ALEXANDRIA, Va.--(BUSINESS WIRE)--July 29, 2010--VSE Corporation (Nasdaq: VSEC) reported the following unaudited consolidated financial results for its second quarter ended June 30, 2010.


Financial Results

	Three months ended June 30,			Six months ended June 30,
(in thousands, except per-share data and percentages)	2010	2009	% Change	2010	2009	% Change
Revenues	$212,473	$255,109	(16.7)%	$440,649	$495,564	(11.1)%
Operating income	$9,953	$10,489	(5.1)%	$18,604	$17,933	3.7%
Operating margin	4.7%	4.1%	Up 60 bp	4.2%	3.6%	Up 60 bp
Net income	$6,103	$6,442	(5.3)%	$11,501	$11,082	3.8%
Diluted EPS	$1.18	$1.25	(5.6)%	$2.22	$2.16	2.8%

For the second quarter of 2010, revenues were $212.5 million compared to $255.1 million in the second quarter of 2009. For the first six months of 2010, revenues were $440.6 million compared to $495.6 million for the first six months of 2009.

The primary reason for the decrease in revenues for the second quarter and the first six months of 2010 as compared to the second quarter and first six months of 2009, is a decrease in the amount of “pass-through” work that is performed by our subcontractors under the R2 Contract. Our strategic efforts to improve our profit margins include increasing direct labor revenue, which is performed by our own employees and carries a higher profit margin, as well as diversifying our service offerings and customer base. Growth in direct labor revenue which is performed by our employees has partially offset the declines in pass-through, resulting in higher operating margins on lower revenue.

Operating income for the second quarter of 2010 was $10.0 million (4.7% of revenue) compared to $10.5 million (4.1% of revenue) in the second quarter of 2009. For the first six months of 2010, operating income was $18.6 million (4.2% of revenue) compared to $17.9 million (3.6% of revenue) for the first six months of 2009.

Operating income declined for the second quarter but increased for the first six months of 2010 compared to 2009. The changes in our year over year operating income levels were driven primarily by changes in the levels and composition of our revenues for these periods. Our revenues in 2010 were comprised of an increased amount of direct labor generated revenues and lesser amounts of low margin subcontractor revenues. The resulting improvement in our operating margins had a mitigating effect on the second quarter decline in operating income and resulted in an increase in operating income for the first six months.

Net income for the second quarter of 2010 was $6.1 million, or $1.18 per diluted share, compared to $6.4 million, or $1.25 per diluted share, in the second quarter of 2009. Net income for the first six months of 2010 was $11.5 million, or $2.22 per diluted share, compared to $11.1 million, or $2.16 per diluted share for the first six months of 2009.

The IT, Energy and Management Consulting Group segment delivered strong results in the second quarter and first six months of 2010. For the second quarter of 2010, revenues for the segment increased 15% and operating income increased 10% compared to the second quarter of 2009. For the first six months of 2010, revenues for the segment increased 18% and operating income increased 30% compared to the first six months of 2009.

Funded contract backlog at June 30, 2010 was $491 million, up 7% compared to $457 million at March 31, 2010 and up 3% compared to $476 million at December 31, 2009.

Commenting on VSE’s financial results for the second quarter of 2010, Maurice “Mo” Gauthier, VSE’s CEO said, “Last year’s government transition significantly delayed the pace of Federal contract awards and the contract funding process. We have experienced continued award delays in 2010 but we remain focused on our strategy of generating more profitable revenues from direct labor performed by our own employees, and becoming less reliant on revenues from subcontractor labor. Our backlog has increased compared to December 31, 2009 and we have added 78 employees, continuing our strategy of expanding our direct labor workforce in our core areas of expertise – sustainment of legacy systems, operational support for the warfighter, engineering support for foreign military sales and IT, energy and management consulting services. Our continued operating margin improvement in the second quarter is the result of a more profitable mix of federal services work. Our IT, Energy and Management Consulting business, which performs professional services for federal civilian agencies, has performed well from a revenue standpoint and we are pleased with its continued margin improvement.”

VSE is a diversified Federal Services company of choice with over 50 years of experience in solving issues of global significance with integrity, agility, and value. VSE is dedicated to making our clients successful by delivering talented people and innovative solutions for logistics, engineering, IT services, construction management and consulting. For additional information on VSE services and products, please see the Company's web site at www.vsecorp.com or contact Randy Hollstein, VSE Corporate Vice President of Sales and Marketing, at (703) 329-3206.

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

This news release contains statements that to the extent they are not recitations of historical fact, constitute “forward looking statements” under federal securities laws. All such statements are intended to be subject to the safe harbor protection provided by applicable securities laws. For discussions identifying some important factors that could cause actual VSE results to differ materially from those anticipated in the forward looking statements in this news release, see VSE’s public filings with the Securities and Exchange Commission, including VSE’s annual report on Form 10-K for the year ended December 31, 2009 and subsequent reports filed with the Securities and Exchange Commission.


VSE Corporation and Subsidiaries
Consolidated Balance Sheets (unaudited)
(in thousands except share and per share amounts)
	June 30,		December 31,
	2010		2009
Assets
Current assets:
Cash and cash equivalents		$7,097	$8,024
Receivables, principally U.S. Government, net		138,533	175,185
Deferred tax assets		1,421	2,036
Other current assets		7,426	7,979
Total current assets		154,477	193,224

Property and equipment, net		23,947	24,683
Intangible assets		8,417	9,336
Goodwill		20,930	19,530
Other assets		6,975	7,217
Deferred tax assets		342	-
Total assets		$215,088	$253,990

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$69,056	$112,995
Accrued expenses		28,991	34,069
Dividends payable		312	258
Total current liabilities		98,359	147,322

Deferred compensation		3,558	3,934
Deferred income taxes		-	324
Other liabilities		1,088	1,100
Total liabilities		103,005	152,680

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $0.05 per share,		260	258
authorized 15,000,000 shares; issued and
outstanding 5,192,202 and 5,170,190,
respectively
Additional paid-in capital		15,562	15,720
Retained earnings		96,261	85,332
Total stockholders’ equity		112,083	101,310
Total liabilities and stockholders’ equity		$215,088	$253,990


VSE Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(in thousands except share and per share amounts)
	For the three months					For the six months
	ended June 30,					ended June 30,
	2010			2009		2010			2009

Revenues	$	212,473	$	255,109		$	440,649	$	495,564

Contract costs		202,063		244,440			421,290		477,249

Selling, general and administrative expenses		457		180			755		382

Operating income		9,953		10,489			18,604		17,933

Interest expense (income), net		19		(60	)		14		(119	)

Income before income taxes		9,934		10,549			18,590		18,052

Provision for income taxes		3,831		4,107			7,089		6,970

Net income		6,103		6,442			11,501		11,082


Basic earnings per share	$	1.18	$	1.26		$	2.22	$	2.16

Basic weighted average shares outstanding		5,191,909		5,130,372			5,186,191		5,121,414

Diluted earnings per share	$	1.18	$	1.25		$	2.22	$	2.16

Diluted weighted average shares outstanding		5,191,909		5,142,799			5,186,191		5,134,759

Dividends declared per share	$	0.060	$	0.050		$	0.110	$	0.095


VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
	For the six months
	ended June 30,
		2010			2009
Cash flows from operating activities:
Net income	$	11,501		$	11,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,267			3,518
Loss (gain) on sale of property and equipment		10			(130	)
Deferred taxes		(51	)		(413	)
Stock-based compensation		392			625
Excess tax benefits on stock-based compensation		-			(13	)
Changes in operating assets and liabilities:
Receivables, net		36,652			59,545
Other current assets and noncurrent assets		738			1,381
Accounts payable and deferred compensation		(44,315	)		(61,567	)
Accrued expenses		(5,181	)		(3,763	)
Other liabilities		(12	)		79

Net cash provided by operating activities		4,001			10,344

Cash flows from investing activities:
Purchases of property and equipment		(2,565	)		(4,891	)
Proceeds on the sale of property and equipment		-			150
Contingent consideration payments		(1,845	)		(1,612	)

Net cash used in investing activities		(4,410	)		(6,353	)

Cash flows from financing activities:
Borrowings on loan arrangement		120,366			112,860
Repayments on loan arrangement		(120,366	)		(116,890	)
Dividends paid		(518	)		(460	)
Excess tax benefits on stock-based compensation		-			13
Proceeds from the exercise of stock options		-			31

Net cash used in financing activities		(518	)		(4,446	)


Net decrease in cash and cash equivalents		(927	)		(455	)
Cash and cash equivalents at beginning of period		8,024			638
Cash and cash equivalents at end of period		7,097			183