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Vse Corp – ‘10-Q’ for 3/31/02

On: Tuesday, 4/30/02 · For: 3/31/02 · Accession #: 1110550-2-62 · File #: 0-03676

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/30/02  Vse Corp                          10-Q        3/31/02    1:42K                                    Emo Edgarizing Svcs/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        March 31, 2002 10-Q                                   19     78K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Termination and New Business Start-ups Contract Expirations Exhibits and Reports on Form 8-K Forward Looking Statements Goodwill and Other Intangible Assets Part II. Other Information
1	1st Page - Filing Submission
2	Forward Looking Statements
11	Contract Expirations
12	Business Termination and New Business Start-ups
16	Goodwill and Other Intangible Assets
18	Part II. Other Information
"	Item 6. Exhibits and Reports on Form 8-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2002             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 April 30, 2002: 2,181,540.   

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VSE CORPORATION AND SUBSIDIARIES                                                
--------------------------------------------------------------------------------

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  Corporation
("VSE" or the "company")  results to differ materially from those anticipated in
the forward looking  statements  contained in this filing,  see VSE's "Narrative
Description of Business",  "Management's  Discussion and Analysis' and "Notes to
Consolidated  Financial  Statements"  contained in VSE's Annual  Report and Form
10-K for the fiscal  year ended  December  31,  2001 (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  this  Quarterly
Report on Form 10-Q to be filed by the company  subsequent  to the Annual Report
on Form 10-K and any Current Reports on Form 8-K filed by the company.          

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VSE CORPORATION AND SUBSIDIARIES                                                
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                   
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS                                                     
(in thousands, except share amounts)                                            

                                                     March 31,  December 31,
                                                   2002         2001
                                                  --------    --------
Assets                                                                          
Current assets:                                                                 
Cash and cash equivalents  . . . . . . . . . . . .   $    318    $    209   
Accounts receivable, principally                                            
U.S. Government, net . . . . . . . . . . . . . .     22,642      20,849 
Deferred tax assets  . . . . . . . . . . . . . . .        818         695   
Other current assets . . . . . . . . . . . . . . .      2,336       1,984   
                                                  --------    --------
Total current assets . . . . . . . . . . . . . .     26,114      23,737 

Property and equipment, net  . . . . . . . . . . . .      3,947       4,211     
Deferred tax assets  . . . . . . . . . . . . . . . .        777         793     
Intangible assets, net . . . . . . . . . . . . . . .      1,774       1,822     
Other assets . . . . . . . . . . . . . . . . . . . .      2,533       2,646     
                                                  --------    --------
Total assets . . . . . . . . . . . . . . . . . .   $ 35,145    $ 33,209 
                                                  ========    ========

Liabilities and Stockholders' Investment                                        
Current liabilities:                                                            
Accounts payable . . . . . . . . . . . . . . . . .   $ 11,173    $ 10,609   
Accrued expenses   . . . . . . . . . . . . . . . .      3,857       4,235   
Dividends payable  . . . . . . . . . . . . . . . .         86          86   
                                                  --------    --------
Total current liabilities  . . . . . . . . . . .     15,116      14,930 

Long-term debt . . . . . . . . . . . . . . . . . . .      2,189         351     
Deferred compensation  . . . . . . . . . . . . . . .      1,332       1,453     
                                                  --------    --------
Total liabilities  . . . . . . . . . . . . . . .     18,637      16,734 
                                                  --------    --------

Commitments and contingencies                                                   

Stockholders' investment:                                                       
Common stock, par value $.05 per share, authorized                          
5,000,000 shares; issued and outstanding                                
2,150,450 shares in 2002 and 2001  . . . . . . .        107         107 
Paid-in surplus  . . . . . . . . . . . . . . . . .      3,294       3,294   
Retained earnings  . . . . . . . . . . . . . . . .     13,107      13,074   
                                                  --------   ---------
Total stockholders' investment . . . . . . . . .     16,508      16,475 
                                                  --------    --------
Total liabilities and stockholders' investment .   $ 35,145    $ 33,209 
                                                  ========    ========

The accompanying notes are an integral part of these financial statements.

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VSE CORPORATION AND SUBSIDIARIES                                                
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                   
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME           For the three months ended March 31,
(in thousands, except share amounts)                                            

                                                          2002          2001
                                                          ----          ----

Revenues, principally from contracts . . . . . . . .   $  29,080     $  30,442  

Costs and expenses of contracts  . . . . . . . . . .      28,816        29,948  
                                                     ---------     ---------

Gross profit . . . . . . . . . . . . . . . . . . . .         264           494  

Selling, general and administrative expenses . . . .          28            49  

Interest expense, net  . . . . . . . . . . . . . . .          17            15  
                                                     ---------     ---------

Income before income taxes . . . . . . . . . . . . .         219           430  

Provision for income taxes . . . . . . . . . . . . .         100           174  
                                                     ---------     ---------

Net income . . . . . . . . . . . . . . . . . . . . .   $     119     $     256  
                                                     =========     =========

Basic earnings per share:                                                       

Net income . . . . . . . . . . . . . . . . . . . . .   $    0.06     $    0.12  
                                                     =========     =========

Basic weighted average shares outstanding              2,150,540     2,125,863  
                                                     =========     =========

Diluted earnings per share:                                                     

Net income . . . . . . . . . . . . . . . . . . . . .   $    0.06     $    0.12  
                                                     =========     =========

Diluted weighted average shares outstanding            2,150,540     2,125,863  
                                                     =========     =========

The accompanying notes are an integral part of these financial statements.

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VSE CORPORATION AND SUBSIDIARIES                                                
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                   
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT                             
(in thousands)                                                                  

Common Stock
                               ---------------   Paid-In   Retained   Treasury
                              Shares   Amount   Surplus   Earnings     Stock
                              ------   ------   -------   --------   -------

Balance at                                                                      
 December 31, 2000 . . . .      2,198   $  110   $ 3,914   $ 12,561   $  (792)

Net income                                                                      
for the year  . . . . . .         --       --        --        855        --

Issuance of                                                                     
Treasury stock  . . . . .         --       --       (81)        --       220

Retirement of                                                                   
Treasury stock  . . . . .        (52)      (3)     (569)        --       572

Issuance of stock . . . . .          4       --        30         --        --  

Dividends declared                                                              
($.16)  . . . . . . . . .         --       --        --       (342)       --
                              ------   ------   -------   --------   -------

Balance at                                                                      
December 31, 2001 . . . .      2,150      107     3,294     13,074        --

Net income                                                                      
for the period  . . . . .         --       --        --        119        --

Dividends declared                                                              
($.04)  . . . . . . . . .         --       --        --        (86)       --
                              ------   ------   -------   --------   -------
Balance at                                                                      
March 31, 2002  . . . . .      2,150   $  107   $ 3,294   $ 13,107   $    --
                              ======   ======   =======   ========   =======

The accompanying notes are an integral part of these financial statements.

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VSE CORPORATION AND SUBSIDIARIES                                                
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                   
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS      For the three months ended March 31, 
(in thousands)                                                                  

                                                           2002     2001
                                                           ----     ----
Cash flows from operating activities:                                           
Net income    . . . . . . . . . . . . . . . . . . . . . .  $   119  $   256   
Adjustments to reconcile net income to net cash                               
(used in) provided by operating activities:                               
 Depreciation and amortization . . . . . . . . . . . .      358      362
 (Gain) loss on sale of property and equipment . . . .       (2)       9
  Change in Deferred compensation . . . . . . . . . . .     (121)    (124)
  Change in Deferred taxes  . . . . . . . . . . . . . .     (107)     (28)
Change in operating assets and liabilities:                                   
(Increase) decrease in:                                                   
  Accounts receivable . . . . . . . . . . . . . . . . .   (1,793)  (2,122)
  Other current assets and noncurrent assets  . . . . .     (239)    (167)
Increase (decrease) in:                                                   
 Accounts payable  . . . . . . . . . . . . . . . . . .      564    1,023
  Accrued expenses  . . . . . . . . . . . . . . . . . .     (378)    (149)
                                                        -------  -------
    Net cash used in operating activities                 (1,599)    (940)
                                                        -------  -------

Cash flows from investing activities:                                           
Purchase of property and equipment,                                         
 (net of dispositions)  . . . . . . . . . . . . . . . .      (44)    (231)
                                                        -------  -------
    Net cash used in investing activities                    (44)    (231)
                                                          -------  ------- -

Cash flows from financing activities:                                           
Net proceeds from long-term debt       . . . . . . . . .    1,838    1,304  
Cash dividends paid  . . . . . . . . . . . . . . . . . .      (86)     (86) 
                                                        -------  -------
   Net cash provided by financing activities              1,752    1,219
                                                        -------  -------

Net increase in cash and cash equivalents  . . . . . . . .      109       48    
Cash and cash equivalents at beginning of period . . . .      209      647  
                                                        -------  -------
Cash and cash equivalents at end of period . . . . . . .  $   318  $   695  
                                                        =======  =======

The accompanying notes are an integral part of these financial statements.

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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 three month period ended March 31, 2002
are not necessarily  indicative of the results that may be expected for the year
ending  December 31, 2002.  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,  2001.  The company
operates within one reportable segment.                                         

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.                               

DEBT                                                                            

VSE has a revolving  loan  agreement with a bank on which the company can borrow
up to $15 million,  subject to a borrowing formula based on billed  receivables.
Under terms of the agreement,  the company pays a fixed amount annual commitment
fee  and  interest  on any  borrowings  at a  prime-based  rate  or an  optional
LIBOR-based rate. The expiration date of the revolving loan is May 31, 2003. The
loan agreement contains  collateral  requirements by which company assets secure
amounts  outstanding,  restrictive  covenants that include minimum  tangible net
worth and profitability  requirements,  a limit on annual  dividends,  and other
affirmative and negative  covenants.  This loan agreement  replaced the previous
loan agreement that had a maximum commitment of $30 million dollars. The company
determined  that the new loan agreement was adequate to cover current and future
liquidity  requirements.  The  amount  borrowed  under this loan  agreement  was
approximately  $2.2 million and $1.3 million,  and interest expense incurred was
approximately  $21  thousand  and $17  thousand  as of March 31,  2002 and 2001,
respectively. Accounts receivable                                               

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VSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

increased  slightly at March 31, 2002 as compared to December 31, 2001 due to an
overall  increase  in VSE's  business  during  March of 2002  while  liabilities
remained substantially unchanged.  This resulted in an increase in borrowing for
the first quarter of 2002 from $351 thousand to approximately $2.2 million.     

Due to the write off of a note  receivable  associated with the divestiture of a
former VSE  subsidiary  company prior to year end 2000 and to certain  operating
losses,  including  losses  associated  with start-up  costs of TTD and MSD, the
company  did  not  achieve  the  original  minimum  amount  established  in  the
profitability  covenant for each quarter between December 31, 2000 and March 31,
2002, and was projecting to not achieve the original minimum required amount for
the second quarter of 2002. The company and the bank have made amendments to the
loan agreement  during 2001 and 2002 to restate this covenant for 2000, 2001 and
2002.  The  company  was in  compliance  during  2000,  2001,  and 2002,  and is
expecting to be in compliance  for the remainder of 2002,  with all covenants of
the loan agreement as amended.                                                  

EARNINGS PER SHARE                                                              

Basic  earnings per share has been computed by dividing net income  available to
common  stockholders  by the weighted  average  number of shares of common stock
outstanding  during  each  period.  Shares  issued  during the period and shares
reacquired  during the period are  weighted  for the  portion of the period that
they were outstanding. Diluted earnings per share have been computed in a manner
consistent  with that of basic  earnings  per share while  giving  effect to all
potentially  dilutive  common shares that were  outstanding  during each period.
There was no dilutive impact on reported earnings per share for the three months
ended March 31, 2002 and 2001.                                                  

LITIGATION                                                                      

In June 2001 a personal  injury  lawsuit was filed against VSE,  Astoria  Metals
Corporation ("AMC"), Ship Dismantlement and Recycling Joint Venture, Earth Tech,
Inc.,  and  Tyco  International  Ltd.  As of  March  31,  2002  there  is no new
information  to report.  For additional  information on this lawsuit,  see VSE's
Form 10-K for the fiscal year ended December 31, 2001, filed with the Securities
and Exchange Commission.                                                        

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                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

COMPANY ORGANIZATION AND OVERVIEW                                               

COMPANY ORGANIZATION                                                            

The term "VSE" or "company"  refers to VSE and its  subsidiaries  and  divisions
unless the  context  indicates  operations  of the parent  company  only.  VSE's
business  operations  consist  primarily of services  performed by the company's
wholly owned  subsidiaries  and  divisions.  Wholly owned  subsidiaries  include
Energetics Incorporated  ("Energetics"),  Human Resource Systems, Inc. ("HRSI"),
Ship  Remediation and Recycling,  Inc.  ("SRR") and VSE Services  International,
Inc. ("VSI"). Unincorporated divisions include BAV Division ("BAV"), Coast Guard
Division ("VCG") beginning in February 2002, Fleet Maintenance  Division ("Fleet
Maintenance"),   GSA  Services  Division  ("GSA  Services"),  Ordnance  Division
("Ordnance"),  Value  Systems  Services  Division  ("VSS"),   Telecommunications
Technologies  Division  ("TTD"),  and Land  Systems  Division  ("Land  Systems")
beginning in February 2001, and Management  Sciences  Division ("MSD") beginning
in December 2001.                                                               

Several of the company's  operating divisions were formed in recent years to bid
on and perform  contract work that had been previously  performed by VSE (parent
company).  The  formation of these  divisions  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 to better  serve the needs of
customers.  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.                     

OVERVIEW OF SERVICES                                                            

The company is engaged principally in providing engineering,  design, logistics,
management and technical  services to the U.S.  Government  (the  "government"),
other  government  prime  contractors,  and  commercial  entities.  The  largest
customer  for the  services  rendered by the company is the U.S.  Department  of
Defense  ("Defense"),  including agencies of the U.S. Army, Navy, and Air Force.
BAV is a major player in providing logistics, training, and technical assistance
in support of the Navy's ship transfer program. Fleet Maintenance, Ordnance, and
VSS also  support the Navy by  providing a variety of  services  including  ship
installation  efforts,  combat  systems  inspections,  ship repair and  overhaul
availability  planning,  harpoon weapons management,  ordnance  alteration,  air
combat  logistics,  and  outsourcing  decision  assistance.   SRR  has  provided
environmentally  sound  solutions for the  dismantling  and disposal of inactive
ships. Land Systems provides the Army with engineering and technical support for
ground weapons,  logistics and training services,  material procurement support,
and prototype development support for combat vehicles. MSD provides the Army and
other  government  agencies and commercial  organizations  with quality training
services for product, process, and management optimization.                     

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

VSE also  provides  services to other  government  agencies  and  industry.  The
company has provided support services to the U.S. Postal Service for over twenty
years and is continuing to support this  customer  through its HRSI  subsidiary.
Energetics is focused on providing the Department of Energy and other government
and  industry  customers  with  expert  consulting   services  in  environmental
management and energy supply, resource management, and conservation. TTD markets
the company's growing  capability to provide  government and industry  customers
with the latest  products,  services,  and support in network,  multimedia,  and
audio-visual  technology.  This includes  design,  installation,  management and
support for a wide  variety of voice,  data,  multimedia  and related  projects.
These projects include facility  security  solutions and intelligent  conference
rooms which provide an ideal balance between  technology and human  interaction.
VCG began providing logistics, training, and technical assistance support to the
U.S. Coast Guard in February 2002.                                              

Substantially all of the company's services are performed for its customers on a
contract  basis.  The  three  primary  types of  contracts  used  are  cost-type
contracts,  time and materials contracts,  and fixed-price  contracts.  Revenues
result from work  performed on these  contracts by the  company's  employees and
from  pass-through  of costs for material and work performed by  subcontractors.
Revenues on cost-type  contracts  are recorded as contract  allowable  costs are
incurred and fees earned.  Profits on cost-type  contracts are equal to the fees
that are earned.  Revenues for time and materials  contracts are recorded on the
basis of  contract  allowable  labor hours  worked  times the  contract  defined
billing  rates,  plus the cost of materials used in performance on the contract.
Profits on time and material  contracts  result from the difference  between the
cost of services  performed  and the contract  defined  billing  rates for these
services.  Revenues on  fixed-price  contracts  are  recorded  as  services  are
performed, using the  percentage-of-completion  method of accounting,  primarily
based on contract costs incurred to date compared with total  estimated costs at
completion.  Profits on fixed-price contracts result from the difference between
the   costs  of   services   performed   and  the   revenue   earned   based  on
percentage-of-completion.                                                       

The following  table sets forth certain items including  consolidated  revenues,
pretax income and net income, and the changes in these items for the three month
periods ended March 31, 2002 and 2001 (in thousands):                           

                                                          2002
                                                          Compared
                                                          to
                                      2002      2001      2001
                                      ----      ----      ----

Revenues . . . . . . . . . . . . . . . . .   $29,080   $30,442   $(1,362)       
                                     =======   =======   =======

Income before income taxes . . . . . . . .   $   219   $   430   $  (211)       
Provision for income taxes . . . . . . . .       100       174       (74)       
                                     -------   -------   -------
Net income  . . .  . . . . . . . . . . . .   $   119   $   256   $  (137)       
                                     =======   =======   =======

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

The discussion and analysis that follow are intended to assist in  understanding
and evaluating the results of operations, financial condition, and certain other
matters of the company.                                                         

RESULTS OF OPERATIONS                                                           

Revenues declined by approximately 4% for the three month period ended March 31,
2002,  as  compared  to the same period of 2001.  The  decrease in revenues  was
primarily  due to the  expiration  of  contracts  performed  by VSE for the U.S.
Postal  Service and by Ordnance for the U.S.  Navy (see  "Contract  Expirations"
below),  and to a reduction in revenue associated with the company's decision to
discontinue   SRR's  ship  remediation  and  recycling  efforts  (See  "Business
Termination and New Business Start-ups" below). These reductions in revenue were
offset  substantially  by increases in revenues in some of the  company's  other
divisions and subsidiaries, most notably by increased revenues resulting from an
increase in BAV's ship transfer work.                                           

Pretax  income  declined by  approximately  49% for the three month period ended
March 31, 2002, as compared to the same period of 2001.  The decrease in pre-tax
income resulted from the loss of revenue on some of VSE's higher margin contract
efforts.  This included the  elimination  of profits  associated  with the U. S.
Postal Service contract and the reduction in profits associated with the work on
the expired Ordnance Division contract (See "Contract Expirations" below). Other
factors  that  reduced  pre-tax  income  included  the  elimination  of  profits
associated with SRR's business and start-up costs associated with MSD's business
(See "Business  Termination  and New Business  Start-ups"  below).  TTD incurred
pretax  losses in the first  quarters of 2002 and 2001.  Although the TTD pretax
loss was slightly smaller in 2002 than in 2001, these losses have had a negative
impact on earnings in both years.                                               

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.  Contract terms specify
award  fee  payments  to BAV that are  determined  by  performance  and level of
contract  activity.  The contract  accounted  for  approximately  46% and 37% of
consolidated revenues from operations during the three month periods ended March
31, 2002 and 2001,  respectively.  The level of revenues and associated  profits
resulting  from fee income  generated  by this  contract  varies  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  and
annual revenue  fluctuations  and anticipates  that future  quarterly and annual
revenues will be subject to significant  variations  primarily due to changes in
the level of activity on this contract.                                         

CONTRACT EXPIRATIONS. VSE (parent company) had a contract to provide engineering
support services to the U.S. Postal Service. VSE was not awarded                

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

the  successor  contract,  and work on this  contract  effort  terminated  as of
January 31, 2001. This contract  accounted for approximately 3% of total company
revenues  for the three  months  ending  March 31,  2001.  The loss of  revenues
associated  with the  expiration of this contract  contributed to the decline in
pretax  income  in 2002 as  compared  to 2001.  VSE's  Ordnance  Division  had a
contract with the U.S. Navy to provide program management and logistics services
that expired in December 2001. VSE re-bid and was awarded the successor contract
in its Fleet Maintenance Division. Future work under the successor contract will
be conducted by Fleet Maintenance. This contract is a five year contract awarded
in  October  2001,  and it has the  potential  to  generate  total  revenues  of
approximately  $72.5  million from 2001 through 2006.  One program  performed by
Land  Systems  under the  predecessor  contract  was not  renewed  under the new
contract,  and this work was not performed by the company during the first three
months of 2002.  The lapse in contract  coverage for this program  resulted in a
loss of revenue and profit for the  company  during this  period.  A  subsequent
contract was obtained in April of 2002 and work on the program resumed.         

Business  Termination  and  New  Business  Start-ups.  VSE  decided  in  2001 to
discontinue  SRR's ship  remediation and recycling  efforts at the Hunters Point
Shipyard in San Francisco, California, due to the limited business opportunities
associated  with  ship  dismantlement  work,  due in part to an  absence  of any
significant amount of government  funding for these efforts.  Profitability from
the SRR work has been  marginal for VSE.  Concurrent  with the decision to cease
SRR operations,  VSE formed MSD to offer government and commercial organizations
quality training and product, process, and management optimization services. VSE
expects MSD revenues to approximately  equal revenues formerly generated by SRR,
with MSD profit margins higher than the marginal  profitability provided by SRR.
The net effect of these  decisions  is expected to be neutral to future  company
revenue while increasing  profitability.  MSD was in a start-up phase during the
three  months  ended  March  31,  2002 and had not yet  reached  its full  sales
potential.  In February  2002,  VCG began work for the U.S.  Coast Guard under a
contract that has potential to generate  total revenues of  approximately  $25.4
million over five years.  The company is expecting  this work to  contribute  to
revenue and profit growth in future periods.                                    

GOVERNMENT PROCUREMENT POLICIES AND PRACTICES                                   

VSE's business is subject to the risks arising from domestic economic conditions
and  political  factors  that may  impact the  budgets  and  program  funding of
customers served through VSE's contracts.  VSE's revenues have historically been
subject to annual  fluctuations  resulting  from changes in the level of Defense
spending.  Future  budgetary and funding  decisions by  government  lawmakers or
Defense  restructuring  efforts  could  affect  the types and level of  services
provided  by  VSE to its  government  customers  and  could  potentially  have a
material  adverse  impact on the  company's  results of  operations or financial
condition.                                                                      

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

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 affect
the  company's  revenues  are the  use of past  performance  criteria  that  may
preclude  entrance into new government  markets and government  social  programs
that  limit  contract  work to  small,  woman,  or  minority  owned  businesses.
Additional risk factors that could  potentially  affect the company's results of
operations 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.    

GLOBAL ECONOMIC CONDITIONS AND POLITICAL FACTORS                                

VSE's business is subject to the risks arising from global  economic  conditions
and political  factors  associated with current and potential  foreign customers
served through VSE's contracts with the U.S.  Government and in particular,  the
BAV contract.  An economic  slowdown in countries  served under the BAV contract
could  potentially  affect sales. The  international  conflict  initiated by the
terrorist  attacks in New York and  Washington,  D. C. on September 11, 2001 and
the  continuing  conflict in the  Middle-East  could  potentially  increase  the
political risks associated with BAV contract revenues. Failure by the government
of a potential  foreign  customer to approve and fund  acquisition  of U.S. Navy
ships  serviced  under the BAV contract  could affect sales.  In any one year, a
significant  amount of the  company's  revenues may result from sales on the BAV
contract to a single foreign  government.  Severe adverse  results  arising from
these global  economic and  political  risks could  potentially  have a material
adverse impact on the company's results of operations.                          

FINANCIAL CONDITION                                                             

VSE's  financial  condition  did not change  materially  during the three  month
period  ended  March 31,  2002.  The  company's  largest  asset is its  accounts
receivable  and its largest  liabilities  are its  accounts  payable and accrued
expenses.  Accounts receivable  increased slightly at March 31, 2002 as compared
to December 31, 2001 due to an overall  increase in VSE's business  during March
of 2002 while liabilities remained substantially unchanged.                     

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

The increase in total  stockholder's  investment  in 2001 resulted from earnings
and dividend activity.                                                          

LIQUIDITY AND CAPITAL RESOURCES                                                 

CASH FLOWS                                                                      

Cash and cash equivalents  increased by  approximately  $109 thousand during the
three  month  period  ended  March  31,  2002.  The  increase  in cash  and cash
equivalents  during  this  period  resulted  from  cash  provided  by  financing
activities of approximately $1.8 million,  cash used in operating  activities of
approximately   $1.6  million,   and  cash  used  in  investing   activities  of
approximately  $44  thousand.   Significant  financing  activities  included  an
increase of approximately  $1.8 million in bank loan borrowings.  Cash flow used
in operating activities was primarily due to an increase in accounts receivable.
Investing  activities  consisted of purchases of property and equipment,  net of
dispositions.                                                                   

Cash and cash  equivalents  increased by  approximately  $48 thousand during the
three month period ended March 31, 2001.  Cash provided by financing  activities
was  approximately  $1.2  million.   Cash  used  in  operating   activities  was
approximately   $900  thousand  and  cash  used  in  investing   activities  was
approximately  $200  thousand.  Significant  financing  activities  included  an
increase  of  approximately  $1.3  million  in bank loan  borrowings.  Investing
activities   consisted  of  purchases   of  property  and   equipment,   net  of
dispositions.                                                                   

The difference  between cash used in operating  activities of approximately $1.6
million in 2002 as compared to approximately  $940 thousand in 2001 is primarily
due to changes in the levels of accounts payable and accrued expenses  resulting
from fluctuations in contract activity.                                         

Quarterly cash dividends at the rate of $.04 per share were declared  during the
three  month  period  ended March 31,  2002.  Per 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.                                       

SOURCES OF LIQUIDITY                                                            

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.   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 present
collection problems. Accounts receivable levels can also be affected by contract
retainages,  differences between the provisional billing rates authorized by the
government  compared to the costs actually  incurred by the company,  government
delays in  processing  administrative  paperwork for contract  funding,  and the
timing of large materials purchases and subcontractor efforts                   

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

used  in  performance  on the  company's  contracts.  An  increase  in  accounts
receivable associated with increased levels of work by BAV and Fleet Maintenance
for the U.S. Navy, and generally  slower  collection of accounts  receivables in
TTD,  contributed  to a decrease in internally  generated cash flows during this
period. Internal liquidity is also affected by the acquisition of capital assets
for office and computer support, facilities improvements,  and by the payment of
cash dividends.  Purchases of capital assets for office and computer support and
facilities  improvements  during the three  months  ended March 31, 2002 did not
substantially affect internal liquidity.                                        

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
"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 $15 million as of March
31, 2002.  This loan  agreement  replaced a previous loan  agreement  that had a
maximum  commitment of $30 million.  The company determined that the $15 million
commitment was adequate to cover current and future liquidity requirements.     

Performance  of  work  under  the  BAV  contract  has  the  potential  to  cause
substantial requirements for working capital; 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                                                           

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.                                                                  

FORWARD-LOOKING DISCLOSURES                                                     

NEW BUSINESS                                                                    

In  December  2001,  VSE  formed  MSD  to  provide   government  and  commercial
organizations  with  quality  training  and  product,  process,  and  management
optimization  services.  While VSE  management  expects  MSD to  provide  only a
minimal amount of revenue  growth,  profit margins on the type of work performed
by MSD are  expected to be higher than profit  margins in other VSE  operations,
and therefore,  should play a part in improving the future  profitability of VSE
operations.                                                                     

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              

In February 2002, VSE formed VCG to provide logistics,  training,  and technical
assistance  support to the U.S.  Coast Guard under a new  contract  that has the
potential to generate  total  revenue of  approximately  $25.4 million over five
years.                                                                          

GOODWILL AND OTHER INTANGIBLE ASSETS                                            

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142"). SFAS No. 142 modifies the accounting rules governing  goodwill
and intangible assets. Under SFAS No. 142, goodwill will no longer be subject to
amortization   over  its  estimated  useful  life  and  intangible  assets  with
indefinite  lives will no longer be amortized over an arbitrary number of years.
The effective date for VSE's  implementation of SFAS No. 142 is January 1, 2002.
The adoption of SFAS No. 142 has not had a material  impact,  either positive or
negative, on results of operations or financial condition.                      

ASSET RETIREMENT OBLIGATIONS                                                    

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  143,  "Accounting  for  Asset  Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the associated asset retirement  costs. SFAS No. 143 is effective for
financial  statements issued for fiscal years beginning after June 15, 2002. The
company is in the  process  of  evaluating  the  financial  statement  impact of
adoption of SFAS No. 143.                                                       

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS                                     

In September 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets"  ("SFAS  No.  144").  SFAS No.  144  addresses
financial accounting and reporting for the impairment and disposal of long-lived
assets.  The effective date for VSE's  implementation of SFAS No. 144 is January
1, 2002.  The  adoption  of SFAS No. 144 has not had a material  impact,  either
positive or negative, on results of operations or financial condition.          

DISCLOSURES ABOUT MARKET RISK                                                   

INTEREST RATES                                                                  

VSE's  bank loan  financing  provides  available  borrowing  to the  company  at
variable interest rates. The company has not borrowed significant amounts on the
loan in recent years. Accordingly, the company does not believe that any        

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VSE CORPORATION AND SUBSIDIARIES                                                
MANAGEMENT DISCUSSION AND ANALYSIS                                              
--------------------------------------------------------------------------------

movement in interest  rates would have a material  impact on future  earnings or
cash flows. If VSE were to significantly increase borrowings on the current loan
arrangement, future interest rate changes could potentially have such a material
impact.                                                                         

FOREIGN CURRENCY                                                                

While a significant  amount of the company's  business results from the services
provided by BAV related to the transfer of ships to foreign governments, the BAV
contract  payments  are  made to BAV by the  U.S.  Government  in U.S.  dollars.
Additionally,  most funding  requirements  to support work performed or services
purchased in foreign  countries  are made in U.S.  dollars,  and the  infrequent
disbursements  that are made in foreign  currencies are  reimbursable  to BAV in
post conversion dollars. Foreign currency transactions of other VSE divisions or
subsidiaries  are  virtually  non-existent.  Accordingly,  the company  does not
believe that it is exposed to any material foreign currency risk.               

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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.                                                            

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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

Date:  April 30, 2002              /s/  C. S. Weber                             
                              ----------------------------------------
                            C. S. Weber, Executive Vice President,
                                    Secretary, and Chief
                                      Administrative Officer

Date:  April 30, 2002              /s/  T. R. Loftus                            
                              ----------------------------------------
                         T. R. Loftus, Senior Vice President
                                             and Chief Financial Officer
                                                (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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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	5/31/03	7
	12/31/02	7		10-K, DEF 14A
	6/15/02	16
Filed on:	4/30/02	1	19
For Period End:	3/31/02	1	15
	1/1/02	16
	12/31/01	2	13	10-K405, DEF 14A
	9/11/01	13
	3/31/01	7	14	10-Q
	1/31/01	12
	12/31/00	5	8	10-K405, 11-K, DEF 14A
				List all Filings

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Filing Submission 0001110550-02-000062 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Vse Corp – ‘10-Q’ for 3/31/02

On: Tuesday, 4/30/02 · For: 3/31/02 · Accession #: 1110550-2-62 · File #: 0-03676

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