Mission:
Mission:
Success
Success
Annual Report
Annual Report
and
and
Form 10K
Form 10K
2006
2006
After guiding his jet away
from an air show crowd of
more than 60,000 people, a
pilot safely ejects from a
USAF Thunderbirds aircraft
less than a second before it
struck the ground. The ACES
II ejection seat, produced
and supported by VSE’s team
of experts in aircrew escape
systems, performed
flawlessly. VSE’s life cycle
management of Cartridge
Actuated Devices and
Propellant Actuated Devices
(CAD/PAD) delivers
significant improvements in
reliability, safety, and cost
savings, principally measured
by extended storage time on
the shelf in magazines and
installed service life in
aircraft.
U.S. Air Force photo by Staff
Sgt. Bennie J. Davis III
About the Cover
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 the ISO 9001:2000 standard.
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 Exchange 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 Security and Exchange
Report on Form 10-K for the fiscal year ended
December 31, 2006, 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.
VSE’s mission is success, and in 2006, VSE has
again achieved its mission. Mission: Success.
VSE Corporation helps organizations succeed
through the effective use of people, systems, and
technology. The photographs used throughout this
Annual Report demonstrate ways in which VSE has
helped its clients achieve their missions in 2006.
These success stories contributed to VSE’s financial
achievements in 2006, as shown in the financial
results presented in this document. We are also very
proud about the important differences that our
successes are making in the world today. From
protecting the lives of U.S. soldiers in the field to
enhancing the navies of allied nations; from
developing a global strategy for a malaria vaccine to
maximizing the nation’s ability to turn seized
property into additional funds for law enforcement
and homeland security – 2006 has been another year
of Mission: Success.
Corporate Profile
VSE Corporation is a diversified professional
services company established in 1959. The company
provides engineering, systems integration, scientific,
and management solutions to customers in the
defense, homeland security, law enforcement, energy,
and environmental sectors. Headquartered in
Alexandria, Virginia, VSE employs more than 850
personnel supporting clients from more than 25
locations 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 Global
Market 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 07016-1340, or to VSE
at 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, Attention: Corporate Secretary,
Telephone (703) 329-4770.
Annual report design by Julie Chappell, Energetics Incorporated.
LETTER TO SHAREHOLDERS
Fellow Stockholders:
After experiencing a record year of growth in revenues, earnings, and backlog
in 2005, VSE in 2006 continued to perform at a very high level and generated
an even better financial performance. Our annual revenues in 2006 exceeded
$363 million, while earnings exceeded $7.7 million ($3.21 per diluted share).
Along with the increase in revenues and earnings, our return on equity
exceeded 25%, with increases in stockholders’ equity, funded backlog,
employees, and the number of customers we serve. We increased our cash
dividend by 17%, and our stock price reflected these increases when the
results for 2006 were reported.
The performance of VSE employees and our business team in 2006 makes
us confident about our ability to set and meet higher goals.
Financial Results
The financial results reported for 2006 are consistent with the positive
trend in VSE operations and results reported in recent years. VSE
revenues have grown significantly as our ability to meet customer needs
has grown. With the increase in revenues, we have been able to allocate
our corporate costs over a larger base and improve our margins on certain
time and materials and fixed price contracts.
As previously reported, during the fourth quarter of 2006 we received new
contracts and delivery orders representing potential revenues of up to
$206 million, and at the end of 2006 our funded backlog was about $299
million. Based on these and other new awards announced during the year, our strong bookings and funded backlog,
and on our sense of VSE’s favorable position in several of the markets we serve, we anticipate continued revenue
and net income growth in 2007.
We also continue to review promising strategic business opportunities that may arise from time to time, including
potential acquisitions to accelerate our growth.
Business Operations
VSE operations grew in 2006 as we established new facilities, added employees, and developed new relationships.
our new Engineering and Logistics Division (ELD) continues to lead in the
In our Federal Group,
development of facilities in Virginia, Mississippi, Texas, and Missouri to serve customers in the U.S. Army,
Army Reserve, and Army National Guard. In November 2006, ELD won a multi-year, multiple-award Army
FORSCOM FIRST contract for equipment repair, upgrade, and RESET work. Our Systems Engineering
Division continued to meet the challenges of installing Tanker Ballistic Protection Systems in Iraq. In
addition, our Communications and Engineering Development Division saw a significant expansion in VSE
and subcontractor services provided and revenues earned through our Rapid Response contract. Management
Sciences Division continued to develop its ability to deliver high quality consulting services for product
improvement and continuous process improvement in Enterprise Excellence, Lean Six Sigma, and related
practice areas.
In our International Group, the BAV Division completed the reactivation and transfer of four ex-Kidd class
warships to Taiwan, ahead of schedule and below budget. Among other “firsts,” the highly visible and
successful BAV Kidd project established a new standard for timely, cost-effective ex-Navy ship overhaul
planning and reactivation services. In August 2006, our Fleet Maintenance-Government Services Division
was awarded the nationwide Seized and Forfeited General Property contract by the U.S. Treasury
Department. This new eight-year contract represents potential revenues of about $113 million, with growth
potential as requirements develop. Our Coast Guard Division was awarded its first task under the
new USCG International Programs contract to transport patrol boats to Azerbaijan,
and it is preparing responses to support requirements for the Chilean
and Yemeni Coast Guards. The Coast Guard Division is also
providing support to the Defense Threat
Reduction Agency.
In our Energy and Environmental Group, Energetics Incorporated continued its consulting services practice
supporting the U.S. Department of Energy and other customers in technology research, development,
assessment, demonstration, and transfer projects. Energetics earns high margins for its services, and with new
leadership in 2005, Energetics is growing and is expected to increase its contribution in the coming years.
Management Strategies
One of my most important and pleasant tasks is taking the time, as often as possible, to discuss with VSE’s
directors, officers, managers, employees, business associates, customers and stockholders the management
strategies we use in building and growing our business. As these conversations have developed, our strategies have
been sharpened to the following four essentials. Each is necessary, and we need to pay attention to all four of them
to succeed:
Practice honesty and integrity. This is the gold standard guiding every aspect of our business. With
demonstrated honesty and integrity in our relationships and transactions with customers, teaming partners,
employees, business associates, and stockholders, we are on the road to success.
Exceed customer expectations. Our goal is to be the preferred supplier to our customers. We offer quality
services, on time and at a fair price. When we make a mistake, we acknowledge it, and we fix it. Past
performance is a requirement for winning new work, and we never forget that “today’s performance is
tomorrow’s past performance.”
Champion new business. It is important that everyone in VSE focus on identifying, bidding, and winning new
work. As we say, every contract we have today will expire on some date. By developing new products and
services for new and existing customers, we can ensure a continuing path to corporate growth.
Take care of your people. VSE’s principal assets are the experienced and talented employees who achieve
everything that the company does. We focus on recruiting the best and giving them the information and
resources they need to succeed. We focus on identifying, bidding, and winning new work. We acknowledge
and reward exceptional performance.
VSE People
VSE depends on the contribution and dedication of each employee and every VSE business associate, consultant,
supplier and subcontractor. Together we will continue to set high goals and strive to achieve them. “Better this year
than we were last year.”
As always, your comments and suggestions for improvement are welcome.
Donald M. Ervine
Chairman of the Board
President and CEO/COO
February 28, 2007
Photo: DDG 1801 (ex-USS SCOTT) in
drydock, just prior to undocking. VSE’s
commitment to supporting the missions of both the U.S.
Navy and the Taiwan Navy resulted in the successful accomplishment
of the largest ship transfer program ever undertaken. In September 2006, VSE
completed the transfer of all four DDGs resulting in the successful completion of the program both under budget and
ahead of schedule.
VSE Corporation photo, Copyright 2006 VSE Corporation.
FINANCIAL HIGHLIGHTS
Revenues
($M)
Net Income
($M)
Earnings Per
Share Diluted ($)
Stockholders’
Investment ($M)
363.7
280.1
216.0
133.1
128.4
7.8
6.2
3.21
2.58
3.4
2.0
0.7
1.49
0.90
0.30
38.2
30.2
23.0
17.0 19.1
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
Y E A R
Y E A R
Y E A R
Y E A R
Funded
Backlog ($M)
Number of
Employees
Dividends
Per Share ($)
Stock Price,
End of Year ($)
299
276
836
716
625
168
500
450
0.16 0.16
0.27
0.23
0.19
42.10
33.90
25.17
13.25
10.76
83
44
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
Y E A R
Y E A R
Y E A R
Y E A R
Income Statement Data (in thousands, except share data)
Year ended December 31
Revenues
Net income
Earnings per share (diluted)
Weighted average shares (diluted)
Balance sheet data (in thousands, except percentages)
December 31
Total assets
Working capital
Stockholders’ investment
Return on equity
$
2006
363,734
7,789
3.21
2,424,442
$
2006
98,535
25,646
38,236
25.8%
% Change
30%
26%
24%
1%
$
2005
280,139
6,169
2.58
2,392,027
% Change
2005
33%
16%
27%
-4%
$
73,866
22,028
30,151
26.8%
VSE Corporation is a diversified professional services company established in 1959. The company provides
engineering, systems integration, scientific, and management solutions to customers in the defense, homeland
security, law enforcement, energy, and environmental sectors. Headquartered in Alexandria, Virginia, VSE
employs more than 850 personnel supporting clients from more than 25 locations across the United States and
around the world. The company has seven divisions and one subsidiary organized into three operating groups.
BUSINESS PRACTICE
Federal Group
Thomas G. Dacus, President
VSE’s Federal Group consists of four divisions and approximately
335 employees. Federal Group revenues in 2006 increased 134%
from 2005 to approximately $191 million. The Communications
and Engineering Division supports Department of Defense
mission requirements through the use of its $2.9 billion, 8-year,
IDIQ multiple award Rapid Response contract. The Systems
Engineering Division supports the U.S. Army and Marine
Corps in maintaining and modernizing equipment and sys-
tems, including the fuel tanker ballistic protection system
currently being deployed across the U.S. Army tanker inven-
tory in the Southwest Asia. The Federal Group’s newest
division, the Engineering and Logistics Division, was estab-
lished to perform the company’s rapidly expanding equipment
maintenance and refurbishment services in support of the U.S.
Army and Army Reserve. The Management Sciences Division
provides Lean Manufacturing and Six Sigma tools in support of the
VSE-developed Enterprise Excellence business model.
VSE’s Tanker Ballistic Protection System program, including the application of a Fuel Tanker Self-Sealing System and Add-on
Armor Panels, for U.S. Army Fuel Dispensing Tankers operating in Kuwait and Iraq has matured from the rapid development,
testing, and completion of our first tanker in 2005 to a highly efficient system that has produced 1,000 completed tankers,
providing an extra level of protection to America’s warfighters.
Top: VSE celebrates the completion of its 500th tanker in 2006. Bottom: VSE’s first completed tanker in 2005.
VSE Corporation photos, Copyright 2005-2006 VSE Corporation.
International Group
James M. Knowlton, President
Recording revenues of approximately $158 million in 2006, VSE’s International Group employs approximately 350
employees across three operating divisions. The BAV Division supports U.S. Navy ship transfers to foreign governments,
principally through its $554 million, 5-year contract with the Naval Sea Systems Command. The BAV Division provides
ship transfer and follow on technical support to countries around the world, including two of VSE’s largest clients in
2006, Egypt and Taiwan. The Coast Guard Division provides similar foreign military sales support to U.S. Coast Guard
equipment transfers to foreign nations. The Fleet Maintenance Division supports a wide
variety of clients and programs: Navy and Marine Corps waterfront activity, through
contracts such as its multi-billion dollar U.S. Navy SeaPort-enhanced contract;
U.S. Air Force munitions, logistics, and BEAR equipment support through
several different readiness contracts; the Navy F/A-18 fleet and other clients
with advanced prognostics and diagnostics applications; and the Depart-
ment of the Treasury and Department of Homeland Security seized and
forfeited property management programs under its new 8-year, $113
million contract.
Below: Testing an F/A-18F Super Hornet jet engine aboard USS Kitty
Hawk (CV 63), the U.S. Navy’s only permanently forward deployed
aircraft carrier. Test and sensor data fed into VSE’s F/A-18
Automated Maintenance Environment (AME) provides the key to
“cost-wise readiness” for the Navy’s fleet.
Left: An Aviation Machinist’s Mate 2nd Class utilizes VSE’s AME
system to review maintenance procedures for an F/A-18E Hornet
assigned to the “Eagles” of Strike Fighter Squadron One One Five
(VFA-115) in the hangar bay aboard the aircraft carrier USS Ronald
Reagan (CVN 76). VSE’s AME system provides advanced interactive
electronic technical manuals intelligently linked to the advanced
diagnostic and prognostic functions of the system.
Below: U.S. Navy photo by Photographer’s Mate Airman Thomas J. Holt
Left: U.S. Navy photo by Mass Communication Specialist 3rd Class
Christopher Blachly
Energy and Environment Group
James E. Reed, President
VSE’s Energy and Environment Group was acquired in 1995 and consists of VSE’s wholly owned subsidiary, Energetics
Incorporated. Energetics had revenues of approximately $14 million in 2006, up 12% from 2005. Through its staff of
about 90 professionals, Energetics provides technical and management consulting services with an emphasis on energy
and environmental issues for its principal client, the U.S. Department of Energy. Energetics excels in planning and
managing all aspects of technology research, development, and demonstration. It has earned an international reputation
for developing technology roadmaps that help government and industry solve complex
science and technology problems through collaborative partnerships.
Right: Energetics is working with the U.S. Department of Energy to
help utilities improve cyber security. Through a unique
collaboration, Energetics prepared an industry- and government-
endorsed roadmap that seeks to secure control systems
throughout the energy sector within 10 years.
Photo courtesy of Kansas City Power and Light, used by
permission. Copyright 2006 Kansas City Power and Light.
Below: Energetics facilitated
development of the Malaria Vaccine
Technology Roadmap, which
establishes a global plan for
developing a safe, effective, and
affordable vaccine to protect against
Plasmodium falciparum malaria in
children under five years of age in sub-
Saharan Africa and other highly
endemic regions.
Photo courtesy of the David and Lucile
Packard Foundation.
VSE CORPORATION
helps
organizations succeed through the effective use of people, systems,
and technology. In helping others succeed, we increase shareholder
value by capturing new work, delighting our customers, increasing our
technical competence, and building great industry teammates. Our
reputation for success and our quality management system are based on
honesty and integrity in everything we do; on communications, on
teamwork and leadership; and on an enduring commitment to help our
customers, employees, and teaming partners succeed with cost-effective
solutions, continuous learning, and process improvement.
VSE was established in 1959 with a mission to provide engineering and
technical support services to reduce the cost and improve the reliability of
DoD systems and equipment. Today, VSE is a broadly diversified company
focused on creating, sustaining, and improving the systems, equipment, and
processes of government. Our expanded mission now includes providing
innovative services and technologies to help our customers succeed in the
engineering, energy, environment, information technology, and defense
services markets.
VSE’s strength lies in the talented professionals who support our customers in
maintaining and modernizing products, equipment, and systems. We combine
their individual skills, experience, and motivation with corporate resources,
technology, teamwork, and the management principles of integrity, honesty, and
self-governance to deliver high quality, cost-effective solutions to a global
customer base.
NASDAQ: VSEC
ISO 9001:2000
Celebrating
48 years
of Excellence
001
VSE and Mack Trucks have
partnered to bring the next generation
M915 Line Haul Tractor to the U.S. Army and other
services. Combining the historically proven (Mack produced the
very first military truck in 1911) and industry-leading truck design and building
skills of Mack with VSE’s engineering, total life cycle logistics support and systems integration
capabilities provides the U.S. Army with a risk reduced, advanced alternative to the Line Hauls of today. Together, VSE
and Mack will re-introduce “The Bulldog” to our Soldiers with unprecedented levels of reliability, maintainability and
survivability.
Photo by Harold Welsh, Copyright 2006 Mack Trucks. Used by Permission.
BOARD OF DIRECTORS
Donald M. Ervine
Chairman of the Board,
President and CEO/COO
VSE Corporation
Clifford M. Kendall
Private Investor and
Chairman of the Board of Regents
of the University System of Maryland
Calvin S. Koonce, Ph.D.
Chairman, Koonce Securities, Inc.
Securities Broker/Dealer
James F. Lafond, CPA
Retired Executive; formerly
Washington Area Managing Partner,
PricewaterhouseCoopers LLP
David M. Osnos, Esq.
Of Counsel
Arent Fox LLP
Attorneys-at-Law
Jimmy D. Ross
General, USA (Ret.)
Senior Logistics Consultant,
Cypress International, Inc.
Bonnie K. Wachtel
Vice President and General Counsel,
Wachtel & Co., Inc.
Background photo: A Customs and Border Protection (CBP) Officer examines the last
bit of cargo to be off loaded from an aircraft.
VSE is proud to support the Department of the Treasury, Department of Homeland
Security CBP, and all of the participating agencies in the Treasury Franchise Fund
(TFF).
Through teamwork and an unwavering commitment to victory, the TFF is succeeding
in its mission to “affirmatively influence the consistent and strategic use of asset
forfeiture by participating agencies to disrupt and dismantle criminal enterprises.”
Department of Homeland Security photo by James R. Tourtellotte
CORPORATE OFFICERS
Chairman, President and
CEO/COO
Donald M. Ervine
Executive Vice Presidents
Thomas G. Dacus
Michael E. Hamerly
James M. Knowlton
Thomas R. Loftus, CFO
Craig S. Weber, CAO, Secretary
Senior Vice President
Jayne M. Tuohig
Vice Presidents
Jerry M. Alvey, Comptroller
Stephen W. Austin
David W. Chivers
Peter J. Desrosiers
James S. Fallon
Harold J. Flammang, Jr.
Richard J. Hannah, Treasurer
H. Eugene Hosier
Louis G. Lawrence
Donnelle L. Moten
Michael J. Rayder
Assistant Vice Presidents
Carl S. Barbour
Charley J. Borns
I. Monique Brooks
Terry D. Chandler*
James M. Coritz
Roy L. Dooley*
Normand L. Frigon
James H. Koontz
Elizabeth M. Price
Robert W. Rouzer
Edward C. Webster
Frank G. Wickersham, III
William C. Wright*
* Appointed in 2007.
Inset photo: The motto for CBP is displayed at the border.
The “One Team—One Fight!” motto also captures the spirit of VSE’s support to
this critical program. By improving both the effectiveness and efficiency of the TFF
personal property management program, VSE ensures more funds are available to
law enforcement agencies to enhance their capabilities to conduct successful
investigations and forfeitures.
Department of Homeland Security photo by James R. Tourtellotte
FACILITIES
In 2006, VSE substantially increased its
infrastructure and overall support to U.S.
Army Reserve equipment engineering,
maintenance and logistics readiness tasks.
VSE has made a nationwide, long-term
commitment to high quality, rapid
response service to enhance the overall
equipment readiness of the Reserve.
Above photo: A vehicle undergoing
maintenance at VSE’s San Antonio, Texas
facility.
Opposite page, top photo: A sample of the
range of equipment being repaired and
refurbished at VSE’s Alexandria, Virginia
facility.
Opposite page, bottom photo: A trailer
undergoing sandblasting at VSE’s
Ladysmith, Virginia facility.
All Photographs Copyright 2005-2006
VSE Corporation.
VSE Corporation Headquarters
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 960-4600 or
Toll-free: (800) 455-4873
VSE Divisions and Subsidiaries:
BAV Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 317-5200
BAV Offices
Charleston, South Carolina
Alexandria, Egypt
Tokyo, Japan
Tuxpan, Vera Cruz, Mexico
Suoa and Tsoying, Taiwan
Sattahip, Thailand
Golchuk, Turkey
Communications and
Engineering Division
170 Avenue at the Commons, Units 8 & 10
Shrewsbury, New Jersey 07702
(732) 389-3324
Coast Guard Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 317-5200
Energetics Incorporated
(A subsidiary of VSE Corporation)
7164 Gateway Drive, Suite 100
Columbia, Maryland 21046
(410) 290-0370
Energetics Incorporated Offices
Washington, D.C.
Morgantown, West Virginia
Engineering and Logistics Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-3208
ELD Offices
Long Beach, Mississippi
Weldon Spring, Missouri
San Antonio, Texas
Ladysmith, Virginia
Fleet Maintenance Division
500 Woodlake Drive, Suite One
Chesapeake, Virginia 23320
(757) 523-7200
FMD Offices
San Diego, California
Jacksonville, Florida
Miami, Florida
Honolulu, Hawaii
Indian Head, Maryland
Bridgeport, New Jersey
South Brunswick, New Jersey
Sparta, New Jersey
Beaufort, South Carolina
Langley, Virginia
Andersen AFB, Guam
Atusgi, Japan
Osan, Korea
Management Sciences Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 960-4600
Systems Engineering Division
2550 Huntington Avenue
Alexandria, Virginia 22303
(703) 329-3208
SED Offices
Sterling Heights, Michigan
2550 Huntington Avenue
Alexandria, Virginia 22303-1499
www.vsecorp.com
email: info@vsecorp.com
(703) 960-4600
(800) 455-4873