Fellow Shareholders: VSE People Outlook for Growth D. M. Ervine Chairman of the Board President and CEO/COO March 9, 2004 As always, your comments and suggestions for  improvement are welcome at any time. Your company passed an important milestone on  January 22, 2004, celebrating 45 years of continuous  service and support. While it is a pleasure to stop and  recognize all that has gone before, and on which we have  been given the good fortune to build, we are working very  hard as a team to assure that VSE's next five years achieve  a higher level of value for our customers as well as  corporate growth and profitability for our shareholders  and employees. We are also pleased with the continuing effort to spur  revenue growth and profit in each of our other business  units. Each of our divisions has set goals to exceed their  revenue and profit performance in 2003, and our board of  directors is encouraging their effort with an incentive  bonus plan. Our workforce grew about 10% in 2003, and  we hope to exceed that growth rate in 2004. With a  substantial $83 million backlog to start the year 2004, we  intend to build on our success. As you know, about a year ago we announced that the  board of directors determined to discontinue VSE's  previously announced pursuit of strategic business  alternatives, including the potential sale of the company.  Having considered certain strategic alternatives,  including a review of offers by third parties, the board  determined that superior value could be achieved for  shareholders through continuing to operate VSE in  As an example of progress this year, we recently  announced that our BAV Division received a delivery  order for $100 million to support the reactivation and  transfer of four KIDD-class destroyers, a multiyear  effort extending into 2007. We are performing ahead of  schedule, and our customer has indicated satisfaction  with our efforts. BAV's contract with the U.S. Navy is  VSE's largest contract, contributing 48% of total VSE  revenues in 2003, and the KIDD delivery order received  in early 2004 is the single largest delivery order ever  received by VSE. We are proud of the trust and  confidence placed in us by the Navy and by our Taiwan  customers. Needless to say, we are also extraordinarily  proud of the BAV Division employees and staff  employees who, together with our BAV subcontractors,  work very hard to ensure that our customer receives  superior value. VSE performs an important role in the defense of our  nation. Our services for the Departments of Defense,  Energy, and Homeland Security make a difference in  readiness and field support, in policy and technology, and  in government preparedness. We are proud of what we  accomplish every day. VSE welcomed James F. Lafond as a director in 2003. Jim  is a talented and experienced professional from the  independent audit community, and we look forward to his  leadership role on VSE's audit committee and to his  contribution to the board of directors. VSE depends on the contribution and dedication of each  employee and every VSE business partner, consultant,  supplier and subcontractor. We have an active board of  directors, a unified management team, a staff of  experienced and qualified employees, and a commitment  to our quality management system registered to the  international ISO 9001 quality standard. Together we will  continue to set high goals and strive to achieve them. accordance with its ongoing business plan. The results of  this decision are reflected in the positive trends and  growing shareholder value we have seen over the past  year. VSE will continue, however, to review promising  strategic business opportunities that may arise from time  to time, including potential acquisitions to accelerate our  growth. VSE reported improved financial performance in 2003,  with revenues of $134.5 million and net income of $2.0  million ($.92 a share). While VSE does not predict  revenues or earnings, and setbacks may occur, we expect  the positive trends we experienced in 2003 to continue  into 2004 and 2005. We are doing a better job of  identifying, bidding, and winning new work, and we are  working the jobs we have won with more focus on  customer quality and profitability. As a result, I expect  VSE to achieve a higher level of operations success and  financial performance, and I look forward to reporting on  our progress. Letter to Shareholders