SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999 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, 1999: 2,114,905.
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VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
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
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.
Global Economic Conditions
VSE's business is subject to the risks arising from global economic
conditions associated with potential foreign customers served through VSE's
contracts with the U.S. Government. Adverse economic conditions in certain
parts of the world could potentially affect BAV sales. Management is unable
to predict what, if any, impact such conditions may have on the company's
financial position or results of operations.
Year 2000
Overview. The Year 2000 problem, or the inability of many computerized
systems to properly recognize a date in the year 2000, could potentially
affect the company's ability to perform many common business functions. The
company recognizes the impact that this could have on its operating and
financial results and has implemented a Year 2000 Action Plan ("Y2K Plan") to
address the issue. The Y2K Plan includes: 1) Assignment of compliance
responsibilities to operating managers, staff directors, information
technology staff, contract administration and procurement staff, and
the Comptroller. Additionally, the company has assigned a Senior Vice
President to serve as the Y2K Coordinator, with responsibility for ensuring
development
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VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
and implementation of the Y2K Plan; 2) Development of a Y2K Communications
System to ensure proper information dissemination and reporting with regard
to Year 2000 compliance efforts; and 3) Development and implementation of a
Year 2000 Compliance Program ("Y2K Program").
State of Readiness. Ongoing assessments of the impact of the Year 2000 issue
on systems and operations have been formalized into the Y2K Program. The Y2K
Program includes phases for awareness, inventory and assessment, correction
and renovation (including validation and testing and implementation), and
contingency planning.
Awareness. Managers have been informed about the nature of the Year 2000
problem and what efforts the company is undertaking to address it. This
includes: distribution of reference materials and lists of vendor certified
Year 2000 compliant hardware, equipment, and software; selection of contact
points for each location and organization for Year 2000 compliance issues;
and assignment of responsibility for ensuring that operations are not
disrupted or are only minimally affected. At this time, all of the company's
initially identified efforts associated with the awareness phase have been
completed. Additional awareness efforts, if any, will be made as they become
known.
Inventory and Assessment. Identification has been made of all "Mission
Critical" actions or functions and of all hardware, equipment, software, and
embedded systems used to conduct the Mission Critical actions or functions.
"Mission Critical" is defined as an action or function that must happen in
order to serve a customer or line of business comprising more than 10% of the
revenue base or pre-tax profit of an organization within the company. This
phase includes: 1) Developing inventory listings of all hardware, equipment,
software, embedded systems, operating systems, custom user applications, and
contract obligations having a Year 2000 impact; 2) Analyzing and developing
corrective actions for each of the items on the inventory listings; 3)
Procuring programs and tools to provide compliance for the items on the
inventory listings; and 4) Surveying manufacturers and vendors to obtain
certification of their products as Year 2000 compliant. The inventory and
assessment phase is approximately 98% complete. Analysis of the items on the
inventory listing has been done primarily using internally administered
programs supplied by independent outside sources. Approximately 98% of the
hardware, equipment, and embedded systems and approximately 90% of the
software, operating systems, custom user applications and contract
obligations on the inventory listing have been found to be Year 2000
compliant.
Correction and Renovation. The items identified in the inventory and
assessment phase have been redesigned, repaired, converted, or replaced, as
necessary, to ensure Year 2000 compliance. Corrections and renovations are
documented and this documentation is distributed to the affected managers and
staff. Testing plans are developed and validation and testing occurs.
Risk analysis is conducted and contingency planning issues are identified.
The correction and renovation phase is in process and is expected to be
completed prior to December of 1999.
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VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
Costs. Costs incurred to date for Year 2000 compliance efforts have been
minimal and are included as part of the company's ongoing administrative
costs and have not been separately identified. The company continues to
upgrade and improve its information technology systems as part of its normal
effort to maintain a competitive edge. As these upgrades and improvements are
made, the company is ensuring that all are Year 2000 compliant. Therefore, the
majority of costs incurred for computer systems that ensure Year 2000
compliance are expenditures that are made in the normal course of business.
Total property and equipment expenditures for 1998, including expenditures for
computers and computer systems, were approximately $1.6 million. Expenditures
for 1999 are expected to remain at about the same level. Accordingly,
management believes that the incremental costs of addressing the Year 2000
compliance issue will not materially affect the company's consolidated
financial position, liquidity, or results of operations through December 31,
1999.
Risks. The full range of potential risks associated with the Year 2000 issue
is under review. Potential risks include obligations related to contract
performance on current and past contracts, the reliance on infrastructure
services to conduct the company's business operations, and the possibility
of liquidity issues caused by payment problems with VSE's banks or government
customers. Although management believes that the risks associated with
internal issues regarding the Year 2000 problem will be minimal, the risks
associated with external issues are difficult to predict. If these external
issues cause massive failures to systems upon which the company is reliant,
the results could materially affect the company's consolidated financial
position, liquidity, or results of operations.
The government agency that pays the majority of the company's billings, the
Defense Finance and Accounting Service ( DFAS ), has issued published
assurances that it is diligently pursuing a Year 2000 compliance strategy and
is confident that its payments to contractors will continue uninterrupted in
January 2000.
Contingency Plans. The Y2K Plan calls for the development of contingency
plans. VSE currently has extra borrowing capacity under its bank loan
agreement and intends to maintain this extra borrowing capacity beyond the
year 2000 to provide funding in the event of government customer payment
problems. Contingency plans related to contract performance obligations and
to business operation infrastructure services will be developed prior to
December of 1999.
Market Risk
The company does not use derivative instruments to alter the interest
characteristics of its debt instruments. The aggregate fair value of the
company's financial instruments approximates the carrying value at March 31,
1999.
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VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
Forward Looking Statements
This filing contains statements which, 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
contained in this statement, 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, 1998 (Form 10-K), including discussions
contained in VSE's "Letter to Stockholders"; "VSE Operations"; "Description
of Business"; "Management Discussion and Analysis" ; and "Notes to
Consolidated Financial Statements" in the VSE Corporation 1998 Annual Report
incorporated by reference and attached to VSE's Form 10-K filing.
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VSE CORPORATION AND SUBSIDIARIES
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
By-Laws of VSE Corporation as amended through
February 3, 1999
(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, 1999.
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.
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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: May 12, 1999 ______________________________________
C. S. Weber, Senior Vice President,
and Secretary
/s/ T. J. CORRIDON
Date: May 12, 1999 ______________________________________
T. J. Corridon, Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ T. R. LOFTUS
Date: May 12, 1999 ________________________________________
T. R. Loftus, 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.
