We have reviewed the accompanying consolidated balance sheet of KSW, Inc. and subsidiary as of June 30, 2000, and the related consolidated statements of operations, retained earnings, and cash flows for the three months then ended. These consolidated financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of KSW, Inc. and Subsidiary as of December 31, 1999, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended not presented herein; and in our report dated July 27, 2000, we expressed an unqualified opinion on those consolidated financial statements.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues
Total revenues for the second quarter of 2000 increased by 91% or $7,028,000 to $14,764,000 compared to $7,736,000 for the second quarter of 1999. During the first six months of 2000, revenues increased 61% or $10,221,000 to $26,885,000 compared to $16,664,000 for the first six months of 1999. These increases in revenues for the second quarter and the first six months of 2000 were due to work on new construction projects the Company has taken. On January 1, 1999 the Company had a backlog of $36,000,000 which increased to $50,000,000 at June 30, 1999; however, no substantial work was done on the new projects booked in the first half of 1999 until the third quarter of 1999. The Company’s backlog at June 30, 2000 is $54,000,000.
Cost of Sales
Cost of sales for the second quarter 2000 increased by $6,283,000 or 93% to $13,052,000 from $6,769,000 as a result of the increase in sales revenue noted above. Cost of sales for the first six months of 2000 increased by $8,615,000 or 59% to $23,258,000 from $14,653,000 for the same reason.
Gross Profit
Gross profit increased by 77% or $745,000 from $967,000 for the second quarter of 1999 to $1,712,000 in the second quarter of 2000. During the first six months gross profit increased from $2,021,000 in 1999 to $3,627,000 for the same period in 2000, an increase of $1,606,000 or 80%. Gross profit for the second quarter of 2000 was 11.6% as compared to 12.5% for the second quarter of 1999. Gross profit for the first six months of 2000 rose to 13.5% as compared to 12.1% for the first six months of 1999.
Selling General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) increased from $947,000 for the second quarter of 1999 to $1,167,000 for the second quarter of 2000, an increase of $220,000 or 23%. For the six months ended June 30, 2000, SG&A expenses increased $464,000 or 25% from $1,867,000 to $2,331,000. The increases were due to the significant increase in sales volume. For the second quarter and first six months of 2000 the SG&A was 7.9% and 8.7% of sales respectively, compared to 12.2% and 11.2% for the same periods in 1999.
Provision for Taxes
The tax provision for the three months ended June 30, 2000 was $254,000 as compared to $8,000 for the same period in 1999. For the six months ended June 30, 2000 the tax provision was $584,000 compared to $48,000 for the same period in 1999. The tax provision for periods in 2000 was approximately 46% of taxable income. For the first six months ended June 30, 1999 it was slightly lower at 34% due to a reversal of an over accrual of 1998 taxes in the first quarter of 1999.
Net Income
The net income for the second quarter of 2000 was $286,000 compared to $6,000 for the second quarter of 1999 due to the items mentioned above. For the six months ended June 30, 2000 there was a net profit of $699,000 compared to a profit of $93,000 for the same period in 1999, an increase of $606,000 or 652%.
Liquidity and Cash Flow
For the first six months of 2000, cash used by operations was $120,000. For the same period in 1999 the cash provided by operations was $584,000. The small decrease in cash flow for the first half of 2000 was due to the increase in accounts and retainage receivable as a result of the increased sales volume.
The Company recently signed a new one year line of credit facility with Merrill Lynch for $2,000,000. The line of credit calls for borrowing at 3% over the 30 day dealer Commercial Paper Rate which at June 30, 2000 was .1% over prime. In addition, to obtaining a lower rate, the Company was able to significantly lower its banking fees by changing its banking relationship with Merill Lynch.
The Company has no significant capital improvements projected over the next year; however, the Company is currently investigating new lines of business which may require additional funds for start up costs.
Forward-Looking Statements
All statements contained herein and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts, including but not limited to statements regarding the Company’s current business strategy, and plans for future development and operations are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties, many of which are not within the control of the Company. Actual results may differ materially. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Litigation Reform Act of 1995 and as such, speak only as of the date made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure with respect to financial instruments depends upon changes in the "30 day Dealer Commercial Paper Rate". The Company may borrow up to $2,000,000 under its credit facility. At June 30, 2000, there were no amounts outstanding under the credit facility. The Company currently does not use interest rate derivative instruments to manage exposure to interest rate charges.
PART II - Other Information
Item 1. Legal Proceedings
See Note 2 to Consolidated Financial Statements.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company’s Annual meeting on May 11, 2000, the stockholders approved the following resolutions:
| | | a. | The stockholders re-elected Robert Brussel as a Class II director to serve for a term of three years. There were 4,084,453 shares voted for the resolution and 7,575 shares voted against it. |
| | | b. | The stockholders ratified the appointment of Marden, Harrison & Kreuter as independent auditors for the Company for the year 2000. There were 4,087,814 shares voted for the resolution, 2,467 shares voted against it and 1,747 abstentions. |
Item 5. Other Information
None.
Item 6. Exhibits & Reports on Form 8-K
| | | | Exhibit 11 - Statement Regarding Computation of Per Share Earnings |
| | | | Exhibit 27 - Financial Data Schedule |
| | | b. | The Company did not file any Current Reports on Form 8-K during the second quarter of 2000. |
SIGNATURE
Pursuant to the requirements 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.
Date: August 14 , 2000
| /s/ Robert Brussel
Robert Brussel
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer) |
KSW, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- - ------ ----------- -------------
11 Statement Regarding Computation of Per Share Earnings 13
27 Financial Data Schedule 14
