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, 1999
OR
[ ] Transition Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
VSE CORPORATION
EMPLOYEE ESOP/401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
VSE Corporation
2550 Huntington Avenue
Alexandria, Virginia 22303
<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, 1999 and 1998
Statements of Changes in Net Assets Available for Benefits
for the years ended December 27, 1999 and 1998
Notes to Financial Statements as of December 27, 1999 and 1998
Exhibits
23. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS dated June 26, 2000
<PAGE>
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/ L. K. Forest
-------------------------------
L. K. Forest
Vice President, Director
of Human Resources
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements
As of December 27, 1999 and 1998
Together With Report of Independent Public Accountants
<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, 1999 and 1998, and the related statement of changes in net assets
available for benefits for the year ended December 27, 1999. These financial
statements and the schedules referred to below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 27, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets
Held for Investment Purposes (Exhibit A) is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements but is 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 schedule has been
subjected to the auditing procedures applied in the audit 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.
Vienna, Virginia
June 26, 2000
<PAGE>
VSE Corporation Employee ESOP/401(k) Plan
Table of Contents
Page
----
Statements of Net Assets Available for Benefits
As of December 27, 1999 and 1998 1
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 27, 1999 2
Notes to Financial Statements
As of December 27, 1999 and 1998 3
Schedule of Assets Held for Investment Purposes
As of December 27, 1999 (Exhibit A) 9
Schedules Omitted As Not Applicable
As of and For the Year Ended December 27, 1999
Schedule of Loans or Fixed-Income Obligations
Schedule of Leases in Default or Classified as Uncollectible
Schedule of Nonexempt Transactions
Schedule of Reportable Transactions
<PAGE>
VSE Corporation Employee ESOP/401(k) Plan
<TABLE>
Statements of Net Assets Available for Benefits
As of December 27, 1999 and 1998
<CAPTION>
Assets
1999 1998
----------- -----------
<S> <S> <S>
Cash, principally in interest-bearing accounts $ 209,600 $ 126,146
Assets held for investment purposes:
Investments at fair value 19,009,065 19,499,995
Investments at contract value 3,288,947 3,024,269
Participant loans 484,510 525,051
Cash surrender value of life insurance policies 19,190 87,753
----------- -----------
Total assets held for investment purposes 22,801,712 23,137,068
Receivables:
Due from VSE 263,146 189,757
Other receivables 130,891 324
----------- ---------
Total receivables 394,037 190,081
----------- -----------
Total assets $23,405,349 $23,453,295
=========== ===========
Liabilities
Due to VSE $ - $ -
Other liabilities - -
----------- -----------
Total liabilities - -
----------- -----------
Net assets available for benefits $23,405,349 $23,453,295
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
VSE Corporation Employee ESOP/401(k) Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 27, 1999
Increases:
Contributions
Employee Stock Ownership Plan $ 116,751
401(k) Plan 2,441,858
Income from investments:
Interest 36,880
Dividends 1,695,459
-----------
4,290,948
-----------
Decreases:
Net realized/unrealized loss on investments 246,033
Insurance premiums 272
Decrease in cash surrender value of life insurance policies 68,563
Decrease in other liabilities 25,632
Administrative expenses 3,341
Other expenses 1,798
Distributions to participants 3,993,255
-----------
4,338,894
-----------
Net decrease (47,946)
Beginning net assets available for benefits 23,453,295
-----------
Ending net assets available for benefits $23,405,349
===========
The accompanying notes are an integral part of this statement
2
<PAGE>
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements
As of December 27, 1999 and 1998
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 IRS has
determined and informed the Company by a letter dated November 20, 1998 that
the Plan, as amended through July 14, 1998, is designed in accordance with
Internal Revenue Code Section ("IRC") 401. The Plan Trustees ("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. An ESOP is an employee
stock ownership plan within the meaning of Code Sections 401(a) and
4975(e)(7).
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 of the Plan.
Eligibility
Employees become eligible to participate in the Plan on the first day of the
month following the date of hire. If the employee's first day of employment
falls on the first day of the month (or on the first regular working day of
the month), the employee will immediately be eligible to participate in the
Plan.
Contributions
Prior to 1999, the Company had the option to 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 was allocated to each
participant's account on the last day of the Plan year (December 27) unless
the employee returned a signed waiver of participation to the Trustees. The
Company stock was purchased and is held by the Plan for the participants, and
each participant is entitled to certain stockholder rights. For the Plan year
ended December 27, 1998, the Company elected to make ESOP contributions equal
to two percent of each participant's eligible compensation, subject to Plan
provisions. For the plan year ended December 27, 1999, the Company elected to
make ESOP contributions equal to two percent of each participant's eligible
compensation earned from January 1, 1999, through March 31, 1999, subject to
Plan provisions.
3
<PAGE>
ESOP and Company matching 401(k) 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
$111,596 and $84,550 for 1999 and 1998, respectively.
Effective April 1, 1999, the Company added a Company matching 401(k)
contribution, which is intended to replace the Company ESOP contribution for
future years. Initially, the Company will contribute 50 cents for each dollar
of salary that a participant defers on the first five percent of salary. The
match is subject to the same vesting schedule as the predecessor ESOP
contributions. The Company may change the matching contribution formula.
Participants may also elect to defer up to 18 percent of earnings into the
Plan each pay period pursuant to Section 401(k) of the IRC. The maximum salary
deferral for both 1999 and 1998 was $10,000, subject to Plan provisions and
participation levels. The 401(k) Company match will not count towards the
maximum salary deferral limits.
Distributions
Participants (or their beneficiaries) are eligible to receive Plan benefits
upon retirement, disability, termination of employment, or death.
Participants generally receive benefits in a lump sum. Distributions of
Putnam funds are typically made in cash from liquidation of the participant's
account. Distributions of Company stock are made in stock. Participants with
fractional shares or fewer than 100 shares are paid in cash. Effective
April 1, 2000, all distributions of Company stock will be made in stock.
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 Statements 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 any 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, and the Company match, which
began in 1999, 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 the Employee Retirement Income Security Act of 1974
("ERISA"). No such action will divest a participant of the vested rights and
benefits provided by contributions allocated to the participant's account.
4
<PAGE>
2. Summary of Significant Accounting Policies:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
determining the reported amounts of the Company's assets, liabilities,
revenue, and expenses. Actual results could differ from those estimates.
New Accounting Pronouncements
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 99-3, "Accounting
for and Reporting of Certain Defined Contribution Plan Investments and Other
Disclosure Matters," ("SOP 99-3") which eliminates the requirement for a defined
contribution plan to disclose participant directed investment programs.
3. Investments:
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 the Putnam Stable Value Fund, are valued at quoted
market prices as of December 27, 1999 and 1998, 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. The Putnam Stable Value Fund consists
primarily of a diversified portfolio of fixed-income investments that 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 are reinvested quarterly at fair market
value.
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. The Trustees sold the majority of these insurance policies
to their respective policyholders in 1999, and completed the remaining sales
in 2000.
5
<PAGE>
<TABLE>
The following investments exceed five percent of net assets as of December 27,
1999 and 1998:
<CAPTION>
Investment 1999 1998
------------------------------------------- ----------- -----------
<S> <C> <C>
VSE Corporation Common Stock $ 4,152,172 $ 7,573,742
Putnam Voyager Fund 7,094,867 4,412,241
Putnam Stable Value Fund 3,288,947 3,024,269
The George Putnam Fund of Boston 2,341,661 2,798,869
The Putnam Fund for Growth and Income 2,171,496 2,064,518
Putnam Global Growth Fund 2,478,516 1,331,661
Putnam Diversified Income Trust - 1,318,964
----------- -----------
Total investments exceeding 5% of net assets $21,527,659 $22,524,264
=========== ===========
</TABLE>
<TABLE>
The Plan's investment in Company stock at December 27, 1999 and 1998, is
presented in the following table:
<CAPTION>
1999 1998
--------------------------- --------------------------
Allocated Unallocated Allocated Unallocated
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Number of Shares 575,284 7,477 671,232 17,290
========== ========= ========== =========
Cost $2,117,162 $ 27,516 $3,224,977 $ 83,072
========== ========= ========== =========
Market $4,098,899 $ 53,274 $7,383,552 $ 190,190
========== ========= ========== =========
</TABLE>
Due to Participants
<TABLE>
In accordance with generally accepted accounting principles, amounts allocated
to withdrawing participants' accounts are not reported as liabilities on the
Statements 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):
<CAPTION>
December 27
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net assets available for benefits per the
financial statements $23,405,349 $23,453,295
Amounts allocated to withdrawing participants (1,635) (377,096)
----------- -----------
Net assets available for benefits per Form 5500 $23,403,714 $23,076,199
=========== ===========
</TABLE>
6
<PAGE>
The following is a reconciliation of benefits paid to participants per the
financial statements to IRS Form 5500:
Year Ended
December 27, 1999
-----------------
Benefits paid to participants per the
financial statements $3,993,255
Add Amounts allocated to withdrawing
participants at December 27, 1999 1,635
Less Amounts allocated to withdrawing
participants at December 27, 1998 (377,096)
----------
Benefits paid to participants per Form 5500 $3,617,794
==========
Realized and Unrealized Gains and Losses
To comply with Department of Labor regulations, the Plan 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 and unrealized gains and losses are as follows:
Year Ended
December 27, 1999
Realized: -----------------
Company stock $ -
Mutual funds 451,331
----------
Total realized gains 451,331
Unrealized:
Company stock (2,258,199)
Mutual funds 1,560,835
----------
Total unrealized loss (697,364)
----------
Net realized/unrealized loss $ (246,033)
==========
4. Reportable Transactions:
The Plan reports each non-participant directed transaction (i.e., ESOP
contributions) 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. There were no reportable transactions for the Plan year ended December
27, 1999.
Party-In-Interest Transactions
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.
5. Employer Securities:
Section 407(b) of ERISA permits the Plan to hold an investment in Company
stock in excess of 10 percent of the fair market value of the Plan's assets.
7
<PAGE>
Acquisition Loans
The Trustees may enter into non-interest bearing advances (loans) to finance
the acquisition of Company stock for the ESOP. The proceeds of these advances
are used to purchase the Company's common stock from terminating participants.
On December 27, 1998, the Company purchased 72,000 shares of Company stock
from the Plan at the then-current fair market value of $11.00 per share and
retired the advances which totaled $792,000.
Diversification
Participants who are age 55 and have 10 years of participation in the Plan are
eligible to diversify up to 25 percent of their ESOP account balance held in
Company stock.
6. Administrative Expenses:
The administrative expenses of the Plan are paid by the Company.
7. Divestiture of Subsidiary:
In 1999, VSE Corporation divested CMstat Corporation ("CMstat"), a wholly
owned subsidiary. An asset transfer of the participants' account balances to
a new plan adopted by CMstat was completed in February 2000.
8
<PAGE>
VSE Corporation Employee ESOP/401(k) Plan
<TABLE>
Schedule of Assets Held for Investment Purposes
As of December 27, 1999
<CAPTION>
Identity of Issue Asset Description Cost Fair Value
---------------------------- ---------------------- ---------- -----------
<S> <C> <C> <C>
The George Putnam Fund
of Boston Mutual Fund Shares $ $ 2,341,661
The Putnam Fund for Growth
and Income Mutual Fund Shares 2,171,496
Putnam Global Growth Fund Mutual Fund Shares 2,478,516
Putnam Voyager Fund Mutual Fund Shares 7,094,867
Putnam Diversified Income
Trust Mutual Fund Shares 538,311
Putnam American Government
Income Fund Mutual Fund Shares 3,784
Putnam Health Sciences Trust
Fund Mutual Fund Shares 89,838
Putnam Vista Fund Mutual Fund Shares 130,082
Putnam Asset Allocation:
Balanced Fund Mutual Fund Shares 8,338
VSE Corporation Common
Stock ESOP** Common Stock Shares 1,673,886 3,307,154
VSE Corporation Common
Stock 401(k) Common Stock Shares 845,018
---------- -----------
1,673,886 19,009,065
Putnam Stable Value Fund Fixed Income Investment 3,288,947
Participant Loans (interest
rates varied from 6% to 9.75%
during 1999)* Participant Loans 484,510
Life insurance policies
(at cash surrender value) Life Insurance Policies 19,190
Total assets held for ---------- -----------
investment purposes $1,673,886 $22,801,712
========== ===========
* Represents a party-in-interest.
** Represents non-participant directed investments.
</TABLE>
9
