SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[ X ] Annual Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 27, 2002
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
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/ C. S. Weber
---------------
C. S. Weber
Executive Vice President and
Chief Administrative Officer
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements and Supplemental Schedules
Year ended December 27, 2002 with Report of Independent Auditors
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements and Supplemental Schedules
Year ended December 27, 2002
Contents
Report of Independent Auditors ....................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits ...................2
Statement of Changes in Net Assets Available for Benefits .........3
Notes to Financial Statements .....................................4
Supplemental Schedule
Schedule H, Line 4i Schedule of Assets (Held At End of Year) .....12
Schedule G, Part III Schedule of Nonexempt Transactions ......... 13
Report of Independent Auditors
Board of Trustees
VSE Corporation Employee ESOP/401(k) Plan
We have audited the accompanying statements of net assets available for
benefits of VSE Corporation Employee ESOP/401(k) Plan as of December 27, 2002
and 2001, and for the related statement of changes in net assets for the year
ended December 27, 2002. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements 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 at
December 27, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 27, 2002, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedules
of assets (held at end of year) as of December 27, 2002, and nonexempt
transactions for the year then ended, are presented for purposes of additional
analysis and are not a required part of the 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. These supplemental schedules are the responsibility of
the Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ Ernst & Young LLP
June 19, 2003
1
VSE Corporation Employee ESOP/401(k) Plan
Statements of Net Assets Available for Benefits
December 27,
2002 2001
------------------------
Assets
Cash, principally in interest-bearing accounts $ 220,640 $ 192,622
Assets held for investment purposes:
Investments at fair value 14,977,068 16,193,657
Participant loans 147,886 213,132
Cash surrender value of life insurance policies 1,854 1,924
----------- -----------
Total assets held for investment purposes 15,126,808 16,408,713
Receivables:
Employer contributions - 9,321
Interest - 13,171
Other 2,165 -
----------- -----------
Total receivables 2,165 22,492
----------- -----------
Net assets available for benefits $15,349,613 $16,623,827
=========== ===========
See accompanying notes.
2
VSE Corporation Employee ESOP/401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 27, 2002
Additions
Contributions:
Employee $ 1,495,722
Employer 331,051
Employee rollovers 60,954
Interest and dividends 328,473
-----------
Total additions 2,216,200
-----------
Deductions
Distributions to participants 2,668,110
Net realized/unrealized depreciation in fair value of investments 822,234
Decrease in cash surrender value of life insurance policies 70
-----------
Total deductions 3,490,414
-----------
Net decrease (1,274,214)
Net assets available for benefits at
Beginning of period 16,623,827
-----------
End of period $15,349,613
===========
See accompanying notes.
3
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements
December 27, 2002
1. Description of the Plan
General Description
The VSE Corporation Employee ESOP/401(k) Plan (the Plan) was adopted by the
Board of Directors of VSE Corporation (the Company or Plan Sponsor) in 1984.
The Plan is a defined contribution plan with an Employee Stock Ownership Plan
(ESOP) component covering all full-time and part-time employees of the Company
and a 401(k) component covering all full-time and part-time employees of the
Company and its wholly owned subsidiaries. The Plan is subject to the
applicable provisions of the Employee Retirement Income Security Act of 1974
(ERISA), as amended. The above description of the Plan provides only general
information. Participants should refer to Plan documents for a more complete
description of Plan provisions.
Plan Administration
The Company serves as the Plan Administrator. Putnam Investments (Putnam)
serves as third party plan administrator. Putnam provides fund investments
through the Putnam Fiduciary Trust Company and provides daily record-keeping
services for the Plan. Certain officers or employees of the Company serve as
Trustees of the Plan (Plan Trustees). The ESOP portion of the Plan is
administered in-house by the Company.
Eligibility
An eligible employee, as defined in the Plan document, becomes eligible to
participate in the Plan on the first day of the month following the date of
hire. If the eligible employee's first day of employment falls on the first
calendar day of the month (or on the first regular working day of the month),
the eligible employee will immediately be eligible to participate in the Plan.
4
1. Description of the Plan (continued)
Contributions
Each participant who has had VSE Corporation Common Stock (par value $.05 per
share) (VSE Stock) allocated to his or her participant Payroll-Based Stock
Ownership Plan (PAYSOP) or ESOP account is entitled to exercise voting rights
attributable to such VSE Stock and is provided with proxy soliciting material
by the Plan Administrator prior to the time that such rights are to be
exercised. If participants fail to exercise their VSE Stock voting rights, the
Plan Trustees vote the stock. The Plan Trustees also vote all of the VSE Stock
held by the Plan's VSE Stock Fund as well as all unallocated VSE Stock held by
the Plan. No contributions have been made to the PAYSOP since 1986, and no
contributions have been made to the ESOP since March 31, 1999.
The Company currently contributes 50 cents for each dollar of salary that a
company employee participant defers on the first 6% of salary. The Company's
matching contribution is discretionary. The Company makes a cash contribution
for the match, and the cash contribution is allocated to each eligible
participant's account on a pay period (semimonthly) basis.
ESOP and Company matching 401(k) contributions (but not PAYSOP allocations)
are subject to a graded vesting schedule. Effective December 28, 2001, the
vesting schedule changed to 25% after one year of service, 50% after two years
of service, and 100% after three years of service. To earn a "year of
service," a participant must work 1,000 hours or more in a calendar year.
Forfeitures of participant nonvested account balances are applied to reduce
the Company's contribution in the following year. Total forfeitures applied
as a reduction of the Company's contribution for 2002 and 2001 were $64,022
and $133,170, respectively, and unused forfeitures at December 27, 2002 and
2001, were approximately $16,800 and $25,400, respectively.
Effective December 28, 2001, participants were allowed to elect to defer up to
100% of their salary into the Plan each pay period pursuant to Section 401(k)
of the Internal Revenue Code (IRC), subject to the maximum salary deferral
limit for 2002 and 2001 of $11,000 and $10,500, respectively. The deferral
amounts are also subject to limitations based on Plan provisions and
participation deferral percentages. Participant contributions are invested at
the discretion of the participant in any of 13 separately managed funds
currently offered under the Plan. Dividends received on VSE Stock held in
participant accounts and nonparticipant directed investments are allocated
pro rata to such participant and nonparticipant accounts. Beginning in 2002,
the Plan allowed the voluntary catch-up contribution.
5
1. Description of the Plan (continued)
Distributions
Participants (or their beneficiaries) are eligible to receive Plan benefits
on retirement, disability, termination of employment, or death. Benefits are
usually distributed in a lump sum. Distributions of Putnam funds are typically
made in cash from liquidation of the participant's account. Distributions of
VSE Stock are typically made in shares of VSE Stock. Fractional shares of VSE
Stock and distributions fewer than 100 shares are paid in cash.
Participants may also 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% vested in their 401(k) salary deferral contributions and
any PAYSOP contributions. All contributions to the ESOP, which began in 1987,
and the Company 401(k) match, which began in 1999, are subject to a graded
vesting schedule as described in the "Contributions" subsection above.
Plan Termination
In the event of Plan termination, each participant will be fully vested in
amounts held within the Plan for the participant's benefit. 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. No such action will divest a participant of the vested
rights and benefits provided by contributions allocated to the participant's
account.
6
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 accounting
principles generally accepted in the United States requires management to make
estimates that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Administrative Expenses
The administrative expenses of the Plan are paid by the Company.
3. Investments
Investments
Investment of a participant's 401(k) account is directed by the participant
among options available under the Plan as described in the "Contributions"
subsection above. Investments in mutual funds and common/collective trusts are
valued at quoted market prices. Participant loans are valued at their unpaid
balance. Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recorded on an accrual basis. Dividends are recorded
on the ex-dividend date. VSE Stock is purchased in the over-the-counter market
or from stockholders. Dividends on VSE Stock 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% of
a participant's contributions for the Plan year may be invested in life
insurance.
7
3. Investments (continued)
Investments (continued)
The fair value of individual investments that represent 5% or more of the
Plan's net assets available for benefits are as follows:
December 27,
2002 2001
------------------------
VSE Stock $ 3,697,176 $ 2,809,100
Putnam Stable Value Fund 2,774,637 2,597,214
Putnam Voyager Fund 2,641,672 3,890,513
The Putnam Fund for Growth and Income 1,406,591 1,932,503
The George Putnam Fund of Boston 1,349,160 1,687,690
Putnam Global Equity Fund 851,236 1,088,151
The Plan's investment in VSE Stock at December 27, 2002 and 2001, is presented
in the following table:
Number of shares 352,112 429,526
Cost $ 1,904,991 $ 2,503,742
Market $ 3,697,176 $ 2,809,100
Nonparticipant-Directed Investments
Nonparticipant-directed investments, held in the Plan as of December 27, 2002
and 2001, consisted entirely of VSE Stock. These net assets, and changes are
as follows:
Net assets 2002 2001
----------------------------------------------------------------------------
VSE Stock $ 3,697,176 $ 2,809,100
8
3. Investments (continued)
Nonparticipant-Directed Investments (continued)
Year ended
December 27,
2002
-----------
Changes in net assets:
Net realized and unrealized gain on VSE Stock $ 1,486,827
Dividends 63,158
Distributions to participants (631,731)
-----------
$ 918,254
===========
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as investments held during the year)
depreciated in value as a result of net changes in the market values of the
investments held (principally stock mutual funds) by $822,234 as follows:
Mutual funds $(2,309,061)
VSE Stock 1,486,827
-----------
$ (822,234)
===========
4. Differences Between Financial Statements and Form 5500
In accordance with accounting principles generally accepted in the United
States, 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):
December 27,
2002 2001
------------------------
Net assets available for benefits per the financial
statements $15,349,613 $16,623,827
Amounts allocated to withdrawing participants (643) -
----------- -----------
Net assets available for benefits per Form 5500 $15,348,970 $16,623,827
=========== ===========
9
4. Differences Between Financial Statements and Form 5500 (continued)
The following is a reconciliation of benefits paid to participants per the
financial statements to IRS Form 5500:
Benefits paid to participants per the financial statements $ 2,668,110
Add amounts allocated to withdrawing participants at
December 27, 2002 643
Less amounts allocated to withdrawing participants at
December 27, 2001 -
-----------
Benefits paid to participants per Form 5500 $ 2,668,753
===========
5. Participant Loans
Participants may be granted loans from this plan not to exceed the lesser of
$50,000 or 50% of the participant's vested account balance. Participant loans
bear interest at the prime rate of interest plus 1% determined at the time
the loan is requested. Loans are secured by the participant's account, having
a maximum term of five years. Loan payments are made through payroll on a pay
period basis.
6. 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.
7. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated November 20, 1998 stating that the Plan is qualified under Section
401(a) of the IRC and, therefore, the related trust is exempt from taxation.
The Plan was subsequently amended as of December 27, 2001, as described in
Note 10 (Subsequent Event) below. Once qualified, the Plan is required to
operate in conformity with the IRC to maintain its qualification. The Plan
Sponsor believes that the Plan is being operated in compliance with the
applicable requirements of the IRC and, therefore, believes that the Plan, as
amended, is qualified and the related trust is tax-exempt.
10
8. Employer Securities
Section 407(b) of ERISA permits the Plan to hold an investment in VSE Stock
in excess of 10% of the fair market value of the Plan's assets.
9. Diversification
Participants who are age 55 and have 10 years of participation in the Plan
are eligible to diversify up to 25% of the VSE Stock held in their PAYSOP and
ESOP accounts.
10. Subsequent Event
On April 23, 2003, the Plan received a new favorable determination letter from
the IRS covering the qualified status of the Plan as amended through December
27, 2001.
11
Supplemental Schedules
VSE Corporation Employee ESOP/401(k) Plan
Schedule H, Line 4i Schedule of Assets (Held At End of Year)
EIN: 54 0649263 Plan Number: 002
December 27, 2002
Description of
Identity of Issue Investment Cost Fair Value
----------------------------------------------------------------------------------------
Legg Mason American Leading Companies Mutual Fund shares *** $ 26,168
Legg Mason Value Trust Mutual Fund shares *** 405,115
George Putnam Fund of Boston Mutual Fund shares *** 1,349,160
The Putnam Fund for Growth and Income* Mutual Fund shares *** 1,406,591
Putnam Global Equity Fund* Mutual Fund shares *** 851,236
Putnam Vista Fund* Mutual Fund shares *** 486,930
Putnam Voyager Fund* Mutual Fund shares *** 2,641,672
Putnam American Government Income Fund* Mutual Fund shares *** 297,909
Putnam Diversified Income Trust* Mutual Fund shares *** 516,003
Putnam Asset Allocation: Balanced Fund* Mutual Fund shares *** 127,439
Putnam Equity Income Fund Mutual Fund shares *** 97,116
Putnam Health Sciences Trust Fund* Mutual Fund shares *** 299,916
VSE Stock PAYSOP/ESOP* ** Common Stock shares $1,459,806 3,000,837
VSE Stock 401(k) Stock Fund* ** Common Stock shares 445,186 696,339
Putnam Stable Value Fund Fixed income investment 2,774,637
Participant Loans (interest rates varied
from 5.75% to 10.5% during 2002)* Participant loans 147,886
Life insurance policies (at cash
surrender value) Life insurance policies 1,854
-----------
Total assets held for investment purposes $15,126,808
===========
* Represents a party-in-interest (see Note 6)
** Represents nonparticipant-directed investments (VSE Stock)
*** Historical cost not required to be presented as investments are
participant directed.
12
VSE Corporation Employee ESOP/401(k) Plan
Schedule G, Part III Schedule of Nonexempt Transactions
EIN: 54 0649263 Plan Number: 002
December 27, 2002
(b) Relationship to
Plan, Employer, or (i) Current
(a) Identity of Other Party-In- Value of
Party Involved Interest I Description of Transaction Assets
----------------------------------------------------------------------------------------
Failure to timely remit participant
loan repayment received by VSE on
04/18/97. VSE intends to remit
payment plus lost earnings to the
VSE Corporation Plan Sponsor Plan during 2003. $1,190.66
Failure to timely remit participant
loan payment to the Plan for the pay
period ended 11/25/02. VSE intends to
remit payment plus lost earnings to
VSE Corporation Plan Sponsor the Plan during 2003. 39.76
Failure to timely remit participant
deferrals for the pay period ended
04/16/01. VSE intends to remit lost
VSE Corporation Plan Sponsor earnings to the Plan during 2003. 1,329.48
13