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, 1997 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 August 1, 1997: 1,732,334.
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<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
(in thousands, except share amounts)
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 302 $ 453
Accounts receivable, principally
U. S. Government, net . . . . . . . . . . . . . 24,771 33,707
Deferred tax assets . . . . . . . . . . . . . . . 493 435
Other current assets . . . . . . . . . . . . . . . 2,484 1,916
-------- --------
Total current assets . . . . . . . . . . . . . . 28,050 36,511
Property and equipment, net . . . . . . . . . . . . 5,769 5,145
Capitalized software development costs, net . . . . 902 966
Intangible assets, net . . . . . . . . . . . . . . . 3,240 3,409
Other assets . . . . . . . . . . . . . . . . . . . . 2,656 2,310
-------- --------
Total assets . . . . . . . . . . . . . . . . . . $ 40,617 $ 48,341
======== ========
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable and other current liabilities . . $ 7,070 $ 13,508
Accrued expenses . . . . . . . . . . . . . . . . 6,038 5,841
Dividends payable . . . . . . . . . . . . . . . . 78 78
-------- --------
Total current liabilities . . . . . . . . . . . 13,186 19,427
Long-term debt . . . . . . . . . . . . . . . . . . . 12,170 12,651
Deferred tax liabilities . . . . . . . . . . . . . . 384 554
Deferred compensation . . . . . . . . . . . . . . . 1,271 1,114
-------- --------
Total liabilities . . . . . . . . . . . . . . . 27,011 33,746
-------- --------
Commitments and contingencies
Stockholders' investment:
Common stock, par value $.05 per share, authorized
5,000,000 shares; issued 3,908,088 shares . . . 195 195
Paid-in surplus . . . . . . . . . . . . . . . . . 8,241 8,241
Retained earnings . . . . . . . . . . . . . . . . 22,251 22,840
ESOP obligation . . . . . . . . . . . . . . . . . (680) (350)
Unrealized loss on available-for-sale security . . (46) (46)
Treasury stock, at cost (2,175,754 in 1997 and
2,169,754 shares in 1996) . . . . . . . . . . . (16,355) (16,285)
-------- --------
Total stockholders' investment . . . . . . . . . 13,606 14,595
-------- --------
Total liabilities and stockholders' investment . $ 40,617 $ 48,341
======== ========
</TABLE>
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<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 share amounts)
<CAPTION>
1997 1996
----------------- -----------------
Three Six Three Six
Months Months Months Months
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues, principally from
contracts . . . . . . . . . . . . $ 32,170 $ 79,664 $ 24,476 $ 44,114
Costs and expenses of contracts . . 32,159 79,511 23,638 42,122
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . 11 153 838 1,992
Selling, general and administrative
expenses . . . . . . . . . . . . . 150 630 (38) 159
Interest expense . . . . . . . . . . 131 277 97 239
--------- --------- --------- ---------
Pretax income (loss) from continuing
operations . . . . . . . . . . . . (270) (754) 779 1,594
Provision (benefit) for income
taxes . . . . . . . . . . . . . . (114) (321) 312 659
--------- --------- --------- ---------
Income (loss) from continuing
operations . . . . . . . . . . . . (156) (433) 467 935
Discontinued operations, net of tax:
Loss from operations (net of tax
benefit of
$14 in 1996) . . . . . . . . . . 0 0 0 (25)
Loss on disposal (net of tax
benefit of $118) . . . . . . . . 0 0 0 (179)
--------- --------- --------- ---------
Net income (loss) . . . . . . . . $ (156) $ (433) $ 467 $ 731
========= ========= ========= =========
Earnings per common share, based on
weighted average shares outstanding:
Income (loss) from continuing
operations . . . . . . . . . . . $ (.09) $ (.25) $ .27 $ .54
Loss from discontinued
operations . . . . . . . . . . . 0 0 0 (.12)
--------- --------- --------- ---------
Net income (loss) . . . . . . . . $ (.09) $ (.25) $ .27 $ .42
========= ========= ========= =========
Weighted average shares outstanding 1,697,368 1,705,550 1,738,334 1,738,334
========= ========= ========= =========
</TABLE>
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<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Stockholders' Investment
- -------------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
Unrealized
Loss on
Available-
Common Stock Paid-In Retained Treasury ESOP for-Sale-
Shares Amount Surplus Earnings Stock Obligation Securities
------ ------ ------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 . . . 1,954 $ 98 $8,338 $21,402 $(16,285) $ 0 $ 0
Net income
for the year . . . . . -- -- -- 1,742 -- -- --
ESOP obligation . . . . . -- -- -- -- -- (350) --
Stock split effected in
the form of a 100%
stock dividend . . . . 1,954 97 (97) -- -- -- --
Unrealized loss
on marketable
securities . . . . . . -- -- -- -- -- -- (46)
Dividends declared
($.1725) . . . . . . . -- -- -- (304) -- -- --
----- ---- ------ ------- -------- ----- ----
Balance at
December 31, 1996 . . . 3,908 195 8,241 22,840 (16,285) (350) (46)
Net loss
for the period . . . . -- -- -- (433) -- -- --
Purchase of Treasury
Stock . . . . . . . . . -- -- -- -- (70) -- --
ESOP obligation . . . . . -- -- -- -- -- (330) --
Dividends declared
($.045) . . . . . . . . -- -- -- (156) -- -- --
----- ---- ------ ------- -------- ----- ----
Balance at
June 30, 1997 . . . . . 3,908 $195 $8,241 $22,251 $(16,355) $(680) $(46)
===== ==== ====== ======= ======== ===== ====
</TABLE>
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<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>
1997 1996
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . $ (433) $ 731
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Depreciation and amortization . . . . . . . . . . . . . 993 630
Discontinued operations . . . . . . . . . . . . . . . . 0 204
Deferred compensation plan expense . . . . . . . . . . 119 102
Change in assets and liabilities, net of
discontinued operations
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . 8,936 (6,356)
Other current assets and noncurrent assets . . . . . (745) (171)
Deferred taxes, net . . . . . . . . . . . . . . . . (228) (69)
Increase (decrease) in:
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . . . . . . (6,400) 974
Accrued expenses. . . . . . . . . . . . . . . . . . . 197 352
------- ------
Net cash used in continuing operations . . . . . . 2,439 (3,603)
Net cash used in discontinued operations . . . . . 0 (25)
------- ------
Net cash provided by (used in)
operating activities 2,439 (3,628)
------- ------
Cash flows from investing activities:
Purchase of property and equipment,
(net of dispositions). . . . . . . . . . . . . . . . . . (1,352) (796)
Capitalized software development costs . . . . . . . . . (201) 0
Net proceeds from sale of Schmoldt Engineering . . . . . 0 100
Change in net assets of discontinued operations . . . . . 0 439
------- ------
Net cash (used in) investing activities (1,553) (257)
------- ------
Cash flows from financing activities:
Net payments of revolving term loan . . . . . . . . . . . (481) 3,763
Advance to ESOP . . . . . . . . . . . . . . . . . . . . . (330) 0
Purchase of treasury stock . . . . . . . . . . . . . . . (70) 0
Cash dividends paid . . . . . . . . . . . . . . . . . . . (156) (148)
------- ------
Net cash (used in) provided by financing activities (1,037) 3,615
------- ------
Net (decrease) in cash and cash equivalents . . . . . . . . (151) (270)
Cash and cash equivalents at beginning of period . . . . 453 601
------- ------
Cash and cash equivalents at end of period . . . . . . . $ 302 $ 331
======= =======
</TABLE>
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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 six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
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.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS
130"). FAS 130 requires a company to report comprehensive income and its
components in a full set of general-purpose financial statements. The company
is required to adopt the provisions of the standard during the first quarter of
1998, and when adopted, will require reclassification of prior years' financial
statements. There will be no material difference between comprehensive income
and historical net income reported by the company.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128") which
supersedes Accounting Principles Board Opinion No. 15. FAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock. The objective of FAS 128
is to simplify the computation of EPS and to make the U. S. Standard for
computing EPS more compatible with international EPS computations. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. The company will be required to adopt FAS 128 in the fourth quarter of
1997 and does not expect the adoption to have a material impact on the company's
EPS.
Litigation
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.
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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debt
Long-term debt as of June 30, 1997 and December 31, 1996 was as follows (in
thousands):
1997 1996
------- -------
Revolving term loan borrowings and commitments . . $12,156 $12,629
Other debt . . . . . . . . . . . . . . . . . . . . 14 22
------- -------
$12,170 $12,651
======= =======
At June 30, 1997, VSE had a revolving term loan agreement (the "Loan") with a
syndicate of three banks. Under the Loan, VSE could borrow up to $45 million,
subject to a borrowing formula based on billed receivables. The Loan contained
collateral requirements by which company assets were secured and restrictive
covenants that included minimum tangible net worth and profitability require-
ments and a limit on annual dividends. The company was in default of certain
of the loan covenants as of June 30, 1997. In July, 1997 the company and its
lending banks signed an amended loan agreement (the "Amended Loan") which was
intended to cure the covenant defaults associated with the existing loan, to
include a term loan portion of debt in addition to the revolving loan debt, and
to make certain other changes to the lending agreement. Under the revolving
loan portion of the Amended Loan, VSE can borrow up to $30 million, subject to
a borrowing formula based on billed receivables. Interest is charged at a
prime-based rate or an optional LIBOR-based rate, 8.5% and 7.9%, respectively,
as of June 30, 1997. A commitment fee is charged on the unused portion of the
revolving loan commitment. The termination date of the revolving loan is
May 31, 1999. Under the term loan portion of the Amended Loan, VSE converted
$4 million of existing revolving loan debt to a term loan payable over four
years. Interest is charged at a LIBOR-based rate 1% higher than the LIBOR-based
rate charged on the revolving loan. Principal payments are due in monthly
installments beginning in August 1998 through July 2001. The Amended Loan
contains collateral requirements by which company assets are secured and
restrictive covenants that include minimum tangible net worth and cash flow
requirements and a limit on annual dividends, and limits on advances to
affiliates.
Commitments are for checks outstanding at June 30, 1997 and December 31, 1996
of approximately $2 million and $7.7 million, respectively.
Other debt is related to debt acquired in the acquisition of CMstat.
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<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
<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, 1997 and 1996 (in thousands).
<CAPTION>
1997
Compared
to
1996
Three Months Six Months ---------------
Ended June 30, Ended June 30, Three Six
1997 1996 1997 1996 Months Months
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from con-
tinuing operations . . $32,170 $24,476 $79,664 $44,114 $ 7,694 $35,550
======= ======= ======= ======= ======= =======
Pretax income (loss)
from continuing
operations . . . . . . $ (270) $ 779 $ (754) $ 1,594 $(1,049) $(2,348)
Provision (benefit) for
income taxes . . . . . (114) 312 (321) 659 (426) (980)
------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations. (156) 467 (433) 935 (623) (1,368)
(Loss) from discontinu-
ed operations, net
of taxes . . . . . . . 0 0 0 (204) 0 204
------- ------- ------- ------- ------- -------
Net income (loss) . . . $ (156) $ 467 $ (433) $ 731 $ (623) $(1,164)
======= ======= ======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
The discussion and analysis which follows is intended to assist in understanding
and evaluating the results of continuing operations, financial condition, and
certain other matters of VSE Corporation and its wholly owned subsidiaries
("VSE" or the "company"), CMstat Corporation ("CMstat"), Energetics Incorporated
("Energetics"), Human Resource Systems, Inc. ("HRSI"), and Value Systems
Services Division ("VSS") and BAV Division ("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"). Two other VSE subsidiaries, VSE Corona, Inc. ("VCI") and VSE
Services Corporation ("VSES") have generally been inactive since 1992. Inter-
company sales are principally at cost. All significant intercompany transac-
tions have been eliminated in consolidation. Certain prior year balances have
been reclassified for comparative purposes.
Revenues for the three and six month periods ended June 30, 1997 increased by
approximately 31% and 81%, respectively, compared to the same periods of 1996.
The increase in revenues is primarily due to an increase in work performed by
BAV in 1997. See the discussion about the "BAV Contract" below. The level of
revenues generated by the BAV Contract will vary depending on the timing of
ship transfers and associated support services ordered by foreign governments.
The level of BAV contract revenues experienced during these periods is not
necessarily indicative of the levels to be expected every period.
The company had a net loss from continuing operations for the three and six
month periods ended June 30, 1997 of approximately $156 thousand and $433
thousand, respectively, as compared to net income from continuing operations of
approximately $467 thousand and $935 thousand, respectively, for the same
periods in 1996. The losses were due almost entirely to the pretax operating
loss experienced by CMstat of approximately $1.3 million during the three month
period and approximately $2.9 million during the six month period ended June 30,
1997. CMstat's loss for these periods was primarily attributable to the failure
to consummate several large contracts and the higher operating costs incurred in
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<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
anticipation of such prospective large contracts. CMstat's business continues
to consist of large contracts with long sales cycles. Cost reduction efforts
have been implemented to reduce CMstat's operating cost levels and management
believes that future CMstat sales will return to a level commensurate with
operating expenses. The company's loss from continuing operations was partially
offset by profits generated by the company's other businesses.
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, resulting in increased competition. There can
be no assurance that future reductions in the Defense budget will not have a
materially 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 1997 and 1996 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 results of operations or financial position.
The company expects that it will experience significant fluctuations in
quarterly operating results due largely to the nature of CMstat's business.
CMstat's future operating results will depend upon a number of factors, in-
cluding the demand for its products, the size and timing of specific sales, the
delay or deferral of customer implementations, the level of product and price
competition that it encounters, the length of its sales cycles, the successful
expansion of its direct sales force and customer support organization, the
timing of new product introductions and product enhancements by CMstat and its
competitors, the mix of products and services sold, the activities of and
acquisitions by its competitors, the timing of new hires and its ability to
develop and market new products and control costs. CMstat's operating results
could also be affected by general economic conditions. In addition, the
decision to license and implement an enterprise-level business software system
is usually discretionary, involves a significant commitment of customer re-
sources and is subject to delays, and to budget cycles and internal authoriza-
tion procedures of CMstat's customers. The loss or delay of individual orders
could have a significant impact on CMstat's operating results, particularly on a
quarterly basis. Furthermore, while CMstat's revenue from license fees is
difficult to predict because of the length and variability of CMstat's sales
cycles, CMstat's operating expenses are based on anticipated revenue trends.
Because a high percentage of these expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter. To the
extent such expenses precede, or are not subsequently followed by, anticipated
revenue, the Company's operating results could be materially and adversely
affected.
CMstat derives substantially greater profit margins from license fees than from
service revenues or from third-party equipment and software. The mix of
revenues among these three components can fluctuate materially from quarter to
quarter, and such fluctuations can have a significant effect on margins. Over
the past year, the percentage of the company's total revenues represented by
service revenues has increased slightly. Should lower margin service revenues
or revenues from third-party equipment and software increase in the future as a
percentage of the company's total revenues, CMstat's margins and income from
operations could be adversely affected.
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<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
As a result of these and other factors, the company's operating results for any
quarter are subject to significant variation, and the company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
It is likely that the company's future quarterly operating results from time to
time may not be consistent with prior year quarterly results.
BAV Contract. VSE's BAV Division provides services under a U. S. Navy contract
for engineering, technical and logistical support services associated with the
sale, lease, or transfer of Navy ships to foreign governments. Work on this
contract accounted for approximately 51% of consolidated revenues for the six
month period ended June 30, 1997 and approximately 14% of consolidated revenues
for the six month period ended June 30, 1996. 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.
Discontinued Operation
On February 7, 1996, VSE sold its wholly owned subsidiary Schmoldt Engineering
Services Company ("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 $100 thousand in cash and a
$300 thousand promissory note for which principal and interest is payable in
installments between March 1, 1996 and September 1, 2001. The transaction
resulted in a net loss of approximately $200 thousand to VSE.
Liquidity and Capital Resources
A net decrease in cash and cash equivalents of approximately $151 thousand
during the six month period ended June 30, 1997 resulted from approximately $2.4
million provided by operating activities, approximately $1.5 million used in
investing activities, and approximately $1 million used in financing activities.
Significant operating activities affecting cash flows included fluctuations in
BAV contract activity that resulted in cash provided by decreased accounts
receivable, which was offset partially by cash used to decrease accounts payable
and the operating loss in CMstat. Significant investing activities included
approximately $1.4 million associated with the purchase of property and
equipment. Significant financing activities included decreased borrowing on the
company's revolving term loan, including commitments for checks outstanding, of
approximately $481 thousand.
A net decrease in cash and cash equivalents of approximately $270 thousand
during the six months ended June 30, 1996 resulted from approximately $3.6
million provided by financing activities, approximately $3.6 million used in
operating activities and approximately $257 thousand used in investing
activities. Significant financing activities included increased borrowing on
the company's revolving term loan, including commitments for checks outstanding,
of approximately $3.8 million. Significant operating activities affecting cash
flows included an increase in BAV contract activity that resulted in cash used
in increased accounts receivable. Significant investing activities included
approximately $800 thousand net cash used to purchase property and equipment,
which was offset by approximately $100 thousand cash and $400 thousand change in
net assets provided by the divestiture of Schmoldt Engineering.
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 has increased the company's requirements for
cash,
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<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
however, management believes that the cash flows from operations and the bank
loan commitment are adequate to meet current operating cash requirements.
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 retain-
ages, (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.
Quarterly cash dividends at the rate of $.045 per share were declared during the
three month periods ended March 31 and June 30, 1997. Pursuant to its bank loan
agreement, the payment of cash dividends by VSE is subject to a maximum annual
rate. 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 option periods provided by the contracts, while
the non-labor costs included in such contracts are normally considered reimburs-
able 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.
Forward Looking Statements
This discussion contains statements which, to the extent they are not recita-
tions 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 contained in
herein, see VSE's Securities and Exchange Commission filings including,
but not limited to, VSE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (Form 10-K), including the discussions captioned "Future
Plans"; "Backlog" and "Competition and Risks"; and "Income from Continuing
Operations Before Income Taxes" contained respectively in VSE's "Letter to
Stockholders"; "Description of Business"; and "Management Discussion and
Analysis" in the VSE Corporation 1996 Annual Report incorporated by reference
and attached to VSE's Form 10-K filing and the Management Discussion and
Analysis contained herein.
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<PAGE>
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
PART II. Other Information
Item 5. Other Information.
On June 30, 1997, the Registrant filed a Form 11-K containing audited
financial statements for the VSE Corporation Employee ESOP/401(k) Plan for the
plan years ended December 27, 1996 and 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(11) Statement regarding computation of per share earnings.
Reference is made to the "Consolidated Statements of Income" included in Part I
of this Form 10-Q on the computation of per share earnings.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed by the Registrant during
the three month period ended June 30, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has omitted all other items contained in "Part II. Other Informa-
tion" 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.
-12-
<PAGE>
<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
/s/ C. S. WEBER
Date: August 14, 1997 -------------------------------------
C. S. Weber, Senior Vice President,
Secretary and Treasurer
(Principal Financial Officer)
/s/ T. J. CORRIDON
Date: August 14, 1997 -------------------------------------
T. J. Corridon, Senior Vice President
and Comptroller
(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 notes to consolidated financial statements are an
integral part of this report.
-13-
<PAGE>
<PAGE>
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<PERIOD-END> JUN-30-1997
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0
0
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<INCOME-PRETAX> (754)
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<NET-INCOME> (433)
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