about the cover
about the cover
As a prism separates light into the colors of
the rainbow, VSE analyzes and supports
customer requirements with business
practices focused to meet specific needs.
Working to meet naval ship and coastal
defense needs, aircraft logistics support,
ground combat systems design and
development, energy management and
conservation, security systems and
collaboration environments, and business
process optimization requirements, our
respective International, Federal, Energy
and Environmental, Telecommunications
Technologies, and Management Sciences
business practices respond with effective
solutions for businesses and governments
across our nation and around the world.
Our purpose is to help customers in
“creating a more secure way of life, in our
homeland and around the world.”
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general information
general information
2
Corporate Profile
VSE Corporation is a professional services company
established in 1959. The company provides diversified
services and products to the engineering, energy,
environment, security, and defense services markets to
the high technology and defense services markets.
VSE's principal customers are agencies of the U.S.
Government and other government prime contractors.
Operations are conducted by VSE’s professional staff
of 550 employees located at offices across the United
States and around the world.
Further information about VSE is available at the
company's website at www.vsecorp.com.
Stockholder Inquiries
VSE is an employee and publicly owned company, and
its shares are traded on the Nasdaq National Market
System under the symbol VSEC. Inquiries about stock
ownership, dividends, and stockholder changes of
address may be directed to our transfer agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
1-800-368-5948
or to VSE:
2550 Huntington Avenue
Alexandria, Virginia 22303-1499
Attention: Corporate Secretary
703-329-4770
Quality Systems
Management
VSE’s policy is to provide products and services of the
highest quality to meet the expectations and
requirements of our customers, on time and at a fair
price. VSE’s quality management system is registered
to ISO 9001.
financial highlights
financial highlights
Selected Financial Data
(In thousands, except per share data)
2001
2000
1999
1998
1997
Revenues, principally from contracts..................
$ 111,572
$ 122,269
$ 157,354
$ 177,074
$ 152,522
Income from continuing operations.....................
Loss from discontinued operations......................
Loss on disposal of discontinued operations.......
Net income (loss)..........................................
$ 855
0
0
$ 855
$ 1,385
0
(417)
$ 968
$ 2,364
(256)
(574)
$ 1,534
$ 3,015
(1,420)
0
$ 1,595
$ 2,566
(4,013)
0
$ (1,447)
Basic earnings per common share:
Income from continuing operations.....................
Loss from discontinued operations......................
Net income (loss)..........................................
$ .40
0
$ .40
Diluted earnings per common share:
Income from continuing operations.....................
Loss from discontinued operations......................
Net income (loss)..........................................
$ .40
0
$ .40
$ .65
(.19)
$ .46
$ 1.12
(.39)
$ .73
$ 1.42
(.67)
$ .75
$ 1.21
(1.89)
$ (.68)
$ .65
(.19)
$ .46
$ 1.12
(.39)
$ .73
$ 1.42
(.67)
$ .75
$ 1.21
(1.89)
$ (.68)
Working capital...................................................
$ 8,807
$ 8,364
$ 7,078
$ 5,801
$ 6,258
Total assets...........................................................
$ 33,209
$ 31,523
$ 31,250
$ 47,248
$ 43,413
Long-term debt....................................................
$ 351
$ 0
$ 0
$ 1,503
$ 3,444
Stockholders’ investment.....................................
$ 16,475
$ 15,793
$ 15,145
$ 13,852
$ 12,481
Cash dividends per common share......................
$ .16
$ .16
$ .144
$ 144
$ .144
Per share amounts have been adjusted to reflect
stock splits effected in 1997.
This consolidated summary of selected financial
data should be read in conjunction with the
consolidated financial statements and related
notes included on VSE’s Securities and Exchange
Commission filings, including the company's
Annual Report on Form 10-K and other quarterly
and current period reports.
3
(cid:216)
the award of a new five-year contract to
support the U.S. Coast Guard. In December
2001 VSE was awarded a new five-year
contract to support the Naval Surface Warfare
Center Indian Head Division, and in February
2002, VSE was also awarded a five-year follow
o n c o n t r a c t t o s u p p o r t N AV S E A’ s
Shipbuilding Support Office. Prospects for
significant revenue growth late in 2002 and
into 2003 are expected to contribute to VSE's
profitability.
The Federal Group under the leadership of Bart
Bartholomew has a number of opportunities to
provide diversified services (2001 revenues of
about $22 million). VSE’s Land Systems
Division provides system engineering support
and prototype development for combat
vehicles such as the Army’s Field Artillery
Ammunition Support Vehicle and the Marine
Corps’ Light Armored Vehicle, as well as
logistics capability support and supply chain
management for fielded systems, provisioning,
automated warehousing and inventory
management, technical manual preparation,
revision, and translation, and deployment of
mobile technical training teams worldwide.
For NAVAIR, our VSS Division supports
automated maintenance data base management
programs for the F/A-18. VSS has also
recently received outstanding performance
reports for its support of U.S. Navy
requirements for A-76 privatization
outsourcing to commercial companies.
letter to stockholders
letter to stockholders
Fellow Shareholders:
As indicated in reporting our annual financial results
in February 2002, we anticipated that VSE revenues
in 2001 would be about the same as in 2000, but we
came in below our estimate primarily as a result of a
slowdown in orders to our ship transfer division
(BAV), partly as a result of the tragic events of
September 11, 2001. Indications are that some of the
deferred BAV work will be placed for delivery in
2002.
Our profit in 2001 also came in below our estimate.
Profits were reduced by costs incurred during 2001 to
build-up the work of our new Telecommunications
Technologies Group, to strengthen our VSE
marketing team, and to improve our information
technology infrastructure. The decrease in 2001
revenues also reduced our overall profitability for the
year.
Outlook for 2002
Looking forward, we expect an increase in
consolidated revenues in 2002 and an increase in
operating profits as the year progresses. We have
reduced overhead costs since year end, but
profitability will probably be lower during the first
two quarters of 2002 as we work through the
slowdown in volume we began to experience late in
2001. Based on current expectations, we expect a
stronger second half of the year, with profits for the
full year 2002 exceeding 2001.
I am optimistic about VSE’s business and potential for
improving results based on positive recent
developments:
The International Group under the leadership
of Jim Knowlton is expected to be VSE’s
revenue leader in 2002 as it has been each year
since 1996 (2001 revenues of about $68
million). The ship transfer and follow-on
technical support work performed by the BAV
Division for foreign navies has been in high
demand, and in January 2002 VSE reported
(cid:216)
4
letter to stockholders
letter to stockholders
the potential to exceed those in the ship
scrapping business, and we expect a boost in
our profits as this new venture becomes an
established part of our business.
Looking at each of our business areas, we are
optimistic about our prospects for revenue growth in
2002 and 2003, and we will work to translate real
growth into improved profitability. In view of the
current economic environment and other
uncertainties, there is no assurance that we can
achieve the revenue and profit goals we have set.
However, we intend to focus all of our efforts on
growing the company and increasing shareholder
value. We have an outstanding “past performance”
record across all our business units, and we believe
this enhances our ability to win new work in the
future. We look forward to reporting our progress as
the year proceeds.
VSE People
VSE has fewer employees today than in many years,
partly as a result of changing government
procurement methods, discontinued work, contract
expirations, staff reductions, and a change in our
business development priorities towards higher
margin work. We have reduced our overhead costs
since year end, and our projected revenue per
employee continues to rise.
We have a strong and seasoned management team,
and the new employees and managers we have added
recently are positive, energetic, and totally committed
to meeting our goals for growth, outstanding
performance, and increased profitability. Our
customers and stockholders will ultimately benefit
from these changes as we move forward.
As always, your comments and suggestions for
improvement are welcome at any time.
D. M. Ervine
Chairman of the Board
President and CEO/COO
March 7, 2002
5
(cid:216)
(cid:216)
(cid:216)
The Energy and Environmental Group under
the leadership of Bob Kelly continues to
support clients at the Department of Energy
and other agencies concerned with renewable
energy sources, new technologies, and energy
conservation programs (2001 revenues of
about $12 million). Our work in the energy
and environment sector is growing, and we
anticipate continued growth and profitability
from this business in 2002.
The Telecommunications Technologies
Group under the leadership of Tom Stallone
and Bob Waizenegger has grown into a
significant VSE business (2001 revenues of
about $9 million). During 2001 our work in
facilities security became a high demand, high
growth area, including directed support for
state port authorities as a part of our homeland
defense capability. Coupled with our total
“low voltage” expertise and rapid response in
designing, building, and installing
collaborative environments for command and
control centers and intelligent conference
rooms, we see continued VSE growth from
this business.
VSE exited the ship scrapping business in late
2001 due to inadequate funding and low profit
margins. We expect to replace much of the
lost business (about $4 million in 2001) with a
new Management Sciences Division
established in December 2001 under the
leadership of Tom Dacus (MSD 2002
revenues are estimated at about $3 million).
The new MSD division provides Six Sigma
training and consulting services for quality
s y s t e m s m a n a g e m e n t a n d p r o c e s s
optimization. Margins in this division have
international group
international group
BAV Division
“FMS One-Stop Shopping”
Under the direction of the Naval Sea Systems
Command Security Assistance Program Office (PMS
380), BAV and its team of American shipyards,
marine engineering specialists, defense system
manufacturers, and system integrators provides
program management, engineering, logistics, and
training services to complete the reactivation and
transfer of ex-U.S. Navy ships to foreign navies.
BAV provides lifecycle logistics support, training,
and follow-on technical assistance after the transfer of
these vessels and helps foreign navies execute long-
range maintenance plans.
Now in its seventh year of providing technical support
services to the naval forces of American Allies and
friendly foreign governments around the world, the
BAV Team offers worldwide capabilities to
accomplish the mission of the U.S. Navy’s ship
transfer program. To date, BAV has transferred 28 ex-
U.S. Navy combatant ships and 41 U.S. Coast Guard
small craft to 16 foreign governments. During 2002
and subsequent years, the BAV Team expects to
continue this high profile effort with ship transfer and
support efforts in Central and Eastern Europe, Asia,
Latin America, and the Middle East.
Direct commercial sales are effected through VSE
Services International, Inc.
Coast Guard Division
“Worldwide FMS Support”
The success of VSE’s efforts in transferring ex-Coast
Guard small craft to foreign governments over the past
six years led to the competitive award of a new long-
term contract to VSE in January 2002. Under the new
contract, VSE will provide support directly to the U.S.
Coast Guard for foreign military sales, lease, and
transfer requirements.
6
As a result of the experience gained under the BAV
contract, VSE’s Coast Guard Division will provide a
core team of contractors who understand Coast Guard
program requirements and will execute transfer and
training tasks effectively, on time and at budgeted
cost. Building on a team of marine subcontractors
and professional organizations, American Allies and
friendly foreign governments will be assured of
world-class support to help meet the coastal defense
requirements of their countries.
We are very pleased to be selected by the Coast Guard
for this program, and we will continue to apply all of
our resources to meet the continuing requirements of
this international program.
international group
international group
services, and we provide integrated logistics support.
Our customers include naval shipyards, surface
warfare centers, shipbuilding support offices,
supervisors of shipbuilding, and fleet technical
support centers, as well as other government
agencies, government prime contractors, and foreign
navies. We also provide technical and management
services to the contractor team supporting the Marine
Corps Blount Island Command at Jacksonville,
Florida.
FMD also provides engineering and technical support
for Energetics and associated ordnance systems for
the Naval Surface Warfare Center Indian Head
Division. The VSE team includes more than 20
subcontractors, and together we provide state-of-the-
art support for Indian Head programs in systems
engineering and technical support, explosives system
safety engineering support, modeling and simulation,
test and evaluation, and software engineering.
Fleet Maintenance Division
“Supporting Fleet Readiness and Sea Power
Projection”
The Fleet Maintenance Division (FMD) provides
engineering and technical support services to the U.S.
Navy and other customers. We are part of the
professional team that helps the Navy meet its global
sea power and surface warfare challenges.
FMD provides engineering, design, and installation
services; hull, mechanical and electrical and combat
systems inspection; ship repair and overhaul
availability planning; ship surveys and configuration
management; and foreign military sales support.
Utilizing a total team approach, we work with our
partners to perform alteration and installation
7
federal group
federal group
Land Systems Division
“VSE Supports Team Army and Team Marine Corps”
Land Systems Division is VSE’s premier, ISO 9001
registered engineering and technical services support
center for ground weapons and support equipment,
for logistics and training services, and for material
procurement programs for U.S. Army active and
reserve components and Marine Corps customers.
Teamed with its strategic partners, Land Systems
provides system engineering support and prototype
development for combat vehicles such as the Army’s
Field Artillery Ammunition Support Vehicle and the
Land
Marine Corps’ Light Armored Vehicle.
Systems’ logistics capability supports supply chain
management for fielded systems, provisioning,
automated warehousing and inventory management,
technical manual preparation, revision, and
translation, and deployment of mobile technical
training teams worldwide.
VSS Division
“Meeting Customer Goals and Objectives”
VSE’s Value Systems Services (VSS) Division
supports three programs where we have earned the
trust of our customers for timely and effective support
services:
VSS supports the Naval Air Systems
Command F/A-18 Program, including the
a u t o m a t e d m a i n t e n a n c e d a t a b a s e
management programs and their transfer,
integration, and deployment to a new
integrated information systems environment.
(cid:216)
8
(cid:216)
(cid:216)
VSS supports U.S. Navy requirements for
privatization outsourcing to commercial
companies. We provide experience A-76
s u b j e c t m a t t e r e x p e r t s t o s u p p o r t
management studies, performance work
statements, functional assessments and
a n a l y s i s , a n d t h e “ m o s t e f f i c i e n t
organization” concept of operations.
VSS supports the U.S. Postal Service with
specialized HRSI project management
services to augment its nationwide Facilities
Support Offices with the development or
modernization of USPS facilities, including
state-of-the-art retail postal lobbies.
Market areas in which VSS has focused for growth
include information systems integration and
deployment, data asset technology, and program
management within NAVAIR FMS programs;
business process reengineering for government agency
requirements; and technical and large program
expertise support for USPS specialized functional
organizations.
Energetics, Incorporated
“Energy and Environmental Consulting”
Energetics facilitates the development and
implementation of advanced, energy-related
technologies to help meet America’s needs for energy
while protecting the natural environment. Principal
client areas served are renewable energy and energy
energy and environmental group
energy and environmental group
efficiency, fossil fuels and power generation,
environmental management and restoration research
and development, and environmental health and
safety.
Recognized for its ability to integrate scientific and
technical expertise, the Energetics staff combines a
detailed knowledge of business and related policy.
By addressing technology and policy challenges in a
dynamic business environment, Energetics
establishes a basis for long-term client relationships,
and clients rely on us for technically sound,
responsive, and cost-effective solutions.
We build on our relationships by continuously
developing new products and services that have
exceptional value for clients. Our products and
services include scientific, engineering, regulatory,
economic, and institutional analysis, graphics, and
reports. We also provide strategic planning and
technology roadmaps, communications and
technology transfer activities, and conference and
meeting design and oversight.
In coming periods, Energetics expects to expand and
increase the level of services provided to existing
clients. We are also expanding into new areas
including Department of Energy Nuclear Energy and
Defense Programs, consulting services for the
Environmental Protection Agency, and services
supporting the Department of Defense.
Telecommunications
Technologies Group
“Turnkey Support for Security and Collaborative
Technologies and Environments”
VSE’s Telecommunications Technologies Group
(TTG) continues to grow as a one-stop solution for
state-of-the-art multimedia, telecommunications,
security, computer network, fire and life safety
systems, and integrated environmental solutions.
Our expertise in teleconferencing and security is
timely and in demand due to the heightened security
awareness and the need for
organizations to
minimize air travel and enhance personal security.
The VSE/TTG team composition is unique to the
industry. It includes multimedia and audio-visual
engineers, programmers, technicians, network
designers, professional architects and interior
designers, telephony and data technicians, security
specialists, construction managers, maintenance and
“refresh” specialists, project and business managers,
and millwork artists. Working together, this diverse
team continues to consult, conceptualize, construct,
integrate, debug, and deliver projects on a “turnkey”
basis -- complete and ready to use by an expanding list
of clients including federal and state governments,
commercial businesses, and non-profit organizations.
VSE designs and builds state-of-the-art integrated
“collaborative environments” including command
and control centers, distance learning environments,
war rooms, collaboratories, FUSION Centers™,
o p e r a t i o n s c e n t e r s , i n n o v a t i o n c e n t e r s ,
c o m m u n i c a t i o n s c e n t e r s , v i s i o n p o i n t
environments™, secure environments and SCIFs,
business intelligence centers, information
coordination centers, monitoring and surveillance
facilities, high technology conference and board
rooms, mobile decision and command modules, call
centers, and technical support and excellence centers.
9
telecommunications technologies group
telecommunications technologies group
Management Sciences
Division
“Six Sigma Quality Programs and Process
Optimization”
In December 2001 VSE established a new
Management Sciences Division (MSD) to provide Six
Sigma training and business product and process
optimization management services.
MSD is a senior level organization specializing in
management science related support. We provide
consulting services for product and process
optimization, quality engineering, integrated product
and process development, reliability engineering, and
the training and certification of personnel and
organizations in the implementation of Six Sigma
quality programs.
The MSD team consists of engineers, scientists,
analysts, and statisticians who are nationally and
internationally recognized experts and published
authors in the field of product and process
improvement. MSD offers consulting and seminar
training support for a variety of industries and
environments, including defense, aerospace,
manufacturing, medical products, healthcare and
financial services.
MSD is currently supporting the implementation of Six
Sigma quality programs at the U.S. Army Research,
Development, and Engineering Center (ARDEC), the
Army’s Tank-Automotive and Armaments Command
(TACOM), and the Army Program Executive Officers
for Ground Combat and Support Systems and
Ammunition programs. MSD is also in the planning
stages for the implementation of Six Sigma quality
programs at the Army’s Operations Support Command
(OSC).
Our list of successes include projects for the U.S. Air
Force, U.S. Customs Service, Virginia Port Authority,
District of Columbia Protective Service, American
Association of Retired Persons (AARP), and British
Aerospace.
For 2002 VSE/TTG has expanded services to include
implementation of broadband RF, satellite, fiber, and
copper transmission head-end and receiving systems,
networking, infrastructure, switching, routing,
programming, system optimization, inside and
outside plant cabling, fiber optics, and fire and
security installation.
TTG has established itself as a market leader and has
grown through the use of our GSA schedules and the
GSA schedules of our partnering companies. With
the award of GSA Schedule 539, we can also facilitate
the delivery of security services and products to
customers.
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“One Company-
One Team-
One Goal”
T
o be a preferred provider of professional
support services to a diverse customer
base: this is our vision.
Through the effective use of people, systems,
and technology, we help organizations
succeed. And in helping others succeed, we
build value for our shareholders. We believe
that in meeting customer goals first, we will
achieve our corporate goals for growth and
profitability.
Our success is measured by customers, and
our service goals are consistent: delighting
our customers, expanding technical
VSE operations
VSE operations
resources, and building a great customer-
industry team.
Our reputation for success is based on honesty
and integrity in everything we do. We value
full and open communications, teamwork,
and leadership. From an outstanding past
performance record to a registered quality
management system, we believe in our
commitment to help our customers achieve
their goals, today, tomorrow, and everyday, on
time, and at a fair price.
“Value and
Quality-
the VSE
Advantage”
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facilities information
facilities information
VSE Executive Offices
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 960-4600 or
(703) 329-4602
VSE Divisions and Subsidiaries:
BAV Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 317-5200
Charleston, South Carolina
Coast Guard Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 317-5200
Energetics, Incorporated
7164 Gateway Drive
Columbia, Maryland 21046
(410) 290-0370
Washington, D.C.
Morgantown, West Virginia
Fleet Maintenance Division
500 Woodlake Drive, Suite 1
Chesapeake, VA 23320
(757) 523-7200
Jacksonville, Florida
Bridgeport, New Jersey
Haddon Heights, New Jersey
Indian Head, Maryland
Lexington Park, Maryland
HRSI and Postal Programs
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-4430
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Land Systems Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-4724
Shrewsbury, New Jersey
Sterling Heights, Michigan
Warner Robins, Georgia
Ladysmith, Virginia
Management Sciences
Division
11545 West Bernardo Court
Suite 209
San Diego, California 92127
(858) 385-1902
Telecommunications
Technologies Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-4230
San Antonio, Texas
VSE Services
International, Inc.
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-4601
VSS Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-4234
Lexington Park, Maryland
CORPORATE OFFICERS
BOARD OF DIRECTORS
directors & officers
directors & officers
Chairman, President, and CEO/COO
Donald M. Ervine
Executive Vice Presidents
James M. Knowlton
Craig S. Weber, CAO, Secretary
Senior Vice Presidents
Michael E. Hamerly
Thomas R. Loftus, CFO
Jayne M. Tuohig
John J. Werbowski
Vice Presidents
Bryan E. Adams
Peter J. Desrosiers
Richard J. Hannah, Treasurer
H. Eugene Hosier
Thomas A. Stallone, Sr.
Assistant Vice Presidents
Stephen W. Austin
David W. Chivers
Louis G. Lawrence
David K. Meier
Elizabeth M. Price
Robert A. Waizenegger
Donald M. Ervine
Chairman of the Board
President and CEO/COO
VSE Corporation
Robert J. Kelly
Admiral, USN (Ret.);
Chairman of the Board and President
Energetics, Incorporated
Clifford M. Kendall
Chairman of the Board
On-Site Sourcing, Inc.
Calvin S. Koonce, Ph.D.
Chairman, Koonce Securities, Inc.
Securities Broker/Dealer
David M. Osnos, Esq.
Senior Member
Arent Fox Kintner Plotkin & Kahn, PLLP
Attorneys-at-Law
Jimmy D. Ross
General, USA (Ret.);
Executive Vice President
Cypress International, Inc.
Bonnie K. Wachtel
Vice President and General Counsel
Wachtel & Co., Inc.
Director Emeritus
Harold P. Weinberg
formerly Senior Vice President
and Director (1961-1996),
VSE Corporation
13
forward looking statements
forward looking statements
This report contains statements which, to the
extent they are not recitations of historical fact,
constitute "forward looking statements" within the
meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Act of
1934. All forward looking statements involve
risks and uncertainties. The forward looking
statements in this document are intended to be
subject to the safe harbor protection provided by
Sections 27A and 21E.
For discussions identifying some important
factors that could cause actual VSE results to differ
materially from those anticipated in the forward
looking statements, please see VSE’s Securities
and Exchange Report on Form 10-K for the fiscal
year ended December 31, 2001, including
discussions captioned “Narrative Description of
Business,” “Management’s Discussion and
Analysis,” and “Notes to Consolidated Financial
Statements.” Readers are cautioned not to place
undue reliance on the forward looking statements,
which reflect management’s analysis only as of the
date hereof. VSE undertakes no obligation to
publicly revise the 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 VSE
files from time to time with the Securities and
Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by VSE and any
Current Reports on Form 8-K.
14