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<SEC-DOCUMENT>0000102752-05-000013.txt : 20050427
<SEC-HEADER>0000102752-05-000013.hdr.sgml : 20050427
<ACCEPTANCE-DATETIME>20050427101410
ACCESSION NUMBER:		0000102752-05-000013
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20050331
FILED AS OF DATE:		20050427
DATE AS OF CHANGE:		20050427

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VSE CORP
		CENTRAL INDEX KEY:			0000102752
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-ENGINEERING SERVICES [8711]
		IRS NUMBER:				540649263
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-03676
		FILM NUMBER:		05774896

	BUSINESS ADDRESS:	
		STREET 1:		2550 HUNTINGTON AVE
		CITY:			ALEXANDRIA
		STATE:			VA
		ZIP:			22303
		BUSINESS PHONE:		7039604600

	MAIL ADDRESS:	
		STREET 1:		2550 HUNTINGTON AVENUE
		CITY:			ALEXANDRIA
		STATE:			VA
		ZIP:			22303

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	VALUE ENGINEERING CO
		DATE OF NAME CHANGE:	19790612
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>vse10q305.txt
<DESCRIPTION>VSE CORPORATION FORM 10-Q MARCH 31, 2005
<TEXT>


                      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, 2005            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 is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [ ]    No [x]

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 27, 2005: 2,279,625.



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 of Financial
Condition and Results of Operations" and "Notes to Consolidated Financial
Statements" contained in VSE's Annual Report and Form 10-K for the fiscal year
ended December 31, 2004 (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 and other Quarterly Reports on Form 10-Q to be filed
by the Company subsequent to its Annual Report on Form 10-K and any Current
Reports on Form 8-K filed by the Company.
























                                     -2-

                        PART I.  Financial Information

Item 1.    Financial Statements

VSE Corporation and Subsidiaries
Consolidated Financial Statements
<TABLE>
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
(in thousands except share and per share amounts)
<CAPTION>
                                                      March 31,  December 31,
                                                         2005        2004
                                                         ----        ----
                                                      (Unaudited)
<S>                                                   <C>         <C>
Assets
Current assets:
  Cash and cash equivalents  . . . . . . . . . . . .  $     44    $    130
  Accounts receivable, principally
    U.S. Government, net . . . . . . . . . . . . . .    49,853      40,274
  Contract inventories . . . . . . . . . . . . . . .     4,374       8,504
  Deferred tax assets  . . . . . . . . . . . . . . .     1,120       1,077
  Other current assets . . . . . . . . . . . . . . .     1,523       1,595
                                                      --------    --------
    Total current assets . . . . . . . . . . . . . .    56,914      51,580

Property and equipment, net  . . . . . . . . . . . .     4,665       4,435
Deferred tax assets  . . . . . . . . . . . . . . . .       410         312
Goodwill . . . . . . . . . . . . . . . . . . . . . .     1,054       1,054
Other assets . . . . . . . . . . . . . . . . . . . .     3,184       2,971
                                                      --------    --------
    Total assets . . . . . . . . . . . . . . . . . .  $ 66,227    $ 60,352
                                                      ========    ========
Liabilities and Stockholders' Investment
Current liabilities:
  Bank notes payable . . . . . . . . . . . . . . . .  $      -    $  1,578
  Accounts payable . . . . . . . . . . . . . . . . .    33,151      26,853
  Accrued expenses   . . . . . . . . . . . . . . . .     7,216       7,452
  Dividends payable  . . . . . . . . . . . . . . . .       114         114
                                                      --------    --------
    Total current liabilities  . . . . . . . . . . .    40,481      35,997

Deferred compensation  . . . . . . . . . . . . . . .     1,473       1,312
                                                      --------    --------
    Total liabilities  . . . . . . . . . . . . . . .    41,954      37,309
                                                      --------    --------
Commitments and contingencies

Stockholders' investment:
  Common stock, par value $.05 per share, authorized
    5,000,000 shares; issued 2,279,625 in 2005 and
    2,276,688 shares in 2004 . . . . . . . . . . . .       114         114
  Paid-in surplus  . . . . . . . . . . . . . . . . .     4,917       4,879
  Deferred stock-based compensation  . . . . . . . .        (2)         (4)
  Retained earnings  . . . . . . . . . . . . . . . .    19,244      18,054
                                                      --------    --------
    Total stockholders' investment . . . . . . . . .    24,273      23,043
                                                      --------    --------
    Total liabilities and stockholders' investment .  $ 66,227    $ 60,352
                                                      ========    ========
</TABLE>


     The accompanying notes are an integral part of these balance sheets.

                                     -3-
VSE Corporation and Subsidiaries
Consolidated Financial Statements
<TABLE>
Consolidated Statements of Income (Unaudited)
- -----------------------------------------------------------------------------
(in thousands except share and per share amounts)
<CAPTION>
                                                         For the three months
                                                           ended March 31,
                                                          2005         2004
                                                          ----         ----
<S>                                                   <C>          <C>
Revenues, principally from contracts . . . . . . . .  $  65,919    $  42,609

Costs and expenses of contracts  . . . . . . . . . .     63,755       41,462
                                                      ---------    ---------
Gross profit . . . . . . . . . . . . . . . . . . . .      2,164        1,147

Selling, general and administrative expenses . . . .         56           12

Interest income, net . . . . . . . . . . . . . . . .        (19)         (19)
                                                      ---------    ---------
Income before income taxes . . . . . . . . . . . . .      2,127        1,154

Provision for income taxes . . . . . . . . . . . . .        823          446
                                                      ---------    ---------
Net income . . . . . . . . . . . . . . . . . . . . .  $   1,304    $     708
                                                      =========    =========

Basic earnings per share:

Net income . . . . . . . . . . . . . . . . . . . . .  $    0.57    $    0.32
                                                      =========    =========

Basic weighted average shares outstanding             2,279,326    2,216,216
                                                      =========    =========

Diluted earnings per share:

Net income . . . . . . . . . . . . . . . . . . . . .  $    0.55    $    0.31
                                                      =========    =========

Diluted weighted average shares outstanding           2,353,954    2,286,613
                                                      =========    =========
</TABLE>






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

                                     -4-
VSE Corporation and Subsidiaries
Consolidated Financial Statements
<TABLE>
Consolidated Statements of Stockholders' Investment (Unaudited)
- --------------------------------------------------------------------------------------------
(in thousands except per share data)
<CAPTION>
                                                         Deferred                 Total
                               Common Stock   Paid-In  Stock-Based   Retained  Stockholders'
                              Shares  Amount  Surplus  Compensation  Earnings   Investment
                              ------  ------  -------  ------------  --------   ----------
<S>                            <C>    <C>    <C>          <C>       <C>         <C>
Balance at
  December 31, 2004 . . . . .  2,277  $ 114  $ 4,879      $  (4)    $ 18,054    $ 23,043

Net income for the period . .      -      -        -          -        1,304       1,304
Exercised stock options . . .      3      -       26          -            -          26
Tax benefit of options
  exercised . . . . . . . . .      -      -       15          -            -          15
Deferred stock-based
  compensation  . . . . . . .      -      -       (3)         1           -           (2)
Amortization of deferred
  stock-based compensation  .      -      -        -          1            -           1
Dividends declared ($.05) . .      -      -        -          -         (114)       (114)
                               -----  -----  -------      -----     --------    --------
Balance at
  March 31, 2005  . . . . . .  2,280  $ 114  $ 4,917      $  (2)    $ 19,244    $ 24,273
                               =====  =====  =======      =====     ========    ========
</TABLE>






























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

                                     -5-
VSE Corporation and Subsidiaries
Consolidated Financial Statements (Unaudited)
<TABLE>
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------
(in thousands)
<CAPTION>
                                                         For the three months
                                                             ended March 31,
                                                              2005     2004
                                                              ----     ----
<S>                                                         <C>      <C>
Cash flows from operating activities:
 Net income    . . . . . . . . . . . . . . . . . . . . . .  $ 1,304  $   708
 Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
     Depreciation and amortization . . . . . . . . . . . .      326      262
     Loss on sale of property and equipment  . . . . . . .        2        -
     Deferred taxes  . . . . . . . . . . . . . . . . . . .     (141)     (81)
     Tax benefit of options exercised  . . . . . . . . . .       15       14
     Amortization of deferred stock-based compensation . .       (1)       4
 Change in operating assets and liabilities:
   (Increase) decrease in:
     Accounts receivable . . . . . . . . . . . . . . . . .   (9,579)  (2,397)
     Contract inventories  . . . . . . . . . . . . . . . .    4,130        -
     Other current assets and noncurrent assets  . . . . .     (141)    (108)
   Increase (decrease) in:
     Accounts payable and deferred compensation  . . . . .    6,459    3,110
     Accrued expenses  . . . . . . . . . . . . . . . . . .     (236)    (281)
                                                            -------  -------
       Net cash provided by operating activities              2,138    1,231
                                                            -------  -------
Cash flows from investing activities:
  Purchase of property and equipment . . . . . . . . . . .     (558)    (790)
                                                            -------  -------
       Net cash used in investing activities                   (558)    (790)
                                                            -------  -------
Cash flows from financing activities:
  Net repayment of bank loans  . . . . . . . . . . . . . .   (1,578)       -
  Dividends paid . . . . . . . . . . . . . . . . . . . . .     (114)     (88)
  Proceeds from issuance of common stock . . . . . . . . .       26       37
                                                            -------  -------
       Net cash used in financing activities                 (1,666)     (51)
                                                            -------  -------

Net (decrease) increase in cash and cash equivalents . . .      (86)     390
  Cash and cash equivalents at beginning of period . . . .      130    9,843
                                                            -------  -------
  Cash and cash equivalents at end of period . . . . . . .  $    44  $10,233
                                                            =======  =======
</TABLE>


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

                                     -6-
                       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 accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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 months ended March 31, 2005 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2005.  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, 2004. The Company operates within one reportable segment.


Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.  Significant
estimates affecting the financial statements include the allowance for doubtful
accounts and accruals for loss contracts, contract disallowance and self insured
health claims.


Contract Inventories

The components of contract inventories as of March 31, 2005 and December 31,
2004 were as follows (in thousands):

                                                       2005        2004
                                                       ----        ----
Raw material . . . . . . . . . . . . . . . . . . .   $     -     $4,783
Work in process  . . . . . . . . . . . . . . . . .    10,668      3,721
                                                     -------     ------
                                                     $10,668     $8,504
Less:  Progress payments received  . . . . . . . .    (6,294)         -
                                                     -------     ------
   Total contract inventories                        $ 4,374     $8,504
                                                     =======     ======

Contract inventories consist of materials purchased, advances to suppliers, and
other expenditures for use in a contract to modify and apply a protective
system, the Tanker Ballistic Protection System ("TBPS"), to military vehicles
for the U.S. Army. This contract was awarded to VSE in November 2004.

                                     -7-

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



Although these costs are classified as contract inventories for accounting
purposes, they are similar in nature to materials and direct supplies purchased
for use in performance on the Company's other contracts in that they are solely
and directly attributable to the contract and will be billed to the customer
within a relatively short time. These materials and direct supplies will not be
restocked to maintain any permanent inventory levels.

Raw material inventories consist of advances to suppliers for materials on this
contract but on which work has not yet begun. Work in process contract
inventories consist of amounts for materials, supplies and other expenditures
for which work has been performed but for which the end unit has not yet been
completed and accepted. Work in process contract inventory includes applicable
indirect cost burdens, including general and administrative costs, of
approximately $1 million and $442 thousand as of March 31, 2005 and December 31,
2004, respectively.


Debt

VSE has a revolving loan agreement with a bank under which the Company can
borrow up to $15 million, subject to certain conditions, including a borrowing
formula based on billed receivables. Under the loan agreement, the Company pays
a fixed 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, 2006. 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. As of March 31, 2005,
there were no amounts outstanding under this loan agreement. Amounts outstanding
under this loan agreement as of December 31, 2004 were approximately
$1.6 million, which was paid in January, 2005. Interest expense incurred on the
loan for the three months ending March 31, 2005 and 2004 was approximately
$1 thousand and $0, respectively.


Accounting for Stock-based Compensation

The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting
for Stock-Based Compensation," as amended by SFAS 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." Accordingly, the Company
accounts for stock-based compensation under Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, using the intrinsic value method. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS 123 to all stock-based
employee compensation (in thousands, except per share amounts):

                                     -8-

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




                                         Three Months Ended March 31,
                                               2005        2004
                                               ----        ----
Net income, as reported                       $1,304	  $  708
Add: Total stock-based employee
 compensation expense as reported
 under intrinsic value method
 (APB No. 25) for all awards, net
 of related tax effects                            -	       3

Deduct: Total stock-based
 compensation expense
 determined under fair value based
 method (SFAS No. 123) for all
 awards, net of related tax effects              (62)        (19)
                                              ------       -----
Pro forma net income                          $1,242       $ 692
                                              ======       =====
Earnings per share:

 Basic - as reported                           $0.57       $0.32
 Diluted - as reported                         $0.55       $0.31

 Basic - pro forma                             $0.54       $0.31
 Diluted - pro forma                           $0.53       $0.30

In December 2004, the Financial Accounting Standards Board issued SFAS 123(R),
"Share-Based Payment," which is a revision to SFAS 123. SFAS 123(R) supersedes
APB Opinion No. 25 and amends SFAS 95, "Statement of Cash Flows." Generally,
the approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values.  Pro forma disclosure is no longer an alternative.  The
Company can adopt SFAS 123(R) in one of two ways - the modified prospective
method or the modified retrospective method. The Company will adopt SFAS 123(R)
on January 1, 2006 and is currently evaluating the alternative methods.

The impact of adoption of SFAS 123(R) cannot be predicted at this time because
it will depend on levels of share-based payments granted in the future.
However, had we adopted SFAS 123(R) in prior periods, the impact of that
standard would have approximated the impact of SFAS 123 as described in the
disclosure of pro forma net income and earnings per share above.  SFAS 123(R)
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature.  This requirement will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption.  While the Company cannot estimate what those amounts

                                     -9-

will be in the future (because they depend on, among other things, when
employees exercise stock options), the amount of operating cash flows recognized
for the three month periods ending March 31, 2005 and 2004 for such excess tax
deductions were approximately $15 thousand and $14 thousand, respectively.


Earnings Per Share

Basic earnings per share have been computed by dividing net income 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.  Potentially dilutive common shares
include incremental common shares issuable upon exercise of stock options.

                                         Three Months Ended March 31,
                                               2005        2004
                                               ----        ----
   Basic weighted average
     common shares outstanding              2,279,326   2,216,216
   Diluted effect of options                   74,628      70,397
                                            ---------   ---------
   Diluted weighted average
     common shares outstanding              2,353,954   2,286,613
                                            =========   =========

Litigation

The Company and its subsidiaries have, in the normal course of business, claims
against them.  In the opinion of management, the resolution of any such claims
will not have a material adverse effect on the Company's results of operations
or financial position.


















                                     -10-

ITEM 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations


Executive Overview

VSE Organization

VSE's business operations consist primarily of services performed by the
Company's wholly owned subsidiaries and unincorporated divisions. The Company
uses multiple operating entities to bid on and perform contract work. The use
of an operating structure with multiple entities gives the Company certain
competitive advantages and the flexibility to pursue a diverse business base.
The term "VSE" or "Company" refers to VSE and its subsidiaries and divisions
unless the context indicates operations of the parent company only.

Energetics Incorporated ("Energetics") is currently VSE's only active
subsidiary. Active divisions as of March 31, 2005 include BAV Division ("BAV"),
Coast Guard Division ("VCG"), Communications and Engineering Division ("CED"),
Fleet Maintenance Division ("FMD"), Management Sciences Division ("MSD"),
Systems Engineering Division ("SED"), and, Information Assurance Division
("IAD", formerly Value Systems Services Division or "VSS").

VSE also has several other subsidiaries and divisions that were inactive as of
March 31, 2005.

TTD Discontinued Operations

In February 2003, VSE decided to terminate operations of its Telecommunications
Technologies Division ("TTD") due to declining revenues and significant losses
sustained by this division. TTD continued work on uncompleted contracts during
2003 and 2004 to satisfy its contractual obligations and upon finishing work in
July 2004, TTD was classified as a discontinued operation. Some of TTD's
technical capabilities were transferred to other VSE divisions. The loss of
revenue associated with the termination of TTD operations is not significant
compared to total VSE revenue, while the elimination of TTD losses will improve
VSE profits.  There was no material impact on the quarters ended March 31, 2005
or 2004.

VSE Customers and 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.
Other customers include the Department of Homeland Security, the U.S. Postal
Service, the Department of Energy, and the Department of Treasury.

The majority of VSE's work is performed for the U.S. Navy. BAV is a major
provider of logistics, training, and technical assistance in support of the
Navy's ship transfer program. FMD supports the Navy by providing a variety of
services including ship installation efforts, combat systems inspections, ship
repair and overhaul availability planning, harpoon weapons management,

                                     -11-

ordnance alteration, and air combat logistics.  VCG provides services to the
U.S. Coast Guard that are similar to the work performed by BAV for the Navy.

VSE also performs a significant amount of its work for the U.S. Army. SED
provides the Army with equipment refurbishment services, military vehicle
protection systems, 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, as well as other
government agencies and commercial organizations, with quality training services
for product, process, and management optimization. CED provides management
oversight and coordinates support efforts for a variety of government work
orders on a large Army contract.

The Company has also provided support services to the U.S. Postal Service for
more than twenty years and is continuing to support this customer through its
SED Division. 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. The Company also provides support services to the U.S. Department
of Treasury and has offered products, services, and support in network,
multimedia, and audio-visual technology including design, installation,
management and support for voice, data, multimedia and related projects to
various government agencies and commercial organizations.

BAV Ship Transfer Program

VSE's BAV Division provides the U.S. Navy with engineering, technical and
logistical support services associated with the sale, lease, or transfer of Navy
ships to foreign governments. The original contract associated with this program
was a ten-year cost-plus contract awarded in 1995 with a total ceiling value of
more than $1 billion. BAV was awarded a second contract in April 2005 to
continue work on this program. The new contract is a five-year cost-plus
contract with a total ceiling value of approximately $544 million. The level of
revenues and associated profits resulting from fee income generated by this
program 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
variation primarily due to changes in the level of activity associated with the
Navy's ship transfer program.

During its life, this program has been the Company's single largest revenue
producer. Revenues generated by this program have typically accounted for
approximately 40% to 50% of consolidated VSE revenues, and revenues generated by
this program accounted for approximately 45% and 50% of consolidated revenues
during the three month periods ended March 31, 2005 and 2004, respectively. The
transfer of four U.S. Navy ships to Taiwan currently conducted under this
program is a major contributor to the Company's revenues in 2005 and 2004. The
original BAV contract is scheduled to end in 2005. VSE expects the Navy to begin
issuing orders on the new contract in the second quarter of 2005 and to cease
issuing new orders on the original contract at that time. BAV will continue work
associated with the transfer of four ships to Taiwan under delivery orders
previously issued on the original contract. For further discussion, refer to
"Longer Term Concerns" under Management Outlook.

                                     -12-

Contract terms specify award fee payments to BAV that are determined by
performance and level of contract activity. A contract modification authorizing
the award fee payment is issued subsequent to the period in which the work is
performed. The Company does not recognize award fee income until the contract
modification authorizing the award fee is certain. Award fees are made three
times during the year. Accordingly, the Company typically has three quarterly
reporting periods per year that include the recognition of BAV award fee income
and one quarterly reporting period that does not include BAV award fee income.
Due to such timing, and to fluctuations in the level of revenues, profits as a
percentage of revenues will fluctuate from period to period. The three month
periods ended March 31, 2005 and 2004 include BAV award fee income.

TBPS Program

In November 2004, VSE's SED Division was awarded a fixed-price letter contract
by the U.S. Army to begin work on a program to provide a protection system for
Army vehicles, the Tanker Ballistic Protection System ("TBPS"). Under this
program, SED will apply a Fuel Tank Self-Sealing System and necessary Add-on
Armor Panels for Army Fuel Dispensing Tankers as protection from damage
resulting from hostile fire. Testing and preparatory work on this program was
conducted in November and December 2004 and the TBPS was applied to the first
tanker in January 2005. SED received a definitized $34.9 million firm fixed
price per unit contract to formalize contract coverage and additional funding in
March 2005. The Company also received a second fixed-price letter contract and
is in negotiations with the Army for a second definitized contract under this
program that would increase the amount of work by adding more tankers to be
included in the program. This program is expected to contribute significantly to
revenue growth in 2005 while also presenting new risks and challenges to VSE's
business.

Government Procurement Policies and Practices

VSE's business is subject to the risks arising from 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.

The revenues of the Company depend on its ability 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 some 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, increasing 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. Competing for these contracts requires the Company to
use teams of subcontractors to be able to offer the range of technical
competencies needed to do the work. While the use of subcontractors on a large

                                     -13-

scale basis allows the Company to compete for this work, profit margins on
subcontract work are lower than on work performed by Company personnel, thereby
reducing the Company's overall profit margins.

The use of subcontractors on government contracts also raises certain
performance and financial risks to VSE in that government prime contractors are
responsible for performing to the requirements of the contract and ensuring
compliance with U.S. Government regulations relative to the performance by
subcontractors.

Other government procurement practices that can affect the Company's revenues
are 1) the length of contracts issued, which may vary depending on changes in
contracting regulations and other factors; 2) the use of past performance
criteria that may preclude entrance into new government markets; and
3) 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 customers served
through VSE's contracts with the U.S. Government. An economic slowdown in
countries served under the BAV Ship Transfer Program could potentially affect
sales. Failure by the government of a potential foreign customer to approve and
fund acquisition of U.S. Navy ships serviced under the this program could affect
sales. In any one year, a significant amount of the Company's revenues may
result from sales on the BAV Ship Transfer Program to a single foreign
government. BAV sales to Egypt have historically comprised a large percentage of
the Company's total sales in any one year. Work associated with the transfer of
four ships to Taiwan under the BAV Ship Transfer Program during 2004 also
comprised a large percentage of total sales, and is expected to also comprise a
large percentage of 2005 sales.

                           Concentration of Continuing Revenues
                           ------------------------------------
                                     (in thousands)
                                     --------------
                           For the three months ended March 31,
                              2005               2004
    Source of Revenue       Revenues    %      Revenues      %
    -----------------       --------    -      --------      -
    BAV Egypt               $ 13,009    20     $ 11,242      26
    BAV Taiwan                15,788    24        8,038      19
    BAV Other                    644     1        1,974       5
                            --------   ---     --------     ---
       Total BAV            $ 29,441    45     $ 21,254      50
    VSE Other                 36,478    55       21,355      50
                            --------   ---     --------     ---
       Total Revenues       $ 65,919   100     $ 42,609     100
                            ========   ===     ========     ===

The current international situation posed by potential terrorist activity and
the continuing conflict in the Middle East could potentially increase the
political risks for revenues from both the BAV Ship Transfer and TBPS Programs.
International tensions can also affect work by FMD on U.S. Navy ships when they

                                     -14-

are deployed outside of U.S. Navy facilities and are unavailable for maintenance
work during this time period. Adverse results arising from these global economic
and political risks could potentially have a material adverse impact on the
Company's results of operations.


Management Outlook

The growth trend established by VSE's record high revenues and profits in 2004
is expected to continue in 2005. The major contributors to 2005 results are
expected to be: 1) a continuation of the Taiwan Ship Transfer work performed by
BAV; 2) performance on the TBPS Program; and 3) additional work provided by
Other Significant Contracts.

Taiwan Ship Transfer. The Taiwan ship transfer effort is entering its second
full year and is expected to continue to contribute significantly to BAV revenue
levels in 2005. Funded backlog on the original BAV contract was approximately
$50 million as of March 31, 2005.

TBPS Program.  Most of the work on the initial $34.9 million contract on the
TBPS Program is expected to be completed in 2005. Additionally, the second
contract under this program, currently under negotiation, is also expected to
begin generating revenue in 2005. Work on this program is expected to provide
significant increases to Company revenues in 2005.

Other Significant Contracts.  VSE has three multi-year, multiple award,
indefinite delivery, indefinite quantity contracts that have large nominal
ceiling amounts with no funding committed at the time of award. VSE is one of
several awardees on each contract. While future VSE revenue from these contracts
cannot be predicted with certainty, the award of these contracts provides the
Company with the opportunity to compete for work that could contribute to future
revenue growth, including new work in 2005. These three contracts are described
below.

VSE's CED Division has a multi-year Rapid Response support contract issued by
the U.S. Army Communications-Electronics Command (CECOM). The contract enhances
the Company's revenue producing capabilities by allowing it to provide services
through any of VSE's operating entities or through third party subcontractors
for various end user government customers. If all options are exercised, this
contract has a potential total ceiling of approximately $2.9 billion over an
eight-year period. While it is not likely that the full ceiling amount will be
realized, this contract has generated revenues for VSE of approximately
$8.5 million and $5 million during the three months ended March 31, 2005 and
2004, respectively. Funded backlog on this contract as of March 31, 2005 is
approximately $30 million. VSE continues to pursue new orders on this contract
that present promising revenue opportunities for the future.

VSE's FMD Division has a contract with the U.S. Navy, SeaPort Enhanced, which
includes a five-year base period and two five-year option periods. This contract
is a procurement vehicle for the Navy to use for ordering services from a wide
range of contractors to support all phases of naval ship and shipboard weapons
systems acquisition and life-cycle support. While this award does not guarantee
any revenues for VSE, the Company is one of several contractors eligible to bid

                                     -15-

for services during the life of the contract. VSE received the first delivery
order on this contract, for approximately $300 thousand, in February 2005.

FMD also has a contract with the U.S. Navy to provide engineering and technical
services to support Naval Sea Systems Command maintenance, overhaul, repair, and
alteration of systems aboard ships. This contract has a total contract ceiling
amount of $1.022 billion over a five-year period if all option periods are
exercised. VSE is one of several awardees eligible to share in the potential
total contract ceiling amount. During February and March 2005, FMD was awarded
delivery orders for approximately $44 million in work on this contract.

Funded Backlog

Revenue increases in government contracting businesses are typically preceded by
increases in contract funding ("Bookings") and a build-up of funded contract
backlog. VSE's Bookings and funded backlog during the first three months of 2005
have remained at levels that give the Company a firm basis for continued revenue
growth in 2005.
                                                          (in millions)
                                                          -------------
Bookings for the three months ended March 31, 2005 . . . . .   $68
Funded backlog as of March 31, 2005  . . . . . . . . . . . .  $169
Revenues for the three months ended March 31, 2005 . . . . .   $66

Longer Term Concerns

While 2005 is shaping up to be another strong year, VSE will be challenged to
sustain the revenue growth experienced during 2004 and 2005 as the Company heads
into 2006 and subsequent years. Certain work efforts that have supported VSE's
growth in 2004 and that are expected to contribute significant revenues in 2005
are due to expire in the near future. Most of the current contract work on the
TBPS program is expected to be completed by the end of 2005. The Taiwan Ship
Transfer work is expected to continue at approximately the same level of effort
through 2005 and 2006 and then be substantially completed in early 2007. VSE is
exploring potential acquisition opportunities to mitigate the future loss of
revenues associated with the expiration of the TBPS Program and the Taiwan Ship
Transfer work. The Company intends to continue these efforts in 2005.


Critical Accounting Policies

VSE's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require VSE
to make estimates and assumptions. The Company believes the following critical
accounting polices affect our more significant judgments, estimates and
assumptions used in the preparation of its consolidated financial statements.

Revenue Recognition

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

                                     -16-

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. The BAV contract terms specify award fee payments that are
determined by performance and level of contract activity. Award fees are made
three times during the year and a contract modification authorizing the award
fee payment is issued subsequent to the period in which the work is performed.
The Company does not recognize award fee income until the contract modification
authorizing the award fee is certain. Due to such timing, and to fluctuations in
the level of revenues, profits as a percentage of revenues on this contract will
fluctuate from period to period.

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.

Revenue recognition methods on fixed-price contracts will vary depending on the
nature of the work and the contract terms. On some fixed-price contracts
revenues are recorded as costs are incurred, using the percentage-of-completion
method of accounting. Revenues on fixed-price service contracts are recorded as
services are provided. Revenues on fixed-price contracts that require delivery
of specific items are recorded based on a price per unit as units are delivered.
Profits on fixed-price contracts result from the difference between the incurred
costs and the revenue earned.

Revenues by contract type for the three months ended March 31, 2005 and 2004
were as follows (in thousands):


          Contract Type          Revenues    %    Revenues    %
          -------------          --------    -    --------    -
          Cost-type . . . . .     $42,903    65    $29,827    70
          Time and materials.      12,516    19      7,669    18
          Fixed-price . . . .      10,500    16      5,113    12
                                  -------   ---    -------   ---
                                  $65,919   100    $42,609   100
                                  =======   ===    =======   ===

The Company will occasionally perform work at risk, which is work that is
performed prior to the government formalizing funding for such work. Revenue
related to work performed at risk is not recognized until it can be reliably
estimated and its realization is probable. VSE recognizes this "risk funding" as
revenue when the associated costs are incurred or the work is performed. As of
March 31, 2005, VSE has recognized approximately $257 thousand in risk funding.
VSE believes that it will receive funding for all of this risk funding revenue.
VSE is at risk of loss for any risk funding not received. The Company provides
for anticipated losses on contracts by a charge to income during the period in
which losses are first identified.

                                     -17-

Long-Lived Assets

In assessing the recoverability of long-lived assets, including goodwill and
other intangibles, VSE must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. If
these estimates or their related assumptions change in the future, VSE may be
required to record impairment charges for these assets not previously recorded.

Goodwill

Goodwill and intangible assets with indefinite lives are subject to a review for
impairment at least annually. The Company performs its annual impairment test on
September 30. As of March 31, 2005, the Company had approximately $1.1 million
of goodwill associated with its acquisition of Energetics in 1995. The Company
has not recognized any reduction to the goodwill due to the impairment rules. If
at some time in the future it is determined that impairment has occurred, such
impairment could potentially have a material adverse impact on the Company's
results of operations or financial condition.

Contingencies

From time to time VSE is subject to proceedings, lawsuits, and other claims
related to environmental, labor, and other matters.  VSE is required to assess
the likelihood of any adverse judgments or outcomes to these contingencies as
well as potential ranges of probable losses and establish reserves accordingly.
The amount of reserves required may change in future periods due to new
developments in each matter or changes in approach to a matter such as a change
in settlement strategy.

Income Taxes

The carrying value of VSE net deferred tax assets is based on assumptions
regarding VSE's ability to generate sufficient future taxable income to utilize
these deferred tax assets. If the estimates and related assumptions regarding
VSE's future taxable income change, VSE may be required to record valuation
allowances against its deferred tax assets, resulting in additional income tax
expense.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS 123(R),
"Share-Based Payment," which is a revision to SFAS 123. SFAS 123(R) supersedes
APB Opinion No. 25 and amends SFAS 95, "Statement of Cash Flows." Generally, the
approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values.  Pro forma disclosure is no longer an alternative.  The
Company can adopt SFAS 123(R) in one of two ways - the modified prospective
method or the modified retrospective method. The Company will adopt SFAS 123(R)
on January 1, 2006 and is currently evaluating the alternative methods.

The impact of adoption of SFAS 123(R) cannot be predicted at this time because
it will depend on levels of share-based payments granted in the future.
However, had we adopted SFAS 123(R) in prior periods, the impact of that

                                     -18-

standard would have approximated the impact of SFAS 123 as described in the
disclosure of pro forma net income and earnings per share above.  SFAS 123(R)
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature.  This requirement will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption.  While the Company cannot estimate what those amounts will be in
the future (because they depend on, among other things, when employees exercise
stock options), the amount of operating cash flows recognized for the three
month periods ending March 31, 2005 and 2004 for such excess tax deductions were
approximately $15 thousand and $14 thousand, respectively.

Results of Operations

The following table sets forth certain items, including consolidated revenues,
pretax income and net income from continuing operations, and the changes in
these items for the three month periods ended March 31, 2005 and 2004 (in
thousands):
                                                                   2005
                                                                Compared
                                                                    to
                                               2005      2004      2004
                                               ----      ----      ----
Revenues . . . . . . . . . . . . . . . . .   $65,919   $42,609   $23,310
                                             =======   =======   =======
Income before income taxes . . . . . . . .   $ 2,127   $ 1,154   $   973
Provision for income taxes . . . . . . . .       823       446       377
                                             -------   -------   -------
Net income   . . . . . . . . . . . . . . .   $ 1,304   $   708   $   596
                                             =======   =======   =======

Revenues increased by approximately 55% for the three month period ended
March 31, 2005, as compared to the same period of 2004. The primary reasons for
the increase in revenues were 1) an increase in work performed under the BAV
Ship Transfer Program, including revenues associated with the Taiwan ship
transfer; 2) work attributable to the TBPS program; 3) increased levels of work
performed by FMD on its U. S. Navy contracts; and 4) an increase in work
performed on the CED Rapid Response contract.

Income before income taxes increased by approximately 84% for the three month
period ended March 31, 2005, as compared to the same period of 2004. The
increase was primarily due to profits associated with work on the TBPS program,
profits associated with the increased revenues of BAV and FMD, and a decrease in
the losses incurred by CED in 2005 as compared to 2004.

Financial Condition

VSE's financial condition did not change materially during the three months
ended March 31, 2005. The Company's largest assets are its accounts receivable
and inventories. The largest liabilities are its accounts payable and accrued
expenses. Accounts receivable increased approximately $9.6 million, and accounts
payable increased approximately $6.3 million during the first three months of
2005 due primarily to the increase in the level of business activity and the
associated billings to customers and subcontractor payments required to perform
this work. Inventories declined approximately $4.1 million during the first
three months of 2005 as materials and supplies were used to complete protection
systems for vehicles on the TBPS Program.

                                     -19-

The change in total stockholders' investment in this period resulted primarily
from earnings and dividend activity and from the exercise of stock options.

Liquidity and Capital Resources

Cash Flows

Cash and cash equivalents decreased by approximately $86 thousand during the
three months ended March 31, 2005. The decrease in cash and cash equivalents
during this period resulted from cash used in financing activities of
approximately $1.7 million, cash used in investing activities of approximately
$558 thousand, and cash provided by operating activities of approximately
$2.1 million. Financing activities consisted of repayment of amounts previously
borrowed on the Company's bank loan of approximately $1.6 million, dividend
payments, and proceeds received from the issuance of common stock due to the
exercise of stock options. Investing activities consisted of expansion and
improvement of facilities of approximately $172 thousand and purchases of
property and equipment, net of dispositions, of approximately $386 thousand.

Cash and cash equivalents increased by approximately $390 thousand during the
three months ended March 31, 2004. The increase in cash and cash equivalents
during this period resulted from cash provided by operating activities of
approximately $1.2 million, cash used in investing activities of approximately
$790 thousand, and cash used in financing activities of approximately
$51 thousand. Investing activities consisted of expansion and improvement of
facilities of approximately $499 thousand and purchases of property and
equipment, net of dispositions, of approximately $291 thousand. Financing
activities consisted of dividend payments and proceeds received from the
issuance of common stock.

The difference between cash provided by operating activities of approximately
$2.1 million in 2005 as compared to approximately $1.2 million in 2004 is
primarily due to: 1) an increase in net income; and 2) changes in the levels
of accounts receivable, inventories, and accounts payable resulting from
increases in revenue and the timing of associated material purchases,
subcontractor payments, and receivables collections.

Quarterly cash dividends were paid at the rate of $.05 per share during the
three months ended March 31, 2005. Under its bank loan agreement, VSE's payment
of cash dividends is subject to a maximum annual rate. VSE has paid cash
dividends each year since 1973.

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 and accounts payable from period to period, and from
profitability. Significant increases or decreases in revenue and accounts
receivable and accounts payable 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
payments received on accounts receivable represent the principal source of cash

                                     -20-

for the Company. Accounts receivable levels can 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 used in
performance on the Company's contracts.

Upon beginning work on the TBPS program, the Company acquired inventories
consisting of materials, supplies, and other expenditures for which end units
have not yet been completed and accepted. Although these costs are classified
as inventories for accounting purposes, they are similar in nature to materials
and direct supplies purchased for use in performance on the Company's other
contracts in that they are solely and directly attributable to the contract and
will be billed to the customer within a relatively short time. All of the
inventories are expected to be liquidated, billed, and collected in 2005 or
early 2006. These materials and direct supplies will not be restocked to
maintain any permanent inventory levels.

Accounts payable arise primarily from purchases of subcontractor services and
materials used by the Company in the performance of its contract work. Payments
made on accounts payable, along with payments made to satisfy employee payroll
and payroll associated expenses, make up the principal cash requirements of the
Company. Accounts payable levels can be affected by changes in the level of
contract work performed by the Company and by the timing of large materials
purchases and subcontractor efforts used in performance on the Company's
contracts.

Other cash requirements include the acquisition of capital assets for office and
computer support, facilities improvements, and the payment of cash dividends.

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, 2005. The Company has determined that the $15 million commitment is
adequate to cover current and future liquidity requirements.

Performance of work under the BAV Ship Transfer Program, the TBPS program, and
other contracts requiring large subcontract or material expenditures have the
potential to cause substantial requirements for working capital; however,
management believes that current cash surpluses, 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, furniture and fixtures, and land and improvements.
The overall impact of inflation on replacement costs of such property and

                                     -21-

equipment is not expected to be material to VSE's future 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
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 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 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.
























                                     -22-

                       VSE CORPORATION AND SUBSIDIARIES

Item 3.    Quantitative and Qualitative Disclosures About Market Risks

See "Disclosures About Market Risk" in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.


Item 4.    Controls and Procedures

Based on their most recent evaluation the Company's Chief Executive Officer and
Chief Financial Officer believe the Company's disclosure controls and procedures
(as defined in Securities Exchange Act of 1934 Rules 13a-15(e)) are effective as
of March 31, 2005 to ensure that information required to be disclosed by the
Company's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure.  There were no significant changes in the Company's internal control
over financial reporting or other factors that could significantly affect these
controls subsequent to the date of their evaluation and there were no corrective
actions with regard to significant deficiencies and material weaknesses.


                         PART II.   Other Information

Item 1.    Legal Proceedings

The Company and its subsidiaries have, in the normal course of business, claims
against them.  In the opinion of management, the resolution of any such claims
will not have a material adverse effect on the Company's results of operations
or financial position.


Item 6.    Exhibits and Reports on Form 8-K

           (a)  Exhibits.

 Exhibit No.
 -----------
    10.1     Employment Agreement dated as of February 10, 2005, by and between
             Energetics Incorporated and James E. Reed

    31.1     Section 302 CEO Certification

    31.2     Section 302 CFO and PAO Certification

    32.1     Section 906 CEO Certification

    32.2     Section 906 CFO and PAO Certification


           (b)  Reports on Form 8-K.

The Registrant filed a Current Report on Form 8-K on February 25, 2005, to
report its financial results for the fiscal year ended December 31, 2004.

                                     -23-

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.

















































                                     -24-

                       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 27, 2005                 /s/ D. M. Ervine
                                       ______________________________________
                                       D. M. Ervine
                                       Chairman, President,
                                       Chief Executive Officer and
                                       Chief Operating Officer
































                                     -25-





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>exh10-1.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 10, 2005
<TEXT>
                                                                   Exhibit 10.1


                             EMPLOYMENT AGREEMENT

	THIS EMPLOYMENT AGREEMENT is made and entered into as of February 10,
2005, by and between Energetics Incorporated, a Maryland corporation ("Employer"
or "Energetics"), and James E. Reed ("Employee");

	WHEREAS, Employee has rendered several years of service to Employer;

	WHEREAS, Employee resigned his position as a Senior Vice President of
Energetics in 2001;

	WHEREAS, Employer wishes to induce Employee to return to service as
Chief Operating Officer and later, as President of Energetics;

	WHEREAS, Employer is a wholly owned subsidiary of VSE Corporation, a
Delaware corporation ("VSE" or "Parent Company"), which Parent Company together
with its wholly owned subsidiaries, including Energetics, is referred to herein
as the "Covered Company";

	WHEREAS, in the current business climate of takeovers and acquisitions,
Employee may be concerned about the continuation of his employment and his
status and responsibilities if a Change in Control of VSE ("Change of Control"
as defined below) occurs, and Employer is concerned that Employee may be
approached by others with employment opportunities;

	WHEREAS, Employer desires to ensure that, if a Change in Control appears
possible, Employee will be in a secure position from which to engage objectively
in any potential deliberations or negotiations respecting such Change in Control
without fear of any direct or implied threat to employment, status and
responsibilities; and

	WHEREAS, Employee desires to have the foregoing assurances;

	NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the adequacy of which is
hereby acknowledged, Employer and Employee, each intending to be legally bound,
agree as follows:

	1.	Term.	The term of Employee's employment hereunder shall
                commence on the date hereof and shall continue until January 31,
                2007, except as otherwise provided in Section 7. If the term of
                Employee's employment hereunder shall have continued until
                January 31, 2007, thereafter, such term of Employee's employment
                hereunder shall be deemed to be renewed automatically, on the
                same terms and conditions contained herein, for successive
                periods of one year each, unless and until Employee or Employer,
                at least 60 days prior to the expiration of the original term or
                any such extended term, shall give written notice to the other
                party of intent not to renew the term of Employee's employment
                hereunder. All references herein to the "Term" refer to the
                original term of Employee's employment hereunder and any
                extensions thereof.


	2.	Duties

		(a)	Offices

                        During the Term, Employee shall serve as Employer's
                        Chief Operating Officer and commencing on a date prior
                        to July 30, 2005, as Employer's President. Employer
                        agrees that Employee will be assigned only duties of the
                        type, nature and dignity normally assigned to someone in
                        a comparable position at a corporation of the size,
                        stature and nature of Employer.  During the Term,
                        Employee shall report to Energetics' President, and on
                        assuming the duties of Energetics' President, shall
                        report to the Energetics' board of directors (the
                        "Board") and the Board's chairman (the "Chairman") for
                        all operational and administrative matters concerning
                        Energetics.

		(b)	Full-Time Basis

                        During the Term, Employee shall devote, on a full-time
                        basis, his services, skills and abilities to his
                        employment hereunder, excepting periods of vacation,
                        illness or Disability (as defined below), and excepting
                        any pursuits which do not materially interfere with
                        duties hereunder or present a conflict of interest with
                        the interests of any Covered Company.

        3.	Compensation

		(a)	Salary

                        During the Term, as compensation for services rendered
                        by Employee hereunder, Employer shall pay to Employee a
                        base salary of $175,000 per annum, payable in
                        installments in accordance with Employer's policy
                        governing salary payments to senior officers generally
                        ("Base Salary"). Effective July 1 of every year during
                        the Term, Employee's compensation, including Base
                        Salary, will be subject to review.

              	(b)	Performance Bonus

                        Except as otherwise provided in Section 7, in addition
                        to the Base Salary, Employee shall be eligible for an
                        annual performance bonus as determined by the Board of
                        Directors ("Performance Bonus").  Any Performance Bonus
                        payable pursuant to this Section 3(b) shall be paid
                        within 60 days after the end of the year to which such
                        Performance Bonus relates.

                (c)	Other Compensation Plans or Arrangements

                        During the Term, Employee shall also be eligible to
                        participate in all other currently existing or
                        subsequently implemented compensation or benefit plans
                        or arrangements available generally to other officers
                        or senior officers of Employer.

                (d)     Consultation with VSE

                        It is understood that the Chairman and the Board will
                        consult with VSE's board of directors and compensation
                        committee in respect of review of Employee's Base
                        Salary, Performance Bonus, and other benefits hereunder.

                (e)     Tax Withholdings

                        Employer shall withhold from Employee's compensation
                        hereunder and pay over to the appropriate governmental
                        agencies all payroll taxes, including income, social
                        security, and unemployment compensation taxes, required
                        by the federal, state and local governments with
                        jurisdiction over Employer.

	4.	Benefits. During the Term, Employee shall be entitled to such
                vacation benefits and comparable fringe benefits and perquisites
                as may be provided to any or all of Employer's senior officers
                pursuant to policies established from time to time by Employer.
                These fringe benefits and perquisites may include holidays,
                group health insurance, short-term and long-term disability
                insurance, life insurance, and profit sharing plan
                contributions.

        5.	Expenses and Other Perquisites. Employer shall reimburse
                Employee for all reasonable and proper business expenses
                incurred by him during the Term in the performance of his duties
                hereunder, in accordance with Employer's customary practices for
                senior officers, and provided such business expenses are
                reasonably documented. Also, during the Term, Employer shall
                continue to provide Employee with an office and suitable office
                fixtures, telephone services, and secretarial assistance of a
                nature appropriate to Employee's position and status.


        6.	Exclusive Services, Confidential Information, Business
                Opportunities and Non-Solicitation

		(a)	Exclusive Services

                        (i)     During the Term, Employee shall at all times
                                devote his full-time attention, energies,
                                efforts and skills to Employer's business and
                                shall not, directly or indirectly, engage in any
                                other business activity, whether or not for
                                profit, gain or other pecuniary advantages,
                                without the Chairman's written consent provided
                                that such prior consent shall not be required
                                with respect to (1) business interests that
                                neither compete with any Covered Company nor
                                interfere with Employee's duties and obligations
                                hereunder, and (2) Employee's charitable,
                                eleemosynary, philanthropic, or professional
                                association activities.

			(ii)	During the Term, Employee shall not, without the
                                Chairman's prior written consent, directly or
                                indirectly, either as an officer, director,
                                employee, agent, advisor, consultant, principal,
                                stockholder, partner, owner or in any other
                                capacity, on Employee's own behalf or otherwise,
                                in any way engage in, represent, be connected
                                with or have a financial interest in, any
                                business which is, or to his knowledge, is about
                                to become, engaged in the business of providing
                                engineering, management, energy or environmental
                                services to the United States Government or any
                                department, agency, or instrumentality thereof
                                or any state or local governmental agency or to
                                any person, corporation, partnership, limited
                                liability company, trust, joint venture, or
                                other entity (collectively a "Person") with
                                which any Covered Company is currently or has
                                previously done business or any subsequent line
                                of business developed by Employee or any Covered
                                Company during the Term. Notwithstanding the
                                foregoing, Employee shall be permitted to own
                                passive investments in publicly held companies
                                provided that such investments do not exceed one
                                percent of any such company's outstanding
                                equity.

		(b)	Confidential Information

                        During the Term and the period commencing on the date of
                        termination thereof and ending on the second anniversary
                        of such termination date, Employee shall not disclose or
                        use, directly or indirectly, any Confidential
                        Information (as defined below). For the purposes of this
                        Agreement, "Confidential Information" shall mean all
                        information disclosed to Employee, or known by him as a
                        consequence of or through his employment with Employer,
                        where such information is not generally known in the
                        trade or industry or was regarded or treated as
                        confidential by any Covered Company, and where such
                        information refers or relates in any manner whatsoever
                        to the business activities, processes, services or
                        products of any Covered Company. Confidential
                        Information shall include business and development plans
                        (whether contemplated, initiated or completed),
                        information with respect to the development of technical
                        and management services, business contacts, methods of
                        operation, results of analysis, business forecasts,
                        financial data, costs, revenues, and similar
                        information. Upon termination of Term, Employee shall
                        immediately return to Employer all property of any
                        Covered Company and all Confidential Information which
                        is in tangible form, and all copies thereof.

		(c)	Business Opportunities

			(i)	During the Term, Employee shall promptly
                                disclose to Employer each business opportunity
                                of a type which, based upon its prospects and
                                relationship to the existing businesses of any
                                Covered Company, Employer or any other Covered
                                Company might reasonably consider pursuing. Upon
                                termination of the Term, regardless of the
                                circumstances thereof, Employer or such other
                                Covered Company shall have the exclusive right
                                to participate in or undertake any such
                                opportunity on its own behalf without any
                                involvement of Employee.

		        (ii)	During the Term, Employee shall refrain from
                                engaging in any activity, practice or act which
                                conflicts with, or has the potential to conflict
                                with, the interests of any Covered Company, and
                                he shall avoid any acts or omissions which are
                                disloyal to, or competitive with any Covered
                                Company.

		(d)	Non-Solicitation of Employees

                        During the Term and until the second anniversary of the
                        termination of the Term, Employee shall not, except in
                        the course of duties hereunder, directly or indirectly,
                        induce or attempt to induce or otherwise counsel,
                        advise, ask or encourage any person to leave the employ
                        of any Covered Company, or solicit or offer employment
                        to any person who was employed by any Covered Company
                        at any time during the twelve-month period preceding
                        the solicitation or offer.

		(e)	Covenant Not To Compete

		        (i)	If Employee voluntarily terminates the Term,
                                or if Employer terminates the Term for Cause
                                (as defined below), Employee shall not, before
                                the second anniversary of such termination,
                                engage in competition with any Covered Company,
                                or solicit, from any Person who purchased any
                                then existing product or service from any
                                Covered Company during the Term, the purchase
                                of any then existing product or service in
                                competition with then existing products or
                                services of any Covered Company.

			(ii)	For purposes of this Agreement, Employee shall
                                be deemed to engage in competition with a
                                Covered Company if Employee shall directly or
                                indirectly, either individually or as a
                                stockholder, director, officer, partner,
                                consultant, owner, employee, agent, or in any
                                other capacity, consult with or otherwise assist
                                any Person engaged in providing technical and
                                management services to any Person which any
                                Covered Company, during the Term, has developed
                                or is working to develop.

                (f)	Employee Acknowledgment

                        Employee hereby agrees and acknowledges that the
                        restrictions imposed upon by the provisions of this
                        Section 6 are fair and reasonable considering the nature
                        of the business of each Covered Company, and are
                        reasonably required for each Covered Company's
                        protection.

                (g)	Invalidity

                        If a court of competent jurisdiction or an arbitrator
                        shall declare any provision or restriction contained
                        in this Section 6 as unenforceable or void, the
                        provisions of this Section 6 shall remain in full force
                        and effect to the extent not so declared to be
                        unenforceable or void, and the court may modify the
                        invalid provision to make it enforceable to the maximum
                        extent permitted by law.

                (h)	Specific Performance

                        Employee agrees that if Employee breaches any of the
                        provisions of this Section 6, the remedies available at
                        law to Employer or Parent Company would be inadequate
                        and in lieu thereof, or in addition thereto, Employer
                        or Parent Company shall be entitled to appropriate
                        equitable remedies, including specific performance and
                        injunctive relief.  Employee agrees not to enter into
                        any agreement, either written or oral, which may
                        conflict with this Agreement, and Employee authorizes
                        Employer and Parent Company to make known the terms of
                        Sections 6 and 7 hereof to any Person, including future
                        employers of Employee.

        7.      Termination

		(a)	By Employer

	                (i)	Termination for Cause

                                Employer may terminate the Term for Cause (as
                                defined below) at any time by written notice to
                                Employee.  For purposes of this Agreement, the
                                term "Cause" shall mean any one or more of the
                                following:  (1) conduct by Employee which is
                                materially illegal or fraudulent or contrary to
                                Employer's policy; (2) the breach or violation
                                by Employee of this Agreement, provided that
                                Employee must first be given notice by the
                                Energetics President or the Chairman of the
                                alleged breach or violation and 30 days to cure
                                said alleged breach or violation; (3) Employee's
                                use of illegal drugs or abuse of alcohol or
                                authorized drugs which impairs Employee's
                                ability to perform duties hereunder, provided
                                that Employee must be given notice by the
                                Chairman of such impairment and 60 days to cure
                                the impairment; (4) Employee's knowing and
                                willful neglect of duties or negligence in the
                                performance of duties which materially affects
                                the business of any Covered Company, provided
                                that Employee must first be given notice by the
                                Chairman or the  of such alleged neglect or
                                negligence and 30 days to cure said alleged
                                neglect or negligence. If a termination occurs
                                pursuant to clause (1) above, the date on which
                                the Term is terminated (the "Termination Date")
                                shall be the date Employee receives notice of
                                termination and, if a termination occurs
                                pursuant to clauses (2), (3) or (4) above, the
                                Termination Date shall be the date on which the
                                specified cure period expires. In any event, as
                                of the Termination Date (in the absence of
                                satisfying the alleged breach or violation
                                within the applicable cure period), Employee
                                shall be relieved of all duties hereunder and
                                Employee shall not be entitled to the accrual
                                or provision of any compensation or benefit,
                                after the Termination Date but Employee shall
                                be entitled to the provision of all compensation
                                and other benefits that shall have accrued as of
                                the Termination Date, including Base Salary,
                                Performance Bonuses, paid leave benefits, and
                                reimbursement of incurred business expenses.

              		(ii)	Termination Without Cause

                                Employer may, in its sole discretion, without
                                Cause, terminate the Term at any time by
                                providing Employee with (a) five days' prior
                                notice thereof and (b) on or prior to the
                                Termination Date, a lump sum severance
                                compensation payment equal to Employee's Base
                                Salary as of the effective Termination Date
                                (e.g., if the Base Salary was $175,000, Employee
                                would be entitled to a lump sum severance
                                payment of $175,000).  In such event, Employee
                                shall not be entitled to the accrual or
                                provision of any other compensation or benefit
                                after the Termination Date other than (a) the
                                medical and hospitalization benefits for the
                                first 18 months after the Termination Date or
                                longer if permitted under Employer's policies
                                and procedures; (b) the provision of all
                                compensation and other benefits that shall have
                                accrued as of the Termination Date, including
                                Base Salary, Performance Bonus, paid leave
                                benefits, and reimbursements of incurred
                                expenses; and (c) all stock options or similar
                                rights to acquire capital stock granted by VSE
                                to Employee shall automatically become vested
                                and exercisable in whole or in part.
                                Notwithstanding anything herein to the contrary,
                                the expiration or non-renewal of the Term by
                                Employer or Employee pursuant to Section 1 shall
                                not be considered a termination without Cause
                                for the purposes of this Agreement, including
                                Section 7(a)(ii).

		(b)	Death or Disability

                        The Term shall be terminated immediately and
                        automatically upon Employee's death or "Disability."
                        The term "Disability" shall mean Employee's inability to
                        perform all of the essential functions of his position
                        hereunder for a period of 26 consecutive weeks or for an
                        aggregate of 150 work days during period of 365
                        consecutive days by reason of illness, accident or any
                        other physical or mental incapacity, as may be permitted
                        by applicable law. Employee's capability to continue
                        performance of Employee's duties hereunder shall be
                        determined by a panel composed of two independent
                        medical doctors appointed by the Parent Company and one
                        appointed by the Employee or designated representative.
                        If the panel is unable to reach a decision, the matter
                        will be referred to arbitration in accordance with
                        Section 8. In the event of Employee's death or
                        Disability for any period of 180 consecutive days,
                        Employee (or designated beneficiary) will be paid his
                        Base Salary then in effect for 365 days following the
                        date of death or disability.

		(c)	By Employee

		        (i)	Employee may, in his sole discretion, without
                                Cause, terminate the Term at any time upon 60
                                days' written notice to the Chairman.  If
                                Employee exercises such termination right,
                                Employer may, at its option, at any time after
                                receiving such notice from Employee, relieve
                                Employee of all duties and terminate the Term at
                                any time prior to the expiration of said notice
                                period, and such termination shall not
                                constitute a termination without Cause pursuant
                                to this Agreement, including Section 7(a)(ii).
                                If the Term is terminated by Employee or
                                Employer pursuant to this Section 7(c)(i),
                                Employee shall not be entitled to any further
                                Base Salary or the accrual or provision of any
                                compensation or benefits after the Termination
                                Date, except standard medical and
                                hospitalization benefits in accordance with
                                Employer's policy.

			(ii)	If, during the Term, a Change of Control (as
                                defined below) occurs, Employee may terminate
                                the Term for Good Reason (as defined below) upon
                                30 days' notice to Employer. If Employee
                                exercises such termination right, Employer may,
                                at its option, at any time after receiving such
                                notice from Employee, relieve Employee of all
                                duties hereunder and terminate the Term at any
                                time prior to the expiration of said notice
                                period, and such termination shall not
                                constitute a termination without Cause pursuant
                                to this Agreement, including Section 7(a)(ii).
                                However, if this Agreement is terminated by
                                Employee or Employer pursuant to this Section
                                7(c)(ii), Employee shall be entitled to
                                (a) payment on or prior to the Termination Date
                                of a lump sum severance compensation payment
                                equal to Employee's Annual Base Salary as of the
                                Termination Date (e.g., if the Base Salary was
                                $175,000, Employee would be entitled to a lump
                                sum payment of $175,000); (b) continue the
                                medical and hospitalization benefits in
                                accordance with Employer's policy and to payment
                                of all compensation and other benefits that
                                shall have accrued as of the Termination Date,
                                as described in Section 7(a)(ii)(l); and (c) to
                                the automatic vesting and exercisability in
                                whole or in part of all stock options or similar
                                rights to acquire capital stock granted by VSE
                                to Employee; provided that Employee shall not be
                                entitled, after the Termination Date to the
                                accrual or provision of any other compensation
                                payable hereunder, including the Performance
                                Bonus.

		(d)	Change of Control and Good Reason

                        (i)	For purposes of this Section 7, a "Change of
                                Control" shall be deemed to have occurred upon
                                the happening of any of the following events:

	                        (1)	any "person," including a "group," as
                                        such terms are defined in Sections 13(d)
                                        and 14(d) of the Securities Exchange Act
                                        of 1934, as amended, and the rules
                                        promulgated thereunder (collectively the
                                        "Exchange Act"), other than a trustee or
                                        other fiduciary holding voting
                                        securities of VSE ("Voting Securities")
                                        under any VSE-sponsored benefit plan,
                                        becomes the beneficial owner, as defined
                                        under the Exchange Act, directly or
                                        indirectly, whether by purchase or
                                        acquisition or agreement to act in
                                        concert or otherwise, of 45% or more of
                                        the outstanding Voting Securities;

	                        (2)	a cash tender or exchange offer is
                                        completed for such amount of Voting
                                        Securities which, together with the
                                        Voting Securities then beneficially
                                        owned, directly or indirectly, by the
                                        offeror (and affiliates thereof)
                                        constitutes 45% or more of the
                                        outstanding Voting Securities;

                             	(3)	except in the case of a merger or
                                        consolidation in which (a) VSE is the
                                        surviving corporation and (b) the
                                        holders of Voting Securities immediately
                                        prior to such merger or consolidation
                                        beneficially own, directly or
                                        indirectly, more than 50% of the
                                        outstanding Voting Securities
                                        immediately after such merger or
                                        consolidation (there being excluded from
                                        the number of Voting Securities held by
                                        such holders, but not from the
                                        outstanding Voting Securities, any
                                        Voting Securities received by affiliates
                                        of the other constituent corporation(s)
                                        in the merger or consolidation in
                                        exchange for stock of such other
                                        corporation), VSE's shareholders approve
                                        an agreement to merge, consolidate,
                                        liquidate, or sell all or substantially
                                        all of VSE's assets; or

				(4)	either a majority or three or more
                                        directors are elected to the VSE Board
                                        of Directors without having previously
                                        been nominated and approved by the
                                        members of the VSE Board of Directors
                                        incumbent on the day immediately
                                        preceding such election. For purposes
                                        of this Section 7, "affiliate" of a
                                        Person shall mean a Person that directly
                                        or indirectly controls, is controlled
                                        by, or is under common control with the
                                        Person or other entity specified.

                        (ii)	For purposes of this Section 7, "Good Reason"
                                shall mean after the occurrence of a Change in
                                Control, any one or more of the following events
                                has occurred:

                                (1)	a material change in the nature of
                                        Employee's authorities, duties,
                                        responsibilities or status (including
                                        offices and titles) from those in effect
                                        immediately prior to the Change in
                                        Control;

                                (2)	the relocation of Employee's place of
                                        employment to a location in excess of
                                        75 miles from the place of Employee's
                                        employment immediately prior to the
                                        Change in Control, except for required
                                        travel on Employee's business to an
                                        extent substantially equivalent to
                                        Employee's business travel obligations
                                        immediately prior to the Change in
                                        Control; or

                                (3)	any reduction by Employer of Employee's
                                        Base Salary or material reduction in
                                        Employee's incentive benefits from those
                                        in effect immediately prior to the
                                        Change in Control; or

                                (4)	Employer breaches any obligation
                                        hereunder and such breach is not cured
                                        within 30 days after Employer's receipt
                                        of notice thereof from Employee.

		(e)	No Duty to Mitigate

                        If Employee is entitled to the compensation and other
                        benefits provided under Sections 7(a)(ii) or (c)(ii),
                        Employee shall have no obligation to seek employment to
                        mitigate damages hereunder.

                (f)	VSE Board Approval

                        Notwithstanding anything herein to the contrary, the
                        Term shall expire as of March 31, 2005, if this
                        Agreement has not been previously approved by VSE's
                        board of directors, and any such termination shall not
                        constitute a termination without Cause pursuant to this
                        Agreement, including Section 7(a)(ii).

        8.	Arbitration.	Whenever a dispute arises between the parties
                concerning this Agreement or any of the obligations hereunder,
                or Employee's employment generally, Employer and Employee
                shall use their best efforts to resolve the dispute by mutual
                agreement. If any dispute cannot be resolved by Employer and
                Employee, it shall be submitted to arbitration to the exclusion
                of all other avenues of relief and adjudicated pursuant to the
                American Arbitration Association's Rules for Employment Dispute
                Resolution then in effect. The decision of the arbitrator must
                be in writing and shall be final and binding on the parties, and
                judgment may be entered on the arbitrator's award in any court
                having jurisdiction thereof. The arbitrator's authority in
                granting relief to Employee shall be limited to an award of
                compensation, benefits and unreimbursed expenses as described in
                Sections 3, 4, and 5 above, and to the release of Employee from
                the provisions of Section 6 and the arbitrator shall have no
                authority to award other types of damages or relief to Employee,
                including consequential or punitive damages. The arbitrator
                shall also have no authority to award consequential or punitive
                damages to Employer for violations of this Agreement by
                Employee. The expenses of the arbitration shall be borne by the
                losing party to the arbitration and the prevailing party shall
                be entitled to recover from the losing party all of its own
                costs and attorneys' fees with respect to the arbitration.
                Nothing in this Section 8 shall be construed to derogate
                Employer's rights to seek legal and equitable relief in a court
                of competent jurisdiction as contemplated by Section 6(h).

        9.	Non-Waiver.	It is understood and agreed that one party's
                failure at any time to require the performance by the other
                party of any of the terms, provisions, covenants or conditions
                hereof shall in no way affect the first party's right thereafter
                to enforce the same, nor shall the waiver by either party of the
                breach of any term, provision, covenant or condition hereof be
                taken or held to be a waiver of any succeeding breach.

        10.	Severability.	If any provision of this Agreement conflicts
                with the law under which this Agreement is to be construed, or
                if any such provision is held invalid or unenforceable by a
                court of competent jurisdiction or any arbitrator, such
                provision shall be deleted from this Agreement and the Agreement
                shall be construed to give full effect to the remaining
                provision thereof.

        11.	Survivability.	Unless otherwise provided herein, upon
                termination of the Term, the provisions of Sections 6(b), (d)
                and (e) shall nevertheless remain in full force and effect.

        12.	Governing Law. This Agreement shall be interpreted, construed,
                and governed according to the laws of the Commonwealth of
                Virginia, without regard to the conflict of law provisions
                thereof.

        13.	Construction.	The paragraph headings and captions contained
                in this Agreement are for convenience only and shall not be
                construed to define, limit or affect the scope or meaning of the
                provisions hereof. All references herein to Sections shall be
                deemed to refer to Sections of this Agreement.

        14.	Entire Agreement.  This Agreement contains and represents the
                entire agreement of Employer and Employee and supersedes all
                prior agreements, representations or understandings, oral or
                written, express or implied with respect to the subject matter
                hereof. This Agreement may not be modified or amended in any way
                unless in  writing signed by each of Employer and Employee. No
                representation, promise or inducement has been made by either
                Employer or Employee that is not embodied in this Agreement,
                and neither Employer nor Employee shall be bound by or liable
                for any alleged representation, promise or inducement not
                specifically set forth herein.

        15.	Assignability.	Neither this Agreement nor any rights or
                obligations of Employer or Employee hereunder may be assigned
                by Employer or Employee without the other party's prior written
                consent. Subject to the foregoing, this Agreement shall be
                binding upon and inure to the benefit of Employer and Employee
                and their heirs, successors and assigns.

        16.	Notices.  All notices required or permitted hereunder shall be
                in writing and shall be deemed properly given if delivered
                personally or sent by certified or registered mail, postage
                prepaid, return receipt requested, or sent by telegram, telex,
                telecopy or similar form of telecommunication, and shall be
                deemed to have been given when received. Any such notice or
                communication shall be addressed: (a) if to Employer, to
                Chairman c/o Chief Executive Officer, VSE Corporation, 2550
                Huntington Avenue, Alexandria, Virginia 22303-1499; or
                (b) if to Employee, to the last known home address on file with
                Employer, or to such other address as Employer or Employee shall
                have furnished to the other in writing.

	IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, to be effective as of the day and year first above written.


							ENERGETICS INCORPORATED, a								Maryland corporation

							By:	/s/ R J KELLY
								______________________
								R. J. Kelly, President


							By:	/s/ James E. Reed
								______________________
								James E. Reed







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>exh31-1.txt
<DESCRIPTION>SECTION 302 CEO CERTIFICATION
<TEXT>
                                                                   Exhibit 31.1

                          CERTIFICATION PURSUANT TO
             RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
                            AS ADOPTED PURSUANT TO
                SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, D. M. Ervine, Chairman, President, Chief Executive Officer and Chief
Operating Officer of the Company, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of VSE Corporation (the
"Registrant");

2.   Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;

4.   The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a)  designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)  evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the  end of the period covered
by this quarterly report based on such evaluation; and

(c)  disclosed in this quarterly report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's most
recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and

5.   The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's Board of Directors (or persons performing the equivalent
function):

(a)  all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.



Dated: April 27, 2005  	                 /s/ D.M. Ervine
                                         ___________________________
                                         D. M. Ervine
                                         Chairman, President,
                                         Chief Executive Officer and
                                         Chief Operating Officer




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>exh31-2.txt
<DESCRIPTION>SECTION 302 CFO AND PAO CERTIFICATION
<TEXT>
                                                                   Exhibit 31.2

                          CERTIFICATION PURSUANT TO
             RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
                            AS ADOPTED PURSUANT TO
     SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, T. R. Loftus, Senior Vice President and Chief Financial Officer of the
Company, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of VSE Corporation (the
"Registrant");

2.   Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;

4.   The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a)  designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)  evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the  end of the period covered
by this quarterly report based on such evaluation; and

(c)  disclosed in this quarterly report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's most
recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and

5.   The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's Board of Directors (or persons performing the equivalent
function):

(a)  all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.



Dated: April 27, 2005  	                 /s/ T. R. Loftus
                                         ___________________________
                                         T. R. Loftus
                                         Senior Vice President and
                                         Chief Financial Officer
                                         (Principal Accounting Officer)



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>exh32-1.txt
<DESCRIPTION>SECTION 906 CEO CERTIFICATION
<TEXT>
                                                                   Exhibit 32.1

                          CERTIFICATION PURSUANT TO
          SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as
Chairman, President, Chief Executive Officer and Chief Operating Officer of VSE
Corporation (the "Company"), does hereby certify that to the best of the
undersigned's knowledge:


     1) the Company's Quarterly Report on Form 10-Q for the quarter ending
March 31, 2005 (the "Report"), fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2) the information contained in the Company's Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.


Dated: April 27, 2005	                 /s/ D. M. Ervine
                                         ___________________________
                                         D. M. Ervine
                                         Chairman, President,
                                         Chief Executive Officer and
                                         Chief Operating Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>6
<FILENAME>exh32-2.txt
<DESCRIPTION>SECTION 906 CFO AND PAO CERTIFICATION
<TEXT>
                                                                   Exhibit 32.2

                          CERTIFICATION PURSUANT TO
          SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as
Senior Vice President and Chief Financial Officer of VSE Corporation (the
"Company"), does hereby certify that to the best of the undersigned's knowledge:


     1) the Company's Quarterly Report on Form 10-Q for the quarter ending
March 31, 2005 (the "Report"), fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2) the information contained in the Company's Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.


Dated: April 27, 2005   	         /s/ T. R. Loftus
                                         ___________________________
                                         T. R. Loftus
                                         Senior Vice President and
                                         Chief Financial Officer
                                         (Principal Accounting Officer)
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
