Letter to Stockholders
Fellow Stockholders:
VSE achieved impressive levels of growth in 1998, our 40th year. Record
revenues, a return to profitability, important contract wins, an increase in
bidding opportunities, and a strong emphasis on providing a solid foundation for
future growth have VSE positioned well for the future.
For the year, consolidated annual revenues increased by $24 million or 15% to
$180 million. Consolidated net income was approximately $1.6 million or $.75 per
share. Led by BAV, the engineering, logistics, management and technical services
segment revenues increased by $25 million or 16% to $177 million and this
segment's net income increased by $0.5 million or 17% to $3.0 million or $1.42
a share. All of our other companies or business units comprising this segment
increased their revenue from last year. Annual revenues for the software
products and services segment decreased by $200 thousand or 6%. We made
substantial progress in reducing the net losses of this segment from $4.0
million to $1.4 million in 1998. While this is positive, we are still committed
to eliminating the losses incurred by our software products and services
segment. We have restructured the management of the company and we have reduced
its size wherever we can while still retaining quality product and service
capability. We continue to keep all of our options open and continue our efforts
to return CMstat to profitability.
Building and Strengthening VSE
When I look back on 1998, I think it will best be remembered as a pivotal time
of building and strengthening VSE. Some of the accomplishments of 1998 are
critical toward positioning VSE for continued success and competition in the
federal government marketplace for many years to come. While measured in annual
increments in this annual report, these changes are fundamental and I am hopeful
they will provide a continued return on our investment for many years to come.
VSE distinguished itself among professional engineering service providers by
achieving ISO 9001 registration. This investment will be a discriminator in all
of our proposals that few competitors can offer. I also firmly believe that
this framework will instill the discipline to focus VSE on quality products
and customer satisfaction. I expect the quality system we put in place in 1998
will enhance our financial results in 1999 and future years.
Our other major emphasis in 1998 was to upgrade our Information Technology
infrastructure to enable us to take advantage of the state-of-the-art tools
that are available for companies like ours. I am a firm believer that through
automation, we can provide increased levels of services at lower overall costs
and thereby keep VSE cost competitive in the eyes of our customers. In 1998,
we established a wide area network connecting the principal offices of our Sea
Warfare, Land Warfare and Air Warfare divisions as well as all o f our
administrative functions. We updated our entire
telephone, voice, and data systems, and we installed a video conferencing
facility in our Alexandria, Virginia location. We added similar capabilities
in several other VSE offices to minimize travel between our facilities.
Additionally, we installed a new training facility equipped with the latest in
computer hardware and software.
Strengthening our people has been a further initiative in 1998. We established
a training office, a training facility, and formal training plans as part of our
ISO 9001 process. We are investing in our people. The response from our
employees has been tremendous. We believe that continued training is a win-win-
win for VSE, our employees, and our customers.
Business Development
The government marketplace, which VSE serves, continues to be very large. We
have experienced an upturn in bidding opportunities, and we had some key wins
in 1998 that fit in well with our strategic objectives. We wanted to offer our
professional services to more federal government customers, and the award of a
GSA Federal Supply Contract to VSE and subsidiaries for information technology
services in February of 1999 enables us to do this. This contract makes it fast
and easy for customers to get to us, and I am optimistic that we will see
increased revenues in this market. We have initiatives underway for two
additional GSA contracts.
Another strategic VSE objective is to capitalize on a DOD budget trend of
spending more dollars on information technology programs. We are providing
higher technical services in areas such as military systems integration,
upgrading circuitry in fielded Army devices, inventing new power generation
solutions for fielded communications systems, and integrating advanced tech-
nology insertion on military vehicles and ships to modernize and extend their
service lives. We continue to see opportunities to offer services that help our
customers achieve better solutions at lower costs.
Personnel Resources
VSE is, above all, a services company. The strength of our management and the
quality of our services depend on the experience, education, training, and
motivation of VSE employees and managers, beginning with our Board of Directors.
Several important milestones for VSE directors were reached in 1998 and early
1999.
In September 1998, we celebrated David Osnos' 30 years of service on VSE's Board
of Directors. In February 1999, VSE's Board appointed Jim Knowlton as VSE
President and Chief Operating Officer, and a member of the Board, replacing
Dick McFarland who retired after ten years of valuable service to VSE during his
"second career."
1999 and Beyond
In the business description which follows you will see how VSE is responding
to a changing business environment. You will see the building and strengthening
in each VSE business unit. You will read about our continued progress toward
providing high tech solutions. We believe in our mission statement: "Our
systems help people succeed," and we are executing on every level. You will see
in our management discussion and analysis our approach to the Year 2000 issue.
We have a focused effort, and all indications are that we as a company will be
ready to do business as usual in the year 2000. Our goals are the same as they
have always been, to continue to grow the company and to increase shareholder
value. We remain committed to doing just that.
In our 40th Anniversary Annual Report, we've emphasized "innovation through
experience," which is our way of saying that VSE brings its customers the proven
experience to perform and the talent and energy to innovate solutions that work
better and cost less.
As I like to do every year, I acknowledge the very valuable support and
contribution made by our industry teaming partners, suppliers, bankers,
directors, and stockholders. VSE needs the effort of everyone to succeed.
Your support is very important, and I welcome your comments and suggestions
for improvement at any time.
D. M. Ervine
Chairman and CEO
March 17, 1999 |
