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, 2004
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, 2004 with Report of Independent Registered Public
Accounting Firm
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements and Supplemental Schedules
Year ended December 27, 2004
Contents
Report of Independent Registered Public Accounting Firm . . . . . . . . 3
Audited Financial Statements
Statements of Net Assets Available for Benefits . . . . . . . . . . . . 4
Statement of Changes in Net Assets Available for Benefits . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 6
Supplemental Schedule
Schedule H, Line 4i-Schedule of Assets (Held At End of Year) . . . . . 15
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Report of Independent Registered Public Accounting Firm
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, 2004 and 2003,
and the related statement of changes in net assets available for benefits for
the year ended December 27, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
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, 2004 and 2003, and the changes in its net assets available for
benefits for the year ended December 27, 2004, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of
Schedule H, Line4i - Schedule of Assets (Held At End of Year) as of December 27,
2004, is presented for purposes of additional analysis and is not a required
part of the 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. This supplemental
schedule is the responsibility of the Plan's management. The supplemental
schedule has been subjected to the auditing procedures applied in our audits of
the financial statements and, in our opinion, is fairly stated in all material
respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
McLean, Virginia
June 15, 2005
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VSE Corporation Employee ESOP/401(k) Plan
Statements of Net Assets Available for Benefits
December 27
2004 2003
-------------------------
Assets
Cash $ 233,358 $ 278,053
Assets held for investment purposes:
Investments at fair value 23,145,925 18,287,374
Participant loans 192,093 181,170
----------- -----------
Total assets held for investment purposes 23,338,018 18,468,544
Receivables - 195
----------- -----------
Net assets available for benefits $23,571,376 $18,746,792
=========== ===========
See accompanying notes.
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VSE Corporation Employee ESOP/401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 27, 2004
Additions
Contributions:
Employee $ 1,982,052
Employer 455,825
Employee rollovers 162,079
Interest and dividends 564,999
Net realized/unrealized appreciation
in fair value of investments 4,002,023
-----------
Total additions 7,166,978
-----------
Deductions
Distributions to participants 2,299,628
Other deductions 42,766
-----------
Total deductions 2,342,394
-----------
Net increase 4,824,584
Net assets available for benefits at
Beginning of period 18,746,792
-----------
End of period $23,571,376
===========
See accompanying notes.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements
December 27, 2004
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
Certain officers or employees of the Company serve as Trustees of the Plan (Plan
Trustees). Effective November 1, 2003, the VSE Corporation Employee ESOP/401(k)
Plan changed the 401(k) Plan administrator and record keeper from Putnam
Investments to Merrill Lynch. Merrill Lynch serves as the third party plan
administrator. Merrill Lynch provides an open architecture of fund investments
and provides daily record-keeping services for the Plan. 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.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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's matching contribution is discretionary. 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 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 2004 and 2003 were $100,576 and $34,488,
respectively, and unused forfeitures at December 27, 2004 and 2003, were
approximately $60,752 and $5,398, respectively.
Participants are 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 2004 and 2003 of $13,000
and $12,000, 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 25
separately managed funds currently offered under the Plan.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
Dividends received on VSE Stock held in participant accounts and nonparticipant
directed investments are allocated pro rata to such participant and
nonparticipant accounts. In 2004 and 2003, the Plan allowed employees age 50
and older by the end of the Plan Year to contribute up to an additional $3,000
and $2,000, respectively.
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 Merrill Lynch 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.
Effective January 1, 2004, the Plan was amended to revise the Minimum Required
Distribution rules in the Plan. Generally, the Minimum Required Distribution
rules set forth procedures for required distributions to (i) terminated
employees who have attained age 70 1/2, but have not yet received a distribution
from the Plan, and (ii) certain business owners who have attained age 70 1/2.
The new rules liberalize the requirements and permit smaller required annual
distributions.
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.
-8-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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 U.S. generally
accepted accounting principles, 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 for the Plan year ended December 27,
2004, were paid by the Company.
3. Investments
Investments
Merrill Lynch offers 12 Core Investment Options and 13 Mutual Fund Window
Investment Options. In addition, 5 Goal Manager Portfolio Models are offered
through the Plan. Each Goal Manager Portfolio Model is composed of investment
options determined by a participant's investment style and risk level.
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.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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,
2004 2003
------------------------
VSE Stock $6,639,522 $4,152,449
MFS Massachusetts Investors GR Stk (A) 3,008,528 2,999,797
ML Ret Preservation Trust 2,867,663 3,016,867
American Funds Washington Mutual Investors Fund 2,123,757 1,866,208
MFS Total Return Fund 1,850,599 1,655,799
Templeton Foreign Fund 1,711,845 1,311,034
The Plan's investment in VSE Stock at December 27, 2004 and 2003, is presented
in the following table:
Number of shares 281,933 317,223
Cost $ 945,214 $1,510,438
Market $6,639,552 $4,152,449
Nonparticipant-Directed Investments
Nonparticipant-directed investments, held in the Plan as of December 27, 2004
and 2003, consisted entirely of VSE Stock. These net assets, and changes are as
follows:
Net assets 2004 2003
------------------------------------------------------------------------------
VSE Stock $6,639,522 $4,152,449
-10-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
3. Investments (continued)
Nonparticipant-Directed Investments (continued)
Year ended
December 27
2004
----------
Changes in net assets:
Net realized and unrealized gain on VSE Stock $3,052,296
Dividends 53,378
Distributions to participants (618,601)
----------
$2,487,073
==========
During 2004, the Plan's investments (including gains and losses on investments
bought and sold, as well as investments held during the year) appreciated in
value as a result of net changes in the market values of the investments held
(principally stock mutual funds and VSE Stock) by $4,002,023 as follows:
Mutual funds $ 949,727
VSE Stock 3,052,296
----------
$4,002,023
==========
4. Differences Between Financial Statements and Form 5500
In accordance with U.S. 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):
December 27
2004 2003
------------------------
Net assets available for benefits per
the financial statements $23,571,376 $18,746,792
Amounts allocated to withdrawing participants (473) (361)
----------- -----------
Net assets available for benefits per Form 5500 $23,570,903 $18,746,431
=========== ===========
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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 $ 2,299,628
Add amounts allocated to withdrawing participants at
December 27, 2004 473
Less amounts allocated to withdrawing participants at
December 27, 2003 (361)
-----------
Benefits paid to participants per Form 5500 $ 2,299,740
===========
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. The minimum loan
amount is $1,000. 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
Effective November 1, 2003, the VSE Corporation Employee ESOP/401(k) Plan
changed the 401(k) Plan administrator and record keeper from Putnam Investments
to Merrill Lynch. Merrill Lynch serves as third party plan administrator as
defined by the Plan; therefore, these transactions qualify as party-in-interest
transactions.
7. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated April 25, 2003 stating that the Plan is qualified under Section 401(a) of
the IRC and, therefore, the related trust is exempt from taxation. 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.
-12-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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.
-13-
Supplemental Schedules
-14-
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, 2004
Description of
Identity of Issue Investment Cost Fair Value
-----------------------------------------------------------------------------------------------
MFS Massachusetts Investors Gr Stk (A) Mutual Fund shares *** $ 3,008,528
American Funds Washington Mutual
Investors Fund (R-3) Mutual Fund shares *** 2,123,757
MSF Total Return Fund Mutual Fund shares *** 1,850,599
Templeton Foreign Fund Mutual Fund shares *** 1,711,845
Alger MidCap Growth Institutional
Portfolio Mutual Fund shares *** 1,039,533
Merrill Lynch Basic Value Fund, Inc. (A) Mutual Fund shares *** 970,991
PIMCO Total Return Fund (A) Mutual Fund shares *** 741,049
One Group Government Bond Fund (A) Mutual Fund shares *** 576,021
Merrill Lynch Healthcare Fund, Inc. (A) Mutual Fund shares *** 544,582
Hotchkis & Wiley Small Cap Value Fund Mutual Fund shares *** 192,646
State Street Research Global Resources
Fund (A) Mutual Fund shares *** 142,314
Goldman Sachs Mid Cap Value (A) Mutual Fund shares *** 130,411
Ariel Fund Mutual Fund shares *** 97,416
Merrill Lynch Global Allocation Fund,
Inc. (A) Mutual Fund shares *** 92,919
Eaton Vance Utilities (A) Mutual Fund shares *** 84,454
Victory Diversified Stock Fund (A) Mutual Fund shares *** 67,598
Pioneer High Yield Fund Class A Mutual Fund shares *** 59,076
Phoenix-Duff & Phelps Real Estate
Securities Fund (A) Mutual Fund shares *** 48,601
Merrill Lynch S&P 500 Index Fund (I) Mutual Fund shares *** 47,517
USB U.S. Small Cap Growth Fund (A) Mutual Fund shares *** 47,324
Franklin Mutual Financial Services
Fund (A) Mutual Fund shares *** 29,466
Thornburg Inter Value Fund (A) Mutual Fund shares *** 22,952
Seligman Communications & Information (A) Mutual Fund shares *** 9,000
Evergreen Sel Adj Rate Fund CL (A) Mutual Fund shares *** 141
ML Ret Preservation Trust Common/Collective Trust *** 2,867,663
VSE Stock * ** Common Stock shares $945,214 6,639,522
Participant Loans (interest rates
varied from 5% to 10.5% during 2004) Participant loans *** 192,093
-----------
Total assets held for investment purposes $23,338,018
===========
* 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.
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