SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 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 [ ]
Number of shares of Common Stock outstanding as of May 1, 1995: 863,167.
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
(in thousands, except per share amounts)
<CAPTION>
March 31, December 31,
1995 1994
_______ _______
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 4,302 $ 3,124
Accounts receivable, principally
U. S. Government . . . . . . . . . . . . . . . . 9,910 10,922
Deferred tax assets . . . . . . . . . . . . . . . 1,332 1,491
Other current assets . . . . . . . . . . . . . . . 901 858
_______ _______
Total current assets . . . . . . . . . . . . . . 16,445 16,395
Property and equipment, net . . . . . . . . . . . . 2,949 3,078
Deferred tax assets . . . . . . . . . . . . . . . . 318 248
Other assets . . . . . . . . . . . . . . . . . . . . 1,710 1,551
_______ _______
Total assets . . . . . . . . . . . . . . . . . . $21,422 $21,272
======= =======
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable and other current liabilities . . $ 1,701 $ 2,485
Accrued expenses . . . . . . . . . . . . . . . . 6,034 5,661
Accrued income taxes . . . . . . . . . . . . . . . 225 70
Dividends payable . . . . . . . . . . . . . . . . 69 69
_______ _______
Total current liabilities . . . . . . . . . . . 8,029 8,285
_______ _______
Deferred compensation . . . . . . . . . . . . . . . 947 886
_______ _______
Total liabilities . . . . . . . . . . . . . . . 8,976 9,171
_______ _______
Commitments and contingencies
Stockholders' investment:
Common stock, par value $.05 per share, authorized
5,000,000 shares; issued 1,948,044 shares . . . 97 97
Paid-in surplus . . . . . . . . . . . . . . . . . 8,247 8,247
Retained earnings . . . . . . . . . . . . . . . . 20,387 20,042
Treasury stock, at cost (1,084,877 shares) . . . . (16,285) (16,285)
_______ _______
Total stockholders' investment . . . . . . . . . 12,446 12,101
_______ _______
Total liabilities and stockholders' investment . $21,422 $21,272
======= =======
</TABLE>
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<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income For the three months ended March 31,
(in thousands, except share amounts)
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Revenues, principally from contracts . . . . . . . . . . $16,155 $17,479
Costs and expenses of contracts . . . . . . . . . . . . . 15,277 16,550
_______ _______
Gross profit . . . . . . . . . . . . . . . . . . . . . . 878 929
Selling, general and administrative expenses . . . . . . 213 342
Interest expense . . . . . . . . . . . . . . . . . . . . 4 5
_______ _______
Pretax income . . . . . . . . . . . . . . . . . . . . . . 661 582
Provision for income taxes . . . . . . . . . . . . . . . 247 229
_______ _______
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 414 $ 353
======= =======
Earnings per common share, based on weighted
average shares outstanding: $ .48 $ .41
======= =======
Weighted average shares outstanding 863,167 863,167
======= =======
</TABLE>
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<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Stockholders' Investment
(in thousands)
<CAPTION>
Common Stock Paid-In Retained Treasury
Shares Amount Surplus Earnings Stock
______ ______ _______ _______ ________
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 . 1,948 $97 $8,247 $18,757 $(16,285)
Net income for the year. . . . -- -- -- 1,553 --
Dividends declared ($.31). . . -- -- -- (268) --
_____ ___ ______ _______ ________
Balance at December 31, 1994 . 1,948 97 8,247 20,042 (16,285)
Net income for the year. . . . -- -- -- 414 --
Dividends declared ($.08). . . -- -- -- (69) --
_____ ___ ______ _______ ________
Balance at March 31, 1995. . . 1,948 $97 $8,247 $20,387 $(16,285)
===== === ====== ======= ========
</TABLE>
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Cash Flows For the three months ended March 31,
(in thousands)
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 414 $ 353
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization . . . . . . . . . . . 246 286
(Gain)Loss on sale of property and equipment . . . 3 (1)
Deferred compensation plan expense . . . . . . . . 31 15
Change in assets and liabilities -
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . 1,012 4,301
Other current assets and noncurrent assets . . . (217) (219)
Deferred tax assets . . . . . . . . . . . . . . . 89 (466)
Increase (decrease) in:
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . . . . (784) (1,203)
Accrued expenses. . . . . . . . . . . . . . . . . 373 563
Accrued and deferred taxes . . . . . . . . . . . 155 428
_______ _______
Net cash provided by operations . . . . . . . . 1,322 4,057
_______ _______
Cash flows from investing activities:
Purchase of property and equipment,
(net of dispositions). . . . . . . . . . . . . . . . (105) (63)
_______ _______
Net cash used in investing activities . . . . . . . (105) (63)
_______ _______
Cash flows from financing activities:
Net payments of revolving term loan . . . . . . . . . (97) (2,684)
Cash dividends paid . . . . . . . . . . . . . . . . . (69) (65)
(Payments of) and proceeds from deferred
compensation . . . . . . . . . . . . . . . . . . . 127 (22)
_______ _______
Net cash used in financing activities . . . . . . . (39) (2,771)
_______ _______
Net increase in cash and cash equivalents . . . . . . . 1,178 1,223
Cash and cash equivalents at beginning of year. . . . 3,124 1,032
_______ _______
Cash and cash equivalents at end of year. . . . . . . $ 4,302 $ 2,255
======= =======
</TABLE>
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1995 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information refer to the consolidated
financial statements and footnotes thereto included in the VSE Corporation
annual report on Form 10-K for the year ended December 31, 1994.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
The following table sets forth certain items, including consolidated revenues,
pretax income, and net income and the amount of changes of such items for the
three month periods ended March 31, 1995 and 1994 (in thousands).
<CAPTION>
1995
Compared
to
1995 1994 1994
_______ _______ _______
<S> <C> <C> <C>
Revenues, principally from contracts . . . . . $16,155 $17,479 $(1,324)
======= ======= =======
Pretax income . . . . . . . . . . . . . . . . $ 661 $ 582 $ 79
Provision for income taxes . . . . . . . . . . 247 229 18
_______ _______ _______
Net income . . . . . . . . . . . . . . . . . . $ 414 $ 353 $ 61
======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
The results of operations includes the operations of VSE Corporation ("VSE" or
the "company"), Value Systems Services ("VSS"), Human Resource Systems, Inc.
("HRSI"), Schmoldt Engineering Services Company ("Schmoldt Engineering"), VSE
Corona, Inc. ("VCI"), and VSE Services Corporation ("VSES"), all of which
operate principally in the engineering, development, testing, and management
services industry. Intercompany sales are principally at cost.
Revenues for the three month period ended March 31, 1995 decreased by
approximately 7.6% compared to the same period of 1994. The decrease in revenues
is attributable primarily to decreases in the level of services performed by
VSE, VSS and Schmoldt Engineering.
Pretax income for the three month period ended March 31, 1995 increased by about
13.6%. The increase in pretax income is attributable primarily to a difference
in the timing of award fees received by VSS in 1995 compared to 1994. Pretax
income of the remaining operating entities were substantially unchanged from
1994.
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 materially adverse impact on the company's
revenues, results of operations, and financial position.
Substantially all of the company's revenues from continuing operations depend on
the excercise of option periods and the satisfaction of incremental funding
requirements on current contracts, on current contracts not being terminated for
the convenience of the Government, and on the incremental funding requirements
on current contracts. In 1995 and 1994 the company did not experience any
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
termination of contracts for the convenience of the Government or any non-exer-
cise of option periods on current contracts which were material to the company's
business.
VSE Contract. VSE has a contract with the U. S. Navy which accounted for
approximately 19% of consolidated revenues for the three month period ended
March 31, 1995. This contract was scheduled to expire in September 1992, but
has been extended through June 1995. The Navy has announced that it intends to
combine the work performed under this contract with other related work, and VSE
has submitted a bid for the proposed new contract. The inability to predict
whether VSE will obtain further extensions of its current Navy contract or will
be awarded other contracts to replace this work, including the proposed con-
tract, is a known uncertainty which could have a material adverse effect on
future revenues, profits, and financial position.
VSS Subcontract. In October 1991 VSS was awarded a subcontract to provide
certain services in connection with a U. S. Marine Corps contract. Services
under the subcontract commenced in January 1992. The subcontract generated
revenues to VSS equal to about 15% of VSE's consolidated revenues for the three
month period ended March 31, 1994. A protest against the award of the prime
contract was sustained by the General Accounting Office (GAO) in February 1992,
and in October 1993, a new prime contract was awarded to a different
contractor. A protest of the new award was denied and substantially all work on
the VSS subcontract terminated effective April 23, 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. The award of this contract was protested and performance was
suspended during the protest period. The protest was denied in September 1994
and VSS began work on the contract immediately thereafter. The realization of
these revenues is dependent upon the level of work ordered by the customer
through individual work orders. The contract generated revenues to VSS equal to
approximately 13% of consolidated revenues during the three month period ended
March 31, 1995.
Liquidity and Capital Resources
Net cash flows from operations of approximately $1.3 million through March 31,
1995 were used primarily to pay for approximately $100 thousand of property and
equipment, to eliminate short term borrowings of approximately $100 thousand
under VSE's $8 million bank loan and to pay dividends of approximately $69
thousand. Additionally, cash and cash equivalents increased by approximately
$1.2 million during the period.
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. As of March
31, 1995, VSE had no borrowings outstanding under its $8 million bank loan.
Management believes that the cash flows from operations are adequate to meet
current operating cash requirements.
VSE's requirements for working capital are affected significantly by its
revenues and accounts receivable, which arise primarily from billings made by
the company to the U. S. Government or other prime contractors for services
rendered. Such accounts receivable generally do not present liquidity or
collection problems.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
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
payment 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.
Cash dividends were declared at the rate of $.08 per share during the three
month period ended March 31, 1995. Pursuant to its bank loan agreement, the
payment of cash dividends by VSE may not exceed an annual rate of $.60 per
share. VSE has paid cash dividends each year since 1973.
Inflation and Pricing Policy
Most of the contracts performed by VSE provide for estimates of future
labor costs to be escalated for any future option periods provided by the
contracts, while the non-labor costs included in such contracts are normally
considered reimbursable at the then current 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.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed by the Registrant during
the three month period ended March 31, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has omitted all other items contained in "Part II. Other
Information" because such other items are not applicable or are not required if
the answer is negative or because the information required to be reported
therein has been previously reported.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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: May 15, 1995 C. S. Weber
C. S. Weber, Senior Vice President,
Secretary and Treasurer
(Principal Financial Officer)
Date: May 15, 1995 T. J. Corridon
T. J. Corridon, Vice President
and Director of Accounting
(Principal Accounting Officer)
The financial information included in this report reflects all known adjustments
normally determined or settled at year-end which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods. The accompanying note to consolidated financial statements are an
integral part of this report.
