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, 2007
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
VSE CORPORATION EMPLOYEE ESOP/401(K) PLAN
Financial Statements and Supplemental Schedules
December 31, 2007 and 2006 with Report of Independent Registered Public
Accounting Firm
-1-
VSE Corporation Employee ESOP/401(k) Plan
Financial Statements and Supplemental Schedules
December 31, 2007 and 2006
Contents
Report of Independent Registered Public Accounting Firm......................3
Audited Financial Statements
Statements of Net Assets Available for Benefits as of
December 31, 2007 and 2006............................................4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2007..................................5
Notes to Financial Statements................................................6
Supplemental Schedule
Schedule H, Line 4i-Schedule of Assets (Held At End of Year).................15
-2-
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, 2007
and 2006 and the related statement of changes in net assets available for
benefits for the year ended, December 31, 2007. 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 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, 2007 and 2006, and the changes in its net assets
available for benefits for the year ended, December 31, 2007 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 10, effective January 1, 2008 the Board of
Directors of VSE Corporation terminated the ESOP component 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 27, 2008
-3-
VSE Corporation Employee ESOP/401(k) Plan
Statements of Net Assets Available for Benefits
December 31, December 31,
2007 2006
---- ----
Cash $ 190,639 $ 193,515
----------- -----------
Assets held for investment purposes:
Investments at fair value 49,292,763 30,542,176
Participant loans 335,190 226,666
----------- -----------
Total assets held for investment purposes 49,627,953 30,768,842
Receivables 24,126 13,991
----------- -----------
Net assets available for benefits at
fair value 49,842,718 30,976,348
Adjustment from fair value to contract
value for fully benefit-responsive
investment contracts 34,623 63,630
----------- -----------
Net assets available for benefits $49,877,341 $31,039,978
=========== ===========
See accompanying notes.
-4-
VSE Corporation Employee ESOP/401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2007
Additions
Contributions:
Participants $ 3,632,489
Employer 1,348,873
Participant rollovers 351,823
Interest and dividends 2,471,935
Net appreciation in fair value of investments 14,629,852
-----------
Total additions 22,434,972
-----------
Deductions
Benefits paid to participants 3,591,809
Other deductions 5,800
-----------
Total deductions 3,597,609
-----------
Net increase 18,837,363
Net assets available for benefits
Beginning of year 31,039,978
-----------
End of year $49,877,341
===========
See accompanying notes.
-5-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements
December 31, 2007 and 2006
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.
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.
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.
-6-
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. Effective January 1, 2007,
the Company contributes $1 for each dollar of salary that a Company employee
participant contributes on the first 3% of salary plus 50 cents for each dollar
of the next 2% of salary. In 2006, the Company contributed 50 cents for each
dollar of salary that a Company employee participant contributed 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.
Effective January 1, 2007, any safe harbor contribution will be 100% vested
immediately. Prior to January 1, 2007, ESOP and Company matching 401(k)
contributions (but not PAYSOP allocations) were subject to the following graded
vesting schedule: 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 2007 and 2006 were $74,470 and $103,169,
respectively, and unused forfeitures at December 31, 2007 and 2006, were
approximately $17,104 and $26,244, 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 2007 and 2006 of
$15,500 and $15,000, 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 2007 and 2006, the Plan
allowed employees age 50 and older by the end of the Plan Year to contribute up
to an additional $5,000 pursuant to IRS "catch-up" regulations.
-7-
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.
-8-
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 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.
The FSP was adopted by the Plan in the current year. As required by the FSP,
the prior year statement of net assets available for benefits has been restated
to conform to the current year presentation. There was no change to beginning
net assets available for benefits as a result of the restatement.
Administrative Expenses
The direct administrative expenses of the Plan for the Plan year ended
December 31, 2007 and 2006 of approximately $67 thousand and $27 thousand,
respectively, were paid by the Company.
3. Investments
Investments
Merrill Lynch offers 14 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.
-9-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
3. Investments (continued)
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 are
valued at quoted market prices. The Plan's interest in the collective trust is
based on fair value of the collective trust's underlying investments as based on
information reported by the investment advisor using the financial statements of
the collective trust at year end. 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.
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,
2007 2006
---- ----
VSE Stock
446,978 and 238,867 shares, respectively $21,830,406 $8,097,591
ML Ret Preservation Trust, at contract value
3,771,211 and 3,413,833 units, respectively 3,771,211 3,413,833
MFS Massachusetts Investors GR Stk (A)
187,031 and 224,940 shares, respectively 2,867,181 3,104,170
American Washington Mutual Investors Fund
81,007 and 69,860 shares, respectively 2,711,298 2,424,152
Templeton Foreign Fund
187,361 shares in 2006 * 2,555,604
MFS Total Return Fund
106,540 shares in 2006 * 1,723,812
* Investements did not represent 5% or more of the Plan's net assets for the
year.
-10-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The Plan's investment in VSE Stock is presented in the following table:
December 31, December 31,
2007 2006
---- ----
Number of shares 446,978 238,867
Two-for one stock split retroactively applied - 238,867
----------- ----------
Number of shares 446,978 477,734
=========== ==========
Cost $ 1,060,282 $1,152,104
Market $21,830,406 $8,097,591
On May 1, 2007, VSE Corporation announced a two for one stock split in the form
of a 100% stock dividend payable to stockholders of record as of June 11, 2007.
The stock dividend was made on June 28, 2007.
Nonparticipant-Directed Investments
Nonparticipant-directed investments, held in the Plan as of December 31, 2007
and 2006, consisted entirely of VSE Stock. These net assets, and changes are as
follows:
Net assets 2007 2006
---------- ---- ----
VSE Stock $21,830,406 $8,097,591
Year ended
December 31,
2007
----
Changes in net assets:
Net realized and unrealized gain on VSE Stock $14,749,076
Dividends converted to VSE Stock 33,460
Distributions to participants (1,049,721)
-----------
$13,732,815
===========
-11-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
3. Investments (continued)
During 2007, 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 $14,629,852 as follows:
Mutual funds $ (119,224)
VSE Stock 14,749,076
-----------
$14,629,852
===========
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,
2007 2006
---- ----
Net assets available for benefits per the
financial statements $49,877,341 $31,039,978
Amounts allocated to withdrawing
participants (2,445) (108)
----------- -----------
Net assets available for benefits per
Form 5500 $49,874,896 $31,039,870
=========== ===========
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 $3,591,809
Add amounts allocated to withdrawing
participants at December 31, 2007 2,445
Less amounts allocated to withdrawing
participants at December 31, 2006 (108)
----------
Benefits paid to participants per
Form 5500 $3,594,146
==========
-12-
VSE Corporation Employee ESOP/401(k) Plan
Notes to Financial Statements (continued)
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.
Administrative fees paid by the Plan to Merrill Lynch were $5,800 for 2007.
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.
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
The Board of Directors of VSE Corporation terminated the ESOP Plan effective
January 1, 2008. As a result of the termination, the Corporation authorized the
Trustees to distribute the vested assets of the ESOP and PAYSOP shares of the
Plan to the Plan's participants and beneficiaries pursuant to the terms of the
Plan.
-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, 2007
Description of
Identity of Issue Investment Cost Fair Value
----------------------------------------------------------------------------------------------------------------
MFS Massachusetts Investors Gr Stk (A) 187,031 Mutual Fund Shares *** $ 2,867,181
American Washington Mutual Investors (R-3) 81,007 Mutual Fund Shares *** 2,711,298
Alger MidCap Growth Institutional Portfolio 119,459 Mutual Fund Shares *** 2,281,669
Templeton Foreign Fund 175,234 Mutual Fund Shares *** 2,193,927
MFS Total Return Fund 103,197 Mutual Fund Shares *** 1,572,723
PIMCO Total Return Fund (A) 134,642 Mutual Fund Shares *** 1,439,327
JPMORGAN GOV BOND 127,401 Mutual Fund Shares *** 1,312,233
Blackrock Basic Value Fund, Inc. (A) 43,952 Mutual Fund Shares *** 1,303,169
Blackrock Global Res A 19,164 Mutual Fund Shares *** 1,119,353
Alliance Bern Intl Val CL A 42,385 Mutual Fund Shares *** 939,677
Thornburg Inter Value Fund (A) 24,527 Mutual Fund Shares *** 814,312
Goldman Sachs Mid Cap Value (A) 22,427 Mutual Fund Shares *** 792,781
American Growth FD of AMER R3 22,744 Mutual Fund Shares *** 762,378
Blackrock Healthcare A 104,822 Mutual Fund Shares *** 629,983
Hotchkis & Wiley Small Cap Value Fund 18,895 Mutual Fund Shares *** 628,627
Eaton Vance Dividend Builder 33,710 Mutual Fund Shares *** 498,241
Blackrock Global Alloc 18,859 Mutual Fund Shares *** 373,029
Phoenix Real Estate Sec A 10,206 Mutual Fund Shares *** 294,438
Blackrock S&P 500 Index I 13,741 Mutual Fund Shares *** 247,483
Victory Diversified Stock FD 12,437 Mutual Fund Shares *** 220,999
Ariel Fund 3,797 Mutual Fund Shares *** 176,134
Franklin Mutual Fincl 9,348 Mutual Fund Shares *** 174,813
Seligman Communications & Information (A) 3,664 Mutual Fund Shares *** 139,956
UBS U.S. Small Cap Growth Fund 8,175 Mutual Fund Shares *** 115,921
Pioneer High Yield FD CL A 9,295 Mutual Fund Shares *** 97,322
Evergreen Sel Adj Rate FD CL (A) 2,023 Mutual Fund Shares *** 18,695
ML Ret Preservation Trust, at contract value 3,771,211 Common/Collective Trust Units *** 3,771,211
VSE Stock * ** 446,978 Common Stock Shares $1,060,282 21,830,406
Participant loans (interest rates varied from
5.00% to 9.25% during 2007) Participant loans 335,190
Pending Settlement Fund 100
-----------
Total assets held for investment purposes $49,662,576
===========
* 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.
See Report of Independent Registered Public Accounting Firm
-15-