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 June 30, 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 re-
quired to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
Yes [x] No [ ]
Number of shares of Common Stock outstanding as of August 1, 1995: 869,167.
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
(in thousands, except per share amounts)
<CAPTION>
June 30, December 31,
1995 1994
_______ _______
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 1,286 $ 3,124
Accounts receivable, principally
U. S. Government . . . . . . . . . . . . . . . . . . 11,973 10,922
Deferred tax assets . . . . . . . . . . . . . . . . . 1,259 1,491
Other current assets . . . . . . . . . . . . . . . . . 1,106 858
_______ _______
Total current assets . . . . . . . . . . . . . . . . 15,624 16,395
Property and equipment, net . . . . . . . . . . . . . . 2,912 3,078
Deferred tax assets . . . . . . . . . . . . . . . . . . 0 248
Intangible assets . . . . . . . . . . . . . . . . . . . 2,437 102
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,787 1,449
_______ _______
Total assets . . . . . . . . . . . . . . . . . . . . $22,760 $21,272
======= =======
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable and other current liabilities . . . . $ 1,761 $ 2,485
Accrued expenses . . . . . . . . . . . . . . . . . . 6,351 5,661
Accrued income taxes . . . . . . . . . . . . . . . . . 212 70
Dividends payable . . . . . . . . . . . . . . . . . . 69 69
_______ _______
Total current liabilities . . . . . . . . . . . . . 8,393 8,285
Long-term debt . . . . . . . . . . . . . . . . . . . . . 74 0
Deferred tax liability . . . . . . . . . . . . . . . . . 392 0
Deferred compensation . . . . . . . . . . . . . . . . . 1,136 886
_______ _______
Total liabilities . . . . . . . . . . . . . . . . . 9,995 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 . . . . . . . . . . . . . . . . . . 20,615 20,042
Treasury stock, at cost (1,078,877 shares) . . . . . . (16,194) (16,285)
_______ _______
Total stockholders' investment . . . . . . . . . . . 12,765 12,101
_______ _______
Total liabilities and stockholders' investment . . . $22,760 $21,272
======= =======
</TABLE>
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income For the three and six months ended June 30,
(in thousands, except per share amounts)
<CAPTION>
1995 1994
_________________ _________________
Three Six Three Six
Months Months Months Months
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues, principally from contracts . . $17,110 $33,265 $16,290 $33,769
Costs and expenses of contracts . . . . . 16,687 31,964 15,665 32,215
_______ ______ ______ ______
Gross profit . . . . . . . . . . . . . . 423 1,301 625 1,554
Selling, general and administrative
expenses . . . . . . . . . . . . . . . (62) 151 34 376
Interest expense . . . . . . . . . . . . 8 12 6 11
_______ _______ _______ _______
Pretax income . . . . . . . . . . . . . . 477 1,138 585 1,167
Provision for income taxes . . . . . . . 180 427 231 460
_______ _______ _______ _______
Net income . . . . . . . . . . . . . . . $ 297 $ 711 $ 354 $ 707
======= ======= ======= =======
Earnings per common share, based on
weighted average shares outstanding: $ .34 $ .82 $ .41 $ .82
======= ======= ======= =======
Weighted average shares outstanding 864,667 864,024 863,167 863,167
======= ======= ======= =======
</TABLE>
<PAGE>
<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 $(16,285)
Net income for the year. . . . . -- -- -- 707 --
Dividends declared ($.15). . . . -- -- -- (129) --
______ ____ ______ _______ ________
Balance at June 30, 1994 . . . . 1,948 $97 $8,247 $19,335 $(16,285)
====== ==== ====== ======= ========
Balance at December 31, 1994 . . 1,948 $97 $8,247 $20,042 $(16,285)
Net income for the year. . . . . -- -- -- 711 --
Dividends declared ($.16). . . . -- -- -- (138) --
Issuance of Treasury Stock . . . -- -- -- -- 91
______ ____ ______ _______ ________
Balance at June 30, 1995 . . . . 1,948 $97 $8,247 $20,615 $(16,194)
====== ==== ====== ======= ========
</TABLE>
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Cash Flows For the six months ended June 30,
(in thousands)
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 711 $ 707
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization . . . . . . . . . . . . . . 715 545
(Gain) on sale of property and equipment . . . . . . . . (3) (14)
Deferred compensation plan expense . . . . . . . . . . . 63 0
Change in assets and liabilities -
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . . (1,051) 5,750
Intangible assets . . . . . . . . . . . . . . . . . . (2,335) 30
Other current assets and noncurrent assets . . . . . . (586) (215)
Deferred tax assets . . . . . . . . . . . . . . . . . . 480 (425)
Increase (decrease) in:
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . . . . . . . (628) (1,295)
Accrued expenses. . . . . . . . . . . . . . . . . . . . 690 305
Accrued and deferred taxes . . . . . . . . . . . . . . 142 (37)
Deferred tax liability . . . . . . . . . . . . . . . . 392 0
_______ _______
Net cash (used in) provided by operations . . . . . . (1,410) 5,351
_______ _______
Cash flows from investing activities:
Purchase of property and equipment,
(net of dispositions). . . . . . . . . . . . . . . . . . . (546) (203)
Issuance of treasury shares . . . . . . . . . . . . . . . . 91 0
_______ _______
Net cash used in investing activities . . . . . . . . . . (455) (203)
_______ _______
Cash flows from financing activities:
Proceeds from (payments of) long-term debt . . . . . . . . 71 (2,684)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . (138) (129)
Proceeds from (payments of) deferred
compensation . . . . . . . . . . . . . . . . . . . . . . 94 (99)
_______ _______
Net cash provided by (used in) financing activities . . . 27 (2,912)
_______ _______
Net increase (decrease) in cash and cash equivalents . . . . (1,838) 2,236
Cash and cash equivalents at beginning of year. . . . . . . 3,124 1,032
_______ _______
Cash and cash equivalents at end of year. . . . . . . . . . $ 1,286 $ 3,268
======= =======
</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 and six month periods ended
June 30, 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.
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include VSE Corporation ("VSE" or the
"company"), Value Systems Services ("VSS"), Human Resource Systems, Inc.
("HRSI"), Schmoldt Engineering Services ("Schmoldt Engineering"), VSE Corona,
Inc. ("VCI"), VSE Services Corporation ("VSES"), and CMstat Corporation
("CMstat"). All significant intercompany transactions have been eliminated in
consolidation. Certain prior year balances have been restated for comparative
purposes.
(2) CMstat Corporation Acquisition
On May 31, 1995 the company acquired all of the outstanding stock of CMstat
Corporation, a leading developer and supplier of commercial off-the-shelf
configuration and product data management solutions, for approximately $970
thousand in cash. CMstat designs, manufactures, and supports the software
developed for commercial and government customers. The acquisition was
accounted for by the purchase method of accounting. The results of operations
for the period May 31, 1995 through June 30, 1995 and the balance sheets as of
June 30, 1995 are included in these financial statements. The company has
recorded intangible assets of $2.4 million allocating approximately $400
thousand of Goodwill , $1.2 million of intangible assets and $800 thousand of
deferred taxes thereon. These allocations are based on preliminary estimates
by management. The allocations to intangible assets may be revised at a later
date, however, the impact of the differences, if any, in the final allocations
are not expected to have a material impact on the financial statements.
Goodwill and intangible assets are being amortized by the straight-line method
over periods from seven to ten years.
<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 and six month periods ended June 30, 1995 and 1994 (in thousands).
<CAPTION>
Three Months Six Months 1995 Compared to 1994
Ended June 30 Ended June 30 Three Six
1995 1994 1995 1994 Months Months
_______ _______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C> <C>
Revenues, principally
from contracts . . . $17,110 $16,290 $33,265 $33,769 $ 820 $ (504)
======= ======= ======= ======= ====== =======
Pretax income . . . . $ 477 $ 585 $ 1,138 $ 1,167 $ (108) $ (29)
Provision for
income taxes . . . . 181 231 427 460 (150) (33)
_______ _______ _______ _______ ______ ______
Net income . . . . . . $ 296 $ 354 $ 711 $ 707 $ (58) $ 4
======= ======= ======= ======= ====== =======
</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"), VSE Services Corporation ("VSES"), all of which
operate principally in the engineering, development, testing, and management
services industry, and CMstat Corporation ("CMstat"), acquired in May of 1995,
which operates in the software development industry. Intercompany sales are
principally at cost.
Revenues for the three month period ending June 30, 1995 increased by about 5%
compared to the same period of 1994. The increase in revenues is primarily due
to an increase in the level of services performed by VSS associated with the VSS
Navy contract. (See the discussion about the "VSS Contract" below.) The in-
crease in revenues for the period was offset by decreases in the level of
services performed by VSE and Schmoldt Engineering.
Pretax income for the three month period ended June 30, 1995 decreased compared
to the same period of 1994. The decrease in pretax income is primarily due to
costs associated with the acquisition and initial month of activity of CMstat in
May of 1995 and a decrease in profits associated with the lower revenue levels
of Schmoldt Engineering.
Revenues and pretax income for the six month period ending June 30, 1995
remained substantially unchanged compared to the same period of 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 competi-
tion, 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.
<PAGE>
VSE CORPORATION
Management Discussion and Analysis
Substantially all of the company's revenues from continuing operations depend on
the exercise 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
termination of contracts for the convenience of the Government or any non-
exercise of option periods on current contracts which were material to the
company's business. Additional revenues from acquisitions such as CMstat are
options the company continues to pursue.
VSE Contract. VSE has a contract with the U. S. Navy which accounted for
approximately 18% of consolidated revenues for the six month period ended
June 30, 1995. This contract was scheduled to expire in September 1992, but has
been extended through September 1995. The Navy has announced that it intends to
combine the work performed under this contract with other related work, and VSE
has been informed that it was not the successful bidder 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 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 11% of VSE's consolidated revenues for the six
month period ended June 30, 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 is 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 contract
generated revenues to VSS equal to approximately 13% of consolidated revenues
during the six month period ended June 30, 1995.
Liquidity and Capital Resources
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 June
30, 1995, VSE had no borrowings outstanding under its $8 million bank loan.
Management believes that the cash flows from operations and available bank loan
commitments are adequate to meet current operating cash requirements.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
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 ren-
dered. Such accounts receivable generally do not present liquidity or collec-
tion 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 payment for such
costs from the Government. However, such contracts generally provide for
progress payments on a monthly or semimonthly basis, thereby reducing require-
ments for working capital.
Cash dividends were declared at $.16 per share during the six month period ended
June 30, 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 over-
all 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
six month period ended June 30, 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 under-
signed thereunto duly authorized.
VSE CORPORATION
Date: August 14, 1995 C. S. Weber
C. S. Weber, Senior Vice President,
Secretary and Treasurer
(Principal Financial Officer)
Date: August 14, 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 manage-
ment, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,286
<SECURITIES> 0
<RECEIVABLES> 11,973
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,365
<PP&E> 2,912
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,760
<CURRENT-LIABILITIES> 8,393
<BONDS> 0
<COMMON> 97
0
0
<OTHER-SE> 12,668
<TOTAL-LIABILITY-AND-EQUITY> 22,760
<SALES> 33,265
<TOTAL-REVENUES> 33,265
<CGS> 31,964
<TOTAL-COSTS> 31,964
<OTHER-EXPENSES> 151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 1,138
<INCOME-TAX> 427
<INCOME-CONTINUING> 711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
