UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2008    Commission File Number:  0-3676

                               VSE CORPORATION
            (Exact Name of Registrant as Specified in its Charter)
            DELAWARE                                            54-0649263
 (State or Other Jurisdiction of                            (I.R.S. Employer
  Incorporation or Organization)                           Identification No.)

       2550 Huntington Avenue
        Alexandria, Virginia                     22303-1499   www.vsecorp.com
(Address of Principal Executive Offices)         (Zip Code)      (Webpage)

Registrant's Telephone Number, Including Area Code:  (703) 960-4600

         Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
          Title of each class                     on which registered
          -------------------                     -------------------
Common Stock, par value $.05 per share      The NASDAQ Global Select Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes [ ]    No [x]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [ ]    No [x]

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.   Yes [x]    No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]  Accelerated filer [x]  Non-accelerated filer [ ]
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes [ ]    No [x]

The aggregate market value of outstanding voting stock held by nonaffiliates of
the Registrant as of June 30, 2008, was approximately $100.7 million based on
the last reported sales price of the Registrant's common stock on the Nasdaq
National Market as of that date.

Number of shares of Common Stock outstanding as of March 3, 2009: 5,104,842.

                DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders expected to be held on May 5, 2009, are incorporated by reference
into Part III of this report.


                         TABLE OF CONTENTS


									    Page
                                                                            ----
PART I

ITEM 1.	        Business . . . . . . . . . . . . . . . . . . . . . . . . .    4
ITEM 1A.	Risk Factors . . . . . . . . . . . . . . . . . . . . . . .    8
ITEM 1B.	Unresolved Staff Comments  . . . . . . . . . . . . . . . .   11
ITEM 2.	        Properties . . . . . . . . . . . . . . . . . . . . . . . .   11
ITEM 3.	        Legal Proceedings	 . . . . . . . . . . . . . . . . .   11
ITEM 4.	        Submission of Matters to a Vote of Security Holders  . . .   11
                Executive Officers of the Registrant . . . . . . . . . . .   12

PART II

ITEM 5.	        Market for Registrant's Common Equity, Related Stockholder
		Matters and Issuer Purchases of Equity Securities. . . . .   15
ITEM 6.	        Selected Financial Data	 . . . . . . . . . . . . . . . . .   18
ITEM 7.	        Management's Discussion and Analysis of Financial
		Condition and Results of Operations  . . . . . . . . . . .   19
ITEM 7A.	Quantitative and Qualitative Disclosures About
		Market Risks . . . . . . . . . . . . . . . . . . . . . . .   35
ITEM 8.	        Financial Statements and Supplementary Data  . . . . . . .   36
ITEM 9.	        Changes in and Disagreements with Accountants on
		Accounting and Financial Disclosure  . . . . . . . . . . .   60
ITEM 9A.	Controls and Procedures  . . . . . . . . . . . . . . . . .   60
ITEM 9B.	Other Information  . . . . . . . . . . . . . . . . . . . .   63


PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance . .   63
ITEM 11.	Executive Compensation . . . . . . . . . . . . . . . . . .   63
ITEM 12.	Security Ownership of Certain Beneficial Owners and
		Management and Related Stockholder Matters . . . . . . . .   63
ITEM 13.	Certain Relationships and Related Transactions, and  . . .
                Director Independence  . . . . . . . . . . . . . . . . . .   63
ITEM 14.	Principal Accountant Fees and Services . . . . . . . . . .   63

PART IV

ITEM 15.	Exhibits, Financial Statements and Schedules . . . . . . .   63

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   65

Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66-75






                                       2

Forward Looking Statements

       	This filing contains statements which, to the extent they are not
recitations of historical fact, constitute "forward looking statements" under
federal securities laws.  All such statements are intended to be subject to
the safe harbor protection provided by applicable securities laws. For
discussions identifying some important factors that could cause actual VSE
Corporation ("VSE," the "Company," "us," "our," or "we") results to differ
materially from those anticipated in the forward looking statements contained
in this filing, see VSE's "Narrative Description of Business" (Items 1, 1A, 2
and 3), and "Management's Discussion and Analysis." Readers are cautioned not
to place undue reliance on these forward looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward looking statements to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-Q to be filed by the Company subsequent to
this Annual Report on Form 10-K and any Current Reports on Form 8-K filed by
the Company.









































                                       3

                                    Part I



ITEM 1. Business

(a)	   General Background

       	VSE Corporation was incorporated in Delaware in 1959 and serves as a
centralized management and consolidating entity for our business operations.
Our business operations are managed under groups that consist of one or more
unincorporated divisions or wholly owned VSE subsidiaries that perform our
work. Our Federal Group consists of our Communications and Engineering
Division ("CED"), Engineering and Logistics Division ("ELD"), Field Support
Services Division ("FSS"), Management Sciences Division ("MSD"), and Systems
Engineering Division ("SED"). Our International Group consists of our BAV
Division ("BAV"), Coast Guard Division ("VCG"), and Fleet Maintenance Division
("FMD"). Our IT, Energy and Management Consulting Group consists of our wholly
owned subsidiaries Energetics Incorporated ("Energetics") and G&B Solutions,
Inc. ("G&B"). Our Infrastructure Group consists of our wholly owned subsidiary
Integrated Concepts and Research Corporation ("ICRC"). The term "VSE" or
"Company" means VSE and its subsidiaries and divisions unless the context
indicates operations of the parent company only.

       	Our business operations consist primarily of diversified program
management, logistics, engineering, IT, construction program and consulting
services performed on a contract basis. Almost all of our contracts are with
agencies of the United States Government (the "government") and other
government prime contractors. Our customers also include non-government
organizations and commercial entities.

       	We seek to provide our customers with competitive, cost-effective
solutions to specific problems. These problems generally require a detailed
technical knowledge of materials, processes, functional characteristics,
information systems, technology and products and an in-depth understanding of
the basic requirements for effective systems and equipment.

(b)   Financial Information

       	Our operations are conducted within four reportable segments aligned
with our management groups: 1) Federal, which generated approximately 64% of
our revenues in 2008; 2) International, which generated approximately 21% of
our revenues in 2008; 3) IT, Energy and Management Consulting, which generated
approximately 5% of our revenues in 2008; and 4) Infrastructure, which
generated approximately 10% of our revenues in 2008. Additional financial
information for our reportable segments appears in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

(c)  Description of Business

Services and Products

       	Our services include a broad array of capabilities and resources that
support military, federal civil, and other government systems, equipment and
processes. We are focused on creating, sustaining and improving the systems,
equipment and processes of government through core offerings in program
management, logistics, engineering, IT, construction program, and consulting
services.

	Typical projects include sustaining engineering support for military
vehicles and combat trailers; military equipment refurbishment and
modification; military vehicle ballistic protection systems; ship maintenance,
repair, overhaul planning and follow-on technical support; logistics
management support; machinery condition analysis; specification preparation
for ship alterations and repairs; ship force crew training; life cycle support
for ships; ship communication systems; energy conservation and advanced
technology demonstration projects; technical data package preparation;
multimedia, computer local area network ("LAN"), and telecommunications

                                       4

systems; cross-platform technical data; product data; technical manual
development and support; information technology management consulting,
services, and solutions; and large-scale port engineering development and
construction management.

	See Item 7 "Management's Discussion and Analysis of Financial
Information and Results of Operation" for more information regarding VSE's
business.

Contracts

       	Depending on solicitation requirements and other factors, we offer our
professional and technical services and products through various competitive
contract arrangements and business units which are responsive to customer
requirements and which may also provide an opportunity for diversification.
Such arrangements may include prime contracts, subcontracts, cooperative
arrangements, joint ventures, General Services Administration ("GSA")
schedules, dedicated cost centers (divisions) and subsidiaries. Some of the
contracts permit the contracting agency to issue delivery orders or task
orders in an expeditious manner to satisfy relatively short-term requirements
for engineering and technical services.

       	Almost all of our revenues are derived from contract services performed
for Department of Defense ("DoD") agencies or for Federal Civil agencies. The
U.S. Army, Army Reserve and U.S. Navy are our largest customers. Other
significant customers include the Department of Treasury, the Department of
Transportation, the Department of Energy and the Department of Interior. To a
lesser degree, our customers also include various other government agencies,
non-government organizations, and commercial entities.

                             Revenues by Customer
                            (dollars in thousands)


                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
--------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====


	The government's procurement practices sometimes include the bundling of
various work efforts under large comprehensive management contracts
("omnibus"). As a result, the growth opportunities available to us can occur

                                       5

in large, unpredictable increments. We have pursued these larger efforts by
assembling teams of subcontractors to offer the range of technical
competencies required by these omnibus contracts. Typically the use of
subcontractors and large material purchases on government contracts does not
allow for profit margins that are as high as on work performed by our own
personnel. As a result, the use of such teaming arrangements may lower our
overall profit margins in some years. Although the government's practice of
using omnibus multiple award contracts is expected to continue, we also have
opportunities to compete for other contracts requiring our specific areas of
expertise. We are positioned to pursue these opportunities while continuing to
use subcontractor teams to compete for the omnibus contracts.

	Our contracts with the government are typically cost plus fee, time and
materials, or fixed-price contracts. Revenues result from work performed on
these contracts by our own employees and from pass-through of costs for work
performed by our subcontractors and for materials. Revenues on cost-type
contracts are recorded as contract allowable costs are incurred and fees are
earned.

       	Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the cost of materials used in performance on the contract.
Profits or losses on time and material contracts result from the difference
between the cost of services performed and the contract defined billing rates
for these services.

       	Revenue recognition methods on fixed-price contracts will vary depending
on the nature of the work and the contract terms. On some fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, typically ratably over the service period.
Revenues on fixed-price service contracts are recorded as work is performed,
typically ratably over the service period. Revenues on fixed-price contracts
that require delivery of specific items may be recorded based on a price per
unit as units are delivered. Profits on fixed-price contracts result from the
difference between the incurred costs and the revenue earned.

Backlog

       	Funded backlog for government contracts represents a measure of our
potential future revenues. Funded backlog is defined as the total value of
contracts that has been appropriated and funded by the procuring agencies,
less the amount of revenues that have already been recognized on such
contracts. Our funded backlog as of December 31, 2008, is approximately $567
million. Funded backlog as of December 31, 2007 and 2006 was approximately
$408 million and $299 million, respectively. The increases in funded backlog
during these years are due to increases in funding on our existing programs
and the funding received on new programs. Changes in funded backlog on
contracts are sometimes unpredictable due to uncertainties associated with
changing government program priorities and the ultimate availability of funds.

       	In addition to the funded backlog levels, we have contract ceiling
amounts available for use on multiple award, indefinite delivery, indefinite
quantity contracts with the U.S. Army, U.S. Air force, and U.S. Navy. While
these contracts increase the opportunities available to us to pursue future
work, the amount of future work is not determinable until delivery orders are
placed on the contracts. Additionally, these delivery orders must be funded by
the procuring agencies before we can perform work and begin earning revenues
from them.

Marketing

	Our marketing activities are led by our Corporate Vice President of
Marketing and performed by our professional staff of engineers, analysts,
program managers, contract administrators and other personnel. These
activities are centrally coordinated through our Corporate Marketing
Department. Information concerning new programs and requirements becomes
available in the course of contract performance, through formal and informal

                                       6

briefings, from participation in professional organizations, and from
literature published by the government, trade associations, professional
organizations and commercial entities.

Personnel

	Services are provided by our staff of professional and technical
personnel having high levels of education, experience, training and skills. As
of December 31, 2008, we had 1,920 employees, an increase from 1,223 over the
prior year. Principal categories include (a) engineers and technicians in
mechanical, electronic, chemical, industrial, energy and environmental
services, (b) information technology professionals in computer systems,
applications and products, configuration, change and data management
disciplines, (c) technical editors and writers, (d) multimedia and computer
design engineers, (e) graphic designers and technicians, (f) logisticians, and
(g) construction and environmental specialists. The expertise required by our
customers also frequently includes knowledge of government administrative
procedures. Many of our employees have had experience as government employees
or have served in the U.S. Armed Forces.

Competition

	The professional and technical services industry in which we are engaged
is very competitive. There are numerous other organizations, including large,
diversified firms with greater financial resources and larger technical staffs
that are capable of providing the same services offered by us. These companies
may be publicly owned or privately held or may be divisions of much larger
organizations, including large manufacturing corporations.

	Government agencies have emphasized awarding contracts on a competitive
basis as opposed to a sole source or other non-competitive basis. Most of the
significant contracts that we currently perform were either initially awarded
on a competitive basis or have been renewed at least once on a competitive
basis. Government agencies also order work through contracts awarded by GSA.
GSA provides a schedule of services at fixed prices which may be ordered
outside of the solicitation process. We have seven GSA schedule contracts for
different classes of services. There is no assurance regarding the level of
work we may obtain under these contracts. Government budgets, and in
particular the budgets of certain government agencies, can also affect
competition in our business. A reallocation of government spending priorities
or a general decline in government budgets can result in lower levels of
potential business, thereby intensifying competition.

	It is not possible to predict the extent and range of competition that
we will encounter as a result of changing economic or competitive conditions,
customer requirements or technological developments. We believe the principal
competitive factors for our business are technical and financial
qualifications, past performance and low price.

	Government acquisition policies and procedures often emphasize factors
that can present challenges to our efforts to win new business, and may make
it difficult for us to qualify as a potential bidder. For example, past
performance may be used to exclude entrance into new government markets, and
multiple-award schedules may result in unequal contract awards between
successful contractors.

Available Information

	Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports are filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended. They are available free of charge through our website
www.vsecorp.com as soon as reasonably practicable after the reports are
electronically filed with the Securities and Exchange Commission ("SEC").

                                       7

ITEM 1A.  Risk Factors

	Our future results may differ materially from past results and from
those projected in the forward-looking statements contained in this Form 10-K
due to various uncertainties and risks, including but not limited to those set
forth below, one-time events and other important factors disclosed previously
and from time to time in other filings with the SEC.


Our work on large program efforts presents a risk to revenue and profit growth
and sustainability.

       The eventual expiration of such programs, or the loss of or disruption
of revenues on a single contract, presents the potential for a sudden drop in
revenues and profits. The loss of these revenues could further erode profits
on our remaining programs that would have to absorb a larger portion of the
fixed corporate costs previously allocated to the expiring programs or
discontinued contract work.

       One recent contract action may present us with this risk. The U. S. Army
informed us in January 2009 that they would not consider our proposal for a
new contract to succeed our current R2 Program contract. We protested this
decision and in February 2009, we were informed that our protest was
dismissed based on the protest being premature. The notice of dismissal
states the U.S. Army was entitled to delay debriefing bidders until after the
award of the successor contract is granted. The U.S. Army was also encouraged
to provide us a comprehensive post-award debriefing in accordance with
applicable regulations. We are evaluating our options regarding this matter,
including the filing of a protest after the award of the successor contract.

Federal procurement directives could result in a loss of work on current
programs to set-asides and omnibus contracts.

       	Our business with the government is subject to the risk that one or more
of our potential contracts or contract extensions may be awarded by the
contracting agency to a small or disadvantaged or minority-owned business
pursuant to set-aside programs administered by the Small Business
Administration, or may be bundled into omnibus contracts for very large
businesses. These risks can potentially have an adverse effect on our revenue
growth and profit margins.

Funding uncertainties for federal programs could adversely affect our ability
to continue work on our government contracts.

       	Government contract business is subject to funding delays, terminations,
reductions, extensions, and moratoriums caused by political and administrative
disagreements within the government. To date, the effect of such negotiations
and disagreements has not been material, but no assurances can be given about
such risks with respect to future years.

	Global economic conditions and political factors could adversely affect
revenues on current programs.

	Revenues from our CED Army Equipment Support, CED Assured Mobility
Systems Program, BAV Ship Transfer and other programs for which work is
performed in foreign countries are subject to political risks posed by the
ongoing conflicts in the Middle East and potential terrorist activity. A
significant amount of our revenues in recent years has resulted from the U.S.
military involvement in Iraq and Afghanistan, and an end to such U.S. military
involvement in the future could cause a decrease in our revenues. Similarly, a
change in the political landscape in Egypt or other client countries could
cause a decrease in our revenues. International tensions can also affect our
work by FMD on U.S. Navy ships when they are deployed outside of U.S. Navy
facilities and are unavailable for maintenance work during those times. Adverse
results arising from these global economic and political risks could have a
material adverse impact on our results of operations.


                                       8

We are exposed to contractual and financial liabilities if our subcontractors
do not perform satisfactorily.

       	A large percentage of our contract work is performed by subcontractors,
which raises certain government compliance, performance and financial risks.
While subcontractor terms generally specify the terms and performance for
which the subcontractor is liable to us, if any unsatisfactory performance or
compliance failure occurs on the part of subcontractors, we must still bear
the cost to remedy these deficiencies on our prime contracts.

Investments in facilities could cause losses if certain work efforts are
disrupted or discontinued.

       We have made investments in facilities and lease commitments to support
specific business programs, work requirements, or service offerings. A slowing
or disruption of these business programs, work requirements, or service
offerings that results in operating at less than intended levels could cause
us to suffer financial losses.

Environmental and pollution risks could potentially impact our financial
results.

       We are exposed to certain environmental and pollution risks due to the
nature of some of the contract work we perform. Costs associated with
pollution clean up efforts could potentially have an adverse impact on
financial results.

As a Government contractor, we are subject to a number of procurement rules
and regulations that could expose us to potential liabilities or loss of work.

       	We must comply with and are affected by laws and regulations relating to
the award, administration and performance of Government contracts.
Additionally, we are responsible for subcontractor compliance with these laws
and regulations. Government contract laws and regulations affect how we do
business with our customers and, in some instances, impose added costs to us.
A violation of specific laws and regulations could result in the imposition of
fines and penalties or the termination of contracts or debarment from bidding
on contracts.

       	In some instances, these laws and regulations impose terms or rights
that are more favorable to the government than those typically available to
commercial parties in negotiated transactions. For example, the U.S.
Government may terminate any government contract or subcontract at their
convenience, as well as for default based on performance. Upon termination for
convenience of a fixed-price type contract, we would normally be entitled to
receive the purchase price for delivered items, reimbursement for allowable
costs for work-in-process and an allowance for profit on the contract or
adjustment for loss if completion of performance would have resulted in a
loss. Upon termination for convenience of a cost-type contract, we would
normally be entitled to reimbursement of allowable costs plus a portion of the
fee. Such allowable costs would include the cost to terminate agreements with
suppliers and subcontractors. The amount of the fee recovered, if any, is
related to the portion of the work accomplished prior to termination and is
determined by negotiation.

       	A termination for default could expose us to liability and have a
material adverse effect on our ability to compete for future contracts and
orders. In addition, the Government could terminate a prime contract under
which we are a subcontractor, irrespective of the quality of services provided
by us as a subcontractor.

Our business could be adversely affected by a negative audit by the
Government.

       Government agencies, including the Defense Contract Audit Agency and the
Department of Labor, routinely audit and investigate government contractors.
These agencies review a contractor's performance under its contracts, cost

                                       9

structure and compliance with applicable laws, regulations and standards. The
Government also may review the adequacy of, and a contractor's compliance
with, its internal control systems and policies, including the contractor's
purchasing, property, estimating, compensation and management information
systems. Any costs found to be improperly allocated to a specific contract
will not be reimbursed, while such costs already reimbursed must be refunded.
If an audit uncovers improper or illegal activities, we may be subject to
civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeiture of profits, suspension of payments, fines
and suspension or prohibition from doing business with the Government. In
addition, we could suffer serious harm to our reputation if allegations of
impropriety were made.

Our earnings and margins may vary based on the mix of contracts and programs.

       Our business includes both cost-type and fixed-price contracts. Cost-
type contracts generally have lower profit margins than fixed-price contracts.
Typically the use of subcontractors and large material purchases on government
contracts does not allow for profit margins that are as high as compared to
work performed by our own personnel. The use of subcontractors and large
material purchases may lower our overall profit margins in some years.

We use estimates in accounting for our programs. Changes in estimates could
affect future financial results.

       We use estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates affecting the financial statements include
contract disallowance and self insured health claims, and estimated cost to
complete on certain fixed-price contracts.

New accounting standards could result in changes to our methods of quantifying
and recording accounting transactions, and could affect financial results and
financial position.

       Changes to Generally Accepted Accounting Principles in the United States
("GAAP") arise from new and revised standards, interpretations and other
guidance issued by the Financial Accounting Standards Board, the SEC, and
others. The effects of such changes may include prescribing an accounting
method where none had been previously specified, prescribing a single
acceptable method of accounting from among several acceptable methods that
currently exist, or revoking the acceptability of a current method and
replacing it with an entirely different method, among others. These changes
could result in unanticipated effects on results of operations, financial
position and other financial measures.

The nature of our operations and significant increases in revenues in recent
years present certain challenges related to work force management.

       Our financial performance is heavily dependent on the abilities of our
administrative and operating staffs with respect to technical skills,
operating performance, pricing, cost management, and administrative and
compliance efforts.  A wider diversity of contract types, nature of work, work
locations, and increased legal and regulatory complexities means that our
staff and skill sets are spread much thinner than in years prior to our rapid
growth.  Failure to attract or retain an adequately skilled workforce, lack of
knowledge or training in critical functions, or inadequate staffing levels can
lead to lost work, reduced profit margins, and losses from cost overruns or
performance deficiencies.


                                       10

ITEM 1B.  Unresolved Staff Comments

	None


ITEM 2.    Properties

       	Our principal executive and administrative offices are located in a
five-story building in Alexandria, Virginia, leased by us through April 30,
2013. This building contains approximately 127,000 square feet of engineering,
shop, and administrative space. We also provide services and products from
approximately 36 leased facilities located near customer sites to facilitate
communications and enhance project performance. These facilities are generally
occupied under short-term leases and currently include a total of
approximately 1.5 million square feet of office and warehouse space. Our
employees often provide services at customer facilities, limiting our
requirement for additional space. We also provide services from several
locations outside of the United States, generally at foreign shipyards or U.S.
military installations.

       	We own and operate two facilities in Ladysmith, Virginia. One of these
properties consists of approximately 45 acres of land and multiple storage and
vehicle maintenance buildings totaling approximately 57,000 square feet of
space. The other property consists of 30 acres of land and buildings totaling
approximately 13,500 square feet of space. We use these properties primarily
to provide storage, maintenance and refurbishment services for military
equipment and to supplement our Alexandria, Virginia, office and shop
facilities.


ITEM 3.    Legal Proceedings

       	We have, in the normal course of business, certain claims, including
legal proceedings, against us and against other parties. In our opinion, the
resolution of these claims will not have a material adverse effect on our
results of operations or financial position. However, the results of any legal
proceedings cannot be predicted with certainty.


ITEM 4.    Submission of Matters to a Vote of Security Holders

       	No matters were submitted to a vote of our stockholders, through the
solicitation of proxies or otherwise, during the three-month period ended
December 31, 2008.


















                                       11

                    EXECUTIVE OFFICERS OF THE REGISTRANT

       The following table sets forth information concerning VSE's executive
officers as of February 20, 2009. Each person named has served as an executive
officer of VSE, or has served in a similar executive capacity in VSE, for more
than the past five years, except for Messrs. Gauthier, Hollstein, Kiernan,
Lexo, Reed, Williams, and Ms. Williams (no family relationship). The executive
officers are appointed annually to serve until the first meeting of VSE's
Board of Directors (the "Board") following the next annual meeting of
stockholders and until their successors are elected and have qualified, or
until death, resignation or removal, whichever is sooner.

Name			         Age     Position with Registrant
----                             ---     ------------------------

Thomas G. Dacus 	          63 	 Executive Vice President and President,
                                         Federal Group

Donald M. Ervine 	          72 	 Executive Chairman of the Board of
                                         Directors

Maurice A. Gauthier	          61	 Director, Chief Executive Officer,
                                         President and Chief Operating Officer

Michael E. Hamerly 	          63 	 Executive Vice President and President,
                                         International Group

Randy W. Hollstein	          52	 Vice President - Marketing

Thomas M. Kiernan	          41	 Vice President, General Counsel and
                                         Assistant Secretary

James M. Knowlton 	          66 	 Executive Vice President, International
                                         Group

James W. Lexo, Jr. 	          60	 Executive Vice President, Strategic
                                         Planning and Business Initiatives and
                                         Chief Executive Officer and Vice
                                         Chairman of the Board of Directors,
                                         ICRC

Thomas R. Loftus 	          53 	 Executive Vice President and Chief
                                         Financial Officer

James E. Reed 	                  60 	 President, IT, Energy and Management
                                         Consulting Group

Craig S. Weber 	                  64 	 Executive Vice President and Secretary

Carl E. Williams 	          56 	 President, Infrastructure Group

Crystal R. Williams               45 	 Vice President - Contracts


       Mr. Gauthier joined VSE in April 2008 as Chief Executive Officer,
President and Chief Operating Officer. He was elected as a VSE director by the
Board on February 23, 2009. Mr. Gauthier completed a distinguished military
career of over 28 years of service, retiring in 1997 as a Navy Captain and
board certified Department of Defense Major Program Manager.  Mr. Gauthier
worked for VSE from October 1997 through February 1999 as Vice President and
Chief Technology Officer, and as Director of Strategic Planning and Business
Development, before joining the Nichols Research Corporation Navy Group as its
President. With the acquisition of Nichols Research Corporation by Computer
Sciences Corporation ("CSC") in 1999, Mr. Gauthier served as Vice President of
CSC's Advanced Marine Center. His most recent assignment with CSC was as Vice
President and General Manager of CSC's Navy and Marine Corps Business Unit
where he was responsible for the overall leadership and financial performance
of a 2,500-person organization providing systems engineering, technical,
information technology and telecommunications support to U.S. Navy and Marine
Corps customers. Mr. Gauthier earned a Bachelor of Science degree at the U.S.

                                       12

Naval Academy in 1969. He received a Master of Science degree in Systems
Engineering in 1976 from the U.S. Naval Postgraduate School, Monterey, CA. He
is a graduate of the Defense Acquisition University's Defense Systems
Management College (1988) and of the Advanced Executive Program (1993) and the
International Marketing Program (1994) offered by the Kellogg Graduate School
of Management at Northwestern University.

       Mr. Hollstein joined VSE in August 2008 as Corporate Vice President of
Marketing. Mr. Hollstein has over 30 years of experience as a naval officer
and defense industry professional. Mr. Hollstein served in the U.S. Navy as a
surface warfare officer before leaving to join industry. He has worked in
several leading companies at increasing levels of responsibility in program
management, government relations and business development. Before joining VSE,
Mr. Hollstein was Senior Director of Business Development for Maersk Line,
Limited where he was responsible for all business development activities
related to maritime and maritime security opportunities. In prior assignments
at other companies, he has been responsible for business development with
Navy, Marine Corps, Coast Guard and Army clients and for developing new
business with other government agencies including DHS, MDA, NOAA and DFAS. His
marketing experience encompasses both products and services. Mr. Hollstein is
a 1978 graduate of Babson College in Wellesley, Massachusetts, where he earned
a Bachelor of Science degree in Business Management.

       Mr. Kiernan joined VSE in November 2008 as Vice President, General
Counsel, and Assistant Secretary. Prior to joining VSE, Mr. Kiernan served as
Vice President, General Counsel and Secretary for Intelsat General Corporation
(2003-2008), a subsidiary of Intelsat, Ltd. serving Government and commercial
customers. At Intelsat General Corporation, Mr. Kiernan was responsible for
managing legal and regulatory compliance and directing the administration
support group, including human resources, security and contracts. Prior to
joining Intelsat General Corporation, Mr. Kiernan served as a member of the
Intelsat, Ltd., Office of General Counsel (2000-2003) where he was responsible
for legal support for satellite and launch programs, as well as for real
estate, procurement and intellectual property issues. Prior to joining
Intelsat, Mr. Kiernan served as corporate counsel for SRA Life Sciences (1994-
2000), a technology consulting services company supporting the U.S.
Departments of Defense and Energy, the EPA, and Federal health agencies. Mr.
Kiernan is a graduate of Virginia Tech University (B.A., Political Science,
1990) and George Mason University School of Law (J.D., 1994). He is a member
of the Virginia State Bar.

       Mr. Lexo joined VSE in 2007 as Executive Vice President of Strategic
Planning and Business Initiatives, as well as Chief Executive Officer and Vice
Chairman of the Board of Directors of VSE's wholly owned subsidiary ICRC. Mr.
Lexo has served as Chief Executive Officer of ICRC since 1996.

       Mr. Reed joined VSE in 2005 as Chief Operating Officer of VSE's wholly
owned subsidiary Energetics, and since April, 2005, he has served as
Energetics' President. Mr. Reed was a founder of Energetics in 1979 and served
as an officer of Energetics from 1979 to 2001. He provided senior-level
consulting services to government and private clients as a sole proprietor
during the period 2001 through 2004. Mr. Reed is a Registered Professional
Engineer in Maryland. He was appointed President of VSE's IT, Energy and
Management Consulting Group in 2008.

       Mr. Carl Williams joined VSE in 2007 as President and Chief Operating
Officer of ICRC. Mr. Williams completed 23 years of service in the U.S. Navy,
retiring as Commander. He joined ICRC as its Executive Vice President of
Operations in 2000 and has served as Chief Operating Officer of ICRC since
2003. Mr. Williams was appointed President of VSE's Infrastructure Group in
2008.

       Ms. Crystal Williams joined VSE in December 2008 as Corporate Vice
President - Contracts. Prior to joining VSE, Ms. Williams was Contracts
Director for the North American Public Sector at CSC. She began her CSC career
in 1994.  Prior to joining CSC, Ms. Williams provided contract administration
services at ICF Kaiser International and at Dynamic Concepts Inc. Ms. Williams

                                       13

is a graduate of George Mason University (B.S., Public Administration, 1986)
and has earned continuing education credits in contracts and marketing at the
American Graduate University and at George Mason University, Continuing
Education.

	Mr. Knowlton resigned as President, International Group, effective
January 5, 2009.  He continues to support VSE business development efforts and
is planning to retire in mid-2009, completing more than 25 years of service to
the Company.






































                                       14

                                   PART II


ITEM 5.   Market for Registrant's Common Equity, Related Stockholder
           Matters	and Issuer Purchases of Equity Securities

(a)	Market Information

       VSE common stock, par value $.05 per share, is traded on the Nasdaq
Global Select Market, trading symbol, "VSEC," Newspaper listing, "VSE."

       The following table sets forth the range of high and low sales price
(based on information reported by the Nasdaq Global Select Market) and cash
dividend per share information for our common stock for each quarter and
annually during the last two years.


	Quarter Ended		 High		 Low		Dividends

	2007:
	March 31 . . . . . . .  $46.81          $33.31	          $.035
        June 30  . . . . . . .   68.00  	 33.67	           .040
        September 30 . . . . .   56.77  	 33.48	           .040
        December 31  . . . . .   63.00 	         45.54	           .040
              For the Year	$68.00          $33.31  	  $.155

	2008:
	March 31 . . . . . . .  $49.69          $22.72	          $.040
        June 30  . . . . . . .   35.46  	 27.50	           .045
        September 30 . . . . .   43.00   	 24.86	           .045
        December 31  . . . . .   40.32 	         23.00	           .045
              For the Year      $49.69          $22.72  	  $.175


(b)	Holders

       As of February 6, 2009, VSE common stock, par value $.05 per share, was
held by approximately 322 stockholders of record.  The number of stockholders
of record is not representative of the number of beneficial holders because
many of the shares are held by depositories, brokers or nominees.

(c)	Dividends

       	In 2007 cash dividends were declared quarterly at the annual rate of
$.14 per share through March 31, 2007, and at the annual rate of $.16 per
share commencing June 11, 2007.

       	In 2008 cash dividends were declared quarterly at the annual rate of
$.16 per share through March 31, 2008, and at the annual rate of $.18 per
share commencing June 3, 2008.

       	Pursuant to our bank loan agreement (see Note 7 of "Notes to
Consolidated Financial Statements"), the payment of cash dividends is subject
to annual rate restrictions. We have paid cash dividends each year since 1973.












                                       15

(d)	Equity Compensation Plan Information


Compensation Plans

       We have three compensation plans approved by our stockholders under
which our equity securities are authorized for issuance to employees and
directors:  (i) The VSE Corporation 2004 Stock Option Plan, (ii) the VSE
Corporation 2004 Non-employee Directors Stock Plan and (iii) the VSE
Corporation 2006 Restricted Stock Plan.

       In December 2005, the Board directed VSE to discontinue, until and
unless the Board determined otherwise, awarding options, both discretionary
and nondiscretionary, to purchase VSE's common stock, under VSE's 2004 Stock
Option Plan (the "2004 Plan").  The options outstanding under the 2004 Plan
and predecessor 1998 Stock Option Plan were not affected by this Board action.

       The following table provides information about our equity compensation
plans as of December 31, 2008:


                                                          Number of Shares
                                                             Remaining
                                                           Available for
                         Number of         Weighted       Future Issuance
                        Shares to be       Average         Under Equity
                        Issued upon        Exercise      Compensation Plans
                        Exercise of        Price of      (excluding shares
                        Outstanding       Outstanding      reflected in
                          Options           Options      column (a))(1)(2)
Plan Category               (a)               (b)               (c)
-------------           ------------      -----------    -------------------
Equity compensation
plans approved by
stockholders  . . . . .    41,500           $12.59            803,314

Equity compensation
plan not approved
by stockholders . . . .         -                -              5,831

Total                      41,500           $12.59            809,145

(1)  At December 31, 2008, 575,000, and 228,314 shares of VSE common stock
were available under the 2004 Stock Option Plan, the 2004 Non-employee
Directors Stock Plan and the 2006 Restricted Stock Plan, respectively.

(2)  Includes 5,831 shares of VSE common stock, with subsequent vesting and
issuance dates, awarded to Maurice A. Gauthier on April 28, 2008, as an
inducement material to Mr. Gauthier entering into an employment agreement with
VSE to become VSE's Chief Executive Officer and President. Such issuance of
common stock was approved by a majority of VSE's independent directors.
Subject to the term of Mr. Gauthier's Employment Agreement not having
terminated, the Employment Agreement provides for vesting and issuance dates
for the 5,831 shares as follows: 25% of the shares will be vested and issued
to Mr. Gauthier on April 28 of 2009 and 2010, and 50% of the shares will be
vested and issued to Mr. Gauthier on April 28, 2011.



                                       16

Performance Graph
       Set forth below is a line graph comparing the cumulative total return of
VSE common stock with (a) a performance index for the broad market (NASDAQ
Global Select Market) in which VSE common stock is traded and (b) a published
industry index. VSE common stock is traded on the NASDAQ Global Select Market,
and our industry group is engineering and technical services (formerly SIC
Code 8711). Accordingly, the performance graph compares the cumulative total
return for VSE common stock with (a) an index for the NASDAQ Global Select
Market (U.S. companies) ("NASDAQ Index") and (b) a published industry index
for SIC Code 8711 ("Industry Index").

                                [insert graph]


*	Total return assumes reinvestment of dividends and assumes $100 invested
on December 31, 2003, in VSE common stock, the NASDAQ Composite, and the
Peer Group.
                               Performance Graph Table

	             2003    2004    2005    2006    2007    2008
                     ----    ----    ----    ----    ----    ----

VSE 	              100     192     323     262     759     613
NASDAQ Composite      100     110     113     127     138      80
Peer Group	      100     114     167     208     429     207
































                                       17


ITEM 6.    Selected Financial Data
------------------------------------------------------------------------------------------------
(In thousands, except per share data)

                                                            Years ended December 31,
                                                 2008       2007       2006      2005      2004
                                                 ----       ----       ----      ----      ----
                                                                         
Revenues . . . . . . . . . . . . . . . . .  $1,043,735   $653,164   $363,734  $280,139  $216,011
                                            ==========   ========   ========  ========  ========

Net income . . . . . . . . . . . . . . . .  $   19,040   $ 14,102   $  7,789  $  6,169  $  3,444
                                            ==========   ========   ========  ========  ========

Basic earnings per share . . . . . . . . .  $     3.75   $   2.85   $   1.64  $   1.33  $    .77
                                            ==========   ========   ========  ========  ========

Diluted earnings per share . . . . . . . .  $     3.74   $   2.82   $   1.61  $   1.29  $    .75
                                            ==========   ========   ========  ========  ========

Working capital  . . . . . . . . . . . . .  $   24,179   $ 24,756   $ 25,646  $ 22,028  $ 15,748
                                            ==========   ========   ========  ========  ========

Total assets . . . . . . . . . . . . . . .  $  275,966   $171,771   $ 98,535  $ 73,833  $ 60,352
                                            ==========   ========   ========  ========  ========

Stockholders' equity . . . . . . . . . . .  $   76,123   $ 56,376   $ 38,236  $ 30,151  $ 23,043
                                            ==========   ========   ========  ========  ========

Cash dividends per common share  . . . . .  $    0.175   $  0.155   $   0.14  $   0.12  $   0.10
                                            ==========   ========   ========  ========  ========


       This consolidated summary of selected financial data should be read in
conjunction with Management's Discussion and Analysis of the Financial
Condition and Results of Operations included in Item 7 of this Form 10-K and
with the Consolidated Financial Statements and related Notes included in Item
8 in this Form 10-K. The historical results set forth in this Item 6 are not
necessarily indicative of the results of operations to be expected in the
future.
















                                       18

ITEM 7.    Management's Discussion and Analysis of Financial Condition
      	   and Results of Operations

Executive Overview

Organization

       	Our business operations consist primarily of diversified program
management, logistics, engineering, IT, construction program and consulting
services performed on a contract basis.  Substantially all of our contracts
are with government agencies and other government prime contractors.

       	Our business operations are managed under groups that consist of one or
more divisions or wholly owned VSE subsidiaries that perform our work. Our
Federal Group consists of our Communications and Engineering Division ("CED"),
Engineering and Logistics Division ("ELD"), Field Support Services Division
("FSS"), Management Sciences Division ("MSD"), and Systems Engineering
Division ("SED"). Our International Group consists of our BAV Division
("BAV"), Coast Guard Division ("VCG"), and Fleet Maintenance Division ("FMD").
Our IT, Energy and Management Consulting Group consists of our wholly owned
subsidiaries Energetics Incorporated ("Energetics") and G&B Solutions, Inc.
("G&B"). Our Infrastructure Group consists of our wholly owned subsidiary
Integrated Concepts and Research Corporation ("ICRC").

Customers and Services

	We provide program management, logistics, engineering, IT, construction
program, and consulting services to the government, other government prime
contractors, and commercial entities. Our largest customer is the U.S.
Department of Defense ("DoD"), including agencies of the U.S. Navy, Army and
Air Force. We also provide services to various Federal Civil customers.

                            Revenues by Customer
                           (dollars in thousands)


                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
--------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====

                                       19

Segments

       	Our operations are conducted within four reportable segments aligned
with our management groups: 1) Federal; 2) International; 3) IT, Energy and
Management Consulting; and 4) Infrastructure.

       	Federal Group - Our Federal Group provides engineering, technical,
management and integrated logistics support services to U.S. military branches
and other government agencies. The divisions in this group include CED, ELD,
FSS, MSD and SED.

       	CED - CED is dedicated to supporting the Army's Communications and
Electronics Command ("CECOM") in the management and execution of the Rapid
Response ("R2") Program, which supports clients across DoD and the government.
CED manages execution of tasks involving research and development, technology
insertion, systems integration and engineering, hardware/software fabrication
and installation, testing and evaluation, studies and analysis, technical data
management, logistics support, training and acquisition support. A large
portion of our current work on this program is related to the U.S. military
involvement in Iraq and Afghanistan. The contract supporting the R2 Program is
scheduled to expire in January 2011.

       CED Army Equipment Support Program - Our CED division has a program on
its Rapid Response support contract to provide maintenance and logistics
services in support of U.S. Army equipment in Iraq and Afghanistan. Our
revenues on this program were approximately $320 million for the year ended
December 31, 2008 and approximately $219 million for the year ended December
31, 2007. Most of the services on this program are provided by our
subcontractor. Profit margins on subcontract work such as this are lower as
compared to other programs where work is performed by our own personnel. We
provide certain program management services and we are accountable for
contract performance and compliance as the prime contractor. Program work on
current task orders is scheduled to expire in February 2009.

       CED Assured Mobility Systems Program - Our CED division has a program on
its Rapid Response support contract to provide technical support services in
support of U.S. Army PM Assured Mobility Systems and U.S. Army Tank-automotive
and Armaments Command ("TACOM"). Our revenues on this program were
approximately $93 million for the year ended December 31, 2008 and
approximately $28 million for the year ended December 31, 2007. In January
2009, we were awarded a $389 million follow-on task order on this program for
work that will run through January 2011.

       RCV Modernization Program - We were awarded a task order on our Rapid
Response support contract for a program to provide maintenance work on U.S.
Army Route Clearance Vehicles in Kuwait (the "RCV Modernization Program") in
September 2008. We expect the initial phase of this program to run for two
years under contractual coverage of approximately $194 million.

       	ELD - ELD provides full life cycle engineering, logistics, maintenance
and refurbishment services to extend and enhance the life of existing
equipment. ELD principally supports the U.S. Army, Army Reserve and Army
National Guard with core competencies in combat and combat service support
system conversions, technical research, sustainment and re-engineering, system
integration and configuration management.

       	FSS - We formed FSS in June 2007 to provide worldwide field maintenance
and logistics support services for a wide variety of military vehicles and
equipment, including performance of organizational, intermediate and
specialized depot-level maintenance. FSS principally supports the U.S. Army
and Marine Corps by providing specialized Field Service Representatives and
Field Support Teams in areas of combat operations and austere environments.

       	MSD - MSD provides services for product and process improvement,
supporting a variety of Government and commercial clients. MSD provides
training, consulting, and implementation support in the areas of: Enterprise
Excellence, Lean Six Sigma, process and product optimization, project

                                       20

management, leadership quality engineering, Integrated Product and Process
Development, and reliability engineering. MSD's services range from individual
improvement projects to global organizational change programs.

       	SED - SED provides comprehensive systems and software engineering,
logistics, and prototyping services to DoD. Our services offered through SED
principally support U.S. Army, Air Force, and Marine Corps combat and combat
support systems. SED's core competencies include: systems technical support,
configuration management and life cycle support for wheeled and tracked
vehicles and ground support equipment; obsolescence management, service life
extension, and technology insertion programs; and technical documentation and
data packages.

       	International Group - Our International Group provides engineering,
industrial, logistics and foreign military sales services to the U.S. military
and other government agencies. The divisions in this Group include BAV, FMD
and VCG.

       	BAV - Through BAV, we provide assistance to the U.S. Navy in executing
its Foreign Military Sales ("FMS") Program for surface ships sold, leased or
granted to foreign countries by providing program management, engineering,
technical support, logistics services for ship reactivations and transfers and
follow-on support. Our expertise includes: ship reactivation/transfer,
overhaul and maintenance, follow-on technical support, FMS integrated
logistics support, engineering and industrial services, training and spare and
repair parts support. The level of revenues and associated profits resulting
from fee income generated by this program varies depending on a number of
factors, including the timing of ship transfers and associated support
services ordered by foreign governments and economic conditions of potential
customers worldwide. Changes in the level of activity associated with the
Navy's ship transfer program have caused quarterly and annual revenue
fluctuations.

       	FMD - FMD provides global field engineering, logistics, maintenance and
information technology services to the U.S. Navy and Air Force, including
fleet-wide ship and aircraft support programs. FMD's expertise includes ship
repair and modernization, ship systems installations, ordnance engineering and
logistics, facility operations, war reserve materials management, aircraft
sustainment and maintenance automation and IT systems integration. FMD also
provides management, maintenance, storage and disposal support for the U.S.
Department of Treasury's seized and forfeited general property program.

       	Contract Field Teams Program - In July 2008, our FMD division was
awarded one of several prime contracts to support the United States Air Force
Contract Field Teams ("CFT") Program. The CFT Program awards have a maximum
ceiling of approximately $10.12 billion. Under the program, we are providing
rapid deployment and long-term support services for a variety of Air Force
requirements to maintain, repair and modernize equipment and systems. While
our revenues under the contract cannot be predicted; however, the award
provides us with the opportunity to compete for and expand our work performed
for the Air Force.

       	VCG - VCG provides the U.S. Coast Guard with FMS support and life cycle
support for vessels transferred to foreign governments. VCG's core
competencies include pre-transfer joint vessel inspections, reactivations,
crew training, transit assistance, heavy-lift contracting, logistics support,
technical support and overseas husbandry.

       IT, Energy and Management Consulting Group - Our IT, Energy and
Management Consulting Group provides technical and consulting services
primarily to various civilian government agencies. This group includes
Energetics and, as of April 2008, G&B.

	Energetics - Energetics provides technical and management support in
areas of nuclear energy, technology research, development, demonstration, and
consulting services in the field of energy and environmental management.
Energetics' expertise lies in state-of-the-art and advanced technology

                                       21

assessment, technical and economic feasibility analysis, technology transfer,
R&D program planning, engineering studies, market assessment, strategic
resource management, regulatory analysis, environmental compliance and risk
management. Customers include the U.S. Department of Energy, including the
Office of Nuclear Energy, Science and Technology; the U.S. Department of
Homeland Security; and other government agencies and commercial clients.

	G&B - G&B is an established information technology provider to many
government agencies, including the Departments of Homeland Security, Interior,
Labor, Agriculture, Housing and Urban Development, the Social Security
Administration, the Pension Benefit Guaranty Corporation, and the National
Institutes of Health. G&B's core expertise lies in enterprise architecture
development, information assurance/business continuity, program and portfolio
management, network IT services and systems design and integration. We acquired
G&B in April 2008 for an initial cash purchase price of approximately $19.5
million plus potential additional payments in future years if specified
financial targets are achieved. See Note 5 of "Notes to Consolidated Financial
Statements" for further discussion of this acquisition.

	Infrastructure Group - We formed our Infrastructure Group in the second
quarter of 2007, upon acquiring ICRC. We acquired ICRC in June 2007 for an
initial cash purchase price of approximately $11.8 million plus potential
additional payments in future years if specified financial targets are
achieved. See Note 5 of "Notes to Consolidated Financial Statements" for
further discussion of this acquisition. ICRC is engaged principally in
providing engineering and transportation infrastructure services.

       Port of Anchorage Contract - A significant amount of ICRC's revenues and
income comes from services performed for the Port of Anchorage in Alaska (the
"POA Project"). This intermodal expansion program to provide infrastructure
services to the port will significantly expand the size of the port's
facilities and allow for larger ships, more dock space, improved cargo flow,
improved traffic flow next to the port, more environmentally friendly port
operations and other modernization enhancements. Some of the infrastructure
services on this project typically cannot be performed during the winter
months. The seasonal nature of this work will cause fluctuations in our
revenues on this project, with higher revenue levels in summer months and
lower revenue levels in winter months. In July 2008, ICRC was awarded a new
unrestricted contract to continue work on this program. The contract has an
estimated ceiling amount of $704 million, a three-year base period of
performance, and four one-year option periods.
























                                        22


                          Concentration of Revenues
                               (in thousands)


                                 2008               2007               2006
Source of Revenue              Revenues     %     Revenues     %     Revenues     %
-----------------              --------     -     --------     -     --------     -
                                                              
CED Army Equipment Support   $  319,933   30.7    $218,615   33.5    $106,209   29.2
CED Assured Mobility
  Systems                        92,669    8.9      27,547    4.2           -     -
CED Other                       174,442   16.7      47,482    7.3      22,449    6.2
                             ----------  -----    --------  -----    --------  -----
  Total CED                     587,044   56.3     293,644   45.0     128,658   35.4

POA Project                      89,720    8.6      30,674    4.7           -     -

BAV Egypt                        49,926    4.8      51,295    7.9      51,446   14.1
BAV Taiwan                       12,842    1.2       6,348    1.0      45,729   12.6
BAV Greece                          999    0.1      11,312    1.7           5     -
BAV India                            55    0.0      38,337    5.9         971    0.3
BAV Other                        17,909    1.7       6,432    1.0       8,673    2.4
                             ----------  -----    --------  -----    --------  -----
  Total BAV                      81,731    7.8     113,724   17.5     106,824   29.4

Treasury Seized Asset
  Program                        55,580    5.3      53,690    8.2       1,345    0.4

Other                           229,660   22.0     161,432   24.6     126,907   34.8
                             ----------  -----    --------  -----    --------  -----
  Total Revenues             $1,043,735  100.0    $653,164  100.0    $363,734  100.0
                             ==========  =====    ========  =====    ========  =====


Management Outlook

       	The growth in our revenues and profits during 2008 and 2007 presents us
with both challenges and opportunities. Our work in the DoD market increased
significantly in 2008 and several efforts within that market remain strong.
Our ELD division has expanded its workforce, facilities, capacity to provide
services, contractual coverage and funding since its inception, resulting in
increases in revenues from these services in 2008 and 2007. Our investment in
facilities and personnel to support this work leaves us well positioned to
serve DoD's growing need for our equipment refurbishment and sustainment
services. We expect further increases in this division's work going forward.
Based on congressional approval of certain ship transfers, we expect our BAV
division to show increases in ship transfer revenues in 2009 and potentially
future years. Our CED Assured Mobility Systems Program is expected to continue
to contribute significant revenues through its scheduled expiration in January
2011.

       	In addition to the growth in some of our current DoD programs, we expect
recent new awards to contribute to our revenues and profits going forward. The
award of the RCV Maintenance Program gives us a major new source of work over
the next two years and a key presence in Kuwait that presents us with the
potential for additional work there after. The award of the CFT Program
contract gives us the opportunity to increase our services performed for the
Air Force.

       	We also have three other multiyear, multiple award, indefinite delivery,
indefinite quantity ("omnibus") contracts that have large nominal ceiling
amounts with no funding committed at the time of award. These are the SeaPort
Enhanced contract with the U.S. Navy, the Field and Installation Readiness
Support Team ("FIRST") Contract with the U.S. Army, and the U.S. Army PEO CS &
CSS Omnibus III contract. We are one of several awardees on each contract.
While our future revenues from these contracts cannot be predicted with
certainty, these contracts provide us with the opportunity to compete for work
that could contribute to revenues.

                                        23

       	The expansion of current work in our ELD and BAV divisions and the new
work arising from the RCV Maintenance and CFT Programs help us to replace
certain work efforts that have supported our growth in recent years and have
expired or are due to expire. In November 2008, we successfully completed a
four-year, $96 million program to provide a protection system, the Tanker
Ballistic Protection System ("TBPS"), for vehicles deployed by the U.S. Army
in Iraq. The CED Army Equipment Support Program will expire in February 2009,
as scheduled.

       	Additionally, the U.S. Army informed us in January 2009 that they would
not consider our proposal for a new contract to succeed our current R2 Program
contract. We protested this decision. In February 2009, we were informed that
our protest was dismissed by the Department of the Army, Office of Command
Counsel, based on the protest being premature. The notice of dismissal states
the U.S. Army was entitled to delay debriefing us and the other excluded
bidders until after the award of the successor contract is granted. The
Command Counsel decision also encouraged the U.S. Army to provide us a
comprehensive post-award debriefing in accordance with applicable regulations.
We are evaluating our options regarding this matter, including the filing of a
protest after the award of the successor contract.

       	Our challenge over the next two years, should we be unsuccessful in our
efforts in challenging our exclusion from this award, will be to replace the
R2 Program revenues with other new revenues or to move the work performed
through the R2 contract to one of our other contracts. Our other omnibus
contracts can be used to accommodate work performed by our employees and
subcontractors. A large majority of our revenues on our R2 contract is "pass-
through" work performed by subcontractors. Pass-through work included the work
on the CED Army Equipment Support Program and the CED Assured Mobility Systems
Program. Pass-through revenues generally have lower profit margins than work
performed by our own personnel. We expect to continue our work on existing
task orders on our current R2 contract through the scheduled contract
expiration in January 2011.

       	We are augmenting our core base of DoD work by emphasizing growth in our
non-DoD services. These efforts have included: 1) a renewed emphasis on
marketing our Energetics services that has shown favorable results in 2008, 2)
work on the Treasury Seized Property Management program, and 3) the
acquisitions of ICRC in 2007 and G&B in 2008. We expect these efforts that are
directed toward the growth of our work in the Federal Civil marketplace to
contribute to overall future revenues growth and financial performance.

       	We also know there are other risks and uncertainties related to our
business. We recognize that 2009 is a government transition year and
government spending priorities may change in ways that we cannot predict at
this time.

       	To summarize our outlook, we believe our business prospects are both
bright and challenging. The momentum in revenues growth over the last two
years and our current backlog is expected to sustain us in 2009. We are
confident that the above-mentioned expansion of work in certain service
offerings and the newly awarded work in the DoD market; our growing level of
work in the Federal Civil marketplace; our increased emphasis on bolstering
our marketing efforts in both our DoD and Federal Civil markets; and our
continued commitment to grow through acquisitions positions us well to meet
the challenge of replacing expiring work beyond 2009 and other risks and
uncertainties related to our business.









                                        24

Bookings and Funded Backlog

       	Revenues in government contracting businesses are dependent upon
contract funding ("Bookings") and funded contract backlog is an indicator of
potential future revenues. A summary of our bookings and revenues for the
years ended December 31, 2008, 2007 and 2006, and funded contract backlog as
of December 31, 2008, 2007 and 2006 is as follows.

       	                                                (in  millions)
                                              2008           2007        2006
	                                      ----           ----        ----
Bookings . . . . . . . . . . . . . . . .    $1,189           $736        $388
Revenues . . . . . . . . . . . . . . . .    $1,044           $653        $364
Funded Backlog . . . . . . . . . . . . .      $567           $408        $299


VSE Stock in Employee 401(k) Plan and ESOP Accounts

       	We have decided that employees should have an opportunity to diversify
their 401(k) accounts in the VSE Employee ESOP/401(k) Plan (the "Plan")
beginning with our 2008 Plan year. In January 2008, employees were notified
that they may elect to transfer any portion of their 401(k) accounts that is
invested in VSE common stock into another investment alternative under the
Plan. This right extends to all of VSE common stock held under the 401(k)
portion of the Plan. In addition, we have decided to terminate and liquidate
the ESOP portion of the VSE Corporation Employee ESOP/401(k) Plan,  and as
elected by the employees, either distribute  VSE common stock held in the ESOP
accounts to the employees or rollover such VSE common stock into an Individual
Retirement Account or employee plan selected by the employee. ESOP VSE common
stock was distributed to employees in the third quarter of 2008.


Recent Accounting Pronouncements

       	In December 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141(R), "Business Combinations; a replacement of FASB
Statement No. 141," which became effective January 1, 2009. The new standard
will replace existing guidance and significantly change accounting and
reporting relative to business combinations in consolidated financial
statements, including requirements to recognize acquisition-related
transaction and post acquisition restructuring costs in results of operations
as incurred. SFAS No. 141(R) will be effective for businesses acquired after
the effective date.

       	In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," which became effective January 1, 2008 for all financial assets
and liabilities. SFAS No. 157 defines fair value, establishes a market-based
framework or hierarchy for measuring fair value and expands disclosures about
fair value measurements. The new standard generally is applicable whenever
another accounting pronouncement requires or permits assets and liabilities to
be measured at fair value. On February 12, 2008, the FASB issued FASB Staff
Position No. 157-2, "Effective Date of FASB Statement No. 157," to delay the
effective date of SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (that is, at least annually).
For items within its scope, the FSP defers the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The adoption of SFAS No. 157 did not have a material
impact on our results of operations, financial position or cash flows.


Critical Accounting Policies

       	Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require us
to make estimates and assumptions. We believe the following critical accounting
polices affect the more significant accounts, particularly those that involve

                                        25

judgments, estimates and assumptions used in the preparation of our
consolidated financial statements.

Revenue Recognition

       Substantially all of our services are performed for our customers on a
contract basis. The three primary types of contracts used are time and
materials, cost-type, and fixed-price. Revenues result from work performed on
these contracts by our employees and our subcontractors and from costs for
materials and other work related costs allowed under our contracts.

       Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the direct costs and indirect cost burdens associated with
materials and subcontract work used in performance on the contract. Generally,
profits on time and material contracts result from the difference between the
cost of services performed and the contract defined billing rates for these
services.

       Revenues on cost-type contracts are recorded as contract allowable costs
are incurred and fees earned. Our BAV contract and our POA Project contract
are cost plus award fee contracts. Both of these contracts have terms that
specify award fee payments that are determined by performance and level of
contract activity. Award fees are made during the year a contract modification
authorizing the award fee payment is issued subsequent to the period in which
the work is performed. We do not recognize award fee income until the fees are
certain, generally upon contract notification confirming the award fee. Due to
such timing, and to fluctuations in the level of revenues, profits as a
percentage of revenues on these contracts will fluctuate from period to
period.

       Our contract with the Department of Treasury to support the Treasury
Seized Property Management Program, is a cost plus incentive fee contract that
contains certain conditions under which the incentive fee is earned. The
amount of incentive fee earned depends on our costs incurred on the contract
compared to certain target cost levels specified in the contract. Per the
contract, an assessment of actual costs compared to target costs is made once
annually. The target cost levels in this contract may be subject to
negotiation and change if the customer's scope of work required varies from
the scope of work originally contained in the contract. We recognize incentive
fee when the amount is fixed or determinable and the collectability is
reasonably assured. Due to the conditions under which the incentive fee for
this contract is awarded, and to the potential for changes in the cost targets
as work requirements vary, the full amount of incentive fee for the work we
perform in any one period may not be fixed or determinable and the
collectability may not be reasonably assured until a subsequent period. We are
currently in discussions with our customer regarding potential target cost
adjustments for the years 2007 and 2008. A favorable resolution from these
discussions could potentially result in additional incentive fee income for us
in a future period for work performed in 2007 and 2008.

       Revenue recognition methods on fixed-price contracts will vary depending
on the nature of the work and the contract terms. On certain fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, typically ratably over the service period,
since these contracts require design, engineering, and development performed
to the customer's specifications. Revenues on fixed-price service contracts
are recorded as work is performed, typically ratably over the service period.
Revenues on fixed-price contracts that require delivery of specific items may
be recorded based on a price per unit as units are delivered. Profits on
fixed-price contracts result from the difference between the incurred costs
and the revenues earned.



                                        26

       Revenues by contract type for the three years ended December 31, 2008
were as follows (in thousands):

                         2008               2007               2006
Contract Type          Revenues     %     Revenues     %     Revenues     %
-------------          --------     -     --------     -     --------     -

Time and materials. $   759,693   72.8   $ 388,564   59.5   $ 172,766   47.5
Cost-type . . . . .     247,857   23.7     220,782   33.8     147,733   40.6
Fixed-price . . . .      36,185    3.5      43,818    6.7      43,235   11.9
                    -----------  -----   ---------  -----   ---------  -----
                    $ 1,043,735  100.0   $ 653,164  100.0   $ 363,734  100.0
                    ===========  =====   =========  =====   =========  =====


       The increases in time and materials revenues in 2008 and 2007 shown in
the table above is primarily attributable to revenues from the CED Army
Equipment Support Program and the CED Assured Mobility Systems Program as well
as other CED task orders. Substantially all of the revenues on these programs
result from the pass through of subcontractor support services that have a low
profit margin for us.

       We will occasionally perform work at risk, which is work performed prior
to the government formalizing funding for such work. Revenues related to work
performed at risk is not recognized until it can be reliably estimated and its
realization is probable. We recognize this "risk funding" as revenues when the
associated costs are incurred or the work is performed. We are at risk of loss
for any risk funding not received. We provide for anticipated losses on
contracts by a charge to income during the period in which losses are first
identified. Revenues recognized in 2008 include approximately $1.03 million
for which we had not received formalized funding as of December 31, 2008. We
received funding modifications for approximately $380 thousand of this amount
as of March 2009, leaving approximately $650 thousand of 2008 revenues
classified as risk funding. We believe that we are entitled to reimbursement
and will receive funding for the remaining risk funding revenue.

Long-Lived Assets

       	In assessing the recoverability of long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.

Goodwill and Intangible Assets

       	Goodwill and intangible assets with indefinite lives are subject to a
review for impairment at least annually. We perform our annual impairment test
as of September 30. The annual impairment assessment requires us to estimate
the fair value of our reporting units.  This estimation process involves the
use of subjective assumptions.  As of December 31, 2008, we had approximately
$1.1 million of goodwill associated with our acquisition of Energetics in 1995,
approximately $5.7 million of goodwill and intangible assets with indefinite
lives associated with our acquisition of ICRC in 2007, and approximately $11.5
million of goodwill and intangible assets with indefinite lives associated with
our acquisition of G&B in 2008. We have not recognized any reduction to the
goodwill or intangibles in accordance with generally accepted accounting
principles.

Recoverability of Deferred Tax Assets

       	The carrying value of our net deferred tax assets is based on
assumptions regarding our ability to generate sufficient future taxable income
to utilize these deferred tax assets. If the estimates and related assumptions
regarding our future taxable income change in the future, we may be required
to record valuation allowances against our deferred tax assets, resulting in
additional income tax expense.



                                        27

Results of Operations

                              Revenues from Operations
                               (dollars in thousands)
                              Years ended December 31,
                               2008              2007              2006
Company or Business Unit     Revenues     %    Revenues     %    Revenues    %
------------------------     --------     -    --------     -    --------    -

Federal Group
  CED                      $  587,044   56.2   $293,644   45.0   $128,658   35.4
  SED                          26,520    2.5     36,854    5.6     42,016   11.5
  ELD                          43,954    4.2     26,158    4.0     16,771    4.6
  FSS                           7,999    0.8      1,335    0.2          -     -
  MSD                           1,890    0.2      2,700    0.4      3,511    1.0
                           ----------  -----   --------  -----   --------  -----
    Group Total               667,407   63.9    360,691   55.2    190,956   52.5

International Group
  BAV                          81,731    7.8    113,724   17.4    106,824   29.4
  FMD                         137,655   13.2    112,805   17.3     50,480   13.9
  VCG                             635    0.1      1,472    0.2      1,148    0.3
                           ----------  -----   --------  -----   --------  -----
    Group Total               220,021   21.1    228,001   34.9    158,452   43.6

IT, Energy and
Management Consulting
Group
  Energetics                   19,161    1.8     14,522    2.2     14,269    3.9
  G&B                          30,664    3.0          -     -           -     -
  Other                           102     -           -     -           -     -
                           ----------  -----   --------  -----   --------  -----
    Group Total                49,927    4.8     14,522    2.2     14,269    3.9

Infrastructure Group
  ICRC                        106,380   10.2     49,918    7.7          -     -

Other                               -    0.0         32    0.0         57    0.0
                           ----------  -----   --------  -----   --------  -----
                           $1,043,735  100.0   $653,164  100.0   $363,734  100.0
       	                   ==========  =====   ========  =====   ========  =====

       	Our revenues increased by approximately 60% and 80% for the years ended
December 31, 2008 and 2007, as compared to the respective prior years. The
primary reason for the increases in revenues for 2008 and 2007 was additional
work associated with our CED R2 Program, including increased work on the CED
Army Equipment Support Program and the CED Assured Mobility Systems Program.
Additional significant reasons for the increase in our revenues in 2008 are:
1) ICRC is included in our financial results for the full year in 2008
compared to a shorter period in 2007 as a result of the June 2007 acquisition;
2) the inclusion of revenues of G&B from the April 14, 2008 date of
acquisition through year end; and 3) increases in FMD, ELD, FSS and Energetics
services.

       	Additional significant reasons for the increase in our revenues in 2007
are: 1) revenues from the start of FMD's Treasury Seized Property Management
Program and increases in other FMD services; 2) revenues from newly acquired
ICRC; 3) revenues associated with BAV's ship transfer to India; and 4) an
increase in ELD equipment refurbishment services.


                                        28

                                  Consolidated Statements of Income
                                        (dollars in thousands)
                                       Years ended December 31,
                                       ------------------------
Description                     2008      %      2007      %      2006      %
-----------                    ----      -       ----      -      ----      -
Revenues                   $1,043,735  100.0  $653,164  100.0  $363,734  100.0
Contract costs              1,011,408   96.9   629,951   96.5   350,978   96.5
Gross profit                   32,327    3.1    23,213    3.5    12,756    3.5
Selling, general and
 administrative expenses       1,193    0.1        905    0.1       694    0.2
Interest income, net             (115)   0.0      (699)  (0.1)     (427)  (0.1)
                           ----------  -----  --------  -----  --------  -----
Income before income taxes     31,249    3.0    23,007    3.5    12,489    3.4
Provision for income taxes     12,209    1.2     8,905    1.4     4,700    1.3
                           ----------  -----  --------  -----  --------  -----
Net income                 $   19,040    1.8  $ 14,102    2.1  $  7,789    2.1
	                   ==========  =====  ========  =====  ========  =====

       	Our gross profits as a percentage of revenues have remained relatively
stable during the three year period from 2006 through 2008.

       	Our gross profit dollars increased in 2008 as compared to 2007. The
increases are primarily due to: 1) profits from the growth of revenues on the
CED Army Equipment Support program and other CED task orders; 2) the inclusion
of ICRC and FSS in our operating results for the full year in 2008 as compared
to only a partial year in 2007 and G&B beginning in April 2008; and 3)
revenues increases from Energetics services.

       	Our gross profit dollars increased in 2007 as compared to 2006. The
increase was primarily due to: 1) the inclusion of ICRC in our operating
results; 2) the increase in revenues on the CED Army Equipment Support program
and on other CED R2 Program task orders; 3) revenues and margin increases on
ELD's equipment refurbishment services; 4) increased profitability of SED
services performed; 5) increased BAV fee income; and 6) profits associated
with an increase in FMD revenues.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our operating unit
contracts. As a percentage of revenues, these expenses varied little in 2008
and 2007 as compared to the respective prior years. The increase in these
expenses in 2008 and 2007 is due in part to the inclusion of ICRC's and G&B's
selling, general and administrative expenses in our results.

       	We did not have significant borrowing requirements or interest expense
in 2008, 2007 or 2006.  Our net interest income decreased in 2008 as compared
to 2007 due to cash requirements associated with our acquisition of G&B and
the growth of other parts of our business. Our net interest income increased
in 2007 as compared to 2006 as profits from operations and resulting cash
surpluses were invested.

Provision for Income Taxes

       	Our effective tax rates were 39.1% for 2008, 38.7% for 2007, and 37.6%
for 2006. The taxable income for 2007 reached a level that resulted in income
taxed at a 35% federal tax rate as compared to the prior years tax rate of
34%, resulting in an increased effective rate for 2008 and 2007 as compared to
2006.




                                         29


       	Federal Group Results

       	The following table shows consolidated operating results for our Federal
Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                     $667,407  100.0  $360,691  100.0  $190,956  100.0
Contract costs                649,149   97.3   348,795   96.7   185,077   96.9
Gross profit                   18,258    2.7    11,896    3.3    $5,879    3.1
Selling, general and
 administrative expenses           43    0.0        73    0.0        24    0.0
Interest (income) expense        (379)  (0.1)     (252)   0.0       423    0.2
                             --------  -----  --------  -----  --------  -----
Income before income taxes   $ 18,594    2.8  $ 12,075    3.3  $  5,432    2.9
	                     ========  =====  ========  =====  ========  =====

       	Revenues for our Federal Group increased by approximately 85% and 89%
for the years ended December 31, 2008 and 2007, as compared to the respective
prior years. A substantial portion of the increases in revenues for 2008 and
2007 was attributable to revenues associated with work on R2 Program task
orders, including work on the CED Army Equipment Support Program and the CED
U.S. Army PM Assured Mobility Systems Program and work performed by FSS in
2008. Increased revenues from ELD's equipment refurbishment services also
contributed to the revenues increases in this segment in 2008 and 2007.

       	Gross profits for our Federal Group increased by approximately 53% and
102% for the years ended December 31, 2008 and 2007, as compared to the
respective prior years. Profits on the increased revenues from the work on the
CED Army Equipment Support Program, the CED U.S. Army PM Assured Mobility
Systems Program, and other R2 Program task orders were the primary reason for
the increased gross profit dollars in this segment. Substantially all of the
work on these task orders is performed by subcontractors. Accordingly, gross
profit as a percentage of revenues on this work is lower than on other work
performed. Increased profitability of SED services performed on the TBPS
Program contributed to the increase in gross profits of this segment in 2008
and 2007 and profits from the inclusion of FSS services in our operating
results contributed to the increase in gross profits of this segment in 2008.
These increases in profits were partially offset by a decline in ELD profits
resulting from losses on work performed during the establishment of a new
location in 2008. These losses are expected to be eliminated as the work
performed at this new location becomes more fully developed.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our Federal Group's
contracts. As a percentage of revenues, these expenses varied little in 2008
and 2007 as compared to the respective prior years and have not been
significant in relation to revenues levels.

       	The Federal Group realized interest income from cash invested in 2008
and 2007. During these years, we benefited from efficient cash flow cycles on
certain CED task order work. This group incurred net interest expense in 2006
to finance the investment in SED's TBPS Program and the start up of ELD.












                                         30

       	International Group Results

       	The following table shows consolidated operating results for our
International Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                     $220,021  100.0  $228,001  100.0  $158,452  100.0
Contract costs                214,146   97.3   220,623   96.8   153,130   96.6
Gross profit                    5,875    2.7     7,378    3.2     5,322    3.4
Selling, general and
 administrative expenses           46    0.0        67    0.0        93    0.1
Interest expense (income)         110    0.1      (124)  (0.1)     (258)  (0.2)
                             --------  -----  --------  -----  --------  -----
Income before income taxes   $  5,719    2.6  $  7,435    3.3  $  5,487    3.5
       	                     ========  =====  ========  =====  ========  =====

       	Revenues for our International Group decreased by approximately 3% for
the year ended December 31, 2008 and increased by approximately 44% for the
year ended December 31, 2007, as compared to the respective prior years. Our
BAV division had approximately $36.8 million of 2007 revenues from a ship
transfer to India that was completed in 2007, and there was no similar ship
transfer in 2008. This resulted in lower BAV revenues and was the primary
reason for the decrease in revenues for our International Group in 2008. The
increase in 2007 revenues was primarily due to revenues provided by the start
of FMD's Treasury Seized Property Management Program and to revenues
associated with BAV's ship transfer to India.

       	Gross Profits for our International Group decreased by approximately 20%
for the year ended December 31, 2008 and increased by approximately 39% for
the year ended December 31, 2007, as compared to the respective prior years.
The decrease in 2008 resulted primarily from the reduction in fees earned by
BAV due to the lower BAV revenues. The increase in 2007 was primarily due to
increased BAV fee income and profits from higher revenues in FMD.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on the International
Group's contracts. As a percentage of revenues, these expenses varied little
in 2008 and 2007 as compared to the respective prior years and have not been
significant in relation to revenues.

       	Our International Group had net interest expense in 2008 and net
interest income decreased for this segment in 2007 as compared to the prior
year due to an investment in the start up of FMD's Treasury Seized Asset
Program and a slower collections cycle on this job.


       	IT, Energy and Management Consulting Group Results

       	The following table shows consolidated operating results for our IT,
Energy and Management Consulting Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                      $49,927  100.0   $14,522  100.0   $14,269  100.0
Contract costs                 44,999   90.1    13,139   90.5    12,665   88.8
Gross profit                    4,928    9.9     1,383    9.5     1,604   11.2
Selling, general and
 administrative expenses          375    0.8        41    0.3        27    0.2
Interest income, net             (198)  (0.4)     (272)  (1.9)     (218)  (1.5)
                              -------  -----   -------  -----   -------  -----
Income before income taxes    $ 4,751    9.5   $ 1,614   11.1   $ 1,795   12.5
       	                      =======  =====   =======  =====   =======  =====

                                         31

       	Upon our acquisition of G&B in April 2008, G&B became part of this
segment. The inclusion of G&B revenues and profits in this segment has
resulted in significant increases to the segment's revenues and profits in
2008. Comparisons of 2008 results to prior years are not meaningful.

       	Revenues for our IT, Energy and Management Consulting Group increased by
approximately 244% and 2% for the years ended December 31, 2008 and 2007, as
compared to the respective prior years. The increases in revenues for both
years was a result of our increased emphasis on marketing efforts and to new
work performed for the U.S. Department of Homeland Security and U.S.
Department of Energy and the inclusion of G&B revenues in 2008.

       	Gross profits for our IT, Energy and Management Consulting Group
increased by approximately 256% for the year ended December 31, 2008 and
decreased by approximately 14% for the year ended December 31, 2007, as
compared to the respective prior years. The increase in 2008 was primarily due
to the increased revenues. The decrease in 2007 was primarily due to job costs
incurred on certain contract task orders in excess of authorized ceilings.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our contracts. The
increase in these costs for this segment in 2008 is due to the inclusion of
G&B's results in this segment. Except for the inclusion of G&B's selling,
general and administrative expenses, these expenses varied little as a
percentage of revenues in 2008 and 2007 as compared to the respective prior
years and have not been significant in relation to revenue levels.

       	Interest income for our IT, Energy and Management Consulting Group
decreased slightly in 2008 and increased slightly in 2007 as compared to the
respective prior years due to typical fluctuations in earnings and the billing
and collections cycle.


       	Infrastructure Group

       	The following table shows consolidated operating results for the
Infrastructure and Information Technology Group (in thousands).

                                2008      %       2007      %
                                ----      -       ----      -
Revenues                     $106,380  100.0    $49,918  100.0
Contract costs                102,131   96.0     46,844   93.8
Gross profit                    4,249    4.0      3,074    6.2
Selling, general and
 administrative expenses          154    0.1        310    0.6
Interest income, net              (72)   0.0        (44)   0.0
Income before income taxes   $  4,167    3.9    $ 2,808    5.6


       	This segment was formed upon our acquisition of ICRC in June 2007. The
table shows our results for the period of June through December of 2007 and
for a full year of 2008. Comparisons of 2008 results to 2007 results are not
meaningful, beyond the additional six months of operations included in 2008.


Financial Condition

       	Our financial condition did not change materially during 2008. Our
acquisition of G&B resulted in changes to some of our assets and liabilities,
including increases in tangible assets and liabilities, bank borrowings,
goodwill, and intangible assets. Other changes to asset and liability accounts
were due primarily to our earnings, the increase in our level of business
activity, contract delivery schedules, subcontractor and vendor payments

                                         32

required to perform our work, and the timing of associated billings to and
collections from our customers.


Liquidity and Capital Resources

Cash Flows

       Cash and cash equivalents increased by approximately $529 thousand
during 2008.

       Cash provided by our operating activities in 2008 increased by
approximately $14.7 million in 2008 as compared to 2007. Approximately $4.9
million of this increase was due to the increase in net income and
approximately $4.4 million was due to an increase in deferred taxes,
depreciation and amortization and other non-cash operating activities. The
remaining amount of the increase in cash provided by operating activities was
due to changes in the levels of working capital components such as
receivables, contract inventories, accounts payable, and accrued expenses that
are associated with our contract requirements and billing and collections
cycle.

       Cash used in our investing activities in 2008 increased by approximately
$8.3 million as compared to 2007. This was due to the higher cost of acquiring
G&B in 2008 compared to the cost acquiring of ICRC in 2007, additional
payments associated with the cost of acquiring ICRC made in 2008, and to an
increased level of investment in property and equipment.

       Cash provided by our financing activities in 2008 increased by a net
amount of approximately $2.8 million as compared to 2007. This resulted from
an increase of approximately $6.6 million in net bank borrowings and a
decrease of approximately $3.6 in cash provided by activity associated with
our stock incentive plans.

       Our cash and cash equivalents decreased by approximately $8.6 million
during 2007.

       Cash provided by our operating activities in 2007 increased by
approximately $6.6 million in 2007 as compared to 2006. Approximately $6.3
million of this increase was due to the increase in net income and
approximately $1.6 million was due to an increase in depreciation and
amortization and other non-cash operating activities. The difference between
these increases and the net increase in cash provided by operating activities
was due to changes in the levels of working capital components such as
receivables, contract inventories, accounts payable, and accrued expenses that
are associated with our contract requirements and billing and collections
cycle.

       Cash used in our investing activities in 2007 increased by approximately
$14.9 million as compared to 2006. This was due to costs associated with the
acquisition of ICRC and to an increased level of investment in property and
equipment.

       Cash provided by our financing activities in 2007 increased by
approximately $3.6 million as compared to 2006. This was primarily due to cash
provided by activity associated with our stock incentive plans.

       We paid quarterly cash dividends totaling $.17 per share during 2008.
Pursuant to our bank loan agreement, our payment of cash dividends is subject
to annual rate restrictions. We have paid cash dividends each year since 1973.

Liquidity

       	Our internal sources of liquidity come mostly from operating activities,
specifically from changes in the level of revenues and associated receivables
and accounts payable, and from profitability. Significant increases or
decreases in revenue and receivables and accounts payable can cause

                                         33

significant increases or decreases in internal liquidity. Our receivables and
accounts payable levels can be affected by changes in the level of the work we
perform and by the timing of large material purchases and subcontractor
efforts related to our contracts.

       	From time to time, we may also invest in the acquisition of another
company. Our acquisitions of ICRC in 2007 and G&B in 2008 required a
significant use of our cash. While there are no firm plans for any specific
additional acquisitions at this time, we continue to seek opportunities for
growth through acquisition.

       	We may also invest in expansion, improvement, and maintenance of our
operational and administrative facilities. We recently invested in the
construction of an additional 40,000 square feet of warehouse and shop space
at our Ladysmith, Virginia facility. Construction of this additional space was
completed in the second quarter of 2008 at a final cost of approximately $6.2
million. We may make additional investments in operational or administrative
facilities in future years.

       Our external liquidity consists of a loan agreement with a bank that
provides us with revolving loans and letters of credit. The amount of credit
available to us as of December 31, 2008 was $35 million (an increase from $25
million pursuant to an amendment dated May 21, 2008) and the maturity date of
the loan agreement is May 10, 2010, unless extended. From time to time we may
request changes in the amount, maturity date, or other terms and the bank may
amend the loan to accommodate our request. The amount of credit available to
us under the loan agreement is subject to certain conditions, including a
borrowing formula based on our billed receivables. Under the terms of the loan
agreement, we may borrow against the revolving loan at any time and can repay
the borrowings at any time without premium or penalty. There are collateral
requirements that secure our assets, restrictive covenants, a limit on annual
dividends, and other affirmative and negative covenants. We pay a commitment
fee, interest on any revolving loan borrowings at a prime-based rate or an
optional LIBOR-based rate, and fees on any letters of credit that are issued.
For additional information, see Note 7 of "Notes to Consolidated Financial
Statements."

       	Our bank continues to maintain good financial strength ratings from the
ratings services and we believe that we are well positioned to obtain
financing from other banks if the need should arise. Accordingly, we do not
believe that the current turbulence in the financial markets will have a
material adverse negative impact on our ability to finance our business,
financial condition, or results of operations. We currently do not use public
debt security financing.

Contractual Obligations

       The following table shows our consolidated contractual obligations as of
December 31, 2008 (in thousands):


                                         Payments Due by Period
                               --------------------------------------------
                                      Less than     1-3      4-5    After 5
Contractual Obligations        Total    1 year     years    years    years
-----------------------        -----    ------     -----    -----    -----
Operating leases, net of
non-cancelable sublease
income                       $39,417    $8,898   $14,912  $10,063   $5,544
Purchase obligations           1,065     1,065         -        -        -
                             -------    ------   -------  -------   ------
Total                        $40,482    $9,963   $14,912  $10,063   $5,544
                             =======    ======   =======  =======   ======

       Operating lease commitments are primarily for our principal executive
and administrative offices and leased facilities for office, shop, and
warehouse space located near customer sites or to serve customer needs. We

                                         34

also have some equipment and software leases that are included in these
amounts.

       	Purchase obligations consist primarily of contractual commitments
associated with construction, improvements and maintenance on our facilities.
The table excludes contractual commitments for materials or subcontractor work
purchased to perform U.S. Government contracts. Such commitments for materials
and subcontractors are reimbursable when used on the contracts, and generally
are also reimbursable if a contract is "terminated for convenience" by the
Government pursuant to federal contracting regulations.


Inflation and Pricing

       	Most of our contracts provide for estimates of future labor costs to be
escalated for any option periods, while the non-labor costs in our contracts
are normally considered reimbursable at cost. Our property and equipment
consists principally of computer systems equipment, furniture and fixtures,
shop equipment, and land and improvements. We do not expect the overall impact
of inflation on replacement costs of our property and equipment to be material
to our future results of operations or financial condition.


ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risks


Interest Rates

       	Our bank loan provides available borrowing to us at variable interest
rates. We used a significant amount of cash to pay for our acquisitions of
ICRC in 2007 and G&B in 2008, causing us to have to borrow on our bank loan
beginning in April 2008. The amount borrowed is not significant with respect
to our cash flows and we believe that we will be able to pay down these bank
loan borrowings in a relatively short time frame. Because of this, we do not
believe that any adverse movement in interest rates would have a material
impact on future earnings or cash flows. If we were to significantly increase
our borrowings, future interest rate changes could potentially have a material
impact on our financial position and results of operations.



























                                          35


	ITEM 8.    Financial Statements and Supplementary Data



                            Index To Financial Statements


  							                Page
                                                                        ----
      Report of Independent Registered Public Accounting Firm  . . . .   37
      Consolidated Balance Sheets as of December 31, 2008 and 2007 . .   38
      Consolidated Statements of Income for the years ended
            December 31, 2008, 2007, and 2006  . . . . . . . . . . . .   39
      Consolidated Statements of Stockholders' Equity
            for the years ended December 31, 2008, 2007, and 2006  . .   40
      Consolidated Statements of Cash Flows for the years ended
            December 31, 2008, 2007, and 2006  . . . . . . . . . . . .   41
      Notes to Consolidated Financial Statements . . . . . . . . . . .   42




































                                         36

           Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of VSE Corporation

We have audited the accompanying consolidated balance sheets of VSE
Corporation and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2008.  These
financial statements are the responsibility of the Company'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 consolidated financial position of VSE Corporation
and subsidiaries at December 31, 2008 and 2007, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), VSE Corporation's internal control
over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 2, 2009 expressed an unqualified opinion thereon.

							/s/ Ernst & Young LLP

McLean, VA
March 2, 2009

                                         37


VSE Corporation and Subsidiaries
Consolidated Balance Sheets
-----------------------------------------------------------------------------
(in thousands, except share and per share amounts)

                                                           As of December 31,
                                                             2008      2007
                                                             ----      ----
                                                               
Assets
Current assets:
  Cash and cash equivalents  . . . . . . . . . . . . . .  $    638   $   109
  Receivables, principally
    U.S. Government, net . . . . . . . . . . . . . . . .   206,717   132,389
  Deferred tax assets  . . . . . . . . . . . . . . . . .     2,297     1,246
  Other current assets . . . . . . . . . . . . . . . . .    10,945     2,755
                                                          --------  --------
      Total current assets . . . . . . . . . . . . . . .   220,597   136,499

Property and equipment, net  . . . . . . . . . . . . . .    21,484    14,920
Deferred tax assets  . . . . . . . . . . . . . . . . . .         -     1,888
Intangible assets  . . . . . . . . . . . . . . . . . . .    11,176     8,034
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .    17,439     5,228
Other assets . . . . . . . . . . . . . . . . . . . . . .     5,270     5,202
                                                          --------  --------
      Total assets . . . . . . . . . . . . . . . . . . .  $275,966  $171,771
	                                                  ========  ========
Liabilities and Stockholders' Equity
Current liabilities:
  Bank notes payable . . . . . . . . . . . . . . . . . .  $  6,676  $     81
  Accounts payable . . . . . . . . . . . . . . . . . . .   158,015    88,565
  Accrued expenses . . . . . . . . . . . . . . . . . . .    31,498    22,895
  Dividends payable  . . . . . . . . . . . . . . . . . .       229       202
                                                          --------  --------
      Total current liabilities  . . . . . . . . . . . .   196,418   111,743

Deferred compensation  . . . . . . . . . . . . . . . . .     2,059     3,257
Deferred income taxes  . . . . . . . . . . . . . . . . .       404         -
Other liabilities  . . . . . . . . . . . . . . . . . . .       962       395
                                                          --------  --------
      Total liabilities  . . . . . . . . . . . . . . . .   199,843   115,395
                                                          --------  --------
Commitments and contingencies

Stockholders' equity:
  Common stock, par value $0.05 per share, authorized
    15,000,000 shares; issued and outstanding 5,098,542
    and 5,052,512, respectively  . . . . . . . . . . . .       255       253
  Additional paid-in capital . . . . . . . . . . . . . .    13,557    11,963
  Retained earnings  . . . . . . . . . . . . . . . . . .    62,311    44,160
                                                          --------  --------
      Total stockholders' equity . . . . . . . . . . . .    76,123    56,376
                                                          --------  --------
      Total liabilities and stockholders' equity . . . .  $275,966  $171,771
                                                          ========  ========
















	The accompanying notes are an integral part of these balance sheets

                                         38


VSE Corporation and Subsidiaries
Consolidated Statements of Income
-----------------------------------------------------------------------------
(in thousands, except share and per share amounts)


                                             For the years ended December 31,
                                                 2008       2007       2006
                                                 ----       ----       ----
                                                          
Revenues . . . . . . . . . . . . . . . . .  $1,043,735  $ 653,164  $ 363,734

Contract costs  . . . . . . . . .  . . . .   1,011,408    629,951    350,978
	                                    ----------  ---------  ---------
Gross profit . . . . . . . . . . . . . . .      32,327     23,213     12,756

Selling, general and administrative expenses     1,193        905        694

Interest income, net . . . . . . . . . . .        (115)      (699)      (427)
	                                    ----------  ---------  ---------
Income before income taxes . . . . . . . .      31,249     23,007     12,489

Provision for income taxes . . . . . . . .      12,209      8,905      4,700
	                                    ----------  ---------  ---------

Net income . . . . . . . . . . . . . . . .  $   19,040  $  14,102  $   7,789
	                                    ==========  =========  =========

Basic earnings per share:                   $     3.75  $    2.85  $    1.64
	                                    ==========  =========  =========
Basic weighted average shares outstanding    5,072,131  4,953,289  4,737,450
	                                    ==========  =========  =========

Diluted earnings per share:                 $     3.74  $    2.82  $    1.61
	                                    ==========  =========  =========
Diluted weighted average shares
 outstanding . . . . . . . . . . . . . . .   5,096,186  5,003,675  4,848,884
	                                    ==========  =========  =========






























	The accompanying notes are an integral part of these financial statements.

                                         39


VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
-----------------------------------------------------------------------------------------------
(in thousands except per share data)


                                            Additional    Deferred                  Total
                             Common Stock     Paid-In   Stock-based    Retained   Stockholders'
                            Shares   Amount   Capital   Compensation   Earnings     Equity
                            ------   ------   -------   ------------   --------     ------
                                                                  
Balance at
  December 31, 2005          4,720   $ 236   $ 6,230      $  (1)       $ 23,686     $30,151

Net income for the year . .      -       -         -          -           7,789       7,789
Stock-based compensation  .      4       -       308          -               -         308
Exercised stock options . .     62       4       253          -               -         257
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -       312          -               -         312
Deferred stock-based
  compensation  . . . . . .      -       -         -          1               -           1
Issuance of stock . . . . .      2       -        60          -               -          60
Dividends declared ($0.14).      -       -         -          -            (642)       (642)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2006          4,788     240     7,163          -          30,833      38,236

Net income for the year . .      -       -         -          -          14,102      14,102
Stock-based compensation  .      5       -       551          -               -         551
Exercised stock options . .    260      13     2,004          -               -       2,017
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -     2,245          -               -       2,245
Dividends declared ($0.155)      -       -         -          -            (775)       (775)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2007          5,053     253    11,963          -          44,160      56,376

Net income for the year . .      -       -         -          -          19,040      19,040
Stock-based compensation (1)    14       1       955          -               -         956
Exercised stock options . .     32       1       324          -               -         325
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -       315          -               -         315
Dividends declared ($0.175)      -       -         -          -            (889)       (889)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2008          5,099   $ 255   $13,557      $   -        $ 62,311     $76,123
                             =====   =====   =======      =====        ========     =======

(1) The stock-based compensation amount of $956 thousand for 2008 is based on the
         compensation expense included in Contract costs of $1,062 thousand, reduced by
         the tax withholding associated with the 2007 awards issued in March, 2008.
























	The accompanying notes are an integral part of these financial statements.

                                         40


VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
------------------------------------------------------------------------------------------------
(in thousands)

                                                                For the years ended December 31,
                                                                     2008     2007     2006
                                                                     ----     ----     ----
                                                                            
Cash flows from operating activities:
  Net income  . . . . . . . . . . . . . . . . . . . . . . . . . .  $19,040  $14,102  $ 7,789
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization   . . . . . . . . . . . . . .    5,437    3,463    1,882
      Loss on sale of property and equipment  . . . . . . . . . .       10        -        9
      Deferred taxes  . . . . . . . . . . . . . . . . . . . . . .    1,241     (805)    (614)
      Stock-based compensation  . . . . . . . . . . . . . . . . .      956      551      308
Changes in operating assets and liabilities,
      net of impact of acquisitions:
      Receivables, net  . . . . . . . . . . . . . . . . . . . . .  (66,928) (59,141) (22,804)
      Contract inventories  . . . . . . . . . . . . . . . . . . .        -    4,459     (186)
      Other current assets and noncurrent assets  . . . . . . . .   (8,361)  (1,254)  (1,310)
      Accounts payable and deferred compensation. . . . . . . . .   65,513   41,812   15,144
      Accrued expenses  . . . . . . . . . . . . . . . . . . . . .    5,596    4,826    1,308
      Other liabilities . . . . . . . . . . . . . . . . . . . . .      421      235      105
                                                                   -------  -------  -------
          Net cash provided by operating activities                 22,925    8,248    1,631
                                                                   -------  -------  -------
Cash flows from investing activities:
  Purchases of property and equipment . . . . . . . . . . . . . .  (10,016)  (8,731)  (5,618)
  Acquisitions, net of cash acquired   . . . . . .  . . . . . . .  (18,753) (11,755)       -
                                                                   -------  -------  -------
          Net cash used in investing activities                    (28,769) (20,486)  (5,618)
                                                                   -------  -------  -------
Cash flows from financing activities:
   Borrowings on loan arrangement . . . . . . . . . . . . . . . .  245,864    9,589        -
   Repayments on loan arrangement . . . . . . . . . . . . . . . . (239,269)  (9,508)       -
   Dividends paid   . . . . . . . . . . . . . . . . . . . . . . .     (862)    (741)    (615)
   Excess tax benefits from share-based payment arrangements  . .      315    2,245      312
   Proceeds from the exercise of options of common stock  . . . .      325    2,017      258
   Proceeds from issuance of common stock   . . . . . . . . . . .        -        -       60
                                                                   -------  -------  -------
          Net cash provided by financing activities                  6,373    3,602       15
                                                                   -------  -------  -------

Net increase (decrease) in cash and cash equivalents  . . . . . .      529   (8,636)  (3,972)
  Cash and cash equivalents at beginning of year  . . . . . . . .      109    8,745   12,717
                                                                   -------  -------  -------
  Cash and cash equivalents at end of year  . . . . . . . . . . .  $   638  $   109  $ 8,745
                                                                   =======  =======  =======
Supplemental cash flow disclosures (in thousands):

                                                                     2008     2007     2006
                                                                     ----     ----     ----
Cash paid during the year for:
  Interest  . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   214  $     6  $     -
  Income taxes  . . . . . . . . . . . . . . . . . . . . . . . . .  $10,919  $ 7,139  $ 4,472


















	The accompanying notes are an integral part of these financial statements.

                                         41

                      VSE Corporation and Subsidiaries
                 Notes to Consolidated Financial Statements
                              December 31, 2008


(1)  Nature of Business and Significant Accounting Policies

Nature of Business

       The term "VSE," the "Company," "us," "we," or "our" means VSE and its
subsidiaries and divisions unless the context indicates operations on the
parent company only.

       Our business operations consist primarily of diversified engineering,
logistics, management, and technical services performed on a contract basis.
Substantially all of our contracts are with agencies of the United States
Government (the "Government") and other federal government prime contractors.
Our customers also include non-government organizations and commercial
entities.


Significant Accounting Policies

Principles of Consolidation

       	The consolidated financial statements consist of the operations of our
parent company, our unincorporated divisions and wholly owned subsidiaries. Our
unincorporated divisions include BAV Division ("BAV"), Communications and
Engineering Division ("CED"), Coast Guard Division ("VCG") Engineering and
Logistics Division ("ELD"), Field Support Services Division ("FSS"), Fleet
Maintenance Division ("FMD"), Management Sciences Division ("MSD"), and Systems
Engineering Division ("SED").  Energetics Incorporated ("Energetics"),
Integrated Concepts and Research Corporation ("ICRC"), acquired in June 2007,
and G&B Solutions, Inc. ("G&B"), acquired in April 2008, are our active
subsidiaries. All intercompany transactions have been eliminated in
consolidation.

Use of Estimates in the Preparation of Financial Statements

       The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates affecting the financial statements include accruals for
contract disallowance reserves, self insured health claims, and estimated
cost-to-complete on certain fixed-price contracts.

Reclassifications

       Certain amounts from the prior year have been reclassified to conform to
the current year presentation.  Such reclassifications were not material.

Stock-based Compensation

     Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment,"  ("SFAS No. 123R")
using the modified prospective method. Under this method, compensation costs
for all awards granted after the date of adoption and the unvested portion of
previously granted awards outstanding at the date of adoption are measured at
estimated fair value. The compensation expense is amortized on a straight-line
basis over the requisite service period of the grant and included in operating
expenses over the vesting period during which an employee provides service in
exchange for the award. See Note 9 for further discussion of our stock-based
benefit plans and related activity.

                                         42


Earnings Per Share

       Basic earnings per share have been computed by dividing net income by
the weighted average number of shares of common stock outstanding during each
period. Shares issued during the period and shares reacquired during the
period are weighted for the portion of the period that they were outstanding.
Diluted earnings per share have been computed in a manner consistent with that
of basic earnings per share while giving effect to all potentially dilutive
common shares that were outstanding during each period.  Potentially dilutive
common shares include incremental common shares issuable upon exercise of
stock options.

                                           Years Ended December 31,
                                         2008        2007        2006
                                         ----        ----        ----
   Basic weighted average
     common shares outstanding . .   5,072,131   4,953,289   4,737,450

   Effect of dilutive options  . .      24,055      50,386     111,434
                                     ---------   ---------   ---------
   Diluted weighted average
     common shares outstanding  . .  5,096,186   5,003,675   4,848,884
                                     =========   =========   =========

Cash and Cash Equivalents

       We consider all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Due to the short maturity of
these instruments, the carrying values on our consolidated balance sheets
approximate fair value.

Property and Equipment

       Property and equipment is stated at cost. Depreciation of computer
systems equipment is provided principally by the double-declining method over
periods of three to five years. Depreciation of furniture and fixtures is
provided principally by the straight-line method over approximately nine
years. Depreciation of other equipment is provided principally by the double-
declining method over periods of three to ten years. Depreciation of buildings
and land improvements is provided principally by the straight-line method over
periods of approximately twenty to thirty years. Amortization of leasehold
improvements is provided by the straight-line method over the lesser of their
useful life or the remaining term of the lease.

Concentration of Credit Risk/Fair Value of Financial Instruments

       Financial instruments that potentially subject us to concentration of
credit risk consist primarily of cash, cash equivalents and trade receivables.
Contracts with the Government either as a prime or subcontractor, accounted
for approximately 99% of revenues for each of the years ending December 31,
2008, 2007, and 2006. We believe that concentrations of credit risk with
respect to trade receivables are limited as they are primarily government
receivables. We believe that the fair market value of all financial
instruments, including assets of the deferred compensation plan and debt,
approximate book value.

Revenues

       Substantially all of our revenues result from contract services
performed for the Government or for contractors engaged in work for the
Government under a variety of contracts. Revenues are considered earned when
persuasive evidence of an arrangement exists, services have been rendered, the
price is fixed or determinable and collectibility is reasonably assured.

       Revenues on cost-type contracts are recorded as contract allowable costs
are incurred and fees earned. Award fee payments on certain cost plus award
fee contracts are determined by performance and level of contract activity. We

                                         43

do not recognize award fee income until the fees are fixed or determinable,
generally upon contract notification confirming the award fee.

       Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the direct costs and indirect cost burdens associated with
materials and subcontract work used in performance on the contract. Profits on
time and material contracts result from the difference between the cost of
services performed and the contract defined billing rates for these services.

       Revenue recognition methods on fixed-price contracts vary depending on
the nature of the work and the contract terms. On certain fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, since these contracts require design,
engineering, and development performed to the customer's specifications.
Revenues on fixed-price service contracts are recorded as work is performed.
Revenues on fixed-price contracts that require delivery of specific items may
be recorded based on a price per unit as units are delivered. Profits on
fixed-price contracts result from the difference between the incurred costs
and the revenue earned.

       For design and development contracts, we provide for anticipated losses
on contracts, based on total revenue compared to total contract costs, by a
charge to income during the period in which losses are first identified.
Contract costs include direct and indirect costs, including general and
administrative costs, which are considered costs and expenses of contracts.

       Revenue related to work performed on contracts at risk, which is work
performed at the customer's request prior to the government formalizing
funding, is not recognized as income until it can be reliably estimated and
its realization is probable.

       A substantial portion of contract and administrative costs is subject to
audit by the Defense Contract Audit Agency.  Our indirect cost rates have been
audited and approved for 2005 and prior years and partially audited for 2006
with no material adjustments to our results of operations or financial
position.  While we maintain reserves to cover the risk of potential future
audit adjustments based primarily on the results of prior audits, there can be
no assurances that the audits of the indirect cost rates for 2008, 2007 and
2006 will not result in material adjustments to our results of operations or
financial position.

Receivables and Allowance for Doubtful Accounts

       Receivables are recorded at face value less an allowance for doubtful
accounts.  We review our receivables regularly to determine if there are any
potential uncollectible accounts.  The majority of our receivables are from
agencies of the Government, where there is minimal credit risk.  We record
allowances for bad debt as a reduction to receivables and an increase to bad
debt expense. We assess the adequacy of these reserves by considering general
factors, such as the length of the time individual receivables are past due
and historical collection experience.  There are no reserves for doubtful
accounts as of December 31, 2008.

Deferred Compensation Plans

       We have a deferred compensation plan, the VSE Corporation Deferred
Supplemental Compensation Plan, to provide incentive and reward for our
management team based on overall corporate performance.  Deferred compensation
plan expense for the years ended December 31, 2008, 2007, and 2006 was
approximately $1.4 million, $1.1 million, and $769 thousand, respectively.

       Included in other assets are assets of the deferred compensation plans
which include debt and equity securities recorded at fair value. The fair
value of the deferred compensation plan assets was approximately $3.3 million
and $3.2 million as of December 31, 2008, and 2007, respectively. Because plan

                                         44

participants are at risk for market value changes in these assets, the
liability to plan participants fluctuates with the asset values.

Impairment of Long-Lived Assets

       Long-lived assets include property and equipment to be held and used.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."  The criteria for
determining impairment for such long-lived assets to be held and used are
determined by comparing the carrying value of these long-lived assets to our
best estimate of future undiscounted cash flows expected to result from the
use of the assets. No impairment charges were recorded in the years ended
December 31, 2008, 2007, and 2006.

Income Taxes

       Income taxes are accounted for under the asset and liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. This method also
requires the recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

       The carrying value of net deferred tax assets is based on assumptions
regarding our ability to generate sufficient future taxable income to utilize
these deferred tax assets.  As of December 31, 2008 and 2007, we had valuation
allowances of approximately $75 thousand and $0, respectively, against certain
deferred tax assets, which consisted solely of realized capital losses on
investments in our deferred supplemental compensation plan. The valuation
allowance is based on limited unrealized capital gains within the portfolio
and the uncertainty of future gains due to the current stock market.

       We adopted the provisions of FIN 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109," ("FIN 48"), on
January 1, 2007. FIN 48 clarifies and sets forth consistent rules for
accounting for uncertain income tax positions in accordance with FAS 109. As a
result of applying the provisions of FIN 48, there was no cumulative effect on
retained earnings upon adoption.  In addition, there were no adjustments
recorded during 2008 and 2007 after the initial adoption of FIN 48.

Goodwill and Intangibles

       We apply SFAS No. 141, "Business Combinations" ("SFAS No. 141") when
accounting for acquisitions and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") when evaluating non-amortizable intangible assets for
impairment.  Under these rules, goodwill and other non-amortizable intangible
assets is not amortized but is subject to annual impairment tests in
accordance with SFAS No. 142.  Annually, we perform a fair value analysis of
goodwill and other non-amortizable intangible assets using valuation
techniques prescribed in SFAS No. 142.  Based on the analysis performed as of
September 30, 2008, we determined that there had been no impairment of
goodwill and other non-amortizable intangibles.

     Intangible assets consist of the value of contract related intangible
assets and trade names acquired in the ICRC and G&B acquisitions (see Notes 5
and 7). The contract related intangible assets are amortized on a straight
line basis over their estimated useful lives of approximately 5 to 8 years

                                         45

with a weighted average life of approximately 6.2 years as of December 31,
2008.

Recently Issued Accounting Pronouncements

       In December 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141(R), "Business Combinations; a replacement of FASB
Statement No. 141," which became effective January 1, 2009.  The new standard
will replace existing guidance and significantly change accounting and
reporting relative to business combinations in consolidated financial
statements, including requirements to recognize acquisition-related
transaction and post acquisition restructuring costs in results of operations
as incurred.  SFAS No. 141(R) will be effective for businesses acquired after
the effective date.

       In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of
FASB Statement No. 115," which also became effective January 1, 2008.  We
elected not to adopt the fair value option included in SFAS No. 159.

       On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements,"
which defines fair value, establishes a market-based hierarchy for measuring
fair value and expands disclosures about fair value measurements.  SFAS 157 is
applicable whenever another accounting pronouncement requires or permits
assets and liabilities to be measured at fair value, but does not require any
new fair value measurements.  The SFAS No. 157 requirements for certain non-
financial assets and liabilities have been deferred until the first quarter of
2009 in accordance with Financial Accounting Standards Board Staff Position
("FSP") 157-2.  The adoption of SFAS No. 157 did not have a material impact on
our results of operations, financial position or cash flows.  See Note 15 for
disclosures regarding SFAS No. 157.


(2)  Receivables

       The components of receivables as of December 31, 2008 and 2007, were as
follows (in thousands):
                                                           2008        2007
                                                           ----        ----
  Billed  . . . . . . . . . . . . . . . . . . . .       $ 70,044    $ 45,045
  Unbilled:
    Government retainage  . . . . . . . . . . . .             76         179
    Subcontract retainage . . . . . . . . . . . .          3,372       4,000
    Other (principally December work billed in
      January)  . . . . . . . . . . . . . . . . .        133,225      83,176
  Less-allowance for doubtful accounts  . . . . .              -         (11)
                                                        --------    --------
    Total receivables, net                              $206,717    $132,389
                                                        ========    ========

       Unbilled subcontract retainage includes amounts withheld from payments
to subcontractors.

       The "Unbilled: Other" includes certain costs for work performed at risk
but which we believe will be funded by the government.  Amounts not currently
funded included in "Unbilled: Other" were approximately $1.0 million and $357
thousand as of December 31, 2008, and 2007, respectively.

       Allowance for doubtful accounts is determined based on our best estimate
of potentially uncollectible receivables.  We write off receivables when such
amounts are determined to be uncollectible.






                                          46


       The following table summarizes activity in the allowance for doubtful
accounts (in thousands):

                                                                  Additions
                                      Balance at                  Charged to  Balance at
                                      Beginning                   Costs and     End of
Allowance for Doubtful Accounts	      of Period    Deductions(1)   Expenses     Period
-------------------------------       ----------   -------------  ----------  ----------
                                                                     
Year ended December 31, 2008 . . . .    $11            $11          $-           $-

Year ended December 31, 2007 . . . .    $14    	       $ 3          $ -          $11

Year ended December 31, 2006 . . . .    $56    	       $42          $ -          $14


(1) Write-offs and settlements



(3)  Other Current Assets and Other Assets

	Other current assets primarily consisted of vendor advances, prepaid
rents and deposits, equipment and software licenses and maintenance
agreements.   The increase of approximately $8 million at December 31, 2008 as
compared to December 31, 2007 is primarily attributable to a vendor advance
required of approximately $5.1 million for the startup efforts on our newly
awarded RCV Modernization Program in Kuwait.

	Other assets consisted of the following as of December 31, 2008 and 2007
(in thousands):
                                                           2008        2007
                                                           ----        ----
    Cash surrender value of life insurance policies  . . $ 1,594     $ 1,566
    Deferred compensation plan assets  . . . . . . . . .   3,311       3,212
    Other  . . . . . . . . . . . . . . . . . . . . . . .     365         424
                                                         -------     -------
       Total other assets                                $ 5,270     $ 5,202
                                                         =======     =======

(4)  Property and Equipment

       Property and equipment consisted of the following as of December 31,
2008 and 2007(in thousands):
                                                           2008        2007
                                                           ----        ----
    Computer systems equipment . . . . . . . . . . . . . $ 9,553     $ 8,077
    Furniture, fixtures, equipment and other . . . . . .  10,459       5,845
    Leasehold improvements . . . . . . . . . . . . . . .   4,699       3,541
    Buildings and building improvements. . . . . . . . .   6,564       7,170
    Land and land improvements . . . . . . . . . . . . .   3,085       1,805
                                                         -------     -------
                                                          34,360      26,438
    Less accumulated depreciation and amortization . . . (12,876)    (11,518)
                                                         -------     -------
       Total property and equipment, net                 $21,484     $14,920
                                                         =======     =======

       Depreciation and amortization expense for property and equipment was
approximately $3.6 million for 2008, $2.6 million for 2007 and $1.8 million
for 2006.


(5)  Acquisitions

G&B Solutions, Inc.

       On April 14, 2008, we acquired all of the capital stock of G&B based in
Reston, Virginia.  G&B is a diversified information technology and management
consulting provider to Government agencies, including the Departments of
Homeland Security, Interior, Labor, Agriculture, Housing and Urban
Development, the Pension Benefit Guaranty Corporation, and the National
Institutes of Health.  G&B's core expertise lies in enterprise architecture
development, information assurance/business continuity, program and portfolio

                                          47

management, network IT services and systems design and integration. G&B
provides us an opportunity to expand our professional services across a wider
range of Government customers.

       Cash paid at closing was approximately $19.5 million, which includes
approximately $650 thousand of prepaid retention bonuses that are being
expensed in the post-acquisition period as the affected employees provide
services, less approximately $600 thousand for certain closing adjustments. We
also incurred approximately $200 thousand of direct acquisition costs
consisting of legal, accounting and other fees. Under the terms of the
acquisition, we will be required to make additional payments of up to $4.2
million over a three-year post closing period if G&B achieves certain
financial performance targets.  The first earn-out payment period is from
April 14, 2008 to March 31, 2009.  The subsequent earn-out payment periods
will be from April 1, 2009 to March 31, 2010 and April 1, 2011 to March 31,
2011.  If earned and paid, such additional purchase price consideration will
be recorded as additional goodwill. The results of G&B's operations are
included in the accompanying consolidated financial statements beginning as of
April 14, 2008.

       Of the initial purchase price, approximately $3.8 million was recorded
as customer related intangible assets to be amortized over approximately five
years.  In addition, $930 thousand was allocated to G&B's trade name, which
has an indefinite life, and approximately $9.8 million was allocated to
goodwill.

       In July 2008, we filed an election under the Internal Revenue Code
Section 338(h)(10) to treat the G&B acquisition as a sale of assets for tax
purposes.  We made a payment to the seller for the seller's incremental tax
liability as a result of the election.  Tax advantages to us that arise from
filing the Section 338(h)(10)election are expected to exceed the additional
payment made to the seller of approximately $368 thousand.  We also paid
approximately $196 thousand of state income tax liabilities to various states
related to the Section 338(h)(10) election due to G&B's former Subchapter S
status. The additional payments were made during the third quarter of 2008 and
were recorded as additional goodwill.

       We followed the guidance of SFAS No. 141 "Business Combinations" and
recognized the fair value of assets acquired and liabilities assumed as
follows (in thousands):

       Description                           Fair Value
       -----------                           ----------
       Current assets                         $ 8,835
       Property and equipment                     173
       Intangibles - customer related           3,820
       Intangibles - trade name                   930
       Goodwill                                10,587
                                              -------
       Total assets acquired                   24,345
       Liabilities assumed                     (5,182)
                                              -------
       Total purchase price                   $19,163
                                              =======

	The total purchase price includes additional purchase price
consideration related to the forfeited retention bonus of approximately $146
thousand that became payable to the seller and the Section 338(h)(10) election
and related state tax liabilities of approximately $564 thousand, as described
above.

Integrated Concepts and Research Corporation

       On June 4, 2007, we acquired all of the capital stock of ICRC of
Alexandria, Virginia.  ICRC's core expertise lies in information technology,
advance vehicle technology, aerospace, engineering and transportation
infrastructure.

       We believe that the addition of ICRC will provide us with an opportunity
to expand and diversify its business across a number of project areas, including
smart vehicles, alternative fuels, large-scale port engineering development and
security, and information technology services.

                                          48

       The purchase price for the acquisition of ICRC included an initial cash
payment of approximately $11.8 million and potential additional cash payments
of up to approximately $5.8 million, contingent on meeting certain financial
targets during the first six years after the June 2007 acquisition.
Additionally, we have filed an election under the Internal Revenue Code
Section 338(h)(10) to treat the ICRC acquisition as a sale of assets for tax
purposes. An additional $1.6 million payment was made by us to the seller for
the seller's incremental tax liability as a result of the election.  Tax
advantages to us that arise from filing the Section 338(h)(10) election are
expected to exceed the additional $1.6 million payment made to the seller.
The additional payment was made in April 2008 and recorded as goodwill.

       Of the initial $11.8 million purchase price, approximately $7.1 million
was recorded as contract related intangible assets to be amortized on a
straight line basis over six to eight years; approximately $1.5 million was
recorded as an intangible asset related to ICRC's trade name, which has an
indefinite life; and approximately $2 million was recorded as initial
goodwill. Additional goodwill and accrued expenses of approximately $557
thousand were recorded as of December 31, 2007 for the earn-out payment that
was made to the seller as a result of the achievement of the specified
earnings target in 2007.  Additional goodwill and accrued expenses of
approximately $1.6 million were recorded as of December 31, 2008 for the earn-
out payment that will be made to the seller as a result of achievement of the
specified earnings target in 2008.

       We followed the guidance of SFAS No. 141 to record the acquisition of
ICRC.  We recognized the fair value of assets acquired and liabilities assumed
as follows (in thousands):

       Description                           Fair Value
       -----------                           ----------
       Current assets                         $ 6,544
       Property and equipment                     429
       Other assets                                27
       Intangibles - contract                   7,134
       Intangibles - trade name                 1,500
       Goodwill                                 5,798
                                              -------
       Total assets acquired                   21,432
       Liabilities assumed                     (5,880)
                                              -------
       Total purchase price                   $15,552
                                              =======

       The total purchase price includes additional purchase price consideration
related to the 2007 earn-out of approximately $557 thousand, the 2008 earn-out
of approximately $1.6 million and the Section 338(h)(10) election of
approximately $1.6 million, as described above.


(6)  Goodwill and Intangible Assets

       Changes in goodwill for the years ended December 31, 2008 and 2007 are
as follows (in thousands):
                                      IT, Energy and
                                        Management
                                        Consulting   Infrastructure   Total
                                        ----------   --------------   -----
   Balance as of December 31, 2006       $ 1,054          $    -     $ 1,054
   Goodwill acquired during the year           -           4,174       4,174
                                         -------          ------     -------
   Balance as of December 31, 2007         1,054           4,174       5,228
   Goodwill acquired during the year      10,587               -      10,587
   Contingent consideration earned             -           1,624       1,624
                                         -------          ------     -------
   Balance as of December 31, 2008       $11,641          $5,798     $17,439
                                         =======          ======     =======

     Intangible assets consist of the value of contract-related intangible
assets and trade names acquired in the ICRC and G&B acquisitions (see Note 5).
Intangible assets not subject to amortization consist of trade names of
approximately $2.4 million and approximately $1.5 million as of December 31,

                                          49

2008 and 2007, respectively.  We amortized approximately $1.6 million and $600
thousand of intangible assets in 2008 and 2007, respectively.

       Amortizable intangible assets were comprised of the following (in
thousands):

                                     Gross                           Net
                                    Carrying      Accumulated      Carrying
                                     Value       Amortization       Value
                                     -----       ------------       -----
Contract-related intangible
  assets as of December 31, 2008   $10,954         $2,208          $8,746
                                   =======         ======          ======
Contract-related intangible
  assets as of December 31, 2007   $ 7,134         $  600          $6,534
                                   =======         ======          ======

       Future expected amortization expense of the contract related intangible
asset is as follows (in thousands):

                                  Amortization
                                    Expense
                                    -------
    2009                            $1,840
    2010                             1,840
    2011                             1,840
    2012                             1,840
    2013                               708
    Thereafter                         678
                                    ------
      Total                         $8,746
                                    ======

(7)  Bank Notes Payable

       	We have a loan agreement with a bank under which credit is made
available to us in the form of revolving loans or letters of credit. The
amount of credit available to us under the loan is subject to certain
conditions, including a borrowing formula based on our billed receivables.
From time to time we may request changes in the amount, maturity date, or
other terms and the bank may amend the loan to accommodate our request. The
amount of credit available to us as of December 31, 2008 was $35 million and
the maturity date of the loan agreement is May 10, 2010. The loan agreement
has collateral requirements that secure our assets, restrictive covenants, a
limit on annual dividends, and other affirmative and negative covenants. As of
December 31, 2008 we have not been notified by the bank, nor are we aware, of
any defaults under the loan agreement.

       Under the terms of the loan agreement, we may borrow against the
revolving loan at any time and can repay the borrowings at any time without
premium or penalty. We pay a commitment fee, interest on any revolving loan
borrowings at a prime-based rate or an optional LIBOR-based rate, and fees on
any letters of credit that are issued. As of December 31, 2008 and December
31, 2007, revolving loan amounts outstanding were approximately $6.7 million
and $81 thousand, respectively. Interest expense incurred on revolving loan
borrowings was approximately $216 thousand for 2008 and approximately $6
thousand for 2007. There was one letter of credit for approximately $1.35
million as of December 31, 2008. We had no letters of credit outstanding as of
December 31, 2007.


(8)  Accrued Expenses

       Accrued expenses consisted primarily of accrued compensation and
benefits of approximately $21 million and $15 million as of December 31, 2008
and 2007, respectively.  The accrued compensation and benefits amounts include
bonus, salaries and related payroll taxes, vacation and deferred compensation.

                                          50

(9) Stock-Based Compensation Plans

(a)  Restricted Stock Plan

       	On January 2, 2006, our stockholders approved the VSE Corporation
2006 Restricted Stock Plan (the "2006 Plan") for its directors, officers and
other employees.  Under the provisions of the 2006 Plan, we are authorized to
issue 250,000 shares of our common stock.  The Compensation Committee is
responsible for the administration of the 2006 Plan.  The Compensation
Committee shall determine each recipient of an award under the 2006 Plan, the
number of restricted shares of common stock subject to such award and the
period of continued employment required for the vesting of such award.  These
terms will be included in award agreements between us and the recipients of
the award.  As of December 31, 2008, 228,314 restricted shares were available
for grant under this plan.

       On April 22, 2008, we awarded 5,831 shares of restricted VSE common
stock to an executive.  The fair value of this award was $34.30 per share at
the time of the award.  Vesting in the stock will occur as follows:  25% of
the shares on April 28, 2009, 25% of the shares on April 29, 2010 and 50% of
the shares on April 29, 2011.  Compensation expense related to this award was
approximately $44 thousand for the year ended December 31, 2008.

       On April 22, 2008, we awarded 4,374 shares of restricted VSE common
stock to our Executive Chairman under the 2006 Restricted Stock Plan on the
occasion of his resignation as our CEO, President and Chief Operating Officer.
The fair value of this award was $34.30 per share.  The shares issued vested
immediately and cannot be sold, transferred, pledged or assigned before the
second anniversary of the grant date. Compensation expense related to this
award was approximately $150 thousand for the year ended December 31, 2008.

       On January 2, 2008, we awarded 3,500 shares of restricted VSE common
stock to our non-employee Directors under the 2006 Restricted Stock Plan.  The
weighted-average grant-date fair value of these restricted stock grants was
$47.92 per share. The shares issued vested immediately and cannot be sold,
transferred, pledged or assigned before the second anniversary of the grant
date. Compensation expense related to these grants was approximately $168
thousand for the year ended December 31, 2008.

       On January 2, 2007 and August 15, 2007 we awarded 4,800 shares and 300
shares, respectively, of restricted VSE common stock to our non-employee
Directors under the 2006 Restricted Stock Plan.  The weighted-average grant-
date fair value of these restricted stock grants was $16.84 per share and
$36.91 per share, respectively. The shares issued vested immediately and
cannot be sold, transferred, pledged or assigned before the second anniversary
of the grant date. Compensation expense related to these grants was
approximately $92 thousand for the year ended December 31, 2007.

       On January 3, 2008 (the "2008 Awards") and January 2, 2007 (the "2007
Awards"), we notified certain employees that they are eligible to receive
awards under the 2006 Restricted Stock Plan based on financial performance for
the calendar years 2008 and 2007, respectively. Vesting of each award will
occur one-third on the date of award and one-third on each of the next two
anniversaries of such date of award. The date of award determination is
expected to be in March 2009 for the 2008 Awards and the date of award
determination for the 2007 Awards was March 3, 2008.   On each vesting date,
100% of the vested award will be paid in VSE common stock.  The number of
shares issued will be based on the fair market value of our common stock on
the vesting date.  The earned amount will be expensed ratably over the vesting
period of approximately three years.

       We have recognized approximately $700 thousand and approximately $278
thousand in expense related to the awards described above for the years ended
December 31, 2008 and 2007, respectively.  At December 31, 2008, there was
approximately $1.2 million of unrecognized compensation costs related to these
restricted stock awards which we expect to recognize over the next 26 months.

                                          51

(b)  Stock Option Plans

       On December 30, 2005, our Board of Directors (the "Board") directed us
to discontinue, until and unless the Board determined otherwise, awarding
options, both discretionary and nondiscretionary under our 1998 Stock Option
Plan (the "1998 Plan") and our 2004 Stock Option Plan approved by our
stockholders on May 3, 2005 (the "2004 Plan").  All options outstanding as of
December 30, 2005 were not affected by this Board action.

       As of December 31, 2008, options issued under the 2004 Plan for up to
41,500 shares of VSE common stock remain outstanding. Each option granted
under the 2004 Plan was issued at the fair market value of the VSE common
stock on the date of grant.  Each option vests 25% upon issuance and 25% on
each anniversary date thereafter, becoming 100% vested as of the third
anniversary date of the award.  The 2004 Plan will terminate on the earliest
of May 1, 2014, or the date on which all options issued under the 2004 Plan
have been exercised, expire, or have been terminated.

       As of December 31, 2008, no options issued remain outstanding under the
1998 Plan. The 1998 Plan terminated on May 6, 2008.

       Information with respect to the number of shares under stock options is
as follows:
                                                        Weighted
                                                        Average
                                                        Exercise
                                            Shares       Price
                                            ------       -----
       Outstanding at January 1, 2008       73,500      $11.53
        Granted  . . . . . . . .                 -           -
        Exercised  . . . . . . .           (32,000)      10.17
        Forfeited  . . . . . . .                 -           -
        Terminations . . . . . .                 -           -
                                            ------      ------
        Outstanding at December 31, 2008    41,500      $12.59
                                            ======      ======
       Exercisable at end
         of year                            41,500      $12.59
                                            ======      ======

       The total intrinsic value of options exercised during 2008, 2007 and
2006 was approximately $819 thousand, $5.8 million and $827 thousand,
respectively.  The aggregate intrinsic value of options outstanding and
exercisable as of December 31, 2008 was approximately $1.1 million. The total
fair value of shares vested during the years ended December 31, 2008, 2007 and
2006 was approximately $0, $1.7 million and $1.1 million, respectively.  At
December 31, 2008, there was no unrecognized compensation cost related to
nonvested stock options.

       The exercise price for the 41,500 options outstanding at December 31,
2008 is $12.59 with a contractual life of one year.

(c) Stock-Based Compensation Expense

     Stock-based compensation, which includes compensation recognized on stock
option grants and restricted stock awards was included in the following line
items on the accompanying statements of income for the years ended December
31, 2008, 2007 and 2006 (in thousands):

                                                   2008      2007     2006
                                                   ----      ----     ----
Contract costs . . . . . . . . . . . . . . . . .  $1,062     $370     $ 56
Selling, general and administrative expenses . .       -      181      252
                                                  ------     ----     ----
  Total pre-tax stock-based compensation
     included in income before income taxes        1,062      551      308
Income tax benefit recognized for
   stock-based compensation  . . . . . . . . . .    (408)    (212)    (116)
                                                  ------     ----     ----
   Total stock-based compensation expense,
      net of tax				  $  654     $339     $192
                                                  ======     ====     ====


                                          52

(10)  Income Taxes

       We are subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions.  We have substantially concluded all
U.S. federal income tax matters as well as material state and local tax
matters for years through 2004.

       In the accompanying Consolidated Statements of Income, we classify
interest expense related to unrecognized tax benefits as "Interest income,
net" and any penalties in "Selling, general and administrative expenses."  No
interest or penalty expense related to unrecognized tax benefits was
recognized for the year ended December 31, 2008.  As of December 31, 2008 or
2007, no interest or penalties related to unrecognized tax benefits were
accrued.

       We file consolidated federal income tax returns with all of our
subsidiaries.  The components of the provision for income taxes for the years
ended December 31, 2008, 2007, and 2006 are as follows (in thousands):

                                                   2008     2007     2006
                                                   ----     ----     ----
  Current
     Federal . . . . . . . . . . . . . . . . . . $ 9,061   $8,326   $4,521
     State . . . . . . . . . . . . . . . . . . .   1,907    1,384      793
                                                 -------   ------   ------
                                                  10,968    9,710    5,314
  Deferred
     Federal . . . . . . . . . . . . . . . . . .   1,284     (702)    (546)
     State   . . . . . . . . . . . . . . . . . .     (43)    (103)     (68)
                                                 -------   ------   ------
                                                   1,241     (805)    (614)
                                                 -------   ------   ------
  Provision for income taxes                     $12,209   $8,905   $4,700
                                                 =======   ======   ======

       The differences between the amount of tax computed at the federal
statutory rate of 35% for 2008 and 2007 and 34% for 2006, and the provision
for income taxes for 2008, 2007, and 2006 are as follows (in thousands):

                                                   2008     2007     2006
                                                   ----     ----     ----
Tax at statutory federal income
     tax rate  . . . . . . . . . . . . . . . . . $10,937   $8,053   $4,246
Increases (decreases) in tax resulting from:
     State taxes, net of federal tax benefit . .   1,211      833      479
     Permanent differences, net  . . . . . . . .      61       19       15
     Other, net  . . . . . . . . . . . . . . . .       -        -      (40)
                                                 -------   ------   ------
Provision for income taxes                       $12,209   $8,905   $4,700
                                                 =======   ======   ======

       Our deferred tax assets (liabilities) as of December 31, 2008 and 2007,
which represent the tax effects of temporary differences between tax and
financial accounting bases of assets and liabilities and are measured using
presently enacted tax rates, are as follows (in thousands):

                                                        2008           2007
                                                        ----           ----
Current deferred tax assets    . . . . . . . . . . .   $2,891         $1,494
Current deferred tax liabilities   . . . . . . . . .     (519)          (248)
Valuation allowance  . . . . . . . . . . . . . . . .      (75)             -
                                                       ------         ------
  Net current deferred tax assets                       2,297          1,246
                                                       ------         ------

Noncurrent deferred tax assets   . . . . . . . . . .    2,123          2,704
Noncurrent deferred tax liabilities  . . . . . . . .   (2,527)          (816)
                                                       ------         ------
  Net noncurrent deferred tax (liabilities) assets .     (404)         1,888
                                                       ------         ------

  Net deferred tax assets                              $1,893         $3,134
                                                       ======         ======

       As of December 31, 2008 and 2007, we had valuation allowances of
approximately $75 thousand and $0, respectively, against certain deferred tax
assets, which consisted solely of realized capital losses on investments in
our deferred supplemental compensation plan. The valuation allowance is based
on limited unrealized capital gains within the portfolio and the uncertainty
of the future gains due to the current stock market.

                                          53

       We will continue to evaluate our valuation allowance position on a
regular basis.  To the extent that we determine that all or a portion of our
valuation allowance is no longer necessary, we will recognize an income tax
benefit in the period such determination is made for the reversal of the
valuation allowance.  It is expected that any such reduction of our valuation
allowance would have an immaterial impact on our results from operations.

       The tax effect of temporary differences representing deferred tax assets
and liabilities as of December 31, 2008 and 2007, are as follows (in
thousands):

                                                       2008            2007
                                                       ----            ----
Gross deferred tax assets
  Deferred compensation and accrued paid leave . . .  $3,242          $2,658
  Depreciation . . . . . . . . . . . . . . . . . . .     551             870
  Accrued expenses . . . . . . . . . . . . . . . . .     569             360
  Restricted stock expense . . . . . . . . . . . . .     393               -
  Reserve for contract and other disallowances . . .     204             199
  Stock option expense . . . . . . . . . . . . . . .      52              73
  Retainage  . . . . . . . . . . . . . . . . . . . .       3              34
  Allowance for doubtful accounts  . . . . . . . . .       -               4
                                                      ------          ------
    Total gross deferred tax assets                    5,014           4,198
    Less valuation allowance                             (75)              -
                                                      ------          ------
    Net gross deferred tax assets                      4,939           4,198
                                                      ------          ------
Gross deferred tax liabilities
  Depreciation . . . . . . . . . . . . . . . . . . .  (2,272)           (610)
  Deferred revenues  . . . . . . . . . . . . . . . .    (417)           (210)
  Intangible assets  . . . . . . . . . . . . . . . .    (243)           (206)
  Restricted stock expense . . . . . . . . . . . . .    (113)              -
  Retainage  . . . . . . . . . . . . . . . . . . . .       -             (27)
  Accrued expenses . . . . . . . . . . . . . . . . .      (1)            (11)
                                                      ------          ------
    Total gross deferred tax liabilities              (3,046)         (1,064)
                                                      ------          ------

    Net deferred tax assets                           $1,893          $3,134
                                                      ======          ======

       We adopted the provisions of FIN 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109," ("FIN 48"), on
January 1, 2007. FIN 48 clarifies and sets forth consistent rules for
accounting for uncertain income tax positions in accordance with FAS 109. As a
result of applying the provisions of FIN 48, there was no cumulative effect on
retained earnings upon adoption.  In addition, there were no adjustments
recorded during 2008 and 2007 after the initial adoption of FIN 48.


(11)  Commitments and Contingencies

(a)  Leases and Other Commitments

       We have various non-cancelable operating leases for facilities,
equipment, and software with terms between two and ten years. The terms of the
facilities leases typically provide for certain minimum payments as well as
increases in lease payments based upon the operating cost of the facility and
the consumer price index.  Rent expense is recognized on a straight-line basis
for rent agreements having escalating rent terms.  Payments on leases for
2008, 2007, and 2006 were as follows (in thousands):

                                    Payments           Sublease          Net
                                    on Leases           Income         Expense
                                    ---------           ------         -------
       2008 . . . . . . . . . . .   $10,378             $  709          $9,669
       2007 . . . . . . . . . . .     7,180                981          $6,199
       2006 . . . . . . . . . . .     4,128                930           3,198


                                          54

       Future minimum annual non-cancelable commitments as of December 31, 2008
are as follows (in thousands):
                                      Lease             Sublease       Net
                                    Commitments          Income    Commitments
                                    -----------          ------    -----------
       2009 . . . . . . . . . . .     $ 9,347            $  449       $ 8,898
       2010 . . . . . . . . . . .       8,359               459         7,900
       2011 . . . . . . . . . . .       7,489               477         7,012
       2012 . . . . . . . . . . .       6,342               497         5,845
       2013 . . . . . . . . . . .       4,387               169         4,218
       Thereafter . . . . . . . .       5,544                 -         5,544
                                      -------            ------       -------
          Total                       $41,468            $2,051       $39,417
                                      =======            ======       =======
(b)  Contingencies

       	We have, in the normal course of business, certain claims against us and
against other parties.  In our opinion, the resolution of these claims will
not have a material adverse effect on our results of operations or financial
position. However, the results of any legal proceedings cannot be predicted
with certainty.


(12)  Business Segments and Customer Information

	Segment Information

       Management of our business operations is conducted under four reportable
operating segments: the Federal Group, the International Group, the IT, Energy
and Management Consulting Group (formerly the Energy and Environmental Group,
renamed in April 2008), and the Infrastructure Group (formerly the
Infrastructure and Information Technology Group, renamed in April, 2008).
These segments operate under separate management teams and discrete financial
information is produced for each segment.  The various divisions within the
Federal Group and the International Group and the two subsidiaries within the
IT, Energy and Management Consulting Group are operating segments as defined
by SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS No. 131"), and meet the aggregation of operating segments
criteria of SFAS No. 131.  We evaluate segment performance based on
consolidated revenues and profits or losses from operations before income
taxes.

       	Federal Group - The Federal Group provides engineering, technical,
management, integrated logistics support and information technology services to
all U.S. military branches and other Government agencies. The Federal Group
includes five divisions: CED, ELD, FSS, MSD and SED.

       	International Group - Our International Group provides engineering,
industrial, logistics and foreign military sales services to the U.S. military
and other Government agencies. It consists of three divisions: BAV, VCG and
FMD.

       IT, Energy and Management Consulting Group - The IT, Energy and
Management Consulting Group provides technical and consulting services primarily
to various civilian Government agencies. This group includes Energetics and,
upon acquisition in April 2008, also includes G&B. See footnote 5 for
information regarding the acquisition of G&B.

       Infrastructure Group - Our Infrastructure Group was created in
connection with the June 4, 2007 acquisition of our wholly owned subsidiary,
ICRC. ICRC is engaged principally in providing diversified technical and
management services to the Government, including transportation infrastructure
services, advanced vehicle technology, aerospace services and engineering and
information technology.  See footnote 5 for information regarding the
acquisition of ICRC.


                                          55

       Our segment information is as follows (in thousands):

                                                  2008      2007      2006
                                                  ----      ----      ----
Revenues:
  Federal Group                               $  667,407  $360,690  $190,956
  International Group                            220,021   228,002   158,452
  IT, Energy and Management Consulting
    Group                                         49,927    14,522    14,269
  Infrastructure Group                           106,380    49,918         -
  Corporate                                            -        32        57
                                              ----------  --------  --------
    Total revenues                            $1,043,735  $653,164  $363,734
                                              ==========  ========  ========
Income before income taxes:
  Federal Group                               $   18,594  $ 12,075  $  5,432
  International Group                              5,719     7,435     5,487
  IT, Energy and Management Consulting
    Group                                          4,649     1,614     1,795
  Infrastructure Group                             4,167     2,808         -
  Corporate/unallocated expenses                  (1,880)     (925)     (225)
                                              ----------  --------  --------
    Income before income taxes                $   31,249  $ 23,007  $ 12,489
                                              ==========  ========  ========
Interest (income) expense:
  Federal Group                               $     (379) $   (252) $    423
  International Group                                110      (124)     (258)
  IT, Energy and Management Consulting
    Group                                           (198)     (272)     (218)
  Infrastructure Group                               (72)      (44)        -
  Corporate                                          424        (7)     (374)
                                              ----------  --------  --------
    Total interest (income) expense             $   (115) $   (699) $   (427)
                                              ==========  ========  ========
Depreciation and amortization expense:
  Federal Group                                 $  2,242  $  1,514  $  1,044
  International Group                                967       890       655
  IT, Energy and Management Consulting
    Group                                            877       184       183
  Infrastructure Group                             1,351       875         -
                                              ----------  --------  --------
    Total depreciation and amortization         $  5,437  $  3,463  $  1,882
                                              ==========  ========  ========
Capital expenditures:
  Federal Group                                 $  5,941  $  6,401  $  2,258
  International Group                              1,248       332       519
  IT, Energy and Management Consulting
    Group                                            419        75        99
  Infrastructure Group                               247        34         -
  Corporate                                        2,161     1,889     2,742
                                              ----------  --------  --------
    Total capital expenditures                  $ 10,016  $  8,731  $  5,618
                                              ==========  ========  ========
Total assets:
  Federal Group                                 $145,786  $ 74,204  $ 40,670
  International Group                             47,331    49,438    33,541
  IT, Energy and Management Consulting
    Group                                         17,258     3,860     4,174
  Infrastructure Group                            17,933    14,885         -
  Corporate                                       47,658    29,384    20,150
                                              ----------  --------  --------
    Total assets                                $275,966  $171,771  $ 98,535
                                              ==========  ========  ========

       Revenues are net of inter-segment eliminations.  Corporate/unallocated
expenses are primarily selling, general and administrative expenses not
allocated to segments.  Corporate assets are primarily cash and fixed assets.


                                          56

Customer Information

	We are engaged principally in providing engineering, design, logistics,
management and technical services to the Government, other Government prime
contractors, and commercial entities. The largest customer for our services is
the U.S. Department of Defense ("DoD"), including agencies of the U.S. Navy,
Army, and Air Force. Our revenue by customer is as follows (in thousands):

                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
--------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====


       We do not measure revenue or profit by product or service lines, either
for internal management or external financial reporting purposes, because it
would be impractical to do so. Products offered and services performed are
determined by contract requirements and the types of products and services
provided for one contract bear no relation to similar products and services
provided on another contract. Products and services provided vary when new
contracts begin or current contracts expire. In many cases, more than one
product or service is provided under a contract or contract task order.
Accordingly, cost and revenue tracking is designed to best serve contract
requirements and segregating costs and revenues by product or service lines in
situations for which it is not required would be difficult and costly to both
us and our customers.


(13)  Capital Stock

Common Stock

       Our common stock has a par value of $.05 per share.  Proceeds from the
issue of the common stock that is greater than $.05 per share is credited to
additional paid in capital.  Holders of common stock are entitled to one vote
per common share held on all matters voted on by our stockholders.
Stockholders of record are entitled to the amount of dividend declared per
common share held.


                                          57

(14)  ESOP/401(k) Plan and Profit Sharing Plan

       We have an ESOP/401(k), the VSE Corporation ESOP/401(k) Plan (the
"Plan"), that allows employees meeting certain age and service requirements to
contribute a portion of their salary to certain investment trusts. Under the
terms of the plan, employer 401(k) contributions are made on behalf of the
eligible employee participants based on the employees' 401(k) payroll
deferrals. Effective January 1, 2007, the plan was amended to incorporate the
Safe Harbor method of meeting nondiscrimination requirements of the Internal
Revenue Code.  Beginning with the 2007 plan year, the employer contribution is
equal to 100% of the employee deferral on the first 3% of the employee pay
deferred and 50% of the employee deferral on the next 2% of the employee pay
deferred. Our expense associated with this plan for 2008, 2007, and 2006 was
approximately $1.9 million, $1.4 million, and $584 thousand, respectively.
The increase in our expense in 2008 and 2007 as compared to 2006 was due to:
(1) an increase in the number of employees receiving an employer contribution
as a result of new employees hired and the eligibility of Energetics'
employees to receive employer contributions; and (2) the change in the rate of
employer contributions associated with the use of the Safe Harbor method of
meeting nondiscrimination requirements in 2008 and 2007.

       Prior to April 1, 1999, we made contributions under this plan into an
ESOP trust which purchased VSE common stock on behalf of employees who met
certain age and service requirements and were employed at the end of the plan
year. Subsequent to April 1, 1999, the ESOP contributions were discontinued
and replaced by employer 401(k) contributions. The ESOP/401(k) plan held
95,499 shares and 446,978 shares of VSE common stock as of December 31, 2008
and 2007, respectively.  Such shares receive dividend payments and are
included in the weighted average shares for earnings per share calculations.

       In 2008, we decided that employees should have an opportunity to
diversify their VSE common stock in their 401(k) accounts held in the VSE
Corporation Employee ESOP/401(k) Plan beginning with our 2008 Plan year. In
January 2008, employees were notified that they may elect to transfer any
portion of their 401(k) accounts that is invested in VSE common stock from
that investment into another investment alternative under the Plan. This right
extends to all of VSE common stock held under the 401(k) portion of the Plan.
In addition, we have decided to terminate and liquidate the ESOP portion of
the VSE Corporation Employee ESOP/401(k) Plan and, as elected by the
employees, either distribute  VSE common stock held in the ESOP accounts to
the employees or rollover such VSE common stock into an Individual Retirement
Account or employee plan selected by the employee. ESOP shares were
distributed to employees in the third quarter of 2008.

       Energetics maintains a profit sharing plan for its employees.  All
employees who have completed two years of service are members of the profit
sharing plan. At its discretion, Energetics may make contributions to the
plan. The plan expense for 2008, 2007, and 2006 was $240 thousand, $227
thousand, and $412 thousand, respectively.

       ICRC sponsors a 401(k) profit sharing plan covering all ICRC regular
status employees.  To be eligible to participate in the plan, an employee must
have completed one month of service with ICRC.  The discretionary employer
contributions are immediately vested.  The amount charged to operations for
employer contributions for 2008 and the post acquisition period of 2007 was
approximately $286 thousand and $378 thousand, respectively.

       G&B maintains a defined contribution retirement plan (the "Plan"),
established under the provisions of Internal Revenue Code Section 401(k),
covering substantially all employees.  Participants may make voluntary
contributions up to the maximum amount allowable by law.  G&B matches a
percentage of the amount contributed by each participant to comply with safe
harbor methods.  At its discretion, G&B may make an additional profit sharing
contribution for participants who have completed one year of service.  The
amount charged to operations for employer contributions during the post
acquisition period of April, 2008 through December 31, 2008 was approximately
$334 thousand.

                                          58

(15)  Fair Value Measurements

       On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements,"
which defines fair value, establishes a market-based hierarchy for measuring
fair value and expands disclosures about fair value measurements.  SFAS 157 is
applicable whenever another accounting pronouncement requires or permits
assets and liabilities to be measured at fair value, but does not require any
new fair value measurements.

       The fair-value hierarchy established in SFAS 157 prioritizes the inputs
used in valuation techniques into three levels as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical
assets and liabilities;

Level 2 - Observable inputs other than the quoted prices in active markets for
identical assets and liabilities - includes quoted prices for similar
instruments, quoted prices for identical or similar instruments in inactive
markets, and amounts derived from valuation models where all significant
inputs are observable in active markets; and

Level 3 - Unobservable inputs - includes amounts derived from valuation models
where one or more significant inputs are unobservable and require us to
develop relevant assumptions.

       Included in other long-term assets as of December 31, 2008 is
approximately $3.3 million of investments we hold in a trust related to a non-
qualified benefit plan.  We determined the fair value of these assets and
corresponding liability using the Level 1 methodology.  We have an offsetting
deferred compensation liability for this plan.  As such, we do not have income
statement volatility as a result of fluctuations in the value of the plan's
investments.


(16)  Selected Quarterly Data (Unaudited)

       The following table shows selected quarterly data for 2008 and 2007, in
thousands, except earnings per share:

                                                    2008 Quarters
                                                    -------------
                                          1st       2nd       3rd       4th
                                          ---       ---       ---       ---
Revenues . . . . . . . . . . . . . . . $188,723  $251,688  $306,811  $296,513
                                       ========  ========  ========  ========
Gross profit . . . . . . . . . . . . . $  5,907  $  8,049  $  9,021  $  9,350
                                       ========  ========  ========  ========
Net income . . . . . . . . . . . . . . $  3,598  $  4,769  $  5,309  $  5,364
                                       ========  ========  ========  ========

Basic earnings per share . . . . . . . $    .71  $    .94  $   1.05  $   1.05
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    5,059     5,066     5,076     5,088
                                       ========  ========  ========  ========
Diluted earnings per share . . . . . . $    .71  $    .94  $   1.04  $   1.05
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    5,087     5,095     5,100     5,104
                                       ========  ========  ========  ========


                                          59

                                                    2007 Quarters
                                                    -------------
                                          1st       2nd       3rd       4th
                                          ---       ---       ---       ---

Revenues . . . . . . . . . . . . . . . $120,689  $159,644  $174,692  $198,139
                                       ========  ========  ========  ========
Gross profit . . . . . . . . . . . . . $  4,441  $  5,679  $  5,663  $  7,430
                                       ========  ========  ========  ========
Net income . . . . . . . . . . . . . . $  2,729  $  3,547  $  3,359  $  4,467
                                       ========  ========  ========  ========

Basic earnings per share . . . . . . . $    .57  $    .72  $    .67  $    .89
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    4,807     4,932     5,024     5,046
                                       ========  ========  ========  ========
Diluted earnings per share . . . . . . $    .56  $    .71  $    .66  $    .88
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    4,890     4,977     5,063     5,082
                                       ========  ========  ========  ========

       The fourth quarter 2007 operating results in the table presented above
are misstated as a result of an error related to the accounting for a cost-
plus incentive fee contract that understated quarterly revenues by $1.2
million, quarterly net income by $703 thousand and quarterly earnings per
share by $0.14 per share. The effects of this error on all other periods are
immaterial. For the year ended December 31, 2007, this error resulted in an
understatement of revenues by $635 thousand, net income by $386 thousand and
earnings per share by $0.08 per share.


ITEM 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure

     None.


ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management has evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act).
Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of such date, our disclosure controls and
procedures were effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and that such information
is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2008 based on
the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal Control - Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2008. Ernst & Young LLP, our independent
registered public accounting firm, has issued an opinion on our internal
control over financial reporting. This opinion appears in the Report of
Independent Registered Public Accounting Firm under Item 9(a) of this Annual
Report on Form 10-K.

                                          60


Change in Internal Controls

     During the fourth quarter of fiscal year 2008, there were no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have
materially affected these controls, or are reasonably likely to materially
affect these controls subsequent to the evaluation of these controls.




























































                                          61

           Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of VSE Corporation

We have audited VSE Corporation's internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). VSE Corporation's management is
responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management's Report on
Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the company's internal control over financial reporting based on
our audit.

We conducted our audit 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
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, VSE Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
VSE Corporation and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2008 and
our report dated March 2, 2009 expressed an unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP

McLean, VA
March 2, 2009


                                          62

ITEM 9B.  Other Information

	None.


                                  PART III

	Except as otherwise indicated below, the information required by Items
10, 11, 12, 13 and 14 of Part III of Form 10-K has been omitted in reliance of
General Instruction G(3) to Form 10-K and is incorporated herein by reference
to our definitive proxy statement to be filed with the SEC not later than 120
days after December 31, 2008 in respect to the Annual Meeting of VSE's
stockholders (the "Proxy Statement") scheduled to be held on May 5, 2009.


ITEM 10.   Directors, Executive Officers and Corporate Governance

       	See Item 4 under the caption "Executive Officers of the Registrant," and
the remaining information required by this Item is incorporated by reference
to the Proxy Statement.


ITEM 11.   Executive Compensation

       The information required by this Item is incorporated by reference to
the Proxy Statement.


ITEM 12.   Security Ownership of Certain Beneficial Owners and
	     Management and Related Stockholder Matters

       Except for the "Equity Compensation Plan Information" disclosed in Item
5(d) above, the information required by this Item is incorporated by reference
to the Proxy Statement.


ITEM 13.   Certain Relationships and Related Transactions, and Director
           Independence

       	The information required by this Item is incorporated by reference to
the Proxy Statement.


ITEM 14.   Principal Accountant Fees and Services

       	The information required by this Item is incorporated by reference to
the Proxy Statement.


                                   PART IV

ITEM 15.   Exhibits, Financial Statement Schedules

      1.	Financial Statements

		The consolidated financial statements are listed under Item 8 of
this report.

      2.	Supplemental Financial Statement Schedules

       Schedules not included herein have been omitted because of the absence
of conditions under which they are required or because the required
information, where material, is shown in the consolidated financial
statements, notes to the consolidated financial statements, or supplementary
financial information.


                                          63

3.	Exhibits

		See "Exhibit Index" hereinafter contained and incorporated by
reference.



































                                          64

                                 SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                     VSE CORPORATION

Date:  February 27, 2009             By: /s/ M. A. Gauthier
                                         ----------------------------------
                                         M. A. Gauthier
                                         Director, Chief Executive Officer,
                                         President and Chief Operating
                                         Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

           Name                       Title                      Date
-----------------------------------------------------------------------------
/s/ M. A. Gauthier
----------------------------      Director, Chief Executive    February 27, 2009
M. A. Gauthier	                  Officer, President and
                                  Chief Operating Officer

/s/ T. R. Loftus                  Executive Vice President     February 27, 2009
----------------------------      and Chief Financial Officer
Thomas R. Loftus		  (Principal Financial and
                                  Accounting Officer)

/s/ D. M. Ervine                  Executive Chairman           February 27, 2009
----------------------------
D. M. Ervine

/s/ C. M. Kendall                 Director		       February 27, 2009
----------------------------
Clifford M. Kendall

/s/ C. S. Koonce                  Director		       February 27, 2009
----------------------------
Calvin S. Koonce

/s/ J. F. Lafond                  Director		       February 27, 2009
----------------------------
James F. Lafond

/s/ D. M. Osnos                   Director		       February 27, 2009
----------------------------
David M. Osnos

/s/ J. D. Ross                    Director		       February 27, 2009
----------------------------
Jimmy D. Ross

/s/ B. K. Wachtel                 Director		       February 27, 2009
----------------------------
Bonnie K. Wachtel

/s/ R. E. Eberhart                Director		       February 27, 2009
----------------------------
Ralph E. Eberhart

                                          65

                                EXHIBIT INDEX

Reference No.                                                      Exhibit No.
per Item 601 of                                                      in this
Regulation S-K             Description of Exhibit                   Form 10-K
--------------             ----------------------                   ---------

     2.1     Plan of acquisition, reorganization, arrangement,
             liquidation or succession
             Share Purchase Agreement, dated as of June 4, 2007,
               by and among VSE Corporation, Koniag, Inc.,
               Koniag Development Corporation, Nancy Ellen Lexo
               Living Trust, James W. Lexo, Jr., and Integrated
               Concepts and Research Corporation (Exhibit 2.1 to
               Form 8-K dated June 4, 2007)				 *
     2.2     Share Purchase Agreement, dated as of April 14, 2008,
               by and among VSE Corporation, Linda Kay Berdine
               Revocable Trust, Linda K. Berdine and
               G&B Solutions, Inc. (Exhibit 2.1 to Form 8-K dated
               April 14, 2008)                                           *
     3.1     Certificate of incorporation and by-laws
               Restated Certificate of Incorporation of VSE
                Corporation dated as of February 6, 1996 (Exhibit
                3.2 to Form 10-K405 dated March 25, 1996)                *
     3.2     By-Laws of VSE Corporation as amended through
                 December 17, 2008 (Exhibit 3.1 to Form 8-K dated
                 December 17, 2008)                                      *
     4.1     Instruments defining the rights of security holders,
             including indentures
               Specimen Stock Certificate as of May 19, 1983
                (Exhibit 4 to Registration Statement No. 2-83255
                dated April 22, 1983 on Form S-2)                        *   +
    10.1     Material contracts
		 Employment Agreement entered into as of December 10,
		   1997, by and between VSE Corporation and
		   Craig S. Weber (Exhibit VIII to Form 10-K dated
		   March 7, 2001)                                        *   +
    10.3      Employment Agreement entered into as of June 3,
                1999, by and between VSE Corporation and
                James M. Knowlton (Exhibit V to Form 10-K dated
                March 15, 2000)                                          *   +
    10.4      Employment Agreement dated as of March 10, 2004,
                by and between VSE Corporation and Thomas G. Dacus
               (Exhibit 10.1 to Form 10-Q dated April 28, 2004)	         *   +
    10.5      Employment Agreement dated as of July 1, 2004,
                by and between VSE Corporation and Thomas R. Loftus
               (Exhibit 10.1 to Form 10-Q dated July 30, 2004)           *   +
    10.6      Business Loan and security Agreement dated August 14,
                2007 among VSE Corporation, Energetics Incorporated,
                VSE Services International, Inc., Integrated
                Concepts and Research Corporation and Citizens Bank
                of Pennsylvania                                     Exhibit 10.1
    10.7      First Amendment to Business Loan and Security Agreement
                dated as of May 21, 2008 among VSE Corporation,
                Energetic Incorporation, VSE Services International,
                Inc., Integrated Concepts and Research Corporation,
                G&B Solutions, Inc. and Citizens Bank of
                Pennsylvania                                        Exhibit 10.2
    10.8      Employment Agreement dated as of April 22,
                2008, by and between VSE Corporation and
                Maurice G. Gauthier (Exhibit 10.1 to Form 8-K
                dated April 22, 2008)                                    *   +
    10.9      Transition Agreement dated as of April 22,
                2008, by and between VSE Corporation and
                Donald M. Ervine (Exhibit 10.2 to Form 8-K dated
                April 22, 2008)                                          *   +

                                          66

                                EXHIBIT INDEX

Reference No.                                                      Exhibit No.
per Item 601 of                                                      in this
Regulation S-K             Description of Exhibit                   Form 10-K
--------------             ----------------------                   ---------

    10.10     Severance and Mutual Protection Agreement
                dated as of November 7, 2008 by and between
                VSE Corporation and Thomas M. Kiernan               Exhibit 10.3
    10.11     Statement of Amendment Number One to the
                Transition agreement, dated December 30,2008
                between VSE Corporation and Donald M. Ervine
                (Exhibit 10.1 to Form 8-K dated January 6, 2009)         *   +
    10.12     Statement of Amendment Number Two to the Transition
                Agreement, dated December 31, 2008, between
                VSE Corporation and Donald M. Ervine (Exhibit
                10.2 to Form 8-K dated January 6, 2009)                  *   +
    10.13     VSE Corporation Deferred Supplemental Compensation
                Plan effective January 1, 1994 as amended by the
                Board through March 9, 2004 (Exhibit 10.2 to
                Form 10-Q dated April 28, 2004) 			 *   +
    10.14     VSE Corporation 2004 Stock Option Plan (Appendix B to
                Registrant's definitive proxy statement for the Annual
                Meeting of Stockholders held on May 3, 2004)		 *   +
    10.15     VSE Corporation 2004 Non-employee Directors Stock Plan
                (Appendix C to Registrant's definitive proxy statement
                for the Annual Meeting of Stockholders held on
                May 3, 2004)                               		 *   +
    13.1      Annual report to security holders, Form 10-Q
                or selected quarterly data		     	    Exhibit 13
    21.1      Subsidiaries of the Registrant 		     	    Exhibit 21
    23.1      Consent of Ernst & Young LLP, independent
                registered public accounting firm                   Exhibit 23.1
    31.1      Section 302 CEO Certification                         Exhibit 31.1
    31.2      Section 302 CFO and PAO Certification                 Exhibit 31.2
    32.1      Section 906 CEO Certification                         Exhibit 32.1
    32.2      Section 906 CFO and PAO Certification                 Exhibit 32.2
    99.1      Audit Committee Charter (as adopted by the Board
                Of Directors of VSE Corporation on March 9, 2004
                (Appendix A to Registrant's definitive proxy
                statement for the Annual Meeting of Stockholders
                held on May 3, 2004                                      *


*Document has been filed as indicated and is incorporated by reference herein.
+Indicates management contract or compensatory plan or arrangement.



















                                          67