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, 2006
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/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
December 31, 2006 and 2005 with Report of Independent Registered Public
Accounting Firm
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements and Supplemental Schedules
December 31, 2006 and 2005
Contents
Report of Independent Registered Public Accounting Firm......................3
Audited Financial Statements
Statements of Net Assets Available for Benefits as of
December 31, 2006 and 2005............................................4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2006..................................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 Accounting Firm
Plan Administrator
VSE Corporation Employee ESOP/401(k) Plan
We have audited the accompanying statement of net assets available for
benefits of VSE Corporation Employee ESOP/401(k) Plan as of December 31, 2006
and the related statement of changes in net assets available for benefits for
the year then ended. These financial statements and supplemental schedule are
the responsibility of the Plan's management. Our responsibility is to express
an opinion on these financial statements based upon our audit. The financial
statements of the Plan as of December 31, 2005 were audited by other auditors
whose report dated June 16, 2006, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing 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
audit provides 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, 2006 and the changes in its net assets available for
benefits for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audit was 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 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.
/s/ Goodman & Company, L.L.P
Mclean, Virginia
June 27, 2007
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VSE Corporation Employee ESOP/401(k) Plan
Statements of Net Assets Available for Benefits
December 31, December 31,
2006 2005
---- ----
Cash $ 193,515 $ 216,572
----------- -----------
Assets held for investment purposes:
Investments at fair value 30,605,806 29,797,844
Participant loans 226,666 176,355
----------- -----------
Total assets held for investment purposes 30,832,472 29,974,199
----------- -----------
Receivables 13,991 14,327
----------- -----------
Net assets available for benefits $31,039,978 $30,205,098
=========== ===========
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 31, 2006
Additions
Contributions:
Participants $ 2,820,851
Employer 594,182
Participant rollovers 618,795
Interest and dividends 1,472,358
-----------
Total additions 5,506,186
-----------
Deductions
Net depreciation in fair value of investments 1,277,470
Benefits paid to participants 3,390,126
Other deductions 3,710
-----------
Total deductions 4,671,306
-----------
Net increase 834,880
Net assets available for benefits
Beginning of year 30,205,098
-----------
End of year $31,039,978
===========
See accompanying notes.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements
December 31, 2006 and 2005
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.
On April 27, 2005, the Plan was amended to change the definition of the
"Plan Year". Effective December 28, 2005, "Plan Year" means the Plan's
accounting year of twelve months commencing on January 1 of each year
and ending on the following December 31. Prior to December 28, 2005,
the Plan Year commenced December 28 of each year and ended the following
December 27.
Plan Administration
Certain officers or employees of the Company serve as Trustees of the
Plan (Plan Trustees). Merrill Lynch serves as the third party plan
administrator. Merrill Lynch provides an open architecture of fund
investments and provides daily recordkeeping 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 contributes 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 (semi-
monthly) 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 2006 and 2005 were $103,169 and $54,233,
respectively, and unused forfeitures at December 31, 2006 and 2005, were
approximately $26,244 and $86,457, 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
2006 and 2005 of $15,000 and $14,000, 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 by the Plan's third-party
administrator, Merrill Lynch. In 2006 and 2005, the Plan allowed
employees age 50 and older by the end of the Plan Year to contribute up
to an additional $5,000 and $4,000, respectively, pursuant to IRS
"catch-up" regulations.
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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.
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.
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.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis
of accounting.
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VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (contintued)
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 direct administrative expenses of the Plan for the Plan year ended
December 31, 2006 and 2005 of approximately $27 thousand and $26
thousand, respectively, 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 VSE Corporation stock
are valued at fair market value based on quoted market prices. 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 at fair market
value.
-9-
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 31, December 31,
2006 2005
---- ----
VSE Stock $8,097,591 $11,067,585
ML Ret Preservation Trust 3,413,833 3,196,085
MFS Massachusetts Investors GR Stk (A) 3,104,170 2,864,302
Templeton Foreign Fund 2,555,604 1,836,681
American Funds Washington Mutual Investors
Fund 2,424,152 2,093,906
MFS Total Return Fund 1,723,812 1,772,391
The Plan's investment in VSE Stock at December 31, 2006 and December 31,
2005, is presented in the following table:
Number of shares 238,867 262,913
Cost $1,152,104 $1,274,913
Market $8,097,591 $11,067,585
Nonparticipant-Directed Investments
Nonparticipant-directed investments, held in the Plan as of December 31,
2006 and 2005, consisted entirely of VSE Stock. These net assets, and
changes are as follows:
Net assets 2006 2005
---------- ---- ----
VSE Stock $8,097,591 $11,067,585
-10-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
3. Investments (continued)
Nonparticipant-Directed Investments (continued)
Year ended
December 31,
2006
----
Changes in net assets:
Net realized and unrealized gain on VSE Stock $(1,986,689)
Dividends converted to VSE Stock 46,080
Distributions to participants (1,029,385)
-----------
$(2,969,994)
===========
During 2006, 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 and VSE
Stock) by $1,277,470 as follows:
Mutual funds $ 709,219
VSE Stock (1,986,689)
-----------
$(1,277,470)
===========
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 31, December 31,
2006 2005
---- ----
Net assets available for benefits per the
financial statements $31,039,978 $30,205,098
Amounts allocated to withdrawing
participants (108) (411)
----------- -----------
Net assets available for benefits per Form
5500 $31,039,870 $30,204,687
=========== ===========
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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 $3,390,126
Add amounts allocated to withdrawing
participants at December 31, 2006 108
Less amounts allocated to withdrawing
participants at December 31, 2005 (411)
----------
Benefits paid to participants per Form 5500 $3,389,823
==========
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
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.
10. Plan Amendment
Effective January 1, 2007, the Plan was amended to incorporate the Safe
Harbor method of meeting nondiscrimination requirements of the Internal
Revenue Code. As of the effective date, all matching contributions made
pursuant to the IRC shall be fully vested. Pursuant to the Plan,
matching contributions shall not be eligible for hardship distributions,
but shall be available for loans. Matching contributions made on behalf
of a participant shall be invested based on the investments selected by
such participant.
-13-
Supplemental Schedule
-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 31, 2006
Description of
Identity of Issue Investment Cost Fair Value
-----------------------------------------------------------------------------------------------
MFS Massachusetts Investors Gr Stk (A) Mutual Fund shares *** $ 3,104,170
Templeton Foreign Fund Mutual Fund shares *** 2,555,604
American Washington Mutual Investors (R-3) Mutual Fund shares *** 2,424,152
MSF Total Return Fund Mutual Fund shares *** 1,723,812
Alger MidCap Growth Institutional Portfolio Mutual Fund shares *** 1,447,523
Blackrock Basic Value Fund, Inc. (A) Mutual Fund shares *** 1,173,407
PIMCO Total Return Fund (A) Mutual Fund shares *** 1,111,653
One Group Government Bond FD A Mutual Fund shares *** 950,473
Blackrock Global Rescs Prtf A Mutual Fund shares *** 866,074
Blackrock Healthcare Fund, Inc. (A) Mutual Fund shares *** 637,725
Goldman Sachs Mid Cap Value (A) Mutual Fund shares *** 596,578
Hotchkis & Wiley Small Cap Value Fund Mutual Fund shares *** 546,985
Phoenix-Duff & Phelps Real Estate
Securities Fund (A) Mutual Fund shares *** 311,070
Eaton Vance Utilities (A) Mutual Fund shares *** 309,724
Thornburg Inter Value Fund (A) Mutual Fund shares *** 272,164
Blackrock Global Allocation Fund, Inc. (A) Mutual Fund shares *** 218,856
Blackrock S&P 500 Index Fund (I) Mutual Fund shares *** 188,564
Ariel Fund Mutual Fund shares *** 173,073
Franklin Mutual Financial Services Fund (A) Mutual Fund shares *** 167,843
Victory Diversified Stock Fund (A) Mutual Fund shares *** 111,207
USB U.S. Small Cap Growth Fund (A) Mutual Fund shares *** 68,718
Pioneer High Yield Fund Class A Mutual Fund shares *** 63,898
Seligman Communications & Information (A) Mutual Fund shares *** 59,908
Evergreen Sel Adj Rate Fund CL (A) Mutual Fund shares *** 11,151
ML Ret Preservation Trust * Common/Collective Trust *** 3,413,833
VSE Stock * ** Common Stock shares $1,152,104 8,097,591
Participant loans (interest rates varied
from 5.00% to 9.25% during 2006) Participant loans 226,666
Pending Settlement Fund 50
-----------
Total assets held for investment purposes $30,832,472
===========
* 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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