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, 2000 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 July 27, 2000: 2,122,289.
<PAGE>
<TABLE>
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
------------------------------------------------------------------------------
(in thousands, except share amounts)
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 719 $ 62
Accounts receivable, principally
U.S. Government, net . . . . . . . . . . . . . . 18,770 19,361
Deferred tax assets . . . . . . . . . . . . . . . 763 927
Other current assets . . . . . . . . . . . . . . . 3,277 974
-------- --------
Total current assets . . . . . . . . . . . . . . 23,529 21,324
Property and equipment, net . . . . . . . . . . . . 3,789 4,377
Deferred tax assets . . . . . . . . . . . . . . . . 759 728
Intangible assets, net . . . . . . . . . . . . . . . 1,212 1,267
Note receivable from business transferred . . . . . 615 665
Other assets . . . . . . . . . . . . . . . . . . . . 2,894 2,889
-------- --------
Total assets . . . . . . . . . . . . . . . . . . $ 32,798 $ 31,250
======== ========
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 6,442 $ 8,193
Accrued expenses . . . . . . . . . . . . . . . . 5,738 5,977
Dividends payable . . . . . . . . . . . . . . . . 85 76
-------- --------
Total current liabilities . . . . . . . . . . . 12,265 14,246
Long-term debt . . . . . . . . . . . . . . . . . . . 2,695 -
Deferred compensation . . . . . . . . . . . . . . . 1,843 1,859
-------- --------
Total liabilities . . . . . . . . . . . . . . . 16,803 16,105
-------- --------
Commitments and contingencies
Stockholders' investment:
Common stock, par value $.05 per share, authorized
5,000,000 shares; issued 2,194,289 shares in 2000
and 1999 . . . . . . . . . . . . . . . . . . . . 110 110
Paid-in surplus . . . . . . . . . . . . . . . . . 3,894 3,894
Retained earnings . . . . . . . . . . . . . . . . 12,783 11,933
Treasury stock, at cost (72,000 shares in 2000
and 1999) . . . . . . . . . . . . . . . . . . . (792) (792)
-------- --------
Total stockholders' investment . . . . . . . . . 15,995 15,145
-------- --------
Total liabilities and stockholders' investment . $ 32,798 $ 31,250
======== ========
</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 share amounts)
<CAPTION>
2000 1999
------------------ ------------------
Three Six Three Six
Months Months Months Months
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues, principally from
contracts . . . . . . . . . . . $ 31,406 $ 62,584 $ 46,050 $ 86,239
Costs and expenses of contracts . 30,671 60,611 44,586 83,979
--------- --------- --------- ---------
Gross profit . . . . . . . . . . 735 1,973 1,464 2,260
Selling, general and administrative
expenses . . . . . 19 182 333 492
Loss on CMstat operations . . . . - - 86 401
Loss on disposition of CMstat . . - - 1,098 1,098
Interest expense . . . . . . . . 57 111 67 27
--------- --------- --------- ---------
Income (loss) before
income taxes . . . . . . . . . 659 1,680 (120) 242
Provision (benefit) for
income taxes . . . . . . . . . 257 660 (143) 13
--------- --------- --------- ---------
Net income . . . . . . . . . . . $ 402 $ 1,020 $ 23 $ 229
========= ========= ========= =========
Basic earnings per share:
Net income . . . . . . . . . . . $ .19 $ 0.48 $ .01 $ 0.11
========= ========= ========= =========
Basic weighted average shares
outstanding 2,122,289 2,122,289 2,114,905 2,114,905
========= ========= ========= =========
Diluted earnings per share:
Net income . . . . . . . . . . . $ .19 $ 0.48 $ .01 $ 0.11
========= ========= ========= =========
Diluted weighted average shares
outstanding 2,122,289 2,122,289 2,114,905 2,114,905
========= ========= ========= =========
</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, 1998 . . . . 2,187 $ 109 $ 3,832 $ 10,703 $ (792)
Net income
for the year . . . . . . -- -- -- 1,534 --
Issuance of stock . . . . . 7 1 62 -- --
Dividends declared
($.144) . . . . . . . . . -- -- -- (304) --
----- ------ ------- -------- -------
Balance at
December 31, 1999 . . . . 2,194 110 3,894 11,933 (792)
Net income
for the period . . . . . -- -- -- 1,020 --
Dividends declared
($.08) . . . . . . . . . -- -- -- (170) --
----- ------ ------- -------- -------
Balance at
June 30, 2000 . . . . . . 2,194 $ 110 $ 3,894 $ 12,783 $ (792)
===== ====== ======= ======== =======
</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>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 1,020 $ 229
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . 802 844
Gain on sale of property and equipment . . . . . . . (114) -
Deferred compensation plan expense . . . . . . . . . 35 23
Net payments of deferred compensation . . . . . . . . (89) (87)
Change in Deferred taxes . . . . . . . . . . . . . . 133 (706)
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . 591 8,248
Other current assets and noncurrent assets . . . . . (2,308) 1,157
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . (1,713) (3,437)
Accrued expenses . . . . . . . . . . . . . . . . . . (239) 685
Net liabilities of business transferred under
contractual arrangements . . . . . . . . . . . . . 0 (6,765)
------- -------
Net cash (used in) provided by operating activities (1,882) 191
------- -------
Cash flows from investing activities:
Purchase of property and equipment,
(net of dispositions) . . . . . . . . . . . . . . . . (45) (666)
Proceeds from note receivable from business transferred 50 -
------- -------
Net cash provided by (used in) investing activities 5 (666)
------- -------
Cash flows from financing activities:
Net proceeds from bank loan . . . . . . . . . . . . . . 2,695 636
Cash dividends paid . . . . . . . . . . . . . . . . . . (161) (152)
------- -------
Net cash provided by financing activities 2,534 484
------- -------
Net increase in cash and cash equivalents . . . . . . . . 657 9
------- -------
Cash and cash equivalents at beginning of period . . . . 62 49
Cash and cash equivalents at end of period . . . . . . . $ 719 $ 58
======= =======
</TABLE>
<PAGE>
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 three and six month periods ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. 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, 1999.
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.
Divestiture
On May 21, 1999, the company sold all of its interests in the SPS segment. This
entailed selling its CMstat subsidiary for an $800 thousand promissory note.
The sale is a divestiture for legal and tax purposes. For accounting purposes,
the sale is not afforded discontinued operations treatment under Staff
Accounting Bulletin No. 30 "Accounting for Divestiture of a Subsidiary or Other
Business Operation"("SAB No. 30") since the sale did not transfer the risks of
ownership because the sales price is primarily dependent on the buyer's ability
to repay the promissory note.
As prescribed by SAB No. 30, the revenues, costs and expenses and cash flows for
the SPS segment for the three and six month periods ended June 30, 1999, have
been excluded from the respective captions in the Consolidated Statements of
Operations, Balance Sheets, Cash Flows and related footnotes.
As such, the results of operations for the SPS segment are reflected as a single
line item "Loss on CMstat operations" in the Consolidated Statements of
Operations for each year presented. Additionally, a $1,098 thousand loss from
the disposal of CMstat was recognized for the year ended December 31, 1999.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debt
VSE has a revolving bank loan agreement that contains certain financial
covenants. Under the agreement, 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. Commitment fees are charged on the
unused portion of the revolving loan commitment. The termination date of the
revolving loan is May 31, 2002. The loan agreement contains collateral
requirements by which company assets secure amounts outstanding, restrictive
covenants that include minimum tangible net worth and cash flow coverage ratio
requirements, a limit on annual dividends, and limits on investments and loans
to certain affiliates.
Due to losses incurred by VSE's CMstat subsidiary, the company was not in
compliance with certain original loan covenants during 1999. The company's banks
amended the loan agreement to restate certain terms and conditions of the loan,
including the covenants with which the company was not compliant. The company
was in compliance during 2000 and 1999 with all covenants of the loan agreement
as amended.
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.
Segment Information
Prior to May 21, 1999, VSE had two reportable segments: the engineering,
logistics, management, and technical services segment ("ELMTS"), which provides
diversified engineering, technical, and management services principally to
agencies of the United States Government and to other government prime
contractors; and the software products and services segment ("SPS"), which
provides application software and services related to the installation of the
software to primarily commercial customers.
On May 21, 1999, the company sold all of its interests in the SPS segment for an
$800 thousand promissory note (see "Divestiture" above).
<PAGE>
<TABLE>
The following table presents revenues and other financial information by
business segment for the three and six month periods ended June 30, 2000 and
June 30, 1999, in thousands:
<CAPTION>
Six Months
Ended Effect of
June 30, 2000 ELMTS SPS Subtotal Disposition Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $62,584 $ - $62,584 $ - $62,584
Interest expense 111 - 111 - 111
Depreciation and
amortization 802 - 802 - 802
Loss on disposition
of CMstat - - - - -
Operating income 1,680 - 1,680 - 1,680
Expenditures for
capital assets 294 - 294 - 294
Assets 32,798 - 32,798 - 32,798
Six Months
Ended Effect of
June 30, 1999 ELMTS SPS Subtotal Disposition Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $86,239 $ 902 $87,141 $(902) $86,239
Interest expense 27 128 155 (128) 27
Depreciation and
amortization 844 105 949 (105) 844
Loss on disposition
of CMstat - 1,098 1,098 - 1,098
Operating income
(loss) 1,720 (1,478) 242 - 242
Expenditures for
capital assets 819 25 844 (25) 819
Assets 38,398 - 38,398 - 38,398
Three Months
Ended Effect of
June 30, 2000 ELMTS SPS Subtotal Disposition Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $31,406 $ - $31,406 $ - $31,406
Interest expense 57 - 57 - 57
Depreciation and
amortization 405 - 405 - 405
Loss on disposition
of CMstat - - - - -
Operating income 659 - 659 - 659
Expenditures for
capital assets 107 - 107 - 107
Assets 32,798 - 32,798 - 32,798
Three Months
Ended Effect of
June 30, 1999 ELMTS SPS Subtotal Disposition Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $46,050 $ 174 $46,224 $(174) $46,050
Interest expense 67 - 67 - 67
Depreciation and
amortization 424 39 463 (39) 424
Loss on disposition
of CMstat - 1,098 1,098 - 1,098
Operating income
(loss) 1,062 (1,182) (120) - (120)
Expenditures for
capital assets 461 12 473 (12) 461
Assets 38,398 - 38,398 - 38,398
</TABLE>
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
During 2000, VSE and its subsidiaries and divisions operate in one reportable
segment, the engineering, logistics, management and technical services segment
("ELMTS"). The company had two reportable segments, ELMTS and the software
products and services segment ("SPS") for the year 1999. The term "VSE" or
"company" means VSE and its subsidiaries and divisions unless the context
indicates operations of the parent company only.
The ELMTS business operations consist of the operations of the parent company,
operations of the company's wholly owned subsidiaries and operations of the
company's divisions.
Software products and services in 1999 included sales of developed software
products and the services related to the installation and use of the software.
This is the primary business of VSE's former subsidiary CMstat Corporation
("CMstat"), sold in May 1999. (See "Divestiture" above).
<TABLE>
The following table sets forth certain items including consolidated revenues,
pretax income and net income, and the changes in these items by segment for the
three and six month periods ended June 30, 2000 and 1999 (in thousands):
<CAPTION>
2000
Compared
to
Three Months Six Months 1999
Ended June 30, Ended June 30, Three Six
2000 1999 2000 1999 Months Months
---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Engineering, Logistics,
Management and
Technical Services
Segment:
Revenues . . . . . . . $31,406 $46,050 $62,584 $86,239 $(14,644) $(23,655)
======= ======= ======= ======= ======== ========
Pretax income . . . . $ 659 $ 1,062 $ 1,680 $ 1,720 $ (403) $ (40)
Provision for income
taxes . . . . . . . 257 413 660 683 (156) (23)
------- ------- ------- ------- -------- --------
Net income . . . . . $ 402 $ 649 $ 1,020 $ 1,037 $ (247) $ (17)
======= ======= ======= ======= ======== ========
Software Products and
Services Segment:
Revenues . . . . . . . $ - $ 174 $ - $ 902 $ (174) $ (902)
======= ======= ======= ======= ======== ========
Pretax loss . . . . . $ - $(1,182) $ - $(1,478) $ 1,182 $ 1,478
Benefit for income
taxes . . . . . . . - (556) - (670) 556 670
------- ------- ------- ------- -------- --------
Net loss . . . . . . . $ - $ (626) $ - $ (808) $ 626 $ 808
======= ======= ======= ======= ======== ========
</TABLE>
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
RESULTS OF OPERATIONS
The discussion and analysis which follows is intended to assist in understanding
and evaluating the results of operations, financial condition, and certain other
matters of the company. The company is engaged principally in providing
engineering, testing, and management services to the U.S. Government (the
"government"). All significant intercompany transactions have been eliminated
in consolidation. Certain prior year balances have been reclassified for
comparative purposes.
Engineering, Logistics, Management and Technical Services Segment
Revenues for this segment declined by approximately 32% and 27%, respectively,
for the three month and six month periods ended June 30, 2000, as compared to
the same periods of 1999. The decreases in revenues were primarily due to a
decrease in the level of services ordered under the BAV contract (see "BAV
Contract" below), reduced sales by Energetics, and the expiration of a VSS
contract (see "VSS Contract" below). The reduced revenues of BAV, Energetics,
and VSS were partially offset by an increase in revenues from the Ordnance
Division.
Pretax income for this segment decreased by approximately 38% and 2%,
respectively, for the three and six month periods ended June 30, 2000, as
compared to the same period of 1999. This decrease was primarily due to the
decreased revenues of BAV, Energetics, and VSS. This decrease in pretax income
was partially offset by an improved profit margin on remaining VSE (parent)
contracts due to cost reductions implemented in 1999. Also, the revenue
increase from the Ordnance Division helped offset the overall decrease in pretax
profits.
The largest customer for the engineering, logistics, management and technical
services rendered by the company is the U.S. Department of Defense ("Defense"),
including agencies of the U.S. Army, Navy, and Air Force. VSE's
engineering services revenues have historically been subject to annual
fluctuations resulting from changes in the level of Defense spending.
Accordingly, there can be no assurance that any future reductions in Defense
spending will not have a material adverse impact on the company's results of
operations or financial condition.
The company's revenues depend on the ability of the company to win new contracts
and on the amount of work ordered by the government under the company's existing
contracts. The company's ability to win new contracts is affected by government
acquisition policies and procedures, including government procurement practices
that in recent years have tended toward bundling work efforts under large
comprehensive ("omnibus") management contracts. This emphasis on large
contracts presents challenges to winning new contract work, including making
it more difficult for the company to qualify as a bidder, increases in the level
of competition due to the award of fewer contracts, and forcing the company into
competition with larger organizations that have greater financial resources and
larger technical staffs. Other government procurement practices that can
impact the company's revenues are
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
the use of past performance criteria that may preclude entrance into new
government markets and various government social objectives that limit contract
work to small or minority owned businesses. Additional risk factors that could
potentially impact the company's revenues are the government's right to
terminate contracts for convenience, the government's right to not exercise all
of the option periods on a contract, and funding delays caused by government
political or administrative actions.
Several of the company's operating divisions were formed in recent years to bid
on and perform contract work that had been traditionally performed by VSE. This
has enabled the company to use an operating structure that is better suited to
perform certain types of contract work. The company anticipates that it will
continue using its operating divisions to bid and perform new contract work
in order to better serve the needs of its customers. As the use of operating
divisions for new contracts increases, the company expects that the revenue of
VSE (the parent company) will be reduced in the future as parent company
contracts are replaced by operating division contracts. Management believes that
the use of operating divisions to perform future work and the associated
improvements in servicing customers will better position the consolidated
entity for future revenue growth.
BAV Contract. VSE's BAV Division has a contract with the U.S. Navy to provide
engineering, technical and logistical support services associated with the sale,
lease, or transfer of Navy ships to foreign governments. The contract accounted
for approximately 38% and 55% of consolidated revenues from operations during
the six month periods ended June 30, 2000 and 1999, respectively. The level of
revenues generated by this contract will vary depending on a number of factors
including the timing of ship transfers and associated support services ordered
by foreign governments and economic conditions of potential customers worldwide.
The company has experienced significant quarterly revenue fluctuations and
anticipates that future quarterly revenues will be subject to significant
variations primarily due to changes in the level of activity on this contract.
VSS Contract. VSE's VSS Division had a U.S. Navy contract to provide data
management and documentation, logistics support services and configuration
management services to the Naval Air Systems command. VSS began work on this
contract in 1994 and the last option year was scheduled to end in 1999. The
government extended the contract through April 28, 2000. VSS was not awarded
the successor contract and work on this contract effort terminated as of
April 28, 2000. The contract accounted for approximately 4% of consolidated
revenues and 4% of consolidated pretax income from operations during the six
month period ended June 30, 2000.
New Business. VSE's GSA Services Division was formed in January 1999 to bid on
and perform work issued through the government's GSA schedule. This division
has been awarded three purchase agreements since inception and is actively
pursuing additional GSA schedule agreements.
VSI was formed in August 1999 to expand VSE's international presence and perform
services for foreign governments and commercial customers similar to the
services it has traditionally provided in the United States.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
SRR is a partner in a joint venture that was awarded a contract associated with
a new government program to dismantle and recycle retired U.S. Navy ships. The
contract work effort calls for the joint venture to dismantle U.S. Navy ships
and recover costs to the government by selling any salvageable materials and
parts. Work on this contract began in 2000 and SRR and the joint venture have
received awards for two Navy ships to date.
Divestitures
See "Divestiture" section of "Notes to Consolidated Financial Statements."
HRSI Contracts. On July 2, 2000, HRSI sold its Health Care Division and two
associated contracts. The purchase price for the Health Care Division and the
revenues and losses generated by these contracts were not material to VSE. This
transaction will be accounted for in the third quarter of 2000.
Liquidity and Capital Resources
Cash and cash equivalents increased by approximately $700 thousand during the
six month period ended June 30, 2000. Cash from financing activities
contributed approximately $2.5 million of the increase and cash used in
operating activities was approximately $1.8 million. Significant financing
activities included increased borrowing on the company's bank loan of
approximately $2.7 million. Significant investing activities included purchases
of property and equipment, net of dispositions, of approximately $45 thousand.
Cash and cash equivalents increased by approximately $10 thousand during the six
month period ended June 30, 1999. Cash from financing activities contributed
approximately $500 thousand of the increase and cash from operating activities
contributed approximately $200 thousand. Cash used in investing activities was
approximately $700 thousand. Significant financing activities included
increased borrowing on the company's bank loan of approximately $600 thousand.
Significant investing activities included purchases of property and equipment,
net of dispositions, of approximately $700 thousand.
The difference between the cash used in operating activities of approximately
$1.8 million in 2000 as compared to cash provided by operating activities of
approximately $200 thousand in 1999 is primarily due to changes in the levels of
other current assets associated with a significant deposit made by the BAV
Division in June 2000.
The company's internal sources of liquidity result primarily from operating
activities, specifically from changes in the level of revenues and associated
accounts receivable from period to period and from profitability. Significant
increases or decreases in revenue and accounts receivable can cause significant
increases or decreases in internal liquidity. The decrease in revenues and
associated accounts receivable in the current year has resulted in an increase
in internally generated cash flows. Accounts receivable arise primarily from
billings made by the company to the government or other government prime
contractors for services rendered and generally do not
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
present collection problems. The company has made use of recent electronic
billing and payment initiatives implemented by the government to decrease the
time to collect billed accounts receivable, thereby improving internal
liquidity. Accounts receivable levels can also be affected by contract
retainages, start-up and termination costs associated with new or completed
contracts, and differences between the provisional billing rates authorized by
the government compared to the costs actually incurred by the company.
Internal liquidity is also affected by the acquisition of capital assets for
office and computer support and by the payment of cash dividends. Purchases of
capital assets for office and computer support have not varied significantly in
recent years.
Quarterly cash dividends at the rate of $.04 per share were declared during the
six month period ended June 30, 2000. 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.
VSE's external sources of liquidity consist of a revolving bank loan agreement
that provides loan financing based on the company's accounts receivable. (See
"Debt" section of "Notes to Consolidated Financial Statements") The bank
financing complements the internal sources of liquidity by providing increasing
levels of borrowing capacity as accounts receivable levels increase. The bank
loan agreement provided loan financing up to a maximum commitment of thirty
million dollars as of the quarter ended June 30, 2000.
Performance of work under the BAV contract has the potential to cause
substantial requirements for cash; however, management believes that the cash
flows from future operations and the bank loan commitment are adequate to meet
current operating cash requirements.
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 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. For example, an economic slowdown in countries served under
the BAV contract could potentially affect BAV sales. Severe adverse global
economic conditions could potentially have a material adverse impact on the
company's results of operations.
<PAGE>
VSE CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis
Year 2000
The company is not currently aware of any Year 2000 issues that have affected
its business. Costs incurred to date for Year 2000 readiness efforts have been
minimal and are included as part of the company's ongoing administrative costs
and have not been separately identified. There are no unbudgeted expenditures
expected to occur in the future.
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 June 30,
2000.
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 discussions contained in VSE's "Letter to Stockholders",
"Narrative Description of Business", and "Notes to Consolidated Financial
Statements" contained in VSE's Annual Report and Form 10-K for the fiscal year
ended December 31, 1999 (Form 10-K) filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date
hereof. The company undertakes no obligation to publicly revise
these forward looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the company files from time to time with the
Securities and Exchange Commission, including subsequent Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K filed by the company.
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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.
None.
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
/s/ C. S. WEBER
Date: July 27, 2000 ----------------------------------
C. S. Weber, Senior Vice President
and Chief Financial Officer
/s/ T. R. Loftus
Date: July 27, 2000 ----------------------------------
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.
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