UNITED STATES
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 31, 2008
OR
[ ] Transition Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
Commission file number: 000-03676
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
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
By: /s/ Thomas M. Kiernan
_______________________________
Thomas M. Kiernan
Vice President, General Counsel
and Corporate Secretary
VSE CORPORATION EMPLOYEE ESOP
Financial Statements and Supplemental Schedule
December 31, 2008 and 2007 with Report of Independent Registered Public
Accounting Firm
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VSE Corporation Employee ESOP
Financial Statements and Supplemental Schedules
December 31, 2008 and 2007
Contents
Report of Independent Registered Public Accounting Firm.......................3
Audited Financial Statements
Statements of Net Assets Available for Benefits as of
December 31, 2008 and 2007.............................................4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2008...................................5
Notes to Financial Statements.................................................6
Supplemental Schedule
Schedule H, Line 4i-Schedule of Assets (Held At End of Year)..................14
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Report of Independent Registered Public Accounting Firm
Plan Administrator
VSE Corporation Employee ESOP
We have audited the accompanying statements of net assets available for
benefits of VSE Corporation Employee ESOP (formerly known as the VSE Corporation
Employee ESOP/401(k) Plan) as of December 31, 2008 and 2007, and the related
statement of changes in net assets available for benefits for the year ended
December 31, 2008. 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. 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 31, 2008 and 2007, and the changes in its net assets
available for benefits for the year ended December 31, 2008 in conformity with
U.S. GAAP.
As discussed in Note 1, effective December 31, 2007 the Board of
Directors of VSE Corporation terminated the ESOP portion of the Plan.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
assets (held at end of the year) 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 is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the
auditing procedures applied in the 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.
Goodman & Company, L.L.P
Mclean, Virginia
June 26, 2009
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VSE Corporation Employee ESOP
Statements of Net Assets Available for Benefits
December 31, December 31,
2008 2007
---- ----
Cash $ 169,891 $ 190,639
----------- -----------
Assets held for investment purposes:
Investments at fair value 3,744,464 49,292,763
Participant loans - 335,190
----------- -----------
Total assets held for investment purposes 3,744,464 49,627,953
----------- -----------
Receivables - 24,126
----------- -----------
Net assets available for benefits at
fair value 3,914,355 49,842,718
Adjustment from fair value to
contract value for fully benefit-
responsive investment contracts - 34,623
----------- -----------
Net assets available for benefits $ 3,914,355 $49,877,341
=========== ===========
See accompanying notes.
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VSE Corporation Employee ESOP
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2008
Additions
Interest and dividends $ 54,786
-----------
Deductions
Net depreciation in fair value of investments 5,373,682
Benefits paid to participants 12,804,992
-----------
Total deductions 18,178,674
-----------
Transfer to VSE Corporation 401(k) Plan 27,839,098
-----------
Net change (45,962,986)
Net assets available for benefits
Beginning of year 49,877,341
-----------
End of year $ 3,914,355
===========
See accompanying notes.
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VSE Corporation Employee ESOP
Notes to Financial Statements
December 31, 2008 and 2007
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 was 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. All assets were held in the
VSE Corporation Employee ESOP/401(k) Plan Trust. The Plan was subject to the
applicable provisions of the Employee Retirement Income Security Act of 1974
(ERISA), as amended.
Effective January 1, 2008 the VSE Corporation Employee ESOP/401(k) Plan was
amended and restated to remove the code section 401(k) feature from the plan
and rename the plan as the VSE Corporation Employee ESOP. As of January 1,
2008, the Plan will invest primarily in common stock of VSE Corporation and is
intended to be solely an "Employee Stock Ownership Plan" as defined in Section
4975(e) (7) of the code. The assets related to the 401(k) feature of the Plan
were transferred to the VSE Corporation 401(k) Plan effective January 1, 2008.
The Plan is subject to the applicable provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), as amended.
Plan Administration
Certain officers or employees of the Company serve as Trustees of the Plan (ESOP
Trustees). 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
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Contributions
Prior to March 31, 1999 the Company could elect to make a contribution to the
Plan principally for the purchase of Company stock. The contribution was made on
behalf of each participant based upon a percentage of each participant's
compensation in the plan year or other uniform formula, as defined by the Plan.
This contribution was allocated to each participant's account on the last day of
Plan year. The Company stock is held by the Plan for the participants and each
participant is entitled to certain stockholder rights. 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 his or her
account and is notified by the ESOP Trustees prior to the time that such rights
are to be exercised. If participants with stock in the PAYSOP and/or ESOP fail
to exercise their voting rights, the ESOP Trustees will vote this stock. The
ESOP Trustees also vote the VSE Stock held by the Plan's VSE Stock Fund as well
as all unallocated shares of VSE Stock. No contributions have been made to the
PAYSOP since 1986.
Effective December 31, 2007, the Board of Directors of VSE Corporation
terminated the Plan. Accordingly, no additional contributions shall be made to
the Plan for plan years beginning after December 31, 2007.
Dividends received on VSE Stock held in participant accounts and nonparticipant
directed investments are allocated pro rata to such participant and
nonparticipant accounts.
Distributions
Participants (or their beneficiaries) are eligible to receive ESOP benefits on
retirement, disability, termination of employment, or death. Benefits are
usually distributed in a lump sum. 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.
Ownership Rights (Vesting)
Participants are 100% vested in their PAYSOP contributions. ESOP contributions
were subject to the following graded vesting schedule: 24% 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.
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VSE Corporation Employee ESOP
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Plan Termination
Effective December 31, 2007, the Board of Directors of VSE Corporation
terminated the ESOP portion of the Plan. Due to the termination, the
Corporation authorized the Trustees to distribute the vested assets of the ESOP
to the Plan's participants and beneficiaries pursuant to the terms of the Plan.
Each participant became fully vested in amounts held within the Plan for the
participant's benefit.
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 and assumptions.
Investment Contracts
As described in Financial Accounting Standards Board Staff Position, FSP AAG
INV-1 and SOP 94-4-1, "Reporting of Fully Benefit-Responsive Investment
Contracts Held by Certain Investment Companies Subject to the AICPA Investment
Company Guide and Defined-Contribution Health and Welfare and Pension Plans
("FSP")," investment contracts held by a defined contribution plan are required
to be reported at fair value. However, contract value is the relevant
measurement attribute for that portion of the net assets available for benefits
of a defined contribution plan attributable to fully benefit-responsive
investment contracts because contract value is the amount participants would
receive if they were to initiate permitted transactions under the terms of the
plan. As required by the FSP, the statements of net assets available for
benefits present the fair value of the investment contracts as well as the
adjustment of the fully benefit-responsive investment contracts from fair value
to contract value. The statement of changes in net assets available for
benefits is prepared on a contract value basis.
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VSE Corporation Employee ESOP
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Administrative Expenses
The direct administrative expenses of the Plan for the year ended December 31,
2008 and 2007 of approximately $61 thousand and $67 thousand, respectively, were
paid by the Company.
Benefit Payments
Benefits are recorded when paid.
3. Fair Value Measurement
Effective January 1, 2008, the Plan adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurement (SFAS 157), for measuring and
reporting financial assets and liabilities at fair value. SFAS 157 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date.
SFAS 157 established a three-level disclosure hierarchy to indicate the level
of judgment used to estimate fair value measurements:
Level 1 - quoted prices in active market for identical assets or
liabilities as of the reporting date;
Level 2 - quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets in markets that
are not active; and inputs other than quoted prices (such as interest
rate and yield curves);
Level 3 - uses inputs that are unobservable, supported by little or no
market activity and reflect significant management judgment.
The asset's or liability's fair value measurement level within the fair value
hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of
observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets
measured at fair value. There have been no changes in the methodologies used
at December 31, 2008.
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VSE Corporation Employee ESOP
Notes to Financial Statements (continued)
3. Fair Value Measurement (continued)
Common Stock: Valued at the closing price reported on the active market on
which the individual securities were traded.
The methods described above may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values.
Furthermore, while the Plan believes its valuation methods are appropriate and
consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments
could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the
Plan's assets at fair value as of December 31, 2008:
Level 1 Level 2 Level 3
December 31, 2008: ------- ------- -------
Common stock $3,744,464 $ - $ -
---------- ------- -------
$3,744,464 $ - $ -
========== ======= =======
4. Investments
Investments
Investments in VSE Corporation stock are valued at fair market value based on
quoted market prices. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. See note 3 for discussion of fair value
measurements. 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 at fair market
value. Net appreciation (depreciation) includes the Plan's gains and losses on
investments bought and sold as well as held during the year.
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VSE Corporation Employee ESOP
Notes to Financial Statements (continued)
4. 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 31, December 31,
2008 2007
---- ----
VSE Stock
95,449 and 446,978 shares, respectively $3,744,464 $21,830,406
ML Ret Preservation Trust, at contract value
3,771,211 units * 3,771,211
MFS Massachusetts Investors GR Stk (A)
187,031 shares * 2,867,181
American Washington Mutual Investors Fund
81,007 shares * 2,711,298
*Investments did not represent 5% or more of the Plan's net at the end of the
year. As discussed in Note 1, effective January 1, 2008, the 401(k) feature of
the Plan was removed.
The Plan's investment in VSE Stock is presented in the following table:
December 31, December 31,
2008 2007
---- ----
Number of shares 95,449 446,978
Cost $ 246,991 $ 1,060,282
Market $3,744,464 $21,830,406
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VSE Corporation Employee ESOP
Notes to Financial Statements (continued)
4. Investments (continued)
Nonparticipant-Directed Investments
Nonparticipant-directed investments, held in the Plan as of December 31, 2008
and 2007, consisted entirely of VSE Stock. These net assets and changes are as
follows:
Net assets 2008 2007
---------- ---- ----
VSE Stock $3,744,464 $21,830,406
Year ended
December 31,
2008
----
Changes in net assets:
Net realized and unrealized loss on VSE Stock $ (5,373,682)
Distributions to participants (12,712,260)
------------
$(18,085,942)
============
During 2008, 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 VSE Stock by
$5,373,682.
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. There were no reportable transactions for the
plan year ended December 31, 2008.
5. 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 31, December 31,
2008 2007
---- ----
Net assets available for benefits
per the financial statements $3,914,355 $49,877,341
Amounts allocated to withdrawing
participants (30,899) (2,445)
---------- -----------
Net assets available for benefits
per Form 5500 $3,883,456 $49,874,896
========== ===========
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VSE Corporation Employee ESOP
Notes to Financial Statements (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 $12,804,992
Add amounts allocated to withdrawing
participants at December 31, 2008 30,899
Less amounts allocated to withdrawing
participants at December 31, 2007 (2,445)
-----------
Benefits paid to participants per
Form 5500 $12,833,446
===========
6. Income Tax Status
The Company has applied for a determination letter for the Plan effective
January 1, 2008. The plan administrator believes that the Plan and related
trust are designed and currently being operated in accordance with the
applicable sections of the Internal Revenue Code (IRC). Therefore, no
provision for income taxes has been included in the Plan's financial statements.
7. 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.
8. 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.
9. Risk and uncertainties
The Plan's assets are invested in Company stock. Investments are exposed to a
concentration of credit risk due to the large amount of funds invested in
Company stock. Due to the level of risk associated with the concentrated
investment it is at least reasonably possible that changes in risk in the near
term could materially affect the participants' account balances and the amounts
reported in the financial statements.
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Supplemental Schedule
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VSE Corporation Employee ESOP
Schedule H, Line 4i-Schedule of Assets (Held At End of Year)
EIN: 54 0649263 Plan Number: 002
December 31, 2008
Identity of Issue Description of Investment Cost Fair Value
----------------- ------------------------- ---- ----------
VSE Stock Common Stock shares $246,991 $3,744,464
----------
Total assets held for
investment purposes $3,744,464
==========
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