SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 6, 2006
Versar Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction) 1-9309
(Commission File Number) 54-0852979
(IRS EmployerIdentification No.)
6850 Versar Center, Springfield, Virginia 22151
(Address of Principal Executive Offices)
(703) 750-3000
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
The Company also reports "total contract" backlog which includes two
components: funded backlog and expected backlog. Expected backlog
reflects management's estimate of future revenue from existing written
contracts, such as master contracts with large corporations and large
federal, state and municipal multi-year contracts for which funding for
work or tasks has not yet been authorized in writing by the other
contracting party. Versar has a number of large, multi-year (including
option periods), multi-million dollar contracts with the federal and
state governments. In many cases these contracts are identified as
"Indefinite Delivery/Indefinite Quantity" multi-year contracts. These
are unfunded contract "Vehicles" through which the particular government
client issues funded work to Versar by written task or work orders.
When these task or work orders are issued, the Company then counts the
portion covered by the task or work orders as funded backlog.
The amount of expected backlog included in total contract backlog is
not exact or guaranteed; however, it represents what Versar reasonably
believes, based upon subjective factors such as past experience with the
particular clients, the type of work and present budgetary expectations
and information about the clients' needs and other business circumstances,
will become funded backlog over the next five to seven years. These
estimates are based upon the information in Versar's possession at the
time the estimate is made. If Versar's management does not accurately
assess each of these factors, or if it does not include all of the
variables that affect the revenue it will recognize from existing
contracts in the estimating process, the potential value of these
contracts, and accordingly, reported total contract backlog, will not
reflect the actual revenue received from contracts and task orders.
As a result, there can be no assurance that Versar will ultimately
receive amounts included in total contract backlog that are not
included in funded backlog or that total contract backlog includes
all revenue that Versar may ultimately receive under contracts existing
at any one time. Further, many factors that affect the scheduling of
projects could alter the actual timing of revenue on projects included
in total contract backlog. There is also the possibility that contracts
could be adjusted or cancelled in a manner that would affect the
realization of revenues reflected in backlog. Nevertheless, the
Company believes the number characterized as total contract backlog
is important information for investors, reflecting on the potential
future performance of the Company.
While total contract backlog is comprised of total funded backlog
and management's estimate of additional amounts to be received under
existing contracts, contract backlog does not represent the full
amount of the Company's contract capacity. Each of the contracts
with "unutilized contract capacity" is reviewed individually and,
based upon the various subjective factors described above, an estimate
is made of the amount of this unutilized capacity Versar expects will
become funded backlog in five to seven years. There is no specific
formula for these estimates. If sufficient information is not available
upon which to base an estimate, or the Company does not have prior
experience with the particular client, management may not include any
unfunded portion of a contract in total contract backlog until such time
as a reasonable estimate of expected future funded orders can be made.
Other companies with similar types of contracts to Versar may not
calculate backlog in the same manner as Versar, because their calculations
are based on different subjective factors or because they use a different
methodology. Therefore, information presented by Versar regarding funded
backlog and total contract backlog may not be comparable to similar
presentations by others.
The four recent contract awards received by Versar with unutilized,
unauthorized capacity reflect how Versar determines amounts included
in total contract backlog. On October 18, 2005, Versar announced
the award of a five year contract by the US Environmental Protection
Agency to provide technical support. Despite the fact this was an
unfunded, indefinite delivery/indefinite quantity contract in which
work will be given only by individual task order, Versar estimated
and will include in total contract backlog that the full amount of
the contract, some $7 million will be realized as revenue over its
five year period. This estimate was based upon the type of work Versar
would perform and its twenty years of experience in working with this
client in a number of different technical areas.
Similarly, on January 5, 2005, Versar announced the award of an
unfunded, indefinite delivery/indefinite quantity contract by the
Norfolk District of the U.S. Army Corps of Engineers. Again, based
on our past experience with this client and knowledge of the past
and current Army programs, Versar estimated it would receive $3
million of revenue under this contract over a three year period.
This amount was included in total contract backlog.
On the other hand, on July 8, 2005, Versar announced that it was one
of four firms awarded a ten year $598 million indefinite
delivery/indefinite quantity contract by the National Guard Bureau.
This award was unexpected and with a client with whom Versar had no
experience and little knowledge of its program and needs. As a
result, at the time of the announcement, which tracked the language
of the U.S. Government's prior announcement of the award, Versar
was unable to place a value on the expected revenue. Subsequently,
in light of the Air National Guard changes resulting from the Base
Realignment and Closure Commission recommendations, the Company has
conservatively estimated that it expects to realize approximately
$20 million in revenue over the life of the contract which is now
included in the calculation of total contract backlog.
Similarly, on June 15, 2005, Versar announced it was awarded a task
order type contract by the Commonwealth of Virginia's Department of
Military Affairs. Again, with no previous experience with the
client, the Company was not able to estimate the expected revenue
under the contract, so no portion of this contract was included in
total contract backlog.
Item 9.01. Exhibits
No exhibits are filed with this Report:
Exhibit No. Description
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 hereunto duly authorized.
VERSAR, INC.
Date: January 6, 2006
By
_____\s\__________________________________
James C. Dobbs
Senior Vice President and General Counsel