SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] Annual Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 27, 1996
OR
[ ] Transition Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
For the transition period ________________
VSE CORPORATION
EMPLOYEE
ESOP/401(k)
PLAN
(Full Title of the Plan)
VSE Corporation
2550 Huntington Avenue
Alexandria, Virginia 22303
(Name and Address of Issuer)
Required information
The VSE Corporation ESOP/401(k) Plan (the Plan ) is subject to ERISA
and the financial statements and schedules have been prepared in
accordance with the financial reporting requirements of ERISA.
Financial Statement
-------------------
Statements of Net Assets Available for Benefits as of
December 27, 1996 and 1995
Statements of Changes in Net Assets Available for Benefits
for the years ended December 27, 1996 and 1995
Notes to Financial Statements as of December 27, 1996 and 1995
EXHIBITS
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VSE CORPORATION EMPLOYEE ESOP 401(k)
PLAN
By: /s/ M. A. Robin
-----------------
M. A. Robin
Senior Vice President, Director of Human
Resources, Trustee
VSE Corporation Employee
ESOP 401(k) Plan
Financial Statements
As of December 27, 1996 and 1995
Together With Auditors' Report
Report of Independent Public Accountants
To the Trustees of the
VSE Corporation Employee ESOP/401(k) Plan:
We have audited the accompanying statements of net assets available for
benefits of the VSE Corporation Employee ESOP/401(k) Plan (the "Plan") as of
December 27, 1996 and 1995, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements,
and the schedules referred to below, are the responsibility of the Plan's
management. Our responsibility is to express and opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 27, 1996 and 1995, and the changes in net assets available for benefits
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
Held for Investment Purposes (Exhibit A) and Reportable Transactions (Exhibit B)
are presented for the purpose of additional analysis and are not a required part
of the basic financial statements but are supplementary information required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. The supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Washington, D.C.
April 11, 1997
CONTENTS
DESCRIPTION PAGE
- ------------------------------------------ ----
Statements of Net Assets Available for Benefits as of
December 27, 1996 and 1995 1
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 27, 1996 and 1995 2
Notes to Financial Statements as of December 27, 1996 and 1995 3
Schedule of Assets Held for Investment Purposes as of
December 27, 1996 (Exhibit A) 10
Schedule of Reportable Transactions for the Year Ended
December 27, 1996 (Exhibit B) 11
SCHEDULES OMITTED AS NOT APPLICABLE
FOR THE YEAR ENDED DECEMBER 27, 1996
DESCRIPTION
- -------------------------------------------
Schedule of Loans or Fixed Income Obligations
Schedule of Leases in Default or Classified as Uncollectible
Schedule of Nonexempt Transactions
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
AS OF DECEMBER 27
1996 1995
----------- -----------
ASSETS
Investments at Fair Value (Exhibit A and Note 2)
VSE Corporation common stock (Note 4)
PAYSOP/ESOP $ 9,184,643 $ 6,972,836
401(k) Stock Fund 1,794,271 1,447,741
Mutual funds
George Putnam Fund of Boston 3,136,380 3,394,695
Putnam Fund for Growth and Income 1,269,934 479,802
Putnam Global Growth Fund 739,309 400,369
Putnam Voyager Fund 3,387,602 2,410,135
Putnam Diversified Income Trust 1,040,728 915,783
Putnam Asset Allocation Fund - Conservative
Portfolio 231,533 249,333
---------- ----------
20,784,400 16,270,694
Other investments
Putnam Stable Value Fund 3,843,922 1,765,464
Government Separate Accounts at contract value - 2,746,149
Guaranteed Interest Contracts at contract value - 1,186,271 0
Notes receivable (Note 1) 637,540 432,158
Cash surrender value of life insurance policies 127,172 136,419
---------- ----------
Total investments 25,393,034 22,537,155 0
10034682
Cash, principally in interest-bearing accounts 69,188 398,577 -10034682
Contribution receivable from employer 13,698 162,658
Other receivable 50,992 21,882
---------- ----------
Total assets 25,526,912 23,120,272
LIABILITIES
Due to VSE 389,951 0
Other Liabilities 5,015 5,015
---------- ----------
Total liabilities 394,966 5,015
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $25,131,946 $23,115,257
========== ==========
The accompanying notes are an integral part of these financial statements.
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 27
1996 1995
---------- ----------
INCREASES
Contributions (Note 1)
Employee Stock Ownership Plan $ 374,737 $ 472,294
401(k) 1,690,543 1,811,961
Income from investments
Interest 51,899 299,795
Dividends 1,096,165 704,362
Net realized/unrealized gains on
investments (Note 2) 3,452,070 4,771,615
---------- ----------
6,665,414 8,060,027
---------- ----------
DECREASES
Insurance premiums 2,731 11,152
Decrease in cash surrender value of
life insurance policies 9,247 15,931
Distributions (Note 1) 4,636,747 2,891,957
---------- ----------
4,648,725 2,919,040
---------- ----------
NET INCREASE 2,016,689 5,140,987
BEGINNING NET ASSETS AVAILABLE
FOR BENEFITS 23,115,257 17,974,270
---------- ----------
ENDING NET ASSETS AVAILABLE
FOR BENEFITS $25,131,946 $23,115,257
========== ==========
The accompanying notes are an integral part of these financial statements.
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 27, 1996 AND 1995
1. DESCRIPTION OF THE PLAN
Internal Revenue Service (IRS) Qualification
- --------------------------------------------
The VSE Corporation Employee ESOP/401(k) Plan (the "Plan") was adopted by the
Board of Directors of VSE Corporation (the "Company") in 1984. The Plan, as
amended through December 21, 1995, was determined to be a qualified pension
plan under Internal Revenue Code Section 401 via a determination letter dated
April 29, 1996. As a result, the underlying trust was exempt from Federal
taxes.
Plan Administrator
- ---- -------------
Putnam Investments ( Putnam ) serves as third party plan administrator. Putnam
provides fund investments through the Putnam Fiduciary Trust Company and
provides daily recordkeeping services for the Plan.
Eligibility
- -----------
Effective January 1, 1995, employees are eligible to participate in the Plan
after attaining age 18 and completing 1,000 hours of service in a plan year.
Contributions
- -------------
The Company may elect to make a contribution to the Plan principally for the
purchase of Company stock on behalf of each participant based upon a percentage
of each participant's compensation in the plan year or other uniform formula.
This contribution is allocated to each participant's account on the last day of
the plan year (December 27) unless the employee returns a signed waiver of
participation to the Trustees. For the plan years ended December 27, 1996 and
1995, the Company elected to make a contribution equal to 2.0 percent of each
participant's annual compensation, subject to Plan provisions. The Company
stock is held by the Plan for the participants, and each participant is
entitled to certain stockholder rights.
Employee Stock Ownership Plan ("ESOP") contributions are subject to a graded
vesting schedule: 20 percent vested after three years of service, then
increasing in 20 percent increments to 100 percent vested after seven years.
Any forfeitures of nonvested benefits are recognized after the terminated
participant has incurred a one-year break in service (as defined in the Plan),
with the forfeiture applied to reduce the Company's contribution in subsequent
years. Total forfeitures applied as
a reduction of the Company's contribution were $133,123 and $92,047 for 1996 and
1995, respectively.
Participants may also elect to defer a portion of earnings into the Plan each
pay period pursuant to Section 401(k) of the Internal Revenue Code. The
minimum salary deferral is $10 per pay period. The maximum salary deferral
depends upon participation levels and Federal guidelines.
Distributions
- -------------
Participants (or their beneficiaries) are eligible to receive Plan benefits
upon retirement, disability, termination of employment, or death. Benefits
are generally paid following termination of employment. Participants generally
receive benefits in a lump sum. Distributions are typically made in cash from
liquidation of the participant's account or from the Plan's repurchase of the
individual account balance.
The Plan permits participants to borrow against their respective 401(k)
accounts, subject to Plan provisions and procedures prescribed by the Trustees.
After-tax repayments of principal and interest are credited to the
participant's account. Loans are reflected in the Statement of Net Assets
Available for Benefits as notes receivable. Participants may apply in certain
limited situations to withdraw funds from their 401(k) accounts due to a
qualifying financial hardship in accordance with IRS regulations.
Ownership Rights (Vesting)
- --------------------------
Participants are 100 percent vested in their 401(k) salary deferral contribu-
tions and their Payroll-based Stock Ownership Plan ("PAYSOP") contributions.
No contributions were made to the PAYSOP after 1986. All contributions to
the ESOP, beginning in 1987, are subject to a graded vesting schedule as
described in the subsection "Contributions" within this note.
Termination
- -----------
In the event of Plan termination, each participant is fully vested in amounts
held within the Plan for the participant's benefit.
Plan Continuation
- -----------------
The Company expects to continue the Plan indefinitely, but reserves the right
to change, modify, or discontinue it in whole or in part at any time, subject
to the provisions of ERISA. However, no such action will divest a participant
of the vested rights and benefits provided by contributions allocated to the
participant's account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
- -----------
Company stock is purchased in the over-the-counter market or from stockholders.
Participants direct the investment of their respective 401(k) accounts among
the investment options available under the Plan. Marketable securities,
excluding Company Stock, and mutual funds are valued at quoted market prices as
of December 27, 1996 and 1995, or as of the closest preceding day on which a
transaction occurred. To minimize potential price fluctuations, as the
Company's stock is thinly traded, the Plan uses the average closing price over
the previous 30 days to value Company stock.
Dividends and realized capital gains are reinvested. Guaranteed interest
contracts (GICs) matured in January, 1996, and were liquidated with the
proceeds transferring to the Putnam Stable Value Fund from which participants
may transfer funds to other Plan investment options. GICs were valued at
principal plus interest paid or accrued as of December 27, 1995. Each GIC
yielded a fixed rate of return until maturity of the contract for contributions
received during a stated contribution period. The Trustees are of the opinion
that contract value plus interest accrued approximated the fair value
of the GICs.
Like GICs, government separate accounts (GSAs) yielded a fixed rate of return
until contact maturity in January, 1996, when the funds were liquidated at fair
market value and transferred to the Putnam Stable Value Fund. The insurance
carrier invested the contributions in U. S. Treasury and other Federal agency
securities. GSAs were valued at principal plus interest paid or accrued as of
December 27, 1995. The Trustees are of the opinion that contract value plus
interest accrued approximated the fair value of the GSAs.
Life insurance offered under the Plan builds cash value as determined by the
insurance carrier. In accordance with Federal regulations, no more than 25
percent of a participant's contributions for the plan year may be invested in
life insurance. On August 12, 1994, an Order of Rehabilitation was placed on
the assets of Confederation Life Insurance Company. As a result of this court
order, Confederation Life policies are subject to certain restrictions, such
as access to surrender values, until a rehabilitation plan is approved and put
into effect. Confederation Life is still under the Order of Rehabilitation as
of December 27, 1996. On October 23, 1996, the Plan of Rehabilitation for
Confederation Life Insurance Company was confirmed. The Plan provides for the
assumption of the Confederation policies by Pacific Mutual Life Insurance
Company. The closing date of this assumption will be during the second quarter
of 1997. Participants will have the option to "Opt-in" to the assumption
agreement and have their policies restructured and assumed by Pacific Mutual,
or participants may request to terminate coverage ("Opt-out"). For the plan
year ended December 27, 1996, the
Plan owned 19 Confederation Life policies with a total cash value of $120,416.
There are no sales commissions on the purchase or sale of Putnam mutual funds.
Participants may redirect the investment of their salary deferral contributions
through Putnam on a daily basis. A participant may also elect to transfer
funds from one Putnam mutual fund (other than the life insurance and the fixed
rate contracts) into another Putnam option on a daily basis.
The following investments exceed 5% of net assets as of December 27, 1996:
VSE Corporation Common Stock $10,978,914
George Putnam Fund of Boston 3,136,380
Putnam Voyager Fund 3,387,602
Putnam Fund for Growth and Income 1,269,934
Putnam Stable Value Fund 3,843,922
Other 2,776,282
----------
Total Investments $25,393,034
The Plan s investment in Company stock at December 27 is presented in the
following table:
1996 1995
---- ----
Allocated Unallocated Allocated Unallocated
--------- ----------- --------- -----------
Number of
Shares 639,348 34,205 691,146 0
-------------------------------------------------------------
Cost $7,790,198 $416,782 $4,906,683 $0
=============================================================
Market $10,421,372 $557,542 $8,420,577 $0
=============================================================
Due to Participants
- -------------------
In accordance with generally accepted accounting principles, amounts allocated
to withdrawing participants are not reported as liabilities on the Statement of
Net Assets Available for Benefits. The following is a reconciliation of net
assets available for benefits per the financial statements to IRS Form 5500
(Annual Return/Report of Employee Benefit Plan:)
December 27
1996 1995
----------- -----------
Net assets available for benefits per the financial
statements $25,131,946 $23,115,257
Amounts allocated to withdrawing participants (329,086) 0
----------- -----------
Net assets available for benefits per Form 5500 $24,802,860 $23,115.257
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year ended
December 27, 1996
-----------------
Benefits paid to participants per the financial
statements $ 4,636,747
Add: Amounts allocated to withdrawing participants
at December 27, 1996 329,086
Less: Amounts allocated to withdrawing participants
at December 27, 1995 0
-----------
Benefits paid to participants per Form 5500 $ 4,965,833
Realized and Unrealized Gains and Losses
- ----------------------------------------
To comply with Department of Labor regulations, the Plan has calculated realized
and unrealized gains and losses based on the value of investments at the
beginning of the plan year or at time of purchase during the plan year.
Realized gains on Company stock were $50,418 and $37,097, and on mutual fund
shares were $416,944 and $424,228, for the plan years ended December 27, 1996
and 1995, respectively. Unrealized gains of $2,771,933 and $3,513,894 were
recorded for Company stock, and unrealized gains of $212,775 and $796,396 were
recorded for mutual fund shares respectively, for the plan years ended
December 27, 1996 and 1995.
3. REPORTABLE TRANSACTIONS
The Plan reports each transaction or series of transactions involving the
purchase or sale of assets exceeding five percent of Plan assets as of the
beginning of the plan year. Reportable transactions for the plan year ended
December 27, 1996, are included in Exhibit B.
Party-in-interest Transactions
- ------------------------------
The Plan made certain purchases of Company stock through Wachtel & Co., Inc.,
and Koonce Securities, Inc., which have representatives serving on the Company's
Board of Directors. The Trustees are of the opinion that transactions are made
on terms equivalent to those otherwise available from other brokers or
financial institutions.
Certain investments are managed by Putnam Investments through the Putnam
Fiduciary Trust Company. Putnam Investments is a third party administrator as
defined by the Plan, therefore, these transactions qualify as party-in-interest.
4. EMPLOYER SECURITIES
Section 407(b) of ERISA permits the Plan to hold an investment in Company stock
in excess of ten percent of the fair market value of the Plan's assets.
Acquisition Loans
- -----------------
The Trustees may enter into loans to finance the acquisition of Company stock
for the ESOP. For the plan years ended December 27, 1996 and 1995, the loan
balance was $350,000 and $0, respectively. In 1996, the Plan entered into a
$350,000 advance agreement with the Company. The proceeds of the advance were
used to purchase the Company s common stock from terminating participants.
The advance agreement provides for repayment by September 30, 1997.
5. ADMINISTRATIVE EXPENSES
The administrative expenses of the Plan are paid by the Company.
6. DETAIL OF SIGNIFICANT ACCOUNT BALANCES BY INVESTMENT
ALTERNATIVE
The Plan provides for participant-directed account balances. The summary of
significant account balances by investment alternative as of December 27, 1996,
and for the year then ended is detailed in the chart on the following page.
-----------------------------------------------------------------------------------------------
Participant
Directed
-----------------------------------------------------------------------------------------------
Mutual Funds
-------------------------------------------------------------
Putnam Investments
Guaranteed Government Putnam -------------------------------------------------------------
Investment Separate Stable George Growth Global Diversified
Contract Accounts Value Putnam and Income Growth Voyager Income Trust
---------- ---------- ------ ------ ---------- ------ ------- ------------
Investments at market,
contract, or cash
value 0 0 3,843,922 3,136,380 1,269,934 739,309 3,387,602 1,040,728
Investment income
Interest (A) 1,288 13,364 - - - - - -
Dividends - - 228,659 291,602 103,527 52,949 214,253 69,775
Unrealized gains - - - 70,388 85,632 24,200 20,352 3,992
Realized gains - - - 169,835 22,530 18,521 192,863 11,245
Participant contributions (A) - - 284,329 225,733 257,035 226,031 531,400 84,998
Distributions to participants 0 20,559 1,111,453 825,754 153,897 151,399 668,227 204,119
(A) Interest income above differs from the statement of changes in net assets available
for benefits by $1,793 which represents interest earned from the Plan's operating
cash accounts. Participant contributions above differs from the 401(k) contributions
on the statement of changes in net assets available for benefits by $58,426 which
represents year-end contributions not received by Putnam until after December 27, 1996
-------------------------------------- ------------------------ -----
Participant Non-Participant
Directed Directed Total
-------------------------------------- ------------------------ -----
Putnam
Life Insurance Notes VSE Corp. VSE Corp. Asset
Policies Receivable Common Stock Common Stock Allocation
--------------- ---------- ------------ ------ ----- ----------
Investments at market,
contract, or cash
value 127,172 637,540 1,794,271 9,184,643 231,533 25,393,034
Investment income
Interest (A) - 35,454 - - - 50,106
Dividends - - 20,508 99,380 15,512 1,096,165
Unrealized gains - - 453,136 2,318,797 8,210 2,984,707
Realized gains - - 50,418 - 1,951 467,363
Participant contributions (A) 2,731 - 19,860 - - 1,632,117
Distributions to participants - 66,144 219,007 1,177,255 38,933 4,636,747
(A) Interest income above differs from the statement of changes in net assets available
for benefits by $1,793 which represents interest earned from the Plan's operating
cash accounts. Participant contributions above differs from the 401(k) contributions
on the statement of changes in net assets available for benefits by $58,426 which
represents year-end contributions not received by Putnam until after December 27, 1996
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN EXHIBIT A
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 27, 1996
Contract or
Description Cost Market Value
- ----------- ---------- ------------
VSE Corporation common stock
*PAYSOP/ESOP $ 6,865,845 $ 9,184,643
*401(k) Stock Fund 1,341,135 1,794,271
Mutual funds
*George Putnam Fund of Boston 2,708,069 3,136,380
*Putnam Fund for Growth and Income 1,143,697 1,269,934
*Putnam Global Growth Fund 694,177 739,309
*Putnam Voyager Fund 3,010,945 3,387,602
*Putnam Diversified Income Trust 987,534 1,040,728
*Putnam Asset Allocation Fund -
Conservative Portfolio 219,503 231,533
---------- ----------
$16,970,905 20,784,400
========== ==========
*Putnam Stable Value Fund 3,843,922 3,843,922
---------- ----------
Total Fixed Income Investments 3,843,922 3,843,922
---------- ----------
Notes receivable - loans to participants
(interest rates vary from 6.0% to 10.5% with
maturities of 1 to 4 year 637,540 637,540
---------- ----------
Life insurance policies (at cash surrender value)
Confederation Life Insurance Company 120,416
Lincoln National Life Insurance Company 6,756
----------
$25,393,034
==========
* Party-in-interest.
The accompanying notes are an integral part of this schedule.
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN EXHIBIT B
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 27, 1996
Sales
-------------------------------------
Description Purchases Proceeds Cost Gain/(loss)
- ----------- ---------- ---------- ---------- -----------
Mutual funds
- ------------
* George Putnam Fund
of Boston $1,086,611 $1,581,675 $1,412,737 $168,938
* Putnam Voyager Fund $2,067,727 $1,318,121 $1,125,273 $192,848
* Putnam Fund for
Growth and Income $927,434 $254,062 $231,535 $22,527
Collective investment trust
- ---------------------------
* Putnam Stable Value
Fund $5,424,193 $3,378,627 $3,378,627 $0
* Party-in-interest.
The accompanying notes are an integral part of this schedule.