates.
As a result of implementing the provisions of SFAS No. 109, the company
recognized a cumulative one-time tax benefit of $284 thousand or $.33 per share
as of January 1, 1993. This cumulative one-time tax benefit is the result of
(a) a difference in the tax and financial accounting basis associated with
certain real property, which difference was not previously recorded in the
company's consolidated financial statements, and (b) an adjustment to the
consolidated financial statements for previously recorded tax and financial
accounting differences based on presently enacted tax rates.
Property and Equipment
Property and equipment (valued at cost) consisted of the following (in
thousands):
1995 1994
-------- --------
Computer systems equipment . . . . . . . . . . . . . $ 7,291 $ 6,179
Furniture, fixtures, equipment, and other . . . . . 6,264 5,564
Buildings . . . . . . . . . . . . . . . . . . . . . 442 442
Land and land improvements . . . . . . . . . . . . . 385 385
-------- --------
14,382 12,570
Less accumulated depreciation . . . . . . . . . . . (9,884) (9,492)
-------- --------
$ 4,498 $ 3,078
======== ========
Depreciation and amortization expense for property and equipment was
approximately $1.1 million for 1995, $1.1 million for 1994 and $1.3 million for
1993. Depreciation of computer systems equipment is provided principally by
the
Notes to Consolidated Financial Statements
double-declining method over periods of four to six years. Depreciation of
furniture and fixtures is provided principally by the straight-line method over
approximately nine years. Depreciation of all other property and equipment is
provided principally by the double-declining method over periods of three to
twenty years. Depreciation of buildings and land improvements is provided
principally by the straight-line method over approximately thirty years.
Nonoperating Net Income
Nonoperating net income included in selling, general and administrative
expenses, primarily interest income, was approximately $81 thousand, $128
thousand, and $19 thousand for the years ended December 31, 1995, 1994, and
1993, respectively.
Deferred Compensation Plan
The company maintained a deferred compensation plan in 1993 that was
discontinued as of the end of 1993. The company established the Deferred
Supplemental Compensation Plan in 1994. Deferred compensation plan expense for
the plans for the years ended December 31, 1995, 1994 and 1993 was approximately
$188 thousand, $125 thousand and $207 thousand, respectively.
Included in other assets are assets of the plans which include equity
securities recorded at fair value and classified as available-for-sale. The
fair value of these securities was $940,131 and $40,002 as of December 31, 1995
and 1994, respectively. Unrealized gains/(losses) were $115,013 and ($9,998)
for 1995 and 1994, respectively. Changes in the assets of the plans are offset
in the company's financial statements by a corresponding change in the
liability to plan participants.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Adoption of SFAS No. 121
In 1995, the company elected an early adoption of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This adoption had no impact on the company.
(2) Acquisitions
On May 31, 1995 the company acquired all of the outstanding stock of CMstat, a
leading developer and supplier of commercial off-the-shelf configuration and
product data management solutions, for approximately $970 thousand in cash.
The acquisition was accounted for by the purchase method of accounting. The
results of CMstat's operations since May 31, 1995 are included in these
consolidated financial statements. The company has recorded approximately $1.2
million of identifiable intangible assets, $800 thousand of deferred taxes
related to the identifiable intangible assets and $400 thousand of goodwill.
Goodwill and identifiable intangible assets are being amortized by the
straight-line method generally over a period of ten years.
Notes to Consolidated Financial Statements
On August 29, 1995 the company acquired all of the outstanding stock of
Energetics for approximately $3.7 million. Energetics assists government and
industry in conducting effective technology programs, primarily in the fields
of energy use and the environment. The acquisition was accounted for by the
purchase method of accounting. The results of Energetics' operations for the
period August 29, 1995 through December 31, 1995 are included in these
consolidated financial statements. The company has recorded approximately
$1.5 million of goodwill and $100 thousand of identifiable intangible assets.
Goodwill is being amortized by the straight-line method over fifteen years.
Identifiable intangible assets are being amortized over one year.
The following unaudited pro forma results of operations for the years ended
December 31, 1995 and 1994 assume the Energetics acquisition occurred as of the
beginning of the respective periods after giving effect to certain adjustments,
including amortization of identifiable intangible assets, increased interest
expense on acquisition debt, and related income tax effects. The pro forma
results have been prepared for comparative purposes only and do not purport
to be indicative of what would have occurred had the acquisition been made as
of those dates or of results which may occur in the future.
(in thousands, except per share amounts) 1995 1994
--------- ---------
Revenues . . . . . . . . . . . . . . . . . $ 82,619 $ 76,138
========= =========
Net income . . . . . . . . . . . . . . . . $ 1,888 $ 1,733
========= =========
Net income per common share . . . . . . . $ 2.18 $ 2.01
========= =========
(3) Accounts Receivable
The components of accounts receivable as of December 31, 1995 and 1994, were
as follows (in thousands):
1995 1994
--------- ---------
Billed . . . . . . . . . . . . . . . . . . $ 10,250 $ 6,131
Unbilled:
Retainages . . . . . . . . . . . . . . . . 691 450
Other (principally December work billed in
January) . . . . . . . . . . . . . . . . 5,586 4,588
Less-Allowance for doubtful accounts . . . (160) (247)
--------- ---------
Total accounts receivable $ 16,367 $ 10,922
========= =========
The "Unbilled: Other" included in accounts receivable are reported net of an
allowance for contract disallowances of approximately $1.3 million as of
December 31, 1995 and 1994. "Unbilled: Other" also includes certain costs which
are not reimbursable under current contracts, but which the company believes
will be reimbursable on execution of contract documentation or amendments
increasing funding. Amounts not presently reimbursable included in "Unbilled:
Other" were approximately $328 thousand and $700 thousand as of December 31,
1995, and 1994, respectively.
Contracts with the U. S. Government, primarily with the U. S. Department of
Defense, accounted for approximately 95% of revenues in 1995, 1994, and 1993.
These contracts were performed primarily in the engineering services industry.
One such contract with the U. S. Navy accounted for approximately 14% to 23% of
such revenues in 1993 through 1995.
Notes to Consolidated Financial Statements
The company generally expects to collect all accounts receivable other than
retainages within one year. The carrying amount of the accounts receivable does
not significantly differ from fair value.
(4) Debt
Long-term debt as of December 31, 1995 and 1994 was as follows (in thousands):
1995 1994
------ ------
Revolving term loan borrowings and commitments . . $4,939 $ 0
Other debt . . . . . . . . . . . . . . . . . . . . 54 7
------ ------
4,993 7
Less portion due within one year . . . . . . . . . (1) (7)
------ ------
$4,992 $ 0
====== ======
VSE has a revolving term loan agreement (the "Loan") with a syndicate of three
banks. Under the Loan, VSE can borrow up to $45 million, subject to a borrowing
formula based on billed receivables. Interest is charged at a prime-based rate
or at an optional LIBOR-based rate. A commitment fee is charged on the unused
portion of the loan commitment. The interest rates and the amount of the
commitment fee increase or decrease as VSE's leverage ratio increases or
decreases. The Loan contains collateral requirements by which company assets
are secured and restrictive covenants that include minimum tangible net worth
and profitability requirements and a limit on annual dividends. The termination
date of the Current Loan is May 31, 1997. Commitments above are for checks
outstanding at December 31, 1995 of approximately $800 thousand. The carrying
value of the debt is not significantly different from fair value.
Other debt is related to debt acquired in the acquisitions of CMstat and
Energetics.
(5) Accrued Expenses
The components of accrued expenses as of December 31, 1995 and 1994, were as
follows (in thousands):
1995 1994
-------- --------
Accrued salaries . . . . . . . . . . . . . . . . $ 1,456 $ 1,480
Accrued vacation . . . . . . . . . . . . . . . . 1,460 1,270
Estimated future losses on fixed price and
time and material contracts . . . . . . . . . . 753 1,122
Other accrued expenses . . . . . . . . . . . . . 2,060 1,789
-------- --------
Total accrued expenses $ 5,729 $ 5,661
======== ========
(6) Benefit Plans
VSE established an ESOP/401(k) plan in 1984. Under the provisions of the ESOP,
the company and certain of its subsidiaries make contributions into a trust
which purchases VSE stock on behalf of employees who meet certain age and
service requirements and are employed at the end of the plan year.
Contributions at the rate of up to 2% of eligible employee compensation may be
made at the discretion of the board of directors. Contributions are allocated,
subject to a vesting schedule, pro rata based on eligible employee compensation.
The plan expense for
Notes to Consolidated Financial Statements
VSE and certain of its subsidiaries for 1995, 1994, and 1993, was approximately
$449 thousand, $490 thousand, and $531 thousand, respectively. There are no
prior service costs under any VSE retirement plans.
The ESOP/401(k) plan owned 343,893 shares and 345,309 shares as of December 31,
1995 and 1994, respectively, which receive dividend payments and are included in
the weighted average shares for earnings per share calculations.
Energetics maintains a profit sharing plan for employees. All employees who
have completed two years of service are members of the profit sharing plan. At
its discretion, Energetics may make contributions to the plan. The plan expense
from August 29, 1995 to December 31, 1995 was approximately $28 thousand.
Schmoldt Engineering maintains a qualified defined contribution profit sharing
plan for employees who elect to become participants and who meet certain
eligibility requirements. At its discretion, Schmoldt Engineering may make
contributions to the plan in an amount of up to 15% of participant compensation.
The plan expense for 1995 was $0, and approximately $15 thousand and $12
thousand for 1994 and 1993, respectively.
In February 1996, the company announced that VSE's the board of directors had
ratified, subject to shareholder approval, a Stock Option Plan for certain
eligible employees and directors. Stock options may be granted from time to
time up to 109,479 shares of the aggregate of common stock of the company. The
shares would vest over a period from one to three years and the maximum term of
the options granted would be five years.
(7) Income Taxes
The company files consolidated federal income tax returns with all of its
subsidiaries. The components of the provision for income taxes are as follows
(in thousands):
1995 1994 1993
Current ------ ------ ------
Federal . . . . . . . . . . . . . . . . . . $ 449 $ 948 $ 688
State . . . . . . . . . . . . . . . . . . . 104 233 150
------ ------ ------
553 1,181 838
Deferred Provision (Benefit) - resulting from:
Deferred revenues . . . . . . . . . . . . . 360 88 (154)
Other timing differences . . . . . . . . . 140 (16) 82
Accelerated depreciation . . . . . . . . . 95 (53) (57)
Accrued expenses . . . . . . . . . . . . . 90 41 (2)
Bad debt expense . . . . . . . . . . . . . 34 0 0
Retainages not taxed until billed . . . . . 14 (94) 165
Allowance for contract and other
disallowances . . . . . . . . . . . . . . 1 (239) (103)
Software development . . . . . . . . . . . (15) 0 0
Funded Backlog . . . . . . . . . . . . . . (18) 0 0
Intangible assets . . . . . . . . . . . . . (30) 0 0
Deferred compensation . . . . . . . . . . . (160) 52 (35)
------ ------ ------
Income tax provision $1,064 $ 960 $ 734
====== ====== ======
The differences between the amounts of tax computed at the federal statutory
rate of 34% and the provisions for income taxes for 1995, 1994, and 1993 are as
follows (in thousands):
Notes to Consolidated Financial Statements
1995 1994 1993
------ ------ ------
Tax at statutory federal income tax rate . . . $ 922 $ 854 $ 646
Increases (Decreases) in tax resulting from:
State taxes, net of federal tax benefit . . 133 127 87
Permanent differences for tax . . . . . . . 9 0 5
Federal and state tax rate adjustments . . 0 (21) 0
Other, net . . . . . . . . . . . . . . . . 0 0 (4)
------ ------ ------
Provision for income taxes $1,064 $ 960 $ 734
====== ====== ======
The company's deferred tax assets as of December 31, 1995 and 1994, which
represent the tax effects of temporary differences between tax and financial
accounting bases of assets and liabilities and are measured using presently
enacted tax rates, are as follows (in thousands):
1995 1994
------ -------
Current deferred tax assets . . . . . . . $ 1,888 $ 2,112
Current deferred tax liabilities . . . . . (1,066) (621)
------- -------
Net current deferred tax assets . . . . . 822 1,491
------- -------
Noncurrent deferred tax assets . . . . . . 833 740
Noncurrent deferred tax liabilities . . . . (1,210) (442)
Valuation allowance . . . . . . . . . . . . (50) (50)
------- -------
Net noncurrent deferred tax (liabilities)
assets . . . . . . . . . . . . . . . . (427) 248
------- -------
Net deferred tax assets $ 395 $ 1,739
======= =======
In 1993, the tax effect of certain differences between tax and book bases not
previously recorded were recorded. Further, a valuation allowance, which is
provided when it is more likely than not that some portion of the deferred tax
asset will not be realized, was established for the deferred tax asset
associated with certain real property because of the uncertainty that the
deferred tax asset will be fully realized. Based on the company's taxable
income in prior years, the company expects to realize the net deferred tax asset
currently recorded.
The tax effects of temporary differences representing deferred tax assets and
liabilities as of December 31, 1995 and 1994, are as follows (in thousands):
1995 1994
------- -------
Deferred compensation . . . . . . . . . . . . . . $ 1,028 $ 886
Allowance for contract and other disallowances . 488 489
Accrued expenses . . . . . . . . . . . . . . . . 366 449
Other . . . . . . . . . . . . . . . . . . . . . . 262 432
Bad debt expense . . . . . . . . . . . . . . . . 65 99
Accelerated depreciation . . . . . . . . . . . . (147) (65)
Retainages not taxed until billed. . . . . . . . (191) (177)
Deferred revenues . . . . . . . . . . . . . . . . (684) (324)
Intangible assets . . . . . . . . . . . . . . . . (742) 0
------- -------
445 1,789
Valuation allowance . . . . . . . . . . . . . . . (50) (50)
------- -------
Net deferred tax assets $ 395 $ 1,739
======= =======
Notes to Consolidated Financial Statements
(8) Commitments and Contingencies
Leases
The principal facilities of the company and its subsidiaries are generally
rented under operating leases for periods of one to ten years. The company and
its subsidiaries also lease equipment generally under noncancelable operating
leases for periods of one to two years. Rent expense for 1995, 1994, and 1993,
was approximately $2.2 million, $2.0 million, and $2.2 million, respectively,
which was net of sublease income of approximately $272 thousand, $331 thousand,
and $390 thousand, respectively. The future minimum annual rental required under
leases having remaining noncancelable lease terms in excess of one year, net of
noncancelable sublease income, will approximate $2 million in 1996, $1.8 million
in 1997, $1.2 million in 1998, $840 thousand in 1999, and $955 thousand in 2000
and $1.3 million thereafter.
Note Guarantee
The company is a guarantor of an Industrial Development Revenue Note assumed by
Alexandria Tech Center II/Starr Associates, a Virginia general partnership of
which Starr Management Corporation, a former VSE subsidiary ("Starr"), is a 50%
partner. As of December 31, 1995, the outstanding principal of the note was
$2.6 million. The note evidences loan proceeds that were used to finance the
construction of an office building owned by the partnership for a period of
ten years and has a one year lease for an additional 16% of the building. The
ten year lease period expires in July 1997.
Starr has agreed to indemnify the company for any liabilities resulting from any
guarantee given by VSE on behalf of Starr.
Litigation
During June 1993 a settlement was reached among VSE, a bank used by VSE, and a
third party claimant to resolve a potential claim against VSE with respect to a
letter of credit issued in 1988. VSE's charge to income before tax in 1993 for
the settlement was approximately $300 thousand.
The company and its subsidiaries have, in the normal course of business, certain
other claims against them and against other parties. In the opinion of
management, the resolution of these claims will not have a material adverse
effect on the company's results of operations or financial position.
(9) Subsequent Event - Sale of Subsidiary Stock
On February 7, 1996, the company sold its wholly owned subsidiary Schmoldt
Engineering. Schmoldt Engineering was purchased by SESCO, Inc., an Oklahoma
corporation formed by certain officers and employees of Schmoldt Engineering.
The company received approximately $400 thousand in gross proceeds in the form
of cash of $100 thousand and notes of approximately $300 thousand secured
principally by the equipment and rolling stock of Schmoldt Engineering. The
company will recognize a pretax loss of approximately $300 thousand in the
first quarter of fiscal 1996.
Selected Quarterly Data
Selected Quarterly Data (Unaudited)
(in thousands, except earnings per share)
1995 Quarters
1st 2nd 3rd 4th
------- ------- ------- -------
Revenues . . . . . . . . . . . . . . . . . $16,155 $17,110 $21,204 $20,598
======= ======= ======= =======
Gross profit . . . . . . . . . . . . . . . $ 878 $ 423 $ 1,599 $ 709
======= ======= ======= =======
Net income . . . . . . . . . . . . . . . . $ 414 $ 297 $ 459 $ 476
======= ======= ======= =======
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . 863 865 869 869
======= ======= ======= =======
Earnings per common share:
Net income . . . . . . . . . . . . . . . . $ .48 $ .34 $ .53 $ .55
======= ======= ======= =======
1994 Quarters
1st 2nd 3rd 4th
------- ------- ------- -------
Revenues . . . . . . . . . . . . . . . . . $17,479 $16,290 $15,778 $16,034
======= ======= ======= =======
Gross profit . . . . . . . . . . . . . . $ 929 $ 625 $ 1,436 $ 1,123
======= ======= ======= =======
Net income . . . . . . . . . . . . . . . . $ 353 $ 354 $ 415 $ 431
======= ======= ======= =======
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . 863 863 863 863
======= ======= ======= =======
Earnings per common share:
Net income . . . . . . . . . . . . . . . . $ .41 $ .41 $ .48 $ .50
======= ======= ======= =======
Form 10-K
Securities and Exchange Commission
Washington, D. C. 20509
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended December 31, 1995
Commission File No. 0-3676
Registrant: VSE Corporation Incorporated in the State of Delaware
IRS Employer Identification No. 54-0649263
Address: 2550 Huntington Avenue
Alexandria, Virginia 22303-1499
Telephone: (703) 960-4600
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.05 per share.
VSE Corporation has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value (average of high and low sales prices) of VSE
Corporation voting stock held by non-affiliates as of March 1, 1996, was
$10,400,000.
As of March 1, 1996, 869,167 shares of VSE Corporation Common Stock were
outstanding.
Portions of the Registrant's 1995 Annual Report to stockholders for the
year ended December 31, 1995, are incorporated by reference into Part I
and II of this report.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders expected to be held on May 4, 1996, are incorporated by
reference in Part III of the Form 10-K.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VSE Corporation
Registrant
C. S. Weber, Senior Vice President, Secretary and Treasurer
March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 22, 1996, by the following persons in the
capacities indicated:
D. M. Ervine
Chairman and Chief Executive Officer
R. B. McFarland
President and Chief Operating Officer
C. S. Weber
Senior Vice President and Principal
Financial Officer
T. J. Corridon
Senior Vice President and Principal
Accounting Officer
A majority of the Directors of the Registrant whose names appear on page 37.
Form 10K Cross-Reference Index
Part Item Page(s)
- -------------------------------------------------------------------------------
I. 1. Business 2-10
2. Properties 6-10
3. Legal Proceedings 30
4. Submission of Matters to a Vote of Security Holders None
- Executive Officers of the Registrant 17
II. 5. Market for Registrant's Common Stock and Related
Stockholder Matters 17
6. Selected Financial Data 1
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
8. Financial Statements and Supplementary Data 19-31
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure None
III. 10. Directors and Executive Officers of the Registrant *
11. Executive Compensation *
12. Security Ownership of Certain Beneficial Owners
and Management *
13. Certain Relationships and Related Transactions *
IV. 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) (1) Financial Statements:
Report of Independent Public Accountants 18
Consolidated Balance Sheets 19
Consolidated Statements of Income 20
Consolidated Statements of Stockholder's
Investments 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23-30
(a) (2) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts +
(a) (3) Exhibits:
Exhibits Filed with the Report:
Subsidiaries of the Registrant (21) +
Employment Agreement entered into as of
January 1, 1996, by and between VSE
Corporation and Donald M. Ervine +
Employment Agreement entered into as of
January 1, 1996, by and between VSE
Corporation and Richard B. McFarland +
Restated Certificate of Incorporation +
Amended By-Laws +
Exhibits Incorporated by Reference:
Specimen Stock Certificate +
Exchange Agreement dated as of March 25, 1992,
amended as of September 1, 1992, by and
between VSE Corporation and JBT Holding
Corp., et al. +
Deferred Supplemental Compensation Plan +
Stock Purchase Agreement dated August 19, 1995
by and between VSE Corporation and the share-
holders of Energetics Incorporated +
(b) Reports on Form 8-K:
Current Report on Form 8-K/A ((filed on
November 9, 1995), amending the Current
Report on Form 8-K filed on September 13,
1995. +
*The information required by Part III, Items 10 through 13, is incorporated
by reference from portions of the VSE Corporation Notice of 1996 Annual
Meeting and Proxy Statement captioned "Security Ownership of Certain
Beneficial Owners and Management," "Election of Directors," "VSE Corporation
1996 Stock Option Plan," and "Compensation Committee Report."
+Copies of financial statement schedules and exhibits are available on request.
VSE TEAM
Rene Abarcar
Douglas Ackerson
Bryan Adams
Heather Adams
Omega Adams
Richard Adams
William Adams
Ann Adcox
Annie Adicoff
Shiron Adkins
Nita Aguilar
Abbas
Ahmadi-Shirazi
James Ainsley
Melvin Ainsworth
Judith Akindemowo
William Albertolli
Judy Albrecht
Gail Alderdice
David Alexander
Jerry Alvey
Karl Amick
Frank Amoroso
Robert Amos
Jackie Anderson
Raymond Anderson
Royce Anderson
Wayne Anderson
Michael
Andrzejczyk
Rebecca Angeles
William Anthony
Hans Arlt
Vikki Arnold
Fred Artley
Michael Artuso
Dale Ash
Diana Ashley
Edward Ashlock
Ruth Ashworth
William Attaway
Bernadine Atwell
Stephen Austin
John Avery
S. Aziz Azimi
Dewey Babb
Joe Badin
Henry Baggott
Fred Bahrs
Charles Bailey
Janet Baity
Mark Baker
Michael Baker
Paul Baker
Ruth Baker
Joseph Balac
Eileen Ball
Sushil Baluja
Babatunde
Bamisaiye
Betty Banbury
Edward Banek
Ernest Bannister
Ronald Baptie
Maurice Barker
Robert Barnett
Kurt Barnhart
Nathaniel Barr
Jose Barrera
Byron Bartholomew
Sandra Bartlett-Delaney
Mary Barton
Carol Baschmann
Francis Basquill
Terry Bates
Carolee Battaglia
Richard Battaglia
Robert Baxter
Mohammad Baz
Jason Beaulieu
Donald Becker
Bonna Bell
Dolores Bell
Keith Bell
Clarence Belle
John Bennett
Roland Bennett
Stephen Bennett
Margaret Bentley
Michael Bergels
Daniel Bergen
Jennifer Bergman
Lezlie Berman
Robert Bernatovich
Francis Beverina
Mark Bezanis
Mathew Bialowicz
Sarah Bieber
Harold Bigbie
David Biggins
Roger Bingham
Lisa Bishop
Robin Black
Mary Lee Blackwood
Andrea Blair
Deborah Blakeman
Loretta Blalock
August Blancaflor
Michael
Blankenship
Leonard Blood
Charles Bloom
Peter Bloom
Cynthia Blowe
Evelyn
Bobbitt-Moore
Steven Bodenhamer
Robert Boerum
Magdy Boghdady
James Bolden
Scott Bolden
Donald Boller
Annette Bonham
Judy Bonn
Towana Boone
Sara Bouchard
Kimberly Bourgeois
Randal Bowling
Patrick Brady
Berton Braley
Barton Branstetter
Eric Branton
Gail Bratten
Barbara Breehl
Steve Brennan
William Brewster
Marvin Briden
Barrie Briggs
Jan Brinch
Victoria Brock
Melissa Bromberg
Warren Brooks
Paul Broome
Havonne Brown
Joseph Brown
Simonne Brown
Alan Browne
Susan Bruce
Helen Brunner
Joseph Bruqueta
Chris Brzowski
Beau Buckner
Colleen Buckner
Edward Bugin
Andrea Bunch
Clementine Bunker
Edward Bunn
Bennie Burdette
Paul Burk
Grant Burkey
James Burrows
Blane Bussell
Todd Bustard
Tom Bustard
Isaac Bustillos
Imogene Butera
David Butler
Gene Butler
Robert Butler
Hobart Cable
Alberto Caboteja
Bryce Cahill
Henry Cahoon
Michael Campbell
Scott Campbell
Donald Candy
Claude Canell
Chris Caperton
Anthony Capriotti
Philip Carberry
Jim Carey
Richard Carrier
Kathleen Carrillo
Donald Carter
Patricia Carter
Doris Carvajal
Floyd Case
Nancy Casillas
Mark Cassol
John Cathcart
Karen Caudle
Frank Cauraugh
John Chambers
Harlan Chase
Ashwin Chaudhary
Tom Cheek
Daniel Chen
Tsoying Chen
Cynni Cheng
Jeanne Chepivetzki
Karen Childs
Gabriel Chinwendu
Joseph Cioe
Douglas Clark
Luther Clark
Michelle Clements
Jeanne Clifford
Jimmie Cline
Thomas Clinton
Julia Clore
Donald Close
Robert Coffey
Jared Coffin
Pamela Coffman
Andrea Coggins
Larry Coggins
Jacqueline Coker
Dale Coleman
Pamela Coleman
Sandra Coley
Kathryn Colley
John Collins
Martin Connell
Kathryn Connor
Quentin Conroy
Carl Conti
Mark Contreras
James Cook
Virginia Cook
Marlow Cooper
Regina Corbin
Cheryl Cornell
Thomas Corridon
Cecil Cory
Thomas Cosgrove
Dorothy
Cothran-Cooper
James Cottle
Alan Coulbourn
Ronald Counts
Rene Couture
Larry Cox
Robert Coyle
C. David Crandall
Matthew Crehan
Patricia Crenshaw
Gloria Crews
Jeffrey Crist
Lynette Cross
David Crossett
Helen Crytzer
William Culp
Henry Cunningham
David Curtis
Dora Curtis
Lynda Curtis
Joseph Czech
Theresa D'Arrigo
Michael Daniels
Donald Daugherty
Ladd Davies
Claude Davis
Clifford Davis
Joyce Davis
Marvin Davis
Rondell Davis
Lester Dean
Robert Defazio
Albert Deiss
Thomas Delaney
Mary Delgado
Zelda Deloatch
Charles Delvecchio
Michele Demarest
Raymond Demattia
James Demel
Linda Demuth
Charles Dennis
William Denzer
Shu Mei Der
Michele Desouza
Richard Desposato
Peter Desrosiers
Judy Dewitt
Locknauth
Dewnandan
Michael Dicola
Sushma Dilawari
James Dinsmore
Patrick Dion
Phil DiPietro
Timothy Disney
Chris Dodd
John Dombrauskas
Kimberly Donald
Stanley Donham
John Donn
Paget Donnelly
William Donohoe
Dana Doolittle
Mia Dorsey
John Dorso
Patricia Dougherty
Rochelle Doughton
Tenesa Douglas
Louise Dove
Claudia Doyle
Rene Dubuc
Margaret Duffey
Elizabeth Duffy
Paul Duncan
Donald Dunham
James Dunn
John Dunning
Armando Duran
John Durand
Richard Durand
Marion Durham
Dennis Dutton
John Dydalowicz
Dianna Eader
Frederick Eckert
David Eckstut
Cecil Edgington
Ronald Edmonds
Charles Edwards
Otha Edwards
William Egan
John Eiden
Roger Eilertson
Jack Eisenhauer
Geoffrey Eisenmann
Marcelo Eitel
Paul Elkins
Mark Elliott
Eugene Engebretsen
Kenneth Engelmeyer
Kyong Eom
Susan Erat
Kevin Erskine
Donald Ervine
Aziam Eskandarian
Irma Esquivel
Sandy Esquivel
Shelby Estes
Patricia Estryn
Andrea Ethell
H. Eugene Hosier
Daniel Fabrycki
Anthony Facciola
Claudia Fanning
Mindi Farber
Donna Farley
Darwin Faulkner
Hearl Faulkner
Ronald Fearfield
Jerome Fee
Tonya Fentress
Lisa Fenwick
Donald Ferrell
Leo Fetterolf
Andrew Fielding
Ronald Fields
Brenda Fisher
Charles Fix
James Fleck
John Fletcher
Art Floor
Fred Forester
Belinda Fortin
Cynthia Fortner
Frank Foster
Hubert Foster
Robert Fowler
Anthony Frackowiak
Richard Fraer
Adnah Frain
Jay Franklin
Calvin Frantz
Melva Frazier
Paul Frazier
James Freeman
Andrew French
Alex Frenette
Robin Friedman
William Frizzell
Joseph Frosio
Jack Frost
Teresa Fuller
Harold Futrell
Paul Gain
Sandra Gaines
John Gallagher
Stephan Galloway
Anthony Gambello
Kathy Garner
Elaine Garrison
Renee Gaspari
Kevin Gassman
Bill Gay
Lisa Gaylor
Michael Geddings
Donald Geller
Delphine Geter
Felicia Gewerth
Carmelle Gibbons
Brenda Gick
Christina Gikakis
Christopher Gill
Marion Gillespie
Sandra Gillespie
John Gilroy
Arlyn Glassburn
Gwendolyn Glenn
Michael Goble
Arlene Goelz
Leonard Goldstein
Bradley Gollner
Terri Gomez
Edward Goode
Elliot Goodman
James Goodman
Elizabeth Goraj
Sandra Gorny
Ronald Gradine
Walter Graham
Nathaniel Granger
Charles Graves
Ronald Gray
Reginald Grayson
Aaron Green
Daniel Green
Rachel Lynn
Greenberg-Seaman
Jeffrey Greene
Normand Gregoire
Raphael Gregory
Mickey Griffin
Robert Grisko
Vladimir Groark
Jae Groves
Charles Grubbs
Joni Gruitt
Charles Gu
Thomas Guffain
Timothy Haan
Chuck Haczewski
Robin Hakan
Betty Hall
Michael Hamerly
William Hamlin
Janet Hanchuck
Bryce Haning
Letitia Hanley
Richard Hannah
Elizabeth Hardy
Ronald Hardy
George Harps
Diane Harrington
Andrea Harris
Ernest Harris
Susan Hart
Tracy Hartlage
Michelle Hartman
James Harvey
Ronald Harvey
Michael Harwell
Gordon Hatcher
William Hawes
John Hayden
George Hayes
Janet Hearle
Ralph Heflin
Susan Heil
Mark Heller
Michael Helton
Keith Hemmer
Grace Henderson
Nancy Hendricks
Arne Herleikson
Kevin Herman
Peter Hernandez
Raymond Heslin
Glenn Hetterly
David Higgins
Doreen Hill
Elizabeth Hill
Josephine Hill
Stefanie Hill
Duane Hintz
David Hoagland
Margaret Hockeborn
Janet Hockenberry
Fred Hodge
Donald Hodgson
Milford Holland
Christopher
Holliday
Frederick Holtz
Brian Hook
Charles Hoover
Leroy Hopkins
Robert Hopkins
John Hornberger
Wanda Horton
Charles Hosse
Edward Houston
Ted Hover
Terry Howell
Donald Hudson
Walter Hudson
Amy Hughes
Ronald Hughes
Thomas Hughes
S. Brett Humble
Thomas Humble
Charles Hunley
Michael Hutson
Mary Iacona
John Ignat
Dana Illig
Jennifer Ingber
James Ingram
William Ingram
Mark Ish
Nicholas Iwan
Noel J. F. Pleta
Leonard Jackson
Michael Jackson
William Jackson
Michael Jacobs
Norman Jacobs
Louis James
Juan Jamora
Birl Jamrogowicz
Joseph Jaquith
Cecil Jarman
Eric Jasinski
Sandy Jeffrey
Julie Jividen
Mary Jo Baker
Tom Johanson
Ethel Johnduff
Cherri Johns
Andrew Johnson
Donald Johnson
Jeffery Johnson
Kenneth Johnson
Lavette Johnson
Patricia Johnson
Shannon Johnson
Wilbert Johnson
Charissa Jones
Cynthia Jones
Estelle Jones
Fritz Jones
Jeffrey Jones
Louis Jones
Ricky Jones
Susan Jones
Yvonne Jones
Susan Kaczmarek
Robert Kaminsky
Carolyn Kaplan
Sabeena Kapoor
Edward Karl
Rul Kashif
Franklin Kauffman
Kathleen Kaufman
Adolph Kawalec
Mary Keefer
Bob Keiser
Joseph Kelleher
Dwight Kelly
Jordan Kelso
Ryan Kemble
Charles Kennedy
Nicole Kennedy
Brendan Kerr
George Kervitsky
Michael Kidd
Martin Kiefer
Yen Kim Vo
Gerald King
Thomas Kingon
Jonathan Kirschner
Tamotsu
Kitabayashi
Catherine Klapakis
Donald Kleopfer
Cheryl
Klingensmith
Michelle
Knakkergaard
James Knesel
Angela Knight
James Knowlton
Donna Knudsen
Leonard Koberg
Katharine Kohudic
George Kolb
Jin Koo-Irvine
Rollin Koontz
Frank Kos
Lawrence Kost
Harold Kraft
Annette Kramer
Micheal Kreinhop
Wendy Kreitzer
Michael Krenitsky
Robert Kruck
Frances Kruitbosch
David Krushell
Charles Kuder
Richard Kuhn
B. J. Kumar
Vijay Kumar
Daniel Kumi
Quon Kwan
Donald Kypta
John La Rose
Susan Lacambacal
Robert Lachance
Andrea Lachenmayr
Herman Ladoo
Hy Lam
William Lamar
Jan Lambert
George Landon
John Lantz
Sue Lapponese
Glenist Lardy
Vernon Larson
Henry Lasher
Charles Lasko
Gail Lathrop
John Laughlin
Jay Lauterbach
Daniel Lavery
Louis Lawrence
Anna Lazarek
Chon Le
Bernadette Leach-
Walker
Charles Lehmann
Jay Leikin
Eugene Lenehan
John Lentini
Joseph Lepri
Alistair Leslie
Virginia Leslie
Laura Levine
Gloria Lewis
Nicole Lewis
Nikki Lewis
Steven Lewis
Clyde
Lichtenwalner
Margaret Lieber
Catherine
Liedemann
Katherine Lilly
Richard Lippert
Cynthia Little
Eileen Little
Charles Livesay
Peggy Lloyd
Edward Lockard
Brett Lockwood
Buddy Lockwood
Thomas Loftus
Peter Lohr
Earnest Lomax
Barbara Long
Larrie Long
Tiffany Louvett
Donna Love
John Low
Lizabeth Lowe
Robert Lowe
Howard Lowitt
Mary Lucio
Sally Lundeen
Gary Lundquist
Kimberley Lunsford
Stephanie Lutz
Frederick Lyles
Kimberly Lyles
Natalie Lynch
Martin Lyon
Vernon Maas
Bruce Macdonald
Hershel Mack
Stephen Mack
Michelle MacLeod
Ashley Madison
Charles Madison
Larry Madsen
Stephen Mahaffey
Michael Mahaney
James Mahoney
Carla Makell
Daniel Malinowski
Teri Malone
Pia Manalastas
Larry Manchester
Larry Manley
Elijah Mann
Randolph Mann
Cynthia Manno
Tomeka Manuel
David Mao
Nancy Margolis
Phillip Marsh
Bruce Marshall
Carolyn Marshall
Robert C. Marshall
Robert G. Marshall
Robert L. Marshall
Robert M. Marshall
Derrick Martin
Lynn Martin
Charles Martinez
Carlos Martins
Edward Mascali
Joseph Masterson
John Mathes
Dennis Matney
Lisa Mattson
Craig Matzdorf
Ronnie Maxey
Charles Mayer
Charles McAdams
Ian McCallum
Michael McCann
Alfred McClintock
Maxey McCormick
Walter McCoy
Jeffrey McCurdy
David McDaniel
Henry McFarland
Richard McFarland
Sean McGillen
Ellen McGinnis
Thomas McGinty
Davenna McGlone
Frederick McKay
Junious McKee
Sherrill Mcknight
Thomas McLaughlin
Ray McLean
Lee McMillan
Matthew McMillen
Janet McMurray
Claude McNair
Shawna McQueen
Melissa McWright
Ronald Medlock
Kenneth Meyer
Jennifer Miklovic
Frank Miley
Marie Miller
Dia Mims-Williams
Amy Mingo
John Minnick
Liz Minor
David Mitchell
Eugene Mitchell
Robert Mitchell
Robert Mitton
Stephen Mitton
Anthony Modo
Lynette Montague
Fabian Montgomery
Gail Moore
Joseph Moore
Kevin Moore
William Moore
John Morehouse
Brenda Moreno
Bruce Moriarty
Donald Moriarty
John Moriarty
Joe Morrison
Rick Mosteller
Donnelle Moten
Edward Mrazek
Bob Mudry
Joseph Muffler
Clare Mullins
Robert Murdock
Mark Murton
Steven Mutz
Wayne Myers
Keri-Beth Nagel
Raymond Nairn
Stephen Namie
John Naquin
Keramoddin Nazari
Karl
Nelson-Fjeldstad
William Nelson
Bernadeen Newby
Joseph Newman
Cheryl Newton
Alice Nguyen
Cuong Nguyen
My Nguyen
Trang Nguyen
Jamie Nicholas
Robert Nicholson
Robert Nielson
Christopher
Nikpora
George Nilas
Rudolph Notaro
Kimberly Nuhfer
Norman Nussbaum
Christopher Nutt
Eugene O'Brien
Alfred O'Meally
Delores O'Neal
Kimberly Oatneal
Bernice
Oberholtzer
Michael Ogonowski
Chester Olson
Cherie Ontiveros
Edward Orsatti
Edward Osiadacz
Hunyo Osiba
Francis Paca
Susan Page
Tim Panowicz
Vilone
Panyanouvong
David Parchert
Christopher Parke
Caroleene Paul
Frederick Pauley
Earle Payne
Thomas Pearson
Amy Pedersen
Paul Pedone
Donald Peek
Joan Pellegrino
James Pellien
Michael Pendrak
Elizabeth Perry
Roy Perry
William Perry
Robert Peter
Edward Petermann
Ernest Peterson
Tarry Phares
Molefe Pheto
Marie Piad
James Pickett
Matheas Pickett
Frank Pierce
Robert Pierce
Wilmer Pinner
Rose Pittman
Bonnie Pitzorella
Mark Podgorski
Curtis Pogue
Clifford Pollock
Susan Ponton
Cheryl Poole
Ralph Porcelli
Emily Porter
Michael Porter
Paul Porter
Thomas Porter
Jo-Ann Potts
Carol Potzinger
Alvin Powell
Noble Powell
William Powell
Thomas Prather
David Pratt
Elizabeth Price
Kenneth Priestly
Marcie Prince
Lawrence Puildo
Alan Rabe
Alvin Rabe
Joseph Rachal
Mark Rader
Robert Rader
Weldon Ragland
Karyl Ralles
Bonnie Ram
Geetha Raman
Melissa Ranslem
Roland Raquipiso
Julie Rash
Lisa Ratchford
Richard Rayburn
Robert Reagan
James Reed
Jim Reed
Brenda Reichard
Kim Reichart
Holly Reider
Sybal Reiss
Deborah Relph
William Resler
William Retorick
James Reuschel
Cheryl Reutemann
Adela Reyes
Karen Reynolds
Harry Rhodes
John Rhodes
Julie Rice
Sandra Rice
Steven Rice
Charles Rich
Aaron Richardson
Robert Richardson
Leonard Rieta
Rachel Rifkind
Cheryl Robertson
Richard Robidoux
Mark Robin
Erma Robinson
Frances Robinson
Laura Robinson
Melissa Robinson
Oscar Robinson
Ryanne Robinson
Harvey Rochester
Ron Rodgers
Gregory Rogers
Harris Rogers
Chester Roland
John Roland
Leslie Romak
Michael Romnek
Mark Rooney
Richard Ropes
Maria Rosales
Alfred Rose
Daniel Rosenblatt
Bonnie Rossi
Louis Rossi
Vickie Rossy
Maryetta Roth
Robert Rouzer
Michelle Rubio
Gustave Ruetenik
Sylvia Ruffin
Albert Russell
Theresa Ryal
Dennis Ryan
Sidney Ryan
Marvin Ryken
Jamshid Saadvandi
Rodney Saavedra
Timoteo Saguinsin
Alan Salisbury
Frank Saltarelli
Helen Sampson
Juli Sande
Eric Sanderman
Tracy Santella
John Santucci
Stephen Sartori
Anne Sautter
Giulio Savioli, Jr.
Giulio Savioli, Sr.
Vernon Savola
Lisa Sawyer
John Scanlon
George Scavuzzo
Donald Schaier
Rich Scheer
Todd Schimmel
John Schmedel
William Schnable
Neil Schoenberg
Connie Schonefeld
Lester Schueler
Lee Schultz
Harold Sears
David Seeger
Matthew Seguin
Pam Seligman
Douglas Sellman
Ralph Sesler
Peggy Shaffer
Ralph Sharp
Marilyn Shattles
Derrick Shelton
Wilbur Sherwood
Geoff Shiblom
Laurene Shines
Bruce Shipman
Donald Shirley
Les Shockey
Hugh Shoemaker
Johnna Sholtis
Laverne Short
Richard Short
Ron Shpigel
Raymond Shup
David Shuping
Deirdra Simmons
Regina Simony
Christopher
Simpson
Shelley Skelton
Edward Skolnik
Cheryl Slocum
Barbara Smith
Carl Smith
David Smith
Howard Smith
Leroy Smith
Lisa Smith
Michelle Smith
Noah Smith
Robert Smith
Ronald H. Smith
Sonia Smith
Thomas Smith
Wendy Smith
Wilkins Smith
Folarin Sosan
Sheila Sparks
Michael Spears
David Spencer
Harry Speth
Peregrin Spielholz
Elizabeth Spiller
Anthony Spinelli
Mary Spuhler
Verna Spurlock
Donald Stabley
Lloyd Stamper
Gary Stanley
Robert Stebbins
Gerald Steele
Mary Stein
Thomas Stein
Jan Steiner
Mary Steiner
David Steinmeyer
Ferrell Stevens
Davis Stewart
John Stewart
Morene Stewart
Susan Stewart
Denny Stiegler
Andrea Stiles
William Stimson
Robert Stober
John Stokes
Steven Stonecash
Henry Striedel
Jill Strong
Apisak Suragiat
Keith Sutcliffe
Edward Svetlik
Robert Swann
John Swanson
Connie Swartz
John Sweeney
Jim Swinler
Norbert Tackman
Norman Taft
Charles Talley
Khuong Tang
Jeffry Tank
Guy Tarbox
Diane Taylor
Minnie Taylor
Paula Taylor
Frederick Teague
Earl Telfair
Mary Teta
Patricia Thieman
Richard Thieman
Jocelin Thomas
John Thomas
Paul Thomas
Kevin Thompson
Cynthia Thornton
Jeff Thornton
Kevin Thurston
Eileen Tibitoski
Stephen Tkacik
Francis Todd
Rami Toma
George Tong
Urban Toucher
Jane Touth
Paul Townsend
Son Tran
Amy Tripp
Trung Truong
Robert Truston
Carl Tsai
Judy Tsao
Kiyoshi Tsuji
James Tullis
Brigitte Tunstall-Breuer
Jayne Tuohig
Laslo Tuske
Patricia Twiford
Gregory Tyson
Michael Ulrich
John Uraih
Ronald Urban
Deborah Vamosi
Paul Vander Myde
Thomas Vann
Judith Vardy
John Vargas
Avinash Varma
Sek Venkateswaran
G. Richard Verrill
Rebecca Vincent
Mary Vollmar
Nghiem Vu
William Waak
Peter Wages
Fred Wagner
Alice Waldrop
Wilma Walkawicz
William Walker
Doreen Wall
Laura Waltemath
Richard Wardwell
Matthew Waro
Brenda Weare
Craig Weber
Elaine Weber
John Weber
Steven Weber
Harvey Weisenfeld
Diana Weiss
Wayne Weller
Eugene Wells
George Wendt
John Werbowski
Robert Wernsman
Debbie West
Diana West
Roger Wetzel
Richard Wheeler
Eva Wheeless
Gary White
Thressa White
Dale Whitehead
Shirby Whitehurst
James Wiland
Fredric Wilcox
Michelle Wilder
Terry Wilken
Brenda Williams
David Williams
Jim Williams
Joseph Williams
Patresha Williams
Robert Williams
Steve Williams
Wiley Williams
Daniel Wilson
David R. Wilson
Gregory Wilson
Ray Wilson
Richard Wiltse
Jolene Wingert
Frank Winn
James Wise
Linda Woiever
Joanna Wojdyla
Peter Woll
Ed Wood
Neil Wood
Sharon Woodson
Vernon Woolman
James Worthen
Mary-Lynn Wrabel
Jeffrey Wright
William Wright
Lawrence
Wroblewski
Christopher Wyatt
Michael Wyman
Kenneth Wyrick
Jeffrey Yambor
Elbert Yeatts
Norma Yeatts
David Yevonishon
Richelle Yoerk
James York
Barbara Young
Bill Zakrewski
Thomas Ziemba
Phillip Zubiate
Ronald Zuilkoski
Bill Zwack
Officers and Directors
Officers
Chairman of the Board
and Chief Executive Officer
Donald M. Ervine
President and
Chief Operating Officer
Richard B. McFarland
Executive Vice President,
Business Development
Byron S. Bartholomew
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Craig S. Weber
Senior Vice President and
Comptroller
Thomas J. Corridon
Senior Vice Presidents
Edwin Barrineau 1
Edward V. Karl
James M. Knowlton
Mark A. Robin
Vice Presidents
Maurice E. Barker
Francis F. Beverina
Robert C. Butler
Peter J. Desrosiers
John S. Gilroy
William J. Nelson
Thomas L. Prather, Jr. 2
Jayne M. Tuohig
Paul Vander Myde
John E. Weber
John J. Werbowski
Assistant Vice Presidents
Stephen W. Austin
Lester M. Buckner
Leonard Goldstein
David O. Hoagland 3
H. Eugene Hosier
Thomas R. Loftus
Board of Directors
Sarah Clements
Consultant; formerly Deputy for
Material Acquisition Management,
Office of the Assistant
Secretary of the Army
Donald M. Ervine
Chairman of the Board, VSE
Corporation
Robert J. Kelly 4
Admiral, U.S. Navy (Ret.);
formerly Commander in Chief,
U. S. Pacific Fleet and
Director of International
Operations, The Wing Group
Calvin S. Koonce
President, Koonce Securities,
Inc.
Joseph M. Marchello
Professor, Old Dominion
University; formerly Chancellor
of the University of Missouri
Rolla
Richard B. McFarland
President, VSE Corporation
David M. Osnos
Senior Partner,
Arent Fox, Kintner, Plotkin &
Kahn, Attorneys-at-Law
Jimmy D. Ross
General, U.S. Army (Ret.) and
Senior Vice President,
Biomedical Services, American
Red Cross
Bonnie K. Wachtel
Vice President and General
Counsel, Wachtel & Co., Inc.
Brokers and Underwriters
Director Emeritus
Harold P. Weinberg 5
Consultant; formerly Senior
Vice President and Director
(1961-1995), VSE Corporation
1 Retired January 31, 1996
2 Effective March 19, 1996
3 Until February 1, 1996
4 Effective January 31, 1996
5 Effective January 1, 1996
Corporate Profile
VSE Corporation is a professional services company established in 1959. VSE
provides diversified engineering, development, testing, maintenance and
management services and products to maintain and modernize equipment and
systems, principally to agencies of the U. S. Government and to other prime
contractors. The company's subsidiaries and divisions include BAV, CMstat
Corporation, Energetics Incorporated, Human Resource Systems, Inc., VSE
Corona, Inc., VSE Services Corporation, Value Systems Services, and from July
1990 through February 6, 1996, Schmoldt Engineering Services Company. The
company provides products and services to customers from more than 20 locations
across the United States.
Corporate Address
The company's principal executive offices are located at 2550 Huntington Avenue,
Alexandria, Virginia 22303-1499. The telephone number is (703) 960-4600. The
telecopier number is (703) 960-2688. The Company's Worldwide Web address is
http://www.vsecorp.com.
Annual Meeting of Stockholders
The Annual Meeting of Stockholders is expected to be held on May 4, 1996, at
10:00 a.m., at the Value Engineering Building, 2550 Huntington Avenue,
Alexandria, Virginia 22303-1499.
Stockholder Inquiries
Inquiries concerning stock ownership, dividends, and stockholder changes of
address may be directed to Registrar and Transfer Company, 10 Commerce Drive,
Cranford, New Jersey 07016, (1-800-346-6084) or to the company at 2550
Huntington Avenue, Alexandria, Virginia 22303-1499, Attention: Corporate
Secretary.