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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 0-27290
KSW, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
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(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
37-16 23RD STREET, LONG ISLAND CITY, NEW YORK 11101
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
718-361-6500
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 REQUIREMENTS FOR THE PAST 90 DAYS. YES X No__
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
OUTSTANDING
CLASS JUNE 30, 1998
COMMON STOCK, $.01 PAR VALUE 5,468,644
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THIS IS PAGE 1 OF 13 PAGES.
INDEX TO EXHIBITS IS ON PAGE 11.
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 3
June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operation 4
Six months and three months ended June 30,
1998 and 1997
Condensed Consolidated Statements of Cash Flows - 5
Six months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Change in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of SecurityHolders 9
Item 5 Other Information 9
Item 6. Exhibits and Reports on Form 8-K. 9
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SIGNATURES 10
INDEX TO EXHIBITS 11
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KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSET JUNE 30, 1998 DEC. 31, 1997
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Current Assets:
Cash and Cash Equivalents $ 3,660 $ 2,184
Accounts Receivable, less allowance
for doubtful accounts of $122 at
June 30, 1998 and Dec. 31, 1997 9,169 13,186
Retainage Receivable 5,312 4,984
Costs and estimated earnings in excess
of billings on uncompleted contracts 100 209
Prepaid expense and other receivables 1,421 946
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Total Current Assets 19,662 21,509
Property and equipment net of accumulated
depreciation of $1,208 and $1,076 at June
30, 1998 and Dec. 31, 1997 respectively 482 569
Other Assets
Goodwill, net of accumulated amortization of
$941 and $841 at June 30, 1998 and Deember 31, 1997
respectively 4,049 4,126
Other 8 65
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TOTAL ASSETS $ 24,201 $ 26,269
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LIABILITIES and STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable $ 6,317 $ 8,508
Retainage Payable 2,553 4,030
Accrued Payroll and Related Benefits 567 806
Accrued Expenses 762 733
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,130 1,623
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Total Current Liabilities 14,329 15,700
Long Term Liabilities 66 70
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Total Liabilities 14,395 15,770
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Stockholders' Equity:
Common Stock,$.01 par value:25,000,000 shares
authorized: 5,468,644 and 5,471,311 shares issued 54 54
and outstanding June 30, 1998 and Dec. 31, 1997
respectively 54 54
Additional Paid-in Capital 9,726 9,763
Retained Earnings 26 682
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Total Stockholders' Equity 9,806 10,499
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,201 $26,269
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KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/98 6/30/97 6/30/98 6/30/97
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Revenues
Contracts $ 19,642 $ 36,882 $ 9,919 $ 16,946
Fees from Sellers 20 167 13 30
Interest 48 94 30 48
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19,710 37,143 9,962 17,024
Direct Cost 18,732 34,450 9,488 16,064
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GROSS PROFIT 978 2,693 474 960
Selling, General and Administrative Expenses 2,209 1,920 1,066 925
Interest 22 17 10 11
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Profit/(Loss) before (1,253) 756 (602) 24
provision for income taxes
Provision for income taxes (597) 242 (277) 10
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NET PROFIT (LOSS) $ (656) $ 514 $ (325) $ 14
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Net Profit/(loss) per common share basic $ (0.12) $ 0.09 $ (0.06) $ 0
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Weighted Average Common Shares outstanding - basic 5,458,366 5,542,978 5,458,366 5,542,978
========= ========= ========= =========
Net Profit/(loss) per common share diluted $ (0.11) $ 0.09 $ (0.06) $ 0
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Weighted Average Common Shares diluted 5,741,548 5,735,170 5,701,278 5,737,069
========= ========= ========= =========
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS Six Months
ENDED ENDED
6/30/98 6/30/97
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Cash Flows from operating activities:
Net Income (Loss) $ (656) $ 514
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and Amortization 209 238
Changes in Operating Assets and Liabilities
Accounts and Retainage Receivable 3,689 1,082
Costs and Estimated Earnings in excess of billings
on uncompleted contracts 109 547
Prepaid Expenses and other (475) (332)
Accounts and Retainage Payable (3,668) (1,253)
Accrued Salaries and Related Benefits (239) 53
Accrued Expenses 29 (152)
Billings in excess of costs and estimated earnings on
uncompleted contracts 2,507 (1,874)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: 1,505 (1,177)
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Cash Flows From Investing Activities:
Purchase of Property and Equipment (45) (103)
Other Assets 57 21
Other Liabilities (4) -
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NET CASH USED IN INVESTING ACTIVITIES 8 (82)
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Cash Flows from Financing Activities:
Issuance of Stock 102 -
Exercise of Stock Options 20 -
Repurchase of Stock (159) -
Long-term Liabilities - 200
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NET CASH PROVIDED BY FINANCING ACTIVITIES (37) 200
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Net Increase/(Decrease) in Cash and Cash Equivalents 1,476 (1,059)
Cash and Cash Equivalents, beginning of period 2,184 4,464
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,660 $ 3,405
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KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of June 30, 1998 and December 31, 1997 and the results of
operations and cash flows for the six and three month periods ended June 30,
1998 and 1997. Because of the possible fluctuations in the marketplace in the
construction industry, operating results of the Company on a quarterly basis may
not be indicative of operating results for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter decreased by 41%, or $7,062,000, to
$9,962,000, compared to $17,024,000 for the second quarter of 1997. During the
first six months of 1998, revenues decreased 47% to $19,710,000 compared to
$37,143,000 for the first six months of 1997. These decreases in revenues for
the second quarter and the first six months of 1998 were due primarily to a
lower backlog of construction projects at December 31, 1997 compared to December
31, 1996. Backlog increased 20% from December 31, 1997 ($30,000,000) to June 30,
1998 ($36,000,000).
COST OF SALES
Cost of sales for the second quarter 1998 decreased by $6,576,000, or 41%, to
$9,488,000 from $16,064,000 as a result of the decrease in sales revenues noted
above. Cost of sales for the first six months of 1998 decreased by $15,718,000,
or 46%, to $18,732,000 from $34,450,000.
GROSS PROFIT
Gross profit decreased by 51%, or $486,000, from $960,000 in the second quarter
of 1997 to $474,000 in the second quarter of 1998, primarily due to the decrease
in sales volume noted above. The gross profit percentage decreased from 5.6 %
for the second quarter of 1997 to 4.8% in the second quarter of 1998. The second
quarter of 1998 continued to be affected by additional costs on a project which
had experienced construction delays and subsequent acceleration of work to meet
the contract schedule. During the second quarter of 1998, $445,000 of additional
costs were incurred. Had these costs not been incurred, the gross profit for the
quarter would have been 9.2%. The project is substantially complete (98%) at
June 30, 1998.
The Company has submitted proposals, which if rejected will be pursued as
claims, with the general contractor in the sum of $3,676,823 to recover its
additional costs on this large, multi-year project. While there is no assurance
that these proposals will be successful, management believes these proposals to
be meritorious. In accordance with generally accepted accounting principles, the
Company has not booked any revenues or profits with respect to these proposals.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased from $925,000
for the second quarter of 1997 to $1,066,000 in the second quarter of 1998, an
increase of $143,000 or 15%. For the six months ended June 30, 1998, SG&A
expenses increased $289,000 or 15% from $1,920,000 to $2,209,000. The Company
has re-negotiated its lease for its Long Island City facility which should
result in a reduction in overhead during the later part of 1998 as well as 1999.
PROVISION FOR TAXES
The tax benefit for the three months ended June 30, 1998 was $277,000 as
compared to a provision of $10,000 for the same period in 1997, due to the
profit/loss for the respective periods.
NET GAIN/LOSS
The net loss for the second quarter of 1998 was ($325,000) compared to a net
profit of $14,000 for the second quarter of 1997 due to the items mentioned
above. For the six months ended June 30, 1998, there was a net loss of
($656,000) compared to a profit of $514,000 for the same period in 1997.
LIQUIDITY AND CASH FLOW
For the first six months of 1998, cash provided by operations was $1,505,000.
For the same period in 1997 the cash used in operations was $1,177,000. The cash
flow for the first half of 1998 was a result of lower sales volume and improved
billings and collections.
While no significant capital improvements are projected over the next year, cash
may be needed to fund the start-up costs for new projects. The Company has
reduced its credit facility with Fleet Bank from $3,000,000 to $2,000,000 in
order to reduce commitment fees. The Company has not used any portion of the
line in 1998 and believes the remaining line will be adequate to fund any
expansion in 1998.
YEAR 2000 COMPLIANCE
Management has assessed its Year 2000 readiness and determined that all its
computer hardware and software programs are Year 2000 compliant. The Company,
therefore, does not expect to incur significant expenditures to address Year
2000 compliance. The ability of third parties with whom the Company transacts
business to address adequately their Year 2000 compliance is beyond the
Company's control. As the Company is a mechanical contractor that relies heavily
on the skills of its subcontractors for its business, the Company believes the
consequences of Year 2000 issues with respect to third parties will not have a
material effect on the Company's business, results of operations or financial
condition. However, there can be no assurance that these estimates will occur
and actual results could differ from the Company's plans.
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 Securities Litigation Reform
Act of 1995 and as such, speak only as of the date made.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material lawsuits to which the Company or its subsidiary is a
party. Neither the Company nor its subsidiary is a party to any regulatory
investigation or inquiry with any governmental agency.
ITEM 2. CHANGE IN SECURITIES
On August 5, 1997, the Board of Directors approved a resolution authorizing the
Company to repurchase up to 10% of the Company's common stock over the next two
years. In the second quarter of 1998, the Company repurchased and retired 28,000
shares of common stock. Through June 30, 1998, the Company has retired a total
of 129,666 shares of its common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting, held on May 12, 1998, the stockholders approved
the following resolutions:
a. ELECTION OF DIRECTORS. The following persons were elected as
Class III directors to serve for a term of three years:
NUMBER OF SHARES
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VOTED AGAINST
NAME VOTED FOR OR WITHHELD
Floyd Warkol 4,492,631 11,114
Burton Reyer 4,492,330 11,445
Of the remaining three directors, two will stand for election in 1999 and the
remaining one will stand for election in the year 2000.
b. APPOINTMENT OF INDEPENDENT AUDITORS. The stockholders ratified the
appointment of Marden Harrison & Kreuter as independent auditors for the Company
for the year 1998. There were 4,449,383 shares voted for approval, 3,707 shares
voted against and 5,685 abstentions.
ITEM 5. OTHER INFORMATION
The Company has decided to consolidate its shop operation at its Bronx site and
to close its Long Island City shop. In connection with this consolidation, the
Company has negotiated a modification agreement to its lease at the Long Island
City shop by which the landlord will take back the shop space resulting in a
rent reduction in excess of $100,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 11-- Statement Regarding Computation of Per Share Earnings
Exhibit 27-- Financial Data Schedule
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.
KSW, INC.
Date: August 8, 1998
/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