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, 1997
OR
[ ] Transition Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
For the transition period ________________
<PAGE>
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)
<PAGE>
<PAGE>
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, 1997 and 1996
Statements of Changes in Net Assets Available for Benefits
for the years ended December 27, 1997 and 1996
Notes to Financial Statements as of December 27, 1997 and 1996
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
<PAGE>
VSE Corporation Employee
ESOP 401(k) Plan
Financial Statements
As of December 27, 1997 and 1996
Together With Auditors' Report
<PAGE>
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, 1997 and 1996, 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, 1997 and 1996, 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 purposes 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. This information
has been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Washington, D.C.
June 11, 1998
<PAGE>
<PAGE>
CONTENTS
DESCRIPTION PAGE
- ----------- ----
Statements of Net Assets Available for Benefits as of
December 27, 1997 and 1996 1
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 27, 1997 and 1996 2
Notes to Financial Statements as of December 27, 1997 and 1996 3
Schedule of Assets Held for Investment Purposes as of
December 27, 1997 (Exhibit A) 10
Schedule of Reportable Transactions for the Year Ended
December 27, 1997 (Exhibit B) 11
SCHEDULES OMITTED AS NOT APPLICABLE
FOR THE YEAR ENDED DECEMBER 27, 1997
DESCRIPTION
- -----------
Schedule of Loans or Fixed-Income Obligations
Schedule of Leases in Default or Classified as Uncollectible
Schedule of Nonexempt Transactions
PAGE
<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
STATEMENTS OF NET ASSETS
AVAILABLE FOR BENEFITS
AS OF DECEMBER 27
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Investments at fair value
VSE Corporation common stock
PAYSOP/ESOP $ 6,460,403 $ 9,184,643
401(k) Stock Fund 1,309,928 1,794,271
Mutual funds
George Putnam Fund of Boston 2,856,620 3,136,380
Putnam Fund for Growth and Income 1,787,372 1,269,934
Putnam Global Growth Fund 780,774 739,309
Putnam Voyager Fund 3,965,341 3,387,602
Putnam Diversified Income Trust 1,365,652 1,040,728
Putnam Asset Allocation Fund
- Conservative Portfolio - 231,533
------------- -------------
18,526,090 20,784,400
Investments at contract value
Putnam Stable Value Fund 3,452,304 3,843,922
Notes receivable 478,989 637,540
Cash surrender value of life
insurance policies 97,491 127,172
------------- -------------
Total investments 22,554,874 25,393,034
Cash, principally in interest-bearing accounts 88,325 69,188
Other receivables 2,242 50,992
------------- -------------
Total assets 22,645,441 25,513,214
LIABILITIES
Due to VSE 686,106 376,253
Other liabilities 5,015 5,015
------------- -------------
Total liabilities 691,121 381,268
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 21,954,320 $ 25,131,946
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 1<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 27
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
INCREASES
Contributions (Note 1)
Employee Stock Ownership Plan $ 370,146 $ 374,737
401(k) 1,880,177 1,690,543
Income from investments
Interest 39,179 51,899
Dividends 1,167,072 1,096,165
Net realized/unrealized (losses) gains
on investments (Note 2) (2,313,071) 3,452,070
------------- -------------
1,143,503 6,665,414
------------- -------------
DECREASES
Insurance premiums 2,366 2,731
Decrease in cash surrender value of life
insurance policies 29,681 9,247
Distributions to participants 4,289,082 4,636,747
------------- -------------
4,321,129 4,648,725
------------- -------------
NET (DECREASE) INCREASE (3,177,626) 2,016,689
BEGINNING NET ASSETS AVAILABLE
FOR BENEFITS 25,131,946 23,115,257
------------- -------------
ENDING NET ASSETS AVAILABLE
FOR BENEFITS $ 21,954,320 $ 25,131,946
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 2<PAGE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 27, 1997 AND 1996
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
Internal Revenue Service has determined and informed the Company by a
letter dated April 29, 1996 that the Plan, as amended through December 21,
1995, is designed in accordance with Internal Revenue Code Section
("IRC") 401. The Plan trustees believe that the Plan is currently being
operated in compliance with the applicable requirements of the IRC.
Therefore, no provision for income taxes has been included in the Plan's
financial statements.
Plan Administration
- -------------------
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. Certain officers
and/or employees serve as trustees (the "Trustees") of the Plan.
Eligibility
- -----------
Effective January 1, 1997, employees attaining age 18 are eligible to
participate in the Plan on the first day of the month after commencing
employment.
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. The Company
stock is purchased and held by the Plan for the participants, and each
participant is entitled to certain stockholder rights. For the plan years
ended December 27, 1997 and 1996, the Company elected to make a contribution
equal to two percent of each participant's annual compensation, subject to Plan
provisions.
<PAGE> 3<PAGE>
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 $154,786 and $133,123 for 1997 and 1996,
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
contributions and their Payroll-based Stock Ownership Plan ("PAYSOP")
contributions. No contributions have been made to the PAYSOP since 1986.
All contributions to the ESOP, which began 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.
<PAGE> 4<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
- -----------
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, excluding the Putnam
Stable Value Fund, are valued at quoted market prices as of December 27,
1997 and 1996, or as of the closest preceding day on which a transaction
occurred. Company stock is purchased in the over-the-counter market or
from stockholders. 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. The Putnam Stable Value
Fund consists primarily of a diversified portfolio of fixed-income
investments which provide a fixed rate of return for a specified time
period. The assets of the Putnam Stable Value Fund are stated at contract
value.
Dividends and realized capital gains on all mutual fund and VSE stock
investments are reinvested.
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 were subject to
certain restrictions, such as access to surrender values, until a
rehabilitation plan was approved and put into effect. On October 23,
1996, the Plan of Rehabilitation for Confederation Life Insurance Company
was confirmed and the Confederation policies were assumed by Pacific Mutual
Life Insurance Company ("Pacific Mutual") effective, June 1, 1997.
Participants were given the option to "Opt-in" to the assumption
agreement and have their policies restructured and assumed by Pacific
Mutual, or to terminate coverage. For the plan year ended December 27,
1997, the Plan owned 15 Pacific Mutual policies with a total cash value of
$90,735.
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 into another Putnam
fund option on a daily basis.
The following investments exceed 5% of net assets as of December 27, 1997:
VSE Corporation Common Stock $7,770,331
Putnam Voyager Fund 3,965,341
Putnam Stable Value Fund 3,452,304
George Putnam Fund of Boston 2,856,620
Putnam Fund for Growth and Income 1,787,372
Putnam Diversified Income Trust 1,365,652
Other 1,357,254
-----------
Total Investments $22,554,874
===========
5<PAGE>
The Plan's investment in Company stock at December 27 is presented in the
following table:
1997 1996
Allocated Unallocated Allocated Unallocated
--------- ------------ ----------- -----------
Number of Shares 740,720 75,491 799,185 42,756
========== ======== ============ ========
Cost $4,105,241 $418,388 $4,432,554 $237,139
========== ======== =========== ========
Market $7,155,541 $614,790 $10,421,372 $557,542
========== ======== =========== ========
Due to Participants
- -------------------
In accordance with generally accepted accounting principles, amounts
allocated to withdrawing participants' accounts 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
1997 1996
---- ----
Net assets available for benefits
per the financial statements $21,954,320 $25,131,946
Amounts allocated to withdrawing
participants (215,223) (329,086)
----------- -----------
Net assets available for benefits
per Form 5500 $21,739,097 $24,802,860
=========== ===========
The following is a reconciliation of benefits paid to participants per the
financial statements to IRS Form 5500:
Year ended December 27,
1997 1996
---- ----
Benefits paid to participants per the
financial statements $ 4,289,082 $ 4,636,747
Add: Amounts allocated to withdrawing
participants at December 27, 1997
and 1996, respectively 215,223 329,086
Less: Amounts allocated to withdrawing
participants at December 27, 1996
and 1995, respectively (329,086) 0
---------- ----------
Benefits paid to participants per
Form 5500 $ 4,175,219 $ 4,965,833
=========== ===========
<PAGE> 6<PAGE>
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 the time of purchase during the
plan year. Realized gains on Company stock were $0 and $50,418, and on
mutual fund shares were $497,782 and $416,944, for the plan years ended
December 27, 1997 and 1996, respectively. Unrealized (losses)/gains of
$(2,864,501) and $2,771,933 were recorded for Company stock, and unrealized
gains of $53,648 and $212,775 were recorded for mutual fund shares,
respectively, for the plan years ended December 27, 1997 and 1996.
Reclassifications
- -----------------
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year presentation.
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, 1997, are included in Exhibit B.
Party-in-interest Transactions
- ------------------------------
The Plan may execute certain transactions in 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. There were no such
transactions for the plan year ended December 27, 1997.
Certain investments are managed by Putnam through the Putnam Fiduciary
Trust Company. Putnam is a third party administrator as defined by the
Plan; therefore, these transactions qualify as party-in-interest
transactions. There are no sales commissions on the purchase or sale of
Putnam mutual funds.
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 non-interest bearing advances (loans) to
finance the acquisition of Company stock for the ESOP. For the plan years
ended December 27, 1997 and 1996, the loan balance was $680,000 and
$350,000, respectively. In 1997 and 1996 the Plan entered into $330,000
and $350,000 loan agreements with the Company, respectively. The proceeds
of these advances were used to purchase the Company's common stock from
terminating participants.
<PAGE> 7<PAGE>
The loan agreement provides for repayment by September 30, 1998 or as
market conditions permit. The loan agreements are unsecured and do not
require the payment of interest.
Diversification
- ---------------
Participants who are 55 and have ten years of participation are eligible to
diversify up to twenty-five percent of their ESOP account balance which is
held in Company stock. This diversification option was inadvertently not
offered to certain participants as of December 28, 1996. These
participants have been notified and the Trustees and the Company are in the
process of resolving this matter by providing the comparable benefits that
would have been available had diversification been offered on a timely
basis. Any additional contributions which may result to such participants
will be made by the Company with no impact on the Plan or other
participants.
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, 1997, and for the year then ended is detailed in the chart on the
following page.
<PAGE> 8<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
SUMMARY OF SIGNIFICANT ACCOUNT BALANCES BY INVESTMENT ALTERNATIVE
AS OF AND FOR THE YEAR ENDED DECEMBER 27, 1997
<CAPTION>
Participant Directed
-------------------------------------------------------------------------
Mutual Funds
------------------------------------------------------------
Putnam Investments
Putnam ------------------------------------------------------------
Stable George Growth Global Diversified
Value Putnam and Income Growth Voyager Income Trust
----- ------ ---------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investments at fair value 3,452,304 2,856,620 1,787,372 780,774 3,965,341 1,365,652
Investment income
Interest (A) - - - - - -
Dividends 208,314 278,641 233,257 - 247,985 79,923
Unrealized gains/(losses) - 15,898 (23,608) (136,510) 197,895 12,405
Realized gains 31 191,808 64,763 24,865 197,739 6,626
Participant contributions 227,291 181,355 382,821 296,452 666,322 94,694
Distributions to participants (B) 819,073 624,822 296,270 113,936 563,947 167,628
(A) Interest income above differs from the statement of changes in net assets available for benefits by $53,
which represents interest earned from the Plan's operating cash accounts.
(B) Distributions to participants above differs from the statement of changes in net assets available for
benefits by $5,075, which represents Putnam transaction fees.
</TABLE>
<PAGE> 9<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN
SUMMARY OF SIGNIFICANT ACCOUNT BALANCES BY INVESTMENT ALTERNATIVE
AS OF AND FOR THE YEAR ENDED DECEMBER 27, 1997
<CAPTION>
Particpant Non-Participant
Directed Directed Total
---------------------------------------- --------------------------- ----------
Putnam
Life Insurance Notes VSE Corp. VSE Corp. Asset
Policies Receivable Common Stock Common Stock Allocation
-------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Investments at fair value 97,491 478,989 1,309,928 6,460,403 - 22,554,874
Investment income
Interest (A) - 39,126 - - - 39,126
Dividends - - 19,814 99,139 - 1,167,073
Unrealized gains/(losses) - - (484,343) (2,380,159) (12,431) (2,810,853)
Realized gains - - - - 11,950 497,782
Participant contributions 2,366 - 28,876 - - 1,880,177
Distributions to participants (B) - 170,248 194,075 1,331,289 2,719 4,284,007
(A) Interest income above differs from the statement of changes in net assets available for benefits by $53,
which represents interest earned from the Plan's operating cash accounts.
(B) Distributions to participants above differs from the statement of changes in net assets available for
benefits by $5,075, which represents Putnam transaction fees.
</TABLE>
<PAGE> 9<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN EXHIBIT A
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 27, 1997
<CAPTION>
Contract or
Description Cost Fair Value
- ----------- ------------- -------------
<S> <C> <C>
VSE Corporation common stock
* PAYSOP/ESOP $ 3,852,363 $ 6,460,403
* 401(k) Stock Fund 671,266 1,309,928
Mutual funds
* George Putnam Fund of Boston 2,412,410 2,856,620
* Putnam Fund for Growth and Income 1,684,742 1,787,372
* Putnam Global Growth Fund 872,153 780,774
* Putnam Voyager Fund 3,390,789 3,965,341
* Putnam Diversified Income Trust 1,300,054 1,365,652
------------- -------------
$ 14,183,777 $ 18,526,090
------------- -------------
Fixed Income Investments
* Putnam Stable Value Fund 3,452,304 3,452,304
------------- -------------
Total Fixed Income Investments 3,452,304 3,452,304
------------- -------------
Notes receivable - loans to participants
(interest rates vary from 6.0% to 9.0% with
maturities of 1 to 4 years) 478,989 478,989
------------- -------------
Life insurance policies (at cash surrender value)
Pacific Mutual Life Insurance Company 90,735
Lincoln National Life Insurance Company 6,756
-------------
$ 22,554,874
=============
* Party-in-interest.
The accompanying notes are an integral part of this schedule.
</TABLE>
<PAGE> 10<PAGE>
<TABLE>
VSE CORPORATION EMPLOYEE ESOP/401(k) PLAN EXHIBIT B
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 27, 1997
<CAPTION>
Sales
Description Purchases Proceeds Cost Gain/(Loss)
----------- --------- ---------- ----- ----------
<S> <C> <C> <C> <C>
Mutual funds
------------
* George Putnam Fund
of Boston $625,891 $1,113,358 $921,550 $191,808
* Putnam Voyager Fund $1,418,083 $1,235,977 $1,038,238 $197,739
* Putnam Fund for
Growth and Income $1,287,318 $811,035 $746,272 $64,763
Collective investment trust
---------------------------
* Putnam Stable Value Fund $1,777,918 $2,169,567 $2,169,567 $0
* Party-in-interest.
The accompanying notes are an integral part of this schedule.
</TABLE>
<PAGE> 11<PAGE>
