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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER: 001-32865
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KSW, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3191686
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
37-16 23rd Street, Long Island City, New York 11101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (718) 361-6500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK AMERICAN STOCK EXCHANGE
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 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 requirements 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 the 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, or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of Exchange Act). Yes [ ] No[X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant on June 30, 2006 was $19,295,003 (based on a
price of $3.95 per share).
As of March 14, 2007, there were 5,803,643 shares of Common Stock, $.01 par
value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A within 120
days after the end of the Registrant's last fiscal year is incorporated by
reference into Part III of this Annual Report on Form 10-K.
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FORWARD-LOOKING STATEMENTS.....................................................2
PART I.........................................................................3
ITEM 1. BUSINESS......................................................3
ITEM 1A. RISK FACTORS..................................................7
ITEM 1B. UNRESOLVED STAFF COMMENTS.....................................9
ITEM 2. PROPERTIES....................................................9
ITEM 3. LEGAL PROCEEDINGS.............................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.......................................................9
EXECUTIVE OFFICERS OF THE REGISTRANT.........................10
PART II.......................................................................11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES...................................................11
ITEM 6. SELECTED FINANCIAL DATA......................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS...................................................13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.........................................................26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.........................................................27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................27
ITEM 9A. CONTROLS AND PROCEDURES......................................27
ITEM 9B. OTHER INFORMATION............................................27
PART III......................................................................27
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.......27
ITEM 11. EXECUTIVE COMPENSATION.......................................28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER
MATTERS......................................................28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE........................................28
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.......................28
PART IV.......................................................................29
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES...................29
SIGNATURES....................................................................31
FORWARD LOOKING STATEMENTS
Certain statements contained under "Item 1 - Business", "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K regarding matters that are not historical facts,
constitute "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995). These forward-looking statements
generally can be identified as statements that include phrases such as
"believe", "expect", "anticipate", "intend", "plan", "foresee", "likely", "may",
"will" or other similar words or phrases. Such forward-looking statements
concerning management's expectations, strategic objectives, business prospects,
anticipated economic performance and financial condition and other similar
matters involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of
results to differ materially from any future results, performance or
achievements discussed or implied by such forward-looking statements. Many of
the risks, uncertainties and other important factors that could cause actual
results to differ materially from expectations of the Company are described
under "Item 1A - Risk Factors" in this Form 10-K. All written and oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are qualified in their entirety by such factors.
There is no assurance that any of the actions, events or results of the
forward-looking statements will occur, or if any of them do, what impact they
will have on our results of operations or financial condition. Because of these
uncertainties, you should not put undue reliance on any forward-looking
statements. Other than as required by applicable law, we disclaim any obligation
to update to announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or developments.
2
PART I
ITEM 1 BUSINESS
General. KSW, Inc., a Delaware corporation (the "Company" or "KSW"),
furnishes and installs heating, ventilating and air conditioning ("HVAC")
systems and process piping systems for institutional, industrial, commercial,
high-rise residential and public works projects. The Company does not actively
pursue projects under $3,000,000. The Company also serves as a mechanical trade
manager, performing project management services relating to the mechanical
trades. The Company conducts operations through its wholly-owned subsidiary, KSW
Mechanical Services, Inc. ("KSW Mechanical"). The Company's common stock is
traded on the American Stock Exchange ("AMEX") under the symbol "KSW".
Some of the Company's ongoing projects include: Cardiovascular Center
at New York Presbyterian Hospital, the conversions from office space to
residential rental apartments in lower Manhattan at 40 Broad Street, in Brooklyn
at 360 Furman Street, and new high rise luxury buildings in Manhattan at Fifteen
Central Park West, 170 East End Avenue, 206 East 86th Street, 1330 First Avenue,
the residential/hotel complex at 123 Washington Street and the hotel/condo
project at 246 Spring Street. The Company is not currently performing work on
projects in the public sector.
The Company's primary strategic objectives are to increase its revenues
and profitability in its present business. The Company may look to expand its
business into new geographic areas in the Northeastern United States or acquire
businesses which would be complementary to its current line of business. The
Company may also pursue acquisitions outside its current lines of business for
greater diversification.
The Company's primary business is providing HVAC and process piping
systems under direct contracts with owners of buildings or subcontracts with
general contractors or construction managers. Historically, some of these
contracts were awarded through competitive bids, as some of the owners were
public entities.
During 2006, the Company has focused on the favorable New York City
private construction market and has been successful in obtaining projects from
private owners and construction companies by utilizing its value engineering and
trade management skills. Many of these projects are obtained from repeat
customers, who invite the Company to participate in the project while it is
still in the design phase, or to assist in bringing a project's budget in line
with the customer's requirements.
The Company provides value engineering assistance, whereby the Company
uses its experienced staff to recommend economical changes to streamline HVAC
and process piping systems. These changes reduce costs, but still yield the same
results as the original plans. The Company's ability to provide this service has
become increasingly recognized in the industry and has resulted in the Company's
ability to secure projects without bidding against competitors. The Company
believes that this service provides additional bidding opportunities in the
future.
3
The Company's management pioneered the concept of managing the
mechanical trade portion of large construction projects. On larger complex
projects (generally those having a mechanical portion valued at over
$10,000,000), such as the Cardiovascular Center at New York Presbyterian
Hospital, Weill Cornell Ambulatory Care Facility, Morgan Stanley Children's
Hospital at New York Presbyterian and the Long Island Jewish Hospital Energy
Center, it is often beneficial for a construction manager to lock in the costs
of the mechanical portion of the contract prior to completion of the contract
documents. By engaging the services of a trade manager, the Company believes
construction managers can more accurately evaluate design alternatives so that
the completed construction documents balance costs and project objectives. As a
mechanical trade manager, the Company performs a construction manager function
for the mechanical trade portion of a project. The Company divides the
mechanical portion of the contract into bid packages for subcontractors and
equipment, negotiates subcontracts and coordinates the work. The Company
believes coordination provides a significant benefit in keeping a project on
schedule and within budget.
As a mechanical trade manager, the Company may subcontract parts of a
large project to different subcontractors, thereby increasing competition on
projects and lowering bids by allowing smaller contractors to compete for the
subcontract work. On some projects, the Company may self-perform a portion of
the work for a fixed price. The Company believes customers benefit by having a
single source responsible for the cost, coordination and progress of the
mechanical portion of the projects. Although trade management is typically
available only on large jobs, the Company believes there is opportunity for
expanding this line of business.
On trade management projects, the Company provides a guaranteed maximum
price ("GMP") to its customer for its scope of responsibility. The Company
controls the GMP by obtaining price quotes from potential suppliers and
subcontractors, requiring payment or performance bonds from major subcontractors
and adding a contingency allowance to these price quotes before the Company
submits its GMP. The Company also works to control costs because it is a
mechanical contractor and can perform some of the guaranteed work on its own
should bid prices exceed its estimate. These costs are subject to certain risk
factors discussed in "Item 1A - Risk Factors".
While trade management projects provide a net profit margin lower than
that for contracting projects, the Company believes there is generally less risk
associated with trade management projects because there is a contingency fund
which can be drawn from if necessary. A contingency fund is a line item which
the Company includes in the GMP to account for any contingencies the Company may
not have anticipated in estimating the GMP. In the event the Company's costs
exceed the relevant line items quoted in the GMP, the Company may draw from the
contingency fund to cover such expenses. The Company is at risk for any costs in
excess of the GMP. There is no assurance that potential cost overruns will not
exceed this contingency.
Operations. Historically, the Company has obtained projects primarily
through negotiations with private owners, construction managers and general
contractors and by competitive bidding and negotiations in response to
advertisements by federal, state and local governmental agencies. During 2006,
the Company has not bid on public projects, but has obtained projects in the
private sector by working with owners, developers, construction companies and
design professionals on a cooperative basis. The Company's ability to suggest
4
alternative design concepts has allowed its customers to reduce their cost of
projects. By providing value engineering and trade management services the
Company has been able to secure contracts without participating in a competitive
bidding process.
For all projects, the Company develops a comprehensive project budget
using what it believes is a proven cost estimating system. Projects are divided
into phases and line items indicating separate labor, equipment, material,
subcontractor and overhead cost estimates. As a project progresses, the
Company's project managers are responsible for planning, scheduling and
overseeing operations and reviewing project costs compared to the estimates. The
Company's costs have been and may in the future be impacted by lower than
expected labor productivity and higher than expected material costs.
While the Company is not actively pursuing projects in the public
sector at this time, it has received letters of approval as an authorized bidder
by various government agencies, including the New York City Transit Authority,
the New York City Health and Hospitals Corporation, the New York City School
Construction Authority, the New York City Housing Authority and the New York
State Dormitory Authority.
Markets. The Company competes for business primarily in the New York
City metropolitan area. However, the Company has performed work outside of that
area in the past.
Backlog. The Company has a backlog (anticipated revenue from the
uncompleted portions of awarded projects) of orders totaling approximately
$110,200,000 as of December 31, 2006, compared to approximately $82,200,000 as
of December 31, 2005, and approximately $36,000,000 at December 31, 2004. The
Company believes that approximately $40,000,000 of the December 31, 2006 backlog
is not reasonably expected to be completed in the next fiscal year. The Company
is actively seeking new contracts to add to its backlog. Management believes
that its value engineering services will continue to assist the Company in
obtaining new contracts.
A portion of the Company's anticipated revenue in any year is not
reflected in its backlog at the start of the year because some projects are
awarded and performed in the same year. The Company believes that its backlog is
firm, notwithstanding provisions contained in the contracts which allow
customers to modify or cancel the contracts at any time, subject to certain
conditions, including reimbursement of costs incurred in connection with the
contracts and the possible payment of cancellation fees.
Competition. The mechanical contracting market is highly competitive.
There are many larger regional and national companies with resources greater
than those of the Company. However, some of these large competitors are
unfamiliar with the New York City metropolitan area. The Company believes it
competes favorably with such companies because of its reputation in the New York
City area and its knowledge of the local labor force and its ability to value
engineer projects. There are also many smaller contractors and subcontractors in
the New York City metropolitan area, who may also compete for work. The Company
believes there are barriers to entry for smaller competitors, including bonding
requirements, relationships with subcontractors, suppliers and union workers.
5
Regulations. The construction industry is subject to various
governmental regulations from local, state and federal authorities, such as
Occupational Safety and Health Administration ("OSHA") and environmental
agencies. The Company is also governed by state and federal requirements
regarding the handling and disposal of lead paint, but the impact cannot be
predicted at this time because it varies from project to project. The Company
must also comply with regulations as to the use and disposal of solvents and
hazardous wastes, compliance with which are a normal part of its operations. The
Company does not perform asbestos abatement, but has occasionally subcontracted
that part of a contract to duly licensed asbestos abatement companies with the
Company being named as an additional insured on the asbestos abatement company's
liability insurance policy. The Company has not incurred any liability for
violations of environmental laws.
Employees. At December 31, 2006, the Company had approximately 45
full-time office and project support employees. The Company also employs field
employees, who are union workers. The number of field union workers employed
varies at any given time, depending on the number and types of ongoing projects
and the scope of projects under contract. The Company hires union labor for
specific work assignments and can reduce the number of union workers hired at
will with no penalties.
The Company pays benefits to union employees through payments to trust
funds established by the unions. The Company's obligation is to pay a percentage
of the wages of union workers to these trust funds. Thus, the Company does not
accrue liabilities for pension and medical benefits to union retirees. The
Company provides its full-time office employees, not subject to collective
bargaining agreements, with medical insurance benefits and a discretionary
matching 401(k) plan. In 2006, the Company matched 25% of its employees' yearly
401(k) contributions.
Dependence Upon Customers. At any given time, a material portion of the
Company's contract revenue may be generated from a single customer through one
large contract or various contracts. The Company's customer base can vary each
year based on the nature and scope of the projects undertaken in that year.
For the year ended December 31, 2006, work under contracts with Bovis
Lend Lease LMB, Inc., Newmark Construction Services, LLC, Glenwood Management
Corporation and related entities, and Skanska USA Building Inc. constituted 40%,
18%, 10% and 10% of the Company's total revenues, respectively.
For the year ended December 31, 2005, work under contracts with Bovis
Lend Lease LMB, Inc., Newmark Construction Services, LLC and related entities,
Skanska USA Building Inc., M.D. Carlisle Construction Corp., and Plaza
Construction Corp. constituted 31%, 11%, 11%, 11% and 10% of the Company's total
revenues, respectively.
For the year ended December 31, 2004, work under contracts with Bovis
Lend Lease LMB, Inc., Newmark Construction Services, LLC and related entities,
and Glenwood Management Corporation, constituted 32%, 23% and 16% of the
Company's total revenues, respectively.
6
Historically, a portion of the Company's revenue has been generated
from contracts with federal, state and local governmental authorities. The
Company's current revenue and backlog does not include any contracts directly
with these governmental authorities.
As is customary and required in the industry, the Company is often
requested to provide a surety bond. The Company's ability to obtain bonding, and
the amount of bonding required, is solely at the discretion of the surety and is
primarily based upon the Company's net worth, working capital, the number and
size of projects under construction and the surety's relationship with
management. The larger the project and/or the number of projects under contract,
the greater the requirements are for bonding, net worth and working capital. The
Company generally pays a fee to the bonding company of an amount approximately
1% of the amount of the contract to be performed. Since inception, the Company
has neither been denied any request for payment or performance bonds, nor has a
bonding company been required to make a payment on any bonds issued for the
Company. At December 31, 2006, approximately $39,000,000 of the Company's
backlog was bonded.
Other Matters. The Company does not own any patents, patent rights or
similar intellectual property. The Company's business is not subject to large
seasonal variations. The Company did not expend funds for research and
development during 2006, 2005 and 2004, and anticipates no research and
development expenses in 2007.
ITEM 1A. RISK FACTORS
The Company is subject to a variety of risks, including the risks
described below as well as adverse business conditions. The risks and
uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties, not known or described below, which have not
been determined to be material may also impair the Company's business
operations. You should carefully consider the risks described below together
with all other information in this report, including information contained in
the "Business", "Management's Discussion and Analysis of Financial Condition and
Result of Operations" and "Quantitative and Qualitative Disclosure about Market
Risk" sections. If any of the following risks occur, the Company's financial
condition and results of operations could be adversely affected. Such events may
cause actual results to differ materially from expected and historical results,
and the trading price of the Company's stock could decline. For these reasons,
the reader is cautioned not to place undue reliance on our forward-looking
statements.
The Company has a written employment agreement with Floyd Warkol, its
Chairman and CEO, which expires on December 31, 2009. The Company has no other
current employment or non-competition agreements with senior management. The
failure to retain senior management would have a material adverse effect on the
Company's business.
The Company's continued ability to obtain bonding is critical to its
ability to bid on most public work and on certain private projects. The surety's
provision of bonding pursuant to its arrangement with the Company is solely at
the surety's discretion, and the arrangement with the surety is an at-will
arrangement subject to termination. If the Company is unable to obtain surety
bonds as needed, this could have a material adverse effect on the Company.
7
The Company has in the past experienced erosion in gross profit margins
due to lower than anticipated labor productivity and higher labor costs related
to shortages of skilled labor and unforeseen jobsite conditions. There can be no
assurance that these factors will not affect productivity in the future.
The Company has in the past experienced significant increases in the
cost of steel piping materials, which is the primary material used by the
Company on projects. Future increases may impact the Company's profit margins
beyond the Company's estimates.
An economic downturn could result in a decrease in construction
spending in the private and public sectors, which could reduce the Company's
revenues.
The Company relies on a relatively small number of customers for a
significant share of its revenues. The loss of business from any of these
significant customers could have a material adverse effect on the Company's
business and its operating results.
The Company faces intense competition due to the highly competitive
nature of the mechanical contracting market that could limit its ability to
increase its market share and its revenues.
During the construction period, owners or general contractors may
require the Company to perform certain work which is a change to or in addition
to the original contract. Such work often requires months to obtain formal
change orders (including dollar amounts). Change orders are often the subject of
dispute and sometimes litigation. The failure of an owner or general contractor
to issue change orders or make payments could delay receipt of revenue and
require litigation to collect sums due the Company.
Slow receipt of collections may also result from financial difficulties
of a general contractor or an owner. The Company's inability to collect its
contract balance on a project could have a material adverse effect on its
operating results.
Although the Company's operations are not directly affected by
inflation, both New York City and New York State have large debt service
burdens. Inflationary pressures have tended to result in a reduction in capital
spending by both state and local agencies; such capital expenditure reductions
in turn could have a negative impact on the Company's revenues.
Failure of the Company's subcontractors or providers of equipment to
perform as anticipated could have a negative impact on the Company's results.
The Company subcontracts a portion of its contracts to specialty subcontractors,
and the Company is ultimately responsible for the successful completion of their
work. The Company also utilizes equipment manufacturers and suppliers which are
responsible for delivering specified products on a timely basis. Although the
Company utilizes highly respected companies and sometime requires performance
bonds, there is no guarantee that the Company will not incur a material loss due
to performance issues related to these arrangements.
Accounting for contract related revenues and costs as well as other
cost items requires management to make a variety of significant estimates and
assumptions. Although the Company believes it has sufficient experience and
processes to enable it to formulate appropriate
8
assumptions and produce reliable estimates, these assumptions and estimates may
change significantly in the future, and these changes could have a material
adverse effect on the Company's financial position and results of operations.
The Company's success depends on attracting and retaining qualified
personnel in a competitive environment. The single largest factor in the
Company's ability to profitably execute its work is its ability to attract,
develop and retain qualified personnel. The Company's success in attracting
qualified personnel is dependent on the resources available, the impact of
general economic conditions on the labor supply, and the ability to provide
competitive compensation.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2 PROPERTIES
Pursuant to a Modification of Lease Agreement, dated as of May 1, 1998,
the Company leases office and warehouse space in Long Island City, New York,
consisting of 18,433 square feet. The lease had an initial annual base rent of
$173,000, with yearly rent increases of approximately 2%. The lease is a triple
net lease and thus the Company will pay any increases on real estate taxes over
base year taxes, maintenance, insurance and utilities. The Company has exercised
a three-year option extending the lease through June 2009.
The Company also occupies a building and a storage yard in Bronx, New
York, consisting of a 14,000 square foot building, including 4,000 square feet
of offices and 10,000 square feet of shop space. It also occupies an adjacent
5,000 square foot storage yard. This property is jointly owned by the Company's
Chief Executive Officer and a charitable foundation he controls. This tenancy is
on a triple net basis. The Company pays rent of approximately $8,500 per month,
plus taxes (currently approximately $2,000 per month), maintenance, insurance
and utilities. The written lease for this property expired on December 31, 2002
and the property is currently being occupied on a month-to-month basis.
The properties are well maintained, adequate and suitable for their
purposes.
ITEM 3 LEGAL PROCEEDINGS
There is no material pending legal proceedings to which the Company is
a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of 2006.
9
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of the Company serve at the pleasure of the Board of Directors. The
name, age and offices held by each of the executive officers of the Company as
of December 31, 2006 were as follows:
NAME AGE TITLE
- ------------------ --- -----------------------------------------------------
Floyd Warkol 59 Chief Executive Officer, President, Secretary and
Chairman of the Board of Directors
Richard W. Lucas 40 Chief Financial Officer
James F. Oliviero 60 General Counsel
Vincent Terraferma 56 Chief Operating Officer of KSW Mechanical
Mr. Floyd Warkol has been employed as Chairman of the Board since
December 1995 and as President, Secretary and Chief Executive Officer of the
Company and as Chairman and Chief Executive Officer of KSW Mechanical since
January 1994.
Mr. Richard W. Lucas has been employed as the Chief Financial Officer
of the Company and KSW Mechanical, since August 2002. Prior thereto, he was
employed from May 1994 through July 2002 by Marden, Harrison & Kreuter CPAs,
P.C., the Company's independent certified public accountants. Since February
2006, Mr. Lucas has been a Director of KSW Mechanical.
Mr. James F. Oliviero has been employed as General Counsel of the
Company and KSW Mechanical since February 1998. From January 1994 until February
1998, he was employed as Director of Contract Administration of KSW Mechanical.
Mr. Vincent Terraferma has been employed as Chief Operating Officer of
KSW Mechanical since January 2003. From December 1995 to December 2002, he was
KSW Mechanical's Executive Vice President.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock is quoted on the American Stock Exchange
under the symbol "KSW."
At March 14, 2007, the Company had 5,803,643 shares of KSW Common Stock
issued and outstanding held by approximately 3,200 shareholders of record based
on shareholder lists provided by the Company's stock transfer agent and the
Depository Trust Company.
On May 8, 2006, the Company's Board of Directors declared a special
cash dividend of $.06 per share to shareholders of record as of May 24, 2006.
The aggregate amount of the dividend was $341,000 and this dividend was paid on
June 15, 2006. The Company did not pay dividends in 2005.
The following information on high and low bid data is provided for 2006
and 2005 based on intraday quotations:
2006 2005
--------------- ---------------
Quarter High Low High Low
- --------- ------ ------ ------ ------
First ... $ 4.06 $ 2.80 $ .75 $ .40
Second .. $ 6.12 $ 3.40 $ 1.80 $ .66
Third ... $ 4.60 $ 3.66 $ 2.30 $ 1.60
Fourth .. $ 7.40 $ 3.80 $ 3.10 $ 2.06
These prices represent bid prices, which are prices paid by broker dealers, and
do not include retail markups, markdowns or broker dealer commissions.
ITEM 6. SELECTED FINANCIAL DATA
The following information for the years ended December 31, 2006, 2005,
2004 and 2003 is derived from and incorporated by reference to, the financial
statements for those years audited by Marden, Harrison & Kreuter CPAs, P.C. The
summary of certain financial information relating to the Company for the year
ended December 31, 2002 (as restated) is derived from and incorporated by
reference to, the financial statements for the year audited by Rosen Seymour
Shapss Martin & Company, LLP. Each of the previously mentioned financial
statements is included herein or in prior years' annual reports on Form 10-K and
Form 10-K/A, and should be read in conjunction with such financial information
11
FOR THE YEAR ENDED DECEMBER 31,
(Dollars in thousands, except share and per share amounts)
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
(Restated)
INCOME STATEMENT:
Revenues ............................... $ 77,128 $ 53,378 $ 26,281 $ 35,002 $ 46,448(a)
Costs of revenues ...................... 67,155 46,897 24,139 31,148 40,808(a)
Gross profit ........................... 9,973 6,481 2,142 3,854 5,640
Selling, general and administrative
expenses .............................. 5,147(b) 3,657 3,452 3,010 4,196
Operating income (loss) ................ 4,826 2,824 (1,310) 844 1,444
Other income (expense) ................. 361 39 52 (59) (107)
Income (loss) before income taxes ...... 5,187 2,863 (1,258) 785 1,337
Provision (benefit) for income
taxes ................................. 2,422 152(c) 22 (30) 1,714(c)
Income (loss) before cumulative effect
of change in accounting
principle ............................. 2,765 2,711 (1,280) 815 (377)
Cumulative effect of change in
accounting principle net .............. - - - - (1,888)(d)
Net income (loss) ...................... 2,765 2,711 (1,280) 815 (2,265)
Net income (loss) per share -
Basic ................................ .49 .50 (.24) .15 (.41)
Diluted .............................. .48 .50 (.24) .15 (.41)
Number of shares used in computation :
Basic ................................ 5,667,090 5,470,311 5,470,311 5,470,311 5,470,311
Diluted .............................. 5,793,772 5,470,311 5,470,311 5,470,311 5,470,311
Dividends per share .................... .06 - - - -
BALANCE SHEET DATA:
Total assets ........................... $ 35,545 $ 22,710 $ 13,913 $ 16,834 $ 17,171
Working capital ........................ 12,361 8,056 3,181 4,496 3,495
Current liabilities .................... 22,422 13,192 7,127 8,785 10,029
Long-term liabilities .................. - - - - -
Stockholders' equity ................... 13,123 9,518 6,786 8,049 7,142
OTHER DATA:
Current ratio .......................... 1.55:1 1.61:1 1.45:1 1.51:1 1.35:1
(a) The Company's management identified and determined that reported revenues
and costs of revenues during the year ended December 31, 2002 were overstated as
a result of an accounting error attributable to the failure to eliminate certain
intra-company accounts. The Company restated these previously reported amounts
and, with the oversight of its Audit Committee, corrected its financial
reporting system. Gross profit for the year did not change due to the offsetting
effects of the misstatements.
(b) During the year ended December 31, 2006, selling, general and administrative
expenses include stock compensation expenses of approximately $693 related to
the exercise of stock options and the adoption, as of January 1, 2006, of
accounting standard SFAS 123-R. In addition, during the fourth quarter of 2006,
the Company reversed the allowance for doubtful accounts totaling $200, which
reduced selling, general and administrative expenses.
12
(c) During the year ended December 31, 2002, the Company recorded a valuation
allowance totaling $1,045 against its deferred tax assets, at the recommendation
of the Company's outside auditors engaged in the preparation of the 2002 audit.
During the year ended December 31, 2005, the outstanding deferred tax valuation
allowance was reversed, after the Company's management re-evaluated the
likelihood that these assets could be used in their entirety, and concluded the
valuation allowance was not required.
(d) For the year ended December 31, 2002, the Company recorded a cumulative
effect of a change in accounting principle for the write-off of goodwill as a
result of the adoption of SFAS 142, which accounted for $1,888 of the net loss.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis explains the general financial
condition and the results of operations for the Company for the years ended
December 31, 2006, 2005 and 2004 including:
o factors that affect our business;
o our earnings and costs in the periods presented;
o changes in earnings and costs between periods;
o sources of earnings; and
o impacts of these factors on our overall financial condition.
As you read this discussion and analysis, please refer to the Company's
consolidated financial statements and the notes thereto for the years ended
2006, 2005 and 2004 included in this report.
OVERVIEW
The Company, through its wholly-owned subsidiary, furnishes and
installs HVAC systems and process piping systems for institutional, industrial,
commercial, high-rise residential and public works projects. The Company does
not actively pursue projects under $3,000,000. Some larger company projects
involve multi-year contracts, which can account for more than 10% of the
Company's revenue in any given year. The Company also serves as a mechanical
trade manager, performing project management services relating to the mechanical
trades.
The Company obtains projects through both competitive and negotiated
bidding processes submitted to project owners or construction managers, many
with whom the Company has long standing commercial relationships.
The Company is awarded many of its contracts by providing value
engineering assistance, whereby the Company recommends changes to project plans,
subject to the approval of the design professional. This assistance reduces
costs and yields the same results as the original designs. As a result, during
2006, the Company obtained many of its contracts without bidding against its
competitors.
The Company's profitability is dependent on its ability to continue to
maintain its commercial relationships and provide quality services necessary to
obtain projects. The Company's costs of revenues include field labor, equipment,
material, subcontractor and
13
overhead costs. Overhead costs include project supervision and drafting
salaries, as well as insurance costs. The Company must control costs of revenues
by having the ability to manage material costs, purchase equipment at or below
original estimated amounts and control labor costs throughout the duration of
each project.
For the year ended December 31, 2006, the Company's earnings were
affected by (1) increased volume (2) expenses related to the vesting and
exercising of stock options, (3) an increase in corporate income tax expense and
(4) the reversal of the allowance for doubtful accounts.
(1) The Company's revenues for 2006 increased 44.5%, as a result
of the Company's performance on its backlog as of December 31, 2005, as well as
contracts received during 2006. The Company does not anticipate a significant
increase in office overhead will be needed during 2007 to complete the December
31, 2006 backlog of $110,200,000.
(2) On January 1, 2006, the Company adopted the Financial
Accounting Standards Board Statement No. 123-R, "Share Based Payment" ("SFAS
123-R"). SFAS 123-R requires all share based payments to employees and
non-employee directors including grants of stock options, to be recognized in
the financial statements based on the awards fair value at the date of grant.
The Company elected to adopt SFAS 123-R on the modified prospective method.
Under the modified prospective method of transition under SFAS 123-R,
compensation costs in 2006 include costs for options granted prior to, but not
vested as of December 31, 2005, and options vested in 2006. Therefore, results
for prior periods have not been restated.
Prior to January 1, 2006, the Company applied Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25), and
related interpretations. The Company did not record compensation expense because
the exercise price of the shares was equal to the market price at the date of
the grant. SFAS 123, "Accounting for Stock Based Compensation - Transition and
Disclosure", requires proforma net income disclosures as if the fair value based
method defined in SFAS 123 has been applied. The Company continued to apply the
provisions of APB 25 and provided the proforma disclosures required by SFAS 123
and amended by SFAS 148.
The adoption of SFAS 123-R lowered net income by approximately $29,000
during the year ended December 31, 2006. In addition during 2006, six
individuals exercised options to purchase 287,832 shares, which lowered net
income by approximately $345,000.
(3) The corporate income tax expense for the year ended December
31, 2006 was higher due to increased earnings.
(4) During the fourth quarter of 2006, the Company reversed the
allowance for doubtful accounts, which increased net income by approximately
$107,000.
The majority of the Company's contracts are awarded on a fixed-price
basis. Subcontractor and equipment purchases are awarded on a fixed-price basis,
near the time the Company's contract is awarded. The Company purchases most
materials throughout the project on a price in effect basis. The Company
includes allowances in its estimates for future
14
escalations in steel prices. On May 4, 2006, the Company entered into an
agreement with a supplier of piping materials, whereby the Company has committed
to purchase certain piping products normally used in its operations, as well as
fabrication services, at set prices through April 30, 2007. This agreement does
not cover all types of materials the Company utilizes on its projects. The
Company has not been able to obtain fixed pricing on certain materials, such as
copper tubing, due to current pricing volatility. The Company does not believe
that pricing increases on items not covered by this purchase agreement will have
a material effect on the Company's results of operations.
For the year ended December 31, 2005, the Company's earnings increased
as a result of (1) increased volume with primarily the same overhead structure
as in the prior year, (2) the settlement of the Co-Op City litigation, and (3)
the reversal of the deferred tax asset valuation allowance.
(1) Even though the Company's revenues increased 103.1%, during
2005, the Company was not required to materially increase office overhead to
support this increase in revenues.
(2) On October 17, 2005, KSW Mechanical Services, Inc., a
wholly-owned subsidiary of the Company, entered into a Stipulation of Settlement
settling a lawsuit commenced in 1999, entitled KSW Mechanical Services, Inc. v.
NAB Construction Corp. et. al. ("the Lawsuit"), which had been pending in the
Supreme Court of the State of New York, County of Queens. KSW Mechanical
Services, Inc. sued the general contractor and its bonding company on the Co-Op
City Project to recover its accounts receivable applicable to the base contract
of approximately $437,000, unpaid final retainage billings of approximately
$1,500,000, plus a claim for unanticipated costs incurred through 1998 in the
sum, as presented at trial, of $2,303,727. The Defendant asserted counterclaims,
as presented at trial, totaling $1,440,905, and a claim for $3,000,000 based on
the argument that KSW Mechanical's mechanic's lien was willfully overstated.
The Lawsuit was tried for 47 days and further trial proceedings were
scheduled. Pursuant to the Stipulation of Settlement, all claims and
counterclaims were discontinued, and the Company received cash payments totaling
$2,900,000, with $1,200,000 paid as of December 15, 2005, $850,000 paid by March
31, 2006, and $850,000 paid by September 30, 2006. During the quarter ended
December 31, 2005, the Company recognized a pretax net gain, after settlement
expenses, of approximately $888,000, related to this matter.
(3) During 2001, the Financial Accounting Standards Board issued
SFAS 142, Goodwill and Other Intangible Assets establishing, as of January 1,
2002, a test whereby the fair value of goodwill is compared to its carrying
value. Based upon this test, the goodwill of the Company was written-off during
the first quarter of 2002. This write-off of goodwill created an increase in the
deferred tax assets. At December 31, 2002, the Company provided a valuation
allowance (or reserve) against its net deferred tax assets based upon the
uncertainty regarding the ultimate realization (or use) in their entirety of
these deferred tax assets. At December 31, 2004, the outstanding deferred tax
asset valuation was $1,220,000. During the year ended December 31, 2005, the
Company generated profits which reduced this deferred tax valuation allowance
and the Company reversed the outstanding deferred tax valuation allowance. This
allowance
15
was reversed after the Company's management re-evaluated the likelihood that
those assets could be used in their entirety and concluded that the valuation
allowance was not required.
During the year ended December 31, 2004, the Company took steps to
further control its office cost management. These steps included reduction in
office staff, as well as the Company's Chief Executive Officer reducing his
salary by 20%, with a proportionate reduction in his work week. During the
latter half of 2005, the Company's Chief Executive Officer resumed a five-day
work week and also negotiated a new employment agreement.
Management believes that the future success of the Company lies in its
ability to obtain new projects, maintain proper cost controls related to this
work, pursue new trade management contracts and continue controlling office
expenditures. The Company is dependant on outside factors such as the general
health of the New York City metropolitan area economy and continued low interest
rates, both of which relate to the strength of the building industry and the
type of projects the Company has the ability to obtain. Increasing governmental
deficits could also affect the amount of new governmental financed projects
which the Company could pursue. The Company must also continue to obtain surety
bonds, when required on projects. The Company's management has experience in
expanding into new geographic areas; however, to date the Company has conducted
its operations primarily in the New York City metropolitan area.
RESULTS OF OPERATIONS
The following table sets forth the amounts of and as a percentage of
total revenues, certain items of the Company's statement of operations for the
periods indicated (dollar amounts in thousands):
2006 2005 2004
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- ---------
Revenues ........................... $ 77,128 100.0 $ 53,378 100.0 $ 26,281 100.0
Costs of revenues .................. 67,155 87.1 46,897 87.9 24,139 91.8
--------- --------- --------- --------- --------- ---------
Gross profit ....................... 9,973 12.9 6,481 12.1 2,142 8.2
Expenses
Selling, general and
administrative expenses ...... 5,147 6.7 3,657 6.8 3,452 13.1
--------- --------- --------- --------- --------- ---------
Operating income (loss) ............ 4,826 6.2 2,824 5.3 (1,310) (4.9)
Other income ....................... 361 .5 39 .1 52 .1
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes ...................... 5,187 6.7 2,863 5.4 (1,258) (4.8)
Provision for income taxes ......... 2,422 3.1 152 .3 22 .1
--------- --------- --------- --------- --------- ---------
Net income (loss) .................. $ 2,765 3.6 $ 2,711 5.1 $ (1,280) (4.9)
========= ========= ========= ========= ========= =========
16
YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005
Revenues
Revenues increased $23,750,000, or 44.5%, to $77,128,000 for the year
ended December 31, 2006, as compared to $53,378,000 for the year ended December
31, 2005. Revenues for the fourth quarter of 2006 were $19,591,000, an increase
of $2,490,000, or 14.6%, as compared to $17,101,000 in the fourth quarter of
2005.
At December 31, 2006, the Company had backlog of approximately
$110,200,000. Approximately $40,000,000 of the December 31, 2006 backlog is not
reasonably expected to be completed in the next fiscal year. The Company is
actively seeking new projects to add to its backlog.
These increases in revenues were a result of the Company's performance
on its backlog of work as of December 31, 2005, as well as work obtained during
the period.
During the year ended December 31, 2006, the Company earned 40%, 18%,
10% and 10% of revenues, respectively, from its largest customers. The Company
bids on large multi-year contracts, which can account for more than 10% of its
contract revenue in any given year.
Costs of Revenues
Costs of revenues increased by $20,258,000, or 43.2%, to $67,155,000
for the year ended December 31, 2006, as compared to $46,897,000 for the year
ended December 31, 2005. Costs of revenues for the fourth quarter of 2006 were
$16,666,000, an increase of $2,259,000 as compared to $14,407,000 for the fourth
quarter of 2005. Costs of revenues include subcontractor costs, field labor,
material, equipment and overhead expenses. Overhead costs include project
supervision and drafting salaries as well as insurance costs. The increase in
costs of revenues corresponded to the increase in revenues for the applicable
periods. Since higher revenues generally require higher expenditures of costs,
the increased revenues allowed the Company to allocate the cost of project
supervision and drafting salaries over multiple projects and more effectively
utilize its experienced field labor personnel. In addition, the Company took
steps to reduce pricing volatility of piping materials by entering into
agreements to purchase these products at fixed prices.
Gross Profit
For the year ended December 31, 2006, the Company had a gross profit of
$9,973,000 or 12.9% of revenues, as compared to $6,481,000 or 12.1% of revenues
for the year ended December 31, 2005. In the fourth quarter of 2006, the gross
profit was $2,925,000 or 14.9% of revenues, as compared to $2,694,000 or 15.8%
of revenues for the fourth quarter of 2005. The increase dollar amount in gross
profits was primarily a result of the overall increase in revenues. During the
fourth quarter of 2005, the gross profit included an $888,000 gain on the
settlement of the Co-Op City project claim settlement.
17
Selling, General and Administrative Expenses
For the year ended December 31, 2006, selling, general and
administrative ("S,G&A") expenses increased $1,490,000, or 40.7%, to $5,147,000,
as compared to $3,657,000 for the year ended December 31, 2005. In the fourth
quarter of 2006, S,G&A expenses were $1,146,000, an increase of $320,000, as
compared to $826,000 for the fourth quarter of 2005.
For the above yearly and quarterly periods, a portion of these changes
were a result of the vesting and exercising of stock options, professional fees
and employment costs. During the year ended December 31, 2006, six individuals
exercised options to purchase 287,832 shares, which increased S,G&A expenses by
approximately $640,000. In addition, during the year ended December 31, 2006,
the Company incurred expenses related to the vesting of stock options of
approximately $53,000. Professional fees, related to the Company's public
filings with the Securities and Exchange Commission, together with American
Stock Exchange fees increased approximately $130,000 during the year ended
December 31, 2006. In addition, during the fourth quarter of 2006, the Company
reversed the allowance for doubtful accounts totaling $200,000, which reduce
S,G&A expenses.
The remaining changes in S,G&A expenses were primarily a result of
increases in employment costs and office expenses. During the latter half of
2005, the Company's Chief Executive Officer returned to a five-day work week,
and additional office staff was hired, contributing to the increases in 2006.
Other Income
Other income for the year ended December 31, 2006 increased $322,000 or
825.6%, to $361,000, as compared to other income of $39,000 for the year ended
December 31, 2005. This change in other income was primarily a result of the
Company's ability to earn interest income on its increased cash position. Net
interest income for the year ended December 31, 2006 was $317,000, as compared
to $24,000 for the year ended December 31, 2005. During the years ended December
31, 2006 and 2005, the Company realized gains on the sales of marketable
securities totaling $44,000 and $15,000, respectively.
Provision for Income Taxes
The income tax expense for the year ended December 31, 2006 was
$2,422,000, or 46.7% of income before taxes compared to $152,000, or 5.3% of
income before taxes for the year ended December 31, 2005. For the year ended
December 31, 2005, the provision for income taxes differs from the Company's
effective income tax rate primarily due to the reversal of a deferred income tax
valuation allowance.
18
Net income
As a result of all the items above, the Company reported net income of
$2,765,000, or $.49 per share-basic and $.48 per share-diluted, for the year
ended December 31, 2006. Included in net income for the year December 31, 2006,
are net expenses of approximately $374,000 related to exercising and vesting of
stock options during the period, which resulted in a reduction in the
calculation of earnings per share of approximately $.07 per share-basic and
diluted. During the fourth quarter of 2006, the Company reversed the allowance
for doubtful accounts, which increased net income by approximately $107,000 or
$.02 per share-basic and diluted. Excluding the effect of stock options and the
reversal of the allowance for doubtful accounts, net income for the year ended
December 31, 2006 would have been approximately $3,032,000, or $.54 per
share-basic and $.53 per share-diluted.
The Company reported net income of $2,711,000 or $.50 per share-basic
and diluted for the year ended December 31, 2005. Excluding the effect of the
one time adjustments for the Co-Op City litigation and the reversal of the
deferred tax valuation allowance, net income for 2005 would have been $1,473,000
or $.27 per share-basic and diluted.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
Revenues
Revenues from the Company's projects increased $27,097,000, or 103.1%,
to $53,378,000 for the year ended December 31, 2005, as compared to $26,281,000
for the year ended December 31, 2004. This increase in revenues was primarily a
result of the Company's increased number of contracts in progress at December
31, 2004, as well as projects the Company obtained during 2005. Revenues for the
fourth quarter of 2005 were $17,101,000, an increase of $10,224,000, as compared
to $6,877,000 for the fourth quarter of 2004. The revenues in the fourth quarter
of 2005 include approximately $963,000 related to the Company's settlement of
the Co-Op City litigation. At December 31, 2005, the Company had backlog of
approximately $82,200,000. The backlog at December 31, 2005 did not include a
$9,000,000 contract, which commencement is subject to the project's owner
obtaining financing.
During the year ended December 31, 2005, the Company earned 31%, 11%,
11%, 11% and 10% of revenues, respectively, from its largest customers. The
Company bids on large multi-year contracts, which can account for more than 10%
of its contract revenue in any given year.
Costs of Revenues
Costs of revenues increased by $ 22,758,000, or 94.3%, to $46,897,000
for the year ended December 31, 2005, as compared to $24,139,000 for the year
ended December 31, 2004. Costs of revenues for the fourth quarter of 2005 were $
14,407,000, an increase of $8,068,000, as compared to $6,339,000 for the fourth
quarter of 2004. The increases in costs of revenues correspond to the increase
in revenue noted above. During the fourth quarter of 2005, the Company incurred
expenses related to the Co-Op City litigation settlement of approximately
$75,000.
19
During year ended December 31, 2004, costs of revenues were increased
by the following factors which were not present in 2005: increased costs of
steel piping products, revenues insufficient to absorb job-costed project
supervision and drafting salaries, and increased labor costs incurred by the
Company to retain experienced field labor personnel. These factors did not have
the same impact in 2005, and management does not expect these conditions to have
the same impact in the future. The Company reduced pricing volatility on
purchases of steel piping material by entering into an agreement to purchase
these products at fixed prices. In addition, increased revenues and backlog have
allowed the Company to allocate the cost of project supervision and drafting
salaries over multiple projects and to more effectively utilize its experienced
field labor personnel.
Gross Profit
For the year ended December 31, 2005, the Company had a gross profit of
$6,481,000, or 12.1% of revenues, as compared to $2,142,000, or 8.2% of
revenues, for the year ended December 31, 2004. In the fourth quarter of 2005,
the gross profit was $2,694,000, or 15.8% of revenues, as compared to $538,000,
or 7.8% of revenues, for the fourth quarter of 2004. The increased dollar amount
in gross profits was primarily a result of the overall increase in revenues. In
addition, during the 2005 fourth quarter, the gross profit included an $888,000
gain on the settlement of the Co-Op City project claim litigation.
Selling, General and Administrative Expenses
For the year ended December 31, 2005, selling, general and
administrative ("S,G&A") expenses increased $205,000, or 5.9%, to $3,657,000
compared to $3,452,000 for the year ended December 31, 2004. During the fourth
quarter 2005, S,G&A expenses were $826,000 as compared to $566,000 for the same
period in 2004, an increase of $260,000. For the above yearly and quarterly
periods, the Company's increase in S,G&A was primarily a result of the
administration of increased revenues, including an increase in employment costs
and office expenses. These increased costs include the Company's Chief Executive
Officer resuming a five day work week, and the hiring of additional office
staff. In addition, professional fees related to the Company's public filings
with the Securities and Exchange Commission, as well as an increase in utility
costs related to its office contributed to this increase.
Other Income
Other income for the year ended December 31, 2005 decreased $13,000, or
(25.0%), to $39,000, as compared to $52,000 for the year ended December 31,
2004. During the years ended December 31, 2005 and 2004, the Company realized
gains on sales of marketable securities totaling $15,000 and $48,000,
respectively. During the years ended December 31, 2005 and 2004, the Company
earned net interest income of $24,000 and $4,000, respectively.
Provision for Income Taxes
The income tax expense for the year ended December 31, 2005 was
$152,000, or 5.3% of income before taxes compared to income tax expense of
$22,000, or 1.7% of the loss before income taxes in 2004.
20
The provision for income taxes differs from the Company's effective
income tax rate primarily due to a reversal of a deferred income tax valuation
allowance. During 2001, the Financial Accounting Standards Board issued SFAS
142, Goodwill and Other Intangible Assets establishing, as of January 1, 2002, a
test whereby the fair value of goodwill is compared to its carrying value. Based
upon this test, the goodwill of the Company was written-off during the first
quarter of 2002. This write-off of goodwill created an increase in the deferred
tax assets.
At December 31, 2002, the Company provided a valuation allowance (or
reserve) against its net deferred tax assets based upon the uncertainty
regarding the ultimate realization (or use) in their entirety of these deferred
tax assets. At December 31, 2004, the outstanding deferred tax asset valuation
allowance was $1,220,000. During the nine months ended September 30, 2005, the
Company generated profits which reduced this deferred tax valuation allowance by
$461,000. Based upon the Company's backlog as of September 30, 2005, management
re-evaluated the likelihood that these assets could be used in their entirety,
and concluded that the valuation allowance was not required. At September 30,
2005, the Company reversed the outstanding deferred tax valuation allowance
totaling approximately $759,000.
State and local tax rates are not affected by the above, but are
determined by the Company's net worth.
Net Income
As a result of all the items above, the Company reported net income of
$2,711,000 or $.50 per share basic and diluted for the year ended December 31,
2005 as compared to a reported net loss of $1,280,000 or $(.24) per share-basic
and diluted for the year ended December 31, 2004.
Excluding the effect of the one time adjustments for the Co-Op City
litigation settlement and the reversal of the deferred tax valuation allowance,
net income for 2005 would have been $1,473,000 or $.27 per share-basic and
diluted.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's principal capital requirement is to fund its work on
construction projects. Projects are billed on a monthly basis based on the work
performed to date. These project billings, less a withholding of retention which
is received as the project nears completion, are collectible based on the
respective contract terms. The Company has historically relied primarily on
internally generated funds. The Company has not relied on bank borrowings to
finance its operations since July 2003. The Company has a line of credit, which
is subject to certain conditions. See discussion of Credit Facility below.
As of December 31, 2006, the Company's cash and cash equivalents
balances totaled $14,085,000, an increase of $8,886,000 from the $5,199,000
reported as of December 31, 2005.
21
Net cash provided by (used in) Operating Activities
Net cash provided by operating activities was $8,485,000 and $2,325,000
for the years ended December 31, 2006 and 2005, respectively. Net cash used in
operating activities was $168,000 for the year ended December 31, 2004. The cash
provided by operations in both 2006 and 2005 was primarily due to increases in
operating income. During 2004, the cash used in operating activities was
primarily the result of losses incurred during the period that were partially
offset by receivables collected in excess of cash payments made. Cash provided
by operations for the years ended December 31, 2006 and 2005 include receipts on
the Co-Op City litigation settlement of $1,700,000 in 2006 and $1,200,000 in
2005.
Cash used in Investing Activities
Net cash used in investing activities were $51,000 in 2006, $86,000 in
2005 and $28,000 in 2004. The Company purchased marketable securities of
$12,000, $163,000 and $685,000 during 2006, 2005 and 2004, respectively. The
Company received proceeds on the sales of marketable securities of $171,000,
$153,000 and $676,000 during 2006, 2005 and 2004, respectively. In addition, the
Company purchased property and equipment totaling $210,000, $76,000 and $19,000
during 2006, 2005 and 2004, respectively.
Cash provided by Financing Activities
During 2006, net cash provided by financing activities was $452,000.
During 2005 and 2004, no cash was provided by or used in financing activities.
During the year ended December 31, 2006, six individuals exercised
options to purchase an aggregate of 287,832 shares contributing cash proceeds of
$475,000 to the Company.
Prior to adopting SFAS 123-R, the Company presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the
Statement of Cash Flows. SFAS 123-R requires cash flows resulting from excess
tax benefits to be classified as a part of cash flows from financing activities.
Excess tax benefits represent tax benefits related to exercised options in
excess of the associated deferred tax asset for such options. As a result of
adopting SFAS 123-R, $318,000 of excess tax benefits for the year ended December
31, 2006 have been classified as an operating cash outflow and a financing cash
inflow.
On May 8, 2006, the Company's Board of Directors declared a special
cash dividend of $.06 per share to shareholders of record as of May 24, 2006.
The aggregate amount of the dividend was $341,000, and this dividend was paid on
June 15, 2006.
Credit Facility
The Company has a line of credit facility from Bank of America, N.A.,
which provides borrowings for working capital purposes up to $2,000,000. This
facility is secured by the Company's assets and is guaranteed by the Company's
subsidiary, KSW Mechanical Services, Inc. On March 8, 2007, the Company's bank
extended the working capital credit facility for a
22
term expiring March 30, 2008. There have been no borrowings against this
facility during 2006 and 2005.
Advances bear interest, based on the Company's option, at either the
bank's prime lending rate plus one percent per annum (9.25% at December 31,
2006), or the London Interbank Offered Rate ("LIBOR") plus two and one-half
percent per annum (7.84% at December 31, 2006).
Payment may be accelerated by certain events of default such as
unfavorable credit factors, the occurrence of a material adverse change in the
Company's business, properties or financial condition, a default in payment on
the line, impairment of security, bankruptcy, or the Company ceasing operations
or being unable to pay its debts. The line of credit must be paid in full at the
end of the term.
The Company currently has no significant capital expenditure
commitments.
Surety
On some of its projects, the Company is required to provide a surety
bond. The Company's ability to obtain bonding, and the amount of bonding
available, is solely at the discretion of the surety and is primarily based upon
the Company's net worth, working capital, the number and size of projects under
construction and the surety's relationship with management. The Company is
contingently liable to the surety under a general indemnity agreement. The
Company agrees to indemnify the surety for any payments made on contracts of
suretyship, guaranty or indemnity as a result of the Company not having the
financial capacity to complete projects. Management believes the likelihood of
the surety having to complete projects is remote. The contingent liability is
the cost of completing all bonded projects, which is an undeterminable amount
because it is subject to bidding by third parties. Management believes that all
contingent liabilities will be satisfied by the Company's performance on the
specific bonded contracts involved. The surety provides bonding solely at its
discretion, and the arrangement with the surety is an at-will arrangement
subject to termination.
As of December 31, 2006, approximately $39,000,000 of the Company's
backlog of approximately $110,200,000 was bonded. The Company provides its
surety with a detailed schedule of backlog on a quarterly basis. The Company's
bonding limits are sufficient given the volume and size of the Company's bonded
contracts.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements and accompanying notes
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
23
The Company continually evaluates the accounting policies and estimates
it uses to prepare the consolidated financial statements. In general,
management's estimates are based on historical experience, on information from
third party professionals and on various other assumptions that are believed to
be reasonable under the facts and circumstances. Actual results could differ
from those estimates made by management.
The Company believes the following accounting policies represent
critical accounting policies. Critical accounting policies are those that are
both most important to the portrayal of a company's financial condition and
results and require management's most difficult, subjective, or complex
judgment, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods. We
discuss our significant accounting policies in Note 2 to the Company's
consolidated financial statements, including those that do not require
management to make difficult, subjective, or complex judgments or estimates.
Accounting for revenue recognition for construction contracts
The Company recognizes revenue for long-term construction contracts not
yet completed using the "percentage of completion" method, measured by the
percentage of total costs incurred to date as compared to total estimated costs
at the completion of each contract. When the Company bids on projects, a
comprehensive budget is prepared dividing the project into line items indicating
separate labor, equipment, material, subcontractor and overhead cost estimates.
As projects progress, the Company's project managers plan, schedule and oversee
operations and review project costs compared to the estimates. Management
reviews on a bi-weekly basis the progression of the contract with the project
manager. An analysis is prepared and reviewed monthly by management comparing
the costs incurred to the budgeted amounts. The results of these procedures help
determine the anticipated total costs at completion, based on facts and
circumstances known at the time. Any revisions in cost and profit estimates are
reflected in the accounting period in which the facts, which require the
revisions, become known. These estimates are subject to revisions due to
unanticipated increases in labor, material and equipment costs as well as
project scope changes. The Company receives change orders for project scope
changes. For some project cost overruns, the Company can make a claim to the
project owner or general contractor to seek reimbursement of these overruns. In
the past, the Company has been successful in the pursuit of such claims. Such
claims are not carried on the books until they are acknowledged by the owner or
contractor.
Accounts and retainage receivable
Judgment is required to estimate the collectibility of accounts and
retainage receivable. The Company has in the past established an allowance for
uncollectible trade accounts and retainage receivable based upon historical
collection experience and management's periodic evaluation of the collectibility
of outstanding accounts and retainage receivable on an account-by-account basis.
Accounts receivable and contract retentions are due based on contract terms.
Amounts are deemed delinquent when they are not received within their contract
terms. Delinquent receivables are written-off based on individual credit
evaluation and specific circumstances of the customer.
24
At December 31, 2006, the Company has not recorded an allowance for
uncollectible trade accounts and retainage receivable.
Accounting for income taxes
Judgment is required in developing the Company's provision for income
taxes, including the determination of deferred tax assets and valuation
allowances that might be required against the deferred tax assets and
liabilities. The Company's consolidated balance sheets at December 31, 2006 and
2005 include deferred tax assets totaling $505,000 and $1,349,000, respectively.
Accounting for stock-based compensation
The Company accounts for stock-based compensation in accordance with
the fair value recognition provisions of SFAS 123-R. The Company uses the
Black-Scholes option - pricing model, which requires the input of subjective
assumptions. These assumptions include estimating the length of time employees
will retain their vested stock options before exercising them (expected term"),
the estimated volatility of the Company's common stock price over the expected
term and the number of options that will ultimately not complete their vesting
requirements ("forfeitures"). Changes in the subjective assumptions can
materially affect the estimate of fair value stock-based compensation and the
related amount recognized in the consolidated income statements.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109" (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing the recognition
threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting interim periods, disclosure,
and transition. FIN 48 is effective for fiscal years beginning after December
15, 2006 and is required to be adopted by the Company in 2007. The adoption of
FIN 48 is not expected to have a material impact on the Company's consolidated
results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS 157). SFAS 157 provides guidance for using fair value to
measure assets and liabilities. It also responds to investors' requests for
expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. SFAS 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value, and does not expand the use of fair value in any new circumstances. SFAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The adoption of SFAS 157 is not expected to have a
material impact on the Company's consolidated results of operations and
financial condition.
25
In February 2007, the FASB issued Statement No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. SFAS
159 is effective for financial statements issued beginning with the first
quarter of 2008. The adoption of SFAS 159 is not expected to have a material
impact on the Company's consolidated results of operations and financial
conditions.
CONTRACTUAL OBLIGATIONS
As of December 31, 2006, outstanding contractual obligations are as
follows:
PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ------------------------------ ---------- ---------------- ---------- ---------- -------------
Long- term debt $ - $ - $ - $ - $ -
Capital leases - - - - -
Operating leases (a) 494,000 195,000 299,000 - -
Purchase obligations under
construction contracts (b) - - - - -
Other long-term obligations - - - - -
---------- ---------------- ---------- ---------- -------------
Total $ 494,000 $ 195,000 $ 299,000 $ - $ -
========== ================ ========== ========== =============
(a) The Company is obligated to pay monthly rental payments of
approximately $16,000 on its lease for office space in Long Island
City, New York. The Company has exercised its option to extend the
lease for the period July 2006 through June 2009.
(b) On May 4, 2006, the Company entered into an agreement with a
supplier of piping materials, whereby the Company has committed to
purchase certain piping products normally used in its operations,
as well as fabrication services, at set prices through April 30,
2007.
OFF -BALANCE SHEET ARRANGEMENTS
No disclosures are required pursuant to Item 303 (a) (4) of Regulation
S-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not utilize futures, options or other derivative
instruments. As of December 31, 2006, the Company has invested $663,000 in
marketable securities.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item, including the consolidated financial
statements and related notes, is incorporated herein by reference from Part IV
of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disclosure required.
ITEM 9A. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with
the participation of management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of December 31, 2006. Based on that evaluation, its Chief Executive Officer
and Chief Financial Officer concluded that its disclosure controls and
procedures were effective as of December 31, 2006.
There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the Company's fourth fiscal quarter ended December 31,
2006, that has materially affected or is reasonably likely to materially affect
the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than information with respect to the Company's executive
officers, which is set forth after Item 4 of Part I of this Form 10-K, and
information regarding the Company's Code of Ethics, as set forth below, the
information required to be disclosed pursuant to Item 10 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
CODE OF ETHICS
The Company has adopted a written Code of Business Conduct and Ethics
(the "Code of Ethics") that applies to its principal executive officer,
principal financial and accounting officer, directors, officers and employees.
Copies of the Company's Code of Ethics will be provided free of charge upon
written request directed to the Company's Director of Investor Relations, at
37-16 23rd Street, Long Island City, New York 11101.
27
ITEM 11. EXECUTIVE COMPENSATION
The information required to be disclosed pursuant to Item 11 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required to be disclosed pursuant to Item 12 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
a. The information required to be disclosed pursuant to Item 13 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.
b. Any transaction required to be disclosed under this item must
be approved by the Board of Directors as being in the Company's interest.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required to be disclosed pursuant to Item 14 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.
28
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. and 2. Financial statement and financial statement schedules.
See Index to consolidated financial statements and financial statement
schedules on page F-1 of this Form 10-K.
3. Exhibits
No. Description
- --------- --------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of KSW, Inc.
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-8 (No. 333-217350), filed with the
Commission on February 13, 1997).
3.2 Amended and Restated By-Laws of KSW, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-8 (No. 333-217350), filed with the Commission on February 13,
1997).
10.1 Form of Modification of Lease Agreement dated as of May 1, 1998 by
and between KSW, Inc, Irvjoy Partners, L.P. and I BLDG Co., Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (Commission File No. 001-32865), filed with the Commission on
March 30, 1999).
10.2 1995 Stock Option Plan of KSW, Inc. (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form 10 (Commission File No. 001-32865), filed with the Commission
on November 24, 1995).
10.3 Employment Agreement, dated September 12, 2005 by and between the
Company, KSW Mechanical Services, Inc. and Floyd Warkol
(incorporated herein by reference to Exhibit 10.20 to the Company's
Current Report on Form 8-K (Commission File No. 001-32865), filed
with the Commission on September 12, 2005.
10.4 Amendatory Employment Agreement, dated as of March 6, 2007, by and
between the Company, KSW Mechanical Services, Inc., and Floyd
Warkol.
29
10.5 Line of Credit Agreement Letter, dated March 14, 2006, between KSW,
Inc. and Bank of America, N.A. together with forms of a Line of
Credit Note, Rider to Line of Credit Note, a pledge security
agreement and guaranty (incorporated herein by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year ended
December 3, 2005, filed with the Commission on March 16, 2006).
10.6 Line of Credit Agreement Letter, dated March 8, 2007, between KSW,
Inc. and Bank of America, N.A.
11 Statement Regarding Computation of Net Earnings (Loss) Per Share.
21.1 List of Subsidiaries.
23.1 Consent of Marden, Harrison & Kreuter, CPAs, P.C.
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a).
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a).
32.1 Certification of Chief Executive Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350.
30
SIGNATURES
Pursuant to the requirements of Section 13 of 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.
KSW, INC.
By: /s/ Floyd Warkol
---------------------------------------
Floyd Warkol
President, Chief Executive Officer,
Secretary and Chairman of the Board of
Directors (Principal Executive Officer)
March 14, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Floyd Warkol
----------------
Floyd Warkol
President, Chief Executive Officer,
Secretary and Chairman of the Board of
Directors (Principal Executive Officer)
March 14, 2007
/s/ Stanley Kreitman
---------------------------------------
Stanley Kreitman
Director
March 14, 2007
/s/ Innis O'Rourke
---------------------------------------
Innis O'Rourke
Director
March 14, 2007
/s/ Warren O. Kogan
---------------------------------------
Warren O. Kogan
Director
March 14, 2007
/s/ John A. Cavanagh
---------------------------------------
John A. Cavanagh
Director
March 14, 2007
/s/ Richard W. Lucas
---------------------------------------
Richard W. Lucas
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
March 14, 2007
31
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
-------
Report of Independent Registered Public Accounting Firm F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3-4
Consolidated Statements of Operations F-5
Consolidated Statements of Comprehensive Income (Loss) F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8-9
Notes to Consolidated Financial Statements F-10-31
Schedule II- Schedule of Valuation and Qualifying Accounts F-32
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
KSW, Inc. and Subsidiary
37-16 23rd Street
Long Island City, New York 11101
We have audited the accompanying consolidated balance sheets of KSW, Inc. and
subsidiary as of December 31, 2006 and 2005, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2006.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of KSW,
Inc. and subsidiary as of December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2006 in conformity with U.S. generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying financial
statement Schedule II is presented for additional analysis and is not a required
part of the basic consolidated financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
Marden, Harrison & Kreuter
Certified Public Accountants, P.C.
White Plains, New York
February 15, 2007, except for Note 17 (A), as to which the date is March 6, 2007
and for Note 17 (B), as to which the date is March 8, 2007.
F-2
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(in thousands, except share data)
----------
2006 2005
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 14,085 $ 5,199
Marketable securities 663 774
Accounts receivable, net 13,205 11,887
Retainage receivable 5,566 2,764
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,017 480
Prepaid expenses and other receivables 247 144
-------- --------
Total current assets 34,783 21,248
Property and equipment, net 256 112
Deferred income taxes and other 506 1,350
-------- --------
Total assets $ 35,545 $ 22,710
======== ========
(continued)
F-3
2006 2005
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,960 $ 9,533
Retainage payable 2,798 1,576
Accrued payroll and benefits 932 542
Accrued expenses 296 206
Billings in excess of costs and
estimated earnings on uncompleted contracts 4,987 1,335
Income taxes payable 1,449 -
--------- ---------
Total current liabilities 22,422 13,192
--------- ---------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock: $.01 par value, 1,000,000 shares authorized,
no shares issued and outstanding - -
Common stock: $.01 par value, 25,000,000 shares authorized,
5,758,143 and 5,470,311 shares issued and outstanding at 2006
and 2005, respectively 58 54
Additional paid-in capital 10,890 9,729
Retained earnings (deficit) 2,077 (347)
Accumulated other comprehensive income:
Net unrealized holding gains on available for sale
securities 98 82
--------- ---------
Total stockholders' equity 13,123 9,518
--------- ---------
Total liabilities and stockholders' equity $ 35,545 $ 22,710
========= =========
See notes to consolidated financial statements.
F-4
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except per share data)
----------
2006 2005 2004
------------ ------------ ------------
Revenues $ 77,128 $ 53,378 $ 26,281
Costs of revenues 67,155 46,897 24,139
------------ ------------ ------------
Gross profit 9,973 6,481 2,142
Selling, general and administrative expenses 5,147 3,657 3,452
------------ ------------ ------------
Operating income (loss) 4,826 2,824 (1,310)
------------ ------------ ------------
Other income :
Interest income, net 317 24 4
Gain on sales of marketable securities 44 15 48
------------ ------------ ------------
Total other income 361 39 52
------------ ------------ ------------
Income (loss) before provision for
taxes 5,187 2,863 (1,258)
Provision for income taxes 2,422 152 22
------------ ------------ ------------
Net income (loss) $ 2,765 $ 2,711 $ (1,280)
============ ============ ============
Basic income (loss) per common share $ .49 $ .50 $ (.24)
============ ============ ============
Diluted income (loss) per common share $ .48 $ .50 $ (.24)
============ ============ ============
Weighted average common shares outstanding -
Basic 5,667,090 5,470,311 5,470,311
Diluted 5,793,772 5,470,311 5,470,311
Cash dividend declared and paid per share $ .06 $ - $ -
============ ============ ============
See notes to consolidated financial statements.
F-5
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands)
----------
2006 2005 2004
-------- -------- --------
Net income (loss) $ 2,765 $ 2,711 $ (1,280)
-------- -------- --------
Other comprehensive income (loss) before tax:
Net unrealized holding gains arising during the year 73 55 79
Less: reclassification adjustment for gains included in net
income (loss) (44) (15) (48)
-------- -------- --------
Other comprehensive income before tax 29 40 31
Income tax related to items of other comprehensive
income (loss) (13) (19) (14)
-------- -------- --------
Other comprehensive income, net of tax 16 21 17
-------- -------- --------
Total comprehensive income (loss) $ 2,781 $ 2,732 $ (1,263)
======== ======== ========
See notes to consolidated financial statements.
F-6
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
--------------------- PAID-IN EARNINGS COMPREHENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) INCOME TOTAL
--------- --------- ---------- --------- ------------- ---------
Balances, December 31, 2003 5,470,311 $ 54 $ 9,729 $ (1,778) $ 44 $ 8,049
Net loss - - - (1,280) - (1,280)
Net unrealized gains on available
for sale securities - - - - 17 17
--------- --------- ---------- --------- ------------- ---------
Balances, December 31, 2004 5,470,311 54 9,729 (3,058) 61 6,786
Net income - - - 2,711 - 2,711
Net unrealized gains on available
for sale securities - - - - 21 21
--------- --------- ---------- --------- ------------- ---------
Balances, December 31, 2005 5,470,311 54 9,729 (347) 82 9,518
Net income - - - 2,765 - 2,765
Exercise of stock options 287,832 4 1,108 - - 1,112
Stock-based compensation - - 53 - - 53
Cash dividend paid - $.06 per share - - - (341) - (341)
Net unrealized gains on available for
sale securities - - - - 16 16
--------- --------- ---------- --------- ------------- ---------
Balances, December 31, 2006 5,758,143 $ 58 $ 10,890 $ 2,077 $ 98 $ 13,123
========= ========= ========== ========= ============= =========
See notes to consolidated financial statements.
F-7
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands)
----------
2006 2005 2004
-------- -------- --------
Reconciliation of net income (loss) to net cash
from operating activities:
Net income (loss) $ 2,765 $ 2,711 $ (1,280)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 66 62 67
Deferred income taxes (benefit) 856 101 (14)
Tax benefits from exercise of stock
options (318) - -
Allowance for doubtful accounts (200) - -
Realized gains on sales of
marketable securities (44) (15) (48)
Stock-based compensation expense
related to stock option plan 690 - -
Changes in assets (increase) decrease:
Accounts receivable (1,118) (5,639) 1,992
Retainage receivable (2,802) (776) 171
Costs and estimated earnings in excess of
billings on uncompleted contracts (537) (244) 386
Prepaid expenses and other receivables (103) 60 216
Changes in liabilities increase (decrease):
Accounts payable 2,427 4,627 (72)
Retainage payable 1,222 555 (120)
Accrued payroll and benefits 390 322 (257)
Accrued expenses 90 58 (34)
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,652 503 (1,175)
Income taxes payable 1,449 - -
-------- -------- --------
Net cash provided by (used in) operating
activities 8,485 2,325 (168)
-------- -------- --------
(continued)
F-8
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands)
----------
2006 2005 2004
-------- -------- --------
Cash flows from investing activities:
Proceeds received on sales of
marketable securities $ 171 $ 153 $ 676
Purchases of marketable securities (12) (163) (685)
Purchases of property and
equipment (210) (76) (19)
-------- -------- --------
Net cash used in investing
activities (51) (86) (28)
-------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock
options 475 - -
Tax benefits from exercise of stock
options 318 - -
Cash dividends paid (341) - -
-------- -------- --------
Net cash provided by financing
activities 452 - -
-------- -------- --------
Net increase (decrease) in cash 8,886 2,239 (196)
Cash, beginning of year 5,199 2,960 3,156
-------- -------- --------
Cash and cash equivalents, end of year $ 14,085 $ 5,199 $ 2,960
======== ======== ========
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest $ 13 $ 13 $ 15
Income taxes $ 142 $ 51 $ 36
See notes to consolidated financial statements.
F-9
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The consolidated financial statements for the years ended December 31,
2006, 2005 and 2004 include the accounts of KSW, Inc. and its
wholly-owned subsidiary, KSW Mechanical Services, Inc., collectively
"the Company." All material intercompany accounts and transactions have
been eliminated in consolidation.
The Company furnishes and installs heating, ventilating and air
conditioning systems and processes piping systems for institutional,
industrial, commercial, high-rise residential and public works
projects, primarily in the State of New York. The Company also serves
as a mechanical trade manager, performing project management services
relating to the mechanical trades, and as a constructability
consultant. The Company considers itself to be one operating segment.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) REVENUE AND COST RECOGNITION
Revenue is primarily recognized on the "percentage of
completion" method for long-term construction contracts not
yet completed, measured by the percentage of total costs
incurred to date to estimated total costs at completion for
each contract. This method is utilized because management
considers the cost-to-cost method the best method available to
measure progress on these contracts. Revenues and estimated
total costs at completion are adjusted monthly as additional
information becomes available and based upon the Company's
internal tracking systems. Because of the inherent
uncertainties in estimating revenue and costs, it is
reasonably possible that the estimates used will change within
the near term.
Contract costs include all direct material and labor costs and
those other indirect costs related to contract performance
including, but not limited to, indirect labor, subcontract
costs and supplies. General and administrative costs are
charged to expense as incurred.
The Company has contracts that may extend over more than one
year; therefore, revisions in cost and profit estimates during
the course of the work are reflected in the accounting period
in which the facts, which require the revisions, become known.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
F-10
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
(A) REVENUE AND COST RECOGNITION - CONT'D
The Company does not record any income from claims until the
claims have been received or awarded.
Revenues recognized in excess of amounts billed are recorded
as a current asset under the caption "Costs and estimated
earnings in excess of billings on uncompleted contracts."
Billings in excess of revenues recognized are recorded as a
current liability under the caption "Billings in excess of
costs and estimated earnings on uncompleted contracts."
In accordance with construction industry practice, the Company
reports in current assets and liabilities those amounts
relating to construction contracts realizable and payable over
a period in excess of one year.
Fees for the management of certain contracts are recognized
when services are provided.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with
original maturities of three months or less to be cash
equivalents. At December 31, 2005, there were no cash
equivalents. At December 31, 2006, cash equivalents consist of
money market accounts.
(C) MARKETABLE SECURITIES
Marketable securities, consisting of equity securities, are
classified as "available-for-sale" securities and are stated
at fair market value. Realized gains and losses, determined
using the specific identification method, are included in
earnings. Unrealized holding gains and losses are reported as
comprehensive income (loss) in a separate component of
stockholders' equity.
F-11
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
(D) CONTRACTS RECEIVABLE
Accounts and retainage receivable from furnishing and
installing heating, ventilating and air conditioning systems
and process piping systems are based on contracted prices. The
Company may establish an allowance for uncollectible trade
accounts and retainage receivable based upon historical
collection experience and management's periodic evaluation of
the collectibility of outstanding accounts and retainage
receivable on an account-by-account basis. Accounts receivable
and contract retentions are due based on contract terms.
Amounts are deemed delinquent when they are not received
within their contract terms. Delinquent receivables are
written-off based on individual credit evaluation and specific
circumstances of the customer.
(E) CREDIT RISK
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and
trade accounts and retainage receivables.
The Company maintains its cash accounts at balances, which
exceed federally insured limits for such accounts. The Company
limits its credit risk by selecting financial institutions
considered to be highly creditworthy. At December 31, 2006,
amounts in excess of federally insured limits totaled
approximately $15,176.
Trade accounts and retainage receivables, at times, are due
from government agencies, municipalities and private owners
located in the New York metropolitan area. The Company does
not require collateral in most cases, but may file claims or
statutory liens against the construction projects if a default
in payment occurs. Trade accounts and retainage receivables
from the Company's three largest customers totaled
approximately $13,177 and $7,760 at December 31, 2006 and
2005, respectively.
(F) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is
computed over the estimated useful lives, generally five
years, of the assets using the straight-line method. Leasehold
improvements are amortized over the lesser of the estimated
useful lives of the assets to which they apply or the related
lease term. Repairs and maintenance are charged to operations
in the period incurred.
F-12
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
(G) INCOME TAXES
The Company uses the asset and liability method of accounting
for income taxes recommended in SFAS No. 109, "Accounting for
Income Taxes." Deferred taxes are recognized for temporary
differences between the bases of assets and liabilities for
financial statement and income tax purposes. The temporary
differences relate primarily to different accounting methods
used for depreciation and amortization of property and
equipment, goodwill, allowance for doubtful accounts and net
operating loss carryforwards. A valuation allowance is
recorded for deferred tax assets when it is more likely than
not that some or all of the deferred tax assets will not be
realized through future operations.
(H) EARNINGS PER SHARE
Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares
issuable upon the exercise of stock options. The difference
between reported basic and diluted weighted average common
shares results from the assumption that all dilutive stock
options outstanding were exercised.
(I) USE OF ESTIMATES
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(J) STOCK OPTIONS
On January 1, 2006, the Company adopted Statement No. 123-R,
"Share Based Payment" ("SFAS 123-R"). SFAS 123-R requires all
share based payments to employees and non-employee directors,
including grants of stock options, to be recognized in the
financial statements based on the awards fair value at the
date of grant (pro forma disclosure is no longer an
alternative to financial statement recognition). The Company
has elected to adopt SFAS 123-R on the modified prospective
method.
F-13
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
(J) STOCK OPTIONS - CONT'D
Under the modified prospective method of transition under SFAS
123-R, compensation costs in 2006 include costs for options
granted prior to, but not vested as of December 31, 2005, and
options vested in 2006. Therefore, results for prior periods
have not been restated.
Prior to January 1, 2006, the Company applied Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations. The Company
did not record compensation expense because the exercise price
of the shares was equal to the market price at the date of the
grant. SFAS 123, "Accounting for Stock Based Compensation -
Transition and Disclosure", requires proforma net income
disclosures as if the fair value based method defined in SFAS
No. 123 has been applied. The Company continued to apply the
provisions of APB 25 and provided the proforma disclosures
required by SFAS 123 and amended by SFAS 148.
The Company uses the Black-Scholes option - pricing model,
which requires the input of subjective assumptions. These
assumptions include estimating the length of time employees
will retain their vested stock options before exercising them
("expected term"), the estimated volatility of the Company's
common stock price over the expected term and the number of
options that will ultimately not complete their vesting
requirements ("forfeitures"). Changes in the subjective
assumptions can materially affect the estimate of fair value
stock-based compensation and consequently, the related amount
recognized on the consolidated statements of income.
(K) FINANCIAL INSTRUMENTS
The carrying value of marketable securities approximates fair
value as determined by market quotes. The carrying value of
receivables and payables and other amounts arising out of
normal contract activities, including retentions, which may be
settled beyond one year, approximates fair value.
F-14
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
(L) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109"
(FIN 48). FIN 48 clarifies the accounting for uncertainty in
income taxes by prescribing the recognition threshold a tax
position is required to meet before being recognized in the
financial statements. It also provides guidance on
derecognition, classification, interest and penalties,
accounting interim periods, disclosure, and transition. FIN 48
is effective for fiscal years beginning after December 15,
2006 and is required to be adopted by the Company in 2007. The
adoption of FIN 48 is not expected to have a material impact
on the Company's consolidated results of operations and
financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS 157). SFAS 157 provides guidance for using
fair value to measure assets and liabilities. It also responds
to investors' requests for expanded information about the
extent to which companies measure assets and liabilities at
fair value, the information used to measure fair value, and
the effect of fair value measurements on earnings. SFAS 157
applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand
the use of fair value in any new circumstances. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007. The adoption of SFAS 157 is
not expected to have a material impact on the Company's
consolidated results of operations and financial condition.
In February 2007, the FASB issued Statement No. 159, "The Fair
Value Option for financial Assets and Financial Liabilities -
including an amendment of FASB Statement No. 115" (SFAS No.
159"). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS No. 159 is effective for our financial statements
beginning with the first quarter of 2008. The adoption of SFAS
No. 159 is not expected to have a material impact on the
Company's consolidated results of operations and financial
condition.
F-15
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(3) MARKETABLE SECURITIES
The cost and fair values of the marketable securities, classified as
available-for-sale securities at December 31, 2006 and 2005, is as
follows:
Gross
Unrealized Gross
Holding Unrealized Fair
Cost Gains Holding Losses Value
----- ---------- -------------- ----------
December 31, 2006:
Marketable equity securities $ 481 $ 195 $ (13) $ 663
===== ========== ============== ==========
December 31, 2005:
Marketable equity securities $ 621 $ 171 $ (18) $ 774
===== ========== ============== ==========
At December 31, 2006 and 2005, gross unrealized holding losses on
available for sale securities were $13 and $18, respectively. At
December 31, 2006 and 2005, gross unrealized holding gains on available
for sale securities were $195 and $171, respectively. The change in net
unrealized holding gains is $16 and $21 for the years ended December
31, 2006 and 2005, respectively. During the years ended December 31,
2006 and 2005, available-for-sale securities were sold for total
proceeds of approximately $171 and $153, respectively. The gross
realized gains on these sales totaled approximately $44 and $15 for the
years ended December 31, 2006 and 2005, respectively.
(4) CONTRACTS RECEIVABLE
2006 2005
-------- --------
Accounts receivable:
Billed
Contracts in progress $ 9,809 $ 7,779
Completed contracts 3,396 3,990
Unbilled - 318
-------- --------
13,205 12,087
Less: Allowance for doubtful collections - 200
-------- --------
$ 13,205 $ 11,887
======== ========
Retainage receivable $ 5,566 $ 2,764
======== ========
During the year ended December 31, 2006, the Company reversed the
allowance for doubtful accounts totaling $200 and there were no direct
write-downs of accounts and retainage receivable during the year.
At December 31, 2006, retained contract receivables totaling $1,265 are
not expected to be realized within one year.
F-16
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(5) CONSTRUCTION CONTRACTS
Information with respect to contracts in progress at December 31, 2006
and 2005 is as follows:
2006 2005
-------- --------
Costs on uncompleted contracts $ 64,838 $ 25,385
Estimated earnings thereon 9,806 3,472
-------- --------
74,644 28,857
Less billings applicable thereto 78,614 29,712
-------- --------
$ (3,970) $ (855)
======== ========
Included in the accompanying consolidated balance sheets under the
following captions:
2006 2005
-------- --------
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 1,017 $ 480
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,987) (1,335)
-------- --------
$ (3,970) $ (855)
======== ========
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2006 and 2005 consists of the
following:
2006 2005
-------- --------
Machinery and equipment $ 631 $ 481
Furniture and fixtures 815 769
Leasehold improvements 845 831
-------- --------
2,291 2,081
Less accumulated depreciation and
amortization 2,035 1,969
-------- --------
$ 256 $ 112
======== ========
Depreciation and amortization expense relating to property and
equipment was approximately $66, $62 and $67 for the years ended
December 31, 2006, 2005 and 2004, respectively.
F-17
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(7) INCOME TAXES
For the years ended December 31, 2006, 2005 and 2004, components of the
provision for income taxes are as follows:
2006 2005 2004
------- ------- -------
Current
Federal $ 873 $ - $ -
State and local 693 51 36
------- ------- -------
$ 1,566 51 36
------- ------- -------
Deferred
Federal 540 60 (8)
State and local 316 41 (6)
------- ------- -------
856 101 (14)
------- ------- -------
Total $ 2,422 $ 152 $ 22
======= ======= =======
The Company provided a valuation allowance against its net deferred tax
assets based upon an uncertainty regarding the ultimate realization of
these deferred tax assets in their entirety. During the year ended
December 31, 2004, the deferred tax valuation allowance increased $581.
At December 31, 2004, the outstanding deferred tax asset valuation
allowance was $1,220. During the year ended December 31, 2005, the
Company generated profits which reduced this deferred tax valuation
allowance and the Company reversed the outstanding deferred tax
valuation allowance. This allowance was reversed after the Company's
management re-evaluated the likelihood that these assets could be used
in their entirety and concluded that the valuation allowance was not
required.
A reconciliation of the provision for income taxes with amounts
determined by applying the statutory U.S. federal income tax rate to
income before taxes is as follows:
2006 2005 2004
-------- -------- --------
Computed tax at the federal statutory rate of 34% $ 1,764 $ 974 $ (428)
State and local taxes, net of federal benefit 628 347 (152)
Valuation allowance - (1,220) 581
Other items, net 30 51 21
-------- -------- --------
Provision for income taxes $ 2,422 $ 152 $ 22
======== ======== ========
F-18
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(7) INCOME TAXES - CONT'D
The details of deferred tax assets and liabilities at December 31, 2006
and 2005 are as follows:
2006 2005
-------- --------
Deferred income tax assets:
Net operating loss carry forwards $ - $ 362
Amortization of goodwill 313 621
Property and equipment 225 236
Allowance for doubtful accounts - 92
Other tax carryforwards 51 109
-------- --------
Total deferred income tax assets 589 1,420
-------- --------
Deferred income tax liabilities:
Unrealized gains on marketable securities 84 71
-------- --------
84 71
-------- --------
Deferred income tax assets, net $ 505 $ 1,349
======== ========
At December 31, 2005, the Company had net operating loss carry forwards
remaining of approximately $1,500, which were utilized during the year
ended December 31, 2006. At December 31, 2006 and 2005, the net
deferred tax asset is included in long-term assets in the accompanying
balance sheets.
(8) STOCKHOLDERS' EQUITY
(A) STOCK OPTION PLAN
In 1995, the Board of Directors of the Company adopted the
1995 Stock Option Plan ("the Plan"). The Plan enabled the
Company to make incentive-based compensation awards to its
employees, officers, directors and consultants.
F-19
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(8) STOCKHOLDERS' EQUITY - CONT'D
(A) STOCK OPTION PLAN - CONT'D
On August 8, 2005, the Board of Directors extended the
expiration date of the 526,667 outstanding options to December
2010 from December 2005, and increased the exercise price to
$1.66 from $1.50. In addition, on August 8, 2005, the Company
issued 80,000 options, at $1.66 per share, to an officer and
three Directors. The plan expired December 2005, therefore no
new options can be granted under this plan. At December 31,
2005, the Company had 50,000 outstanding options at an
exercise price of $1.50 and 606,667 outstanding options at an
exercise price of $1.66.
On January 1, 2006, the Company adopted FASB Statement No.
123-R, "Share Based Payment" ("SFAS 123-R"). SFAS 123-R
requires all share based payments to employees and
non-employee directors, including grants of stock options, to
be recognized in the financial statements based on the awards
fair value at the date of grant (pro forma disclosure is no
longer an alternative to financial statement recognition). The
Company has elected to adopt SFAS 123-R on the modified
prospective method.
Under the modified prospective method of transition under SFAS
123-R, compensation costs in 2006 include costs for options
granted prior to, but not vested as of December 31, 2005, and
options vested in 2006. Therefore, results for prior periods
have not been restated.
On November 6, 2006, the Company corrected the vesting dates
for options issued to three outside directors to comply with
the plan requirement that options be issued when a Director is
elected to the Board.
For the year ended December 31, 2006, the Company incurred
expenses related to six individuals exercising options to
purchase 287,832 shares totaling approximately $640. The
compensation expense related to the vesting of stock options
due to the adoption of SFAS 123-R, resulted in an expense to
the Company totaling approximately $53 during the year ended
December 31, 2006.
At December 31, 2006, the Company had 30,000 outstanding
options at an exercise price of $1.50 and 338,835 outstanding
options at an exercise price of $1.66. During the year ended
December 31, 2006, 53,333 stock options that were not vested
as of December 31, 2005 vested, and 13,332 of these stock
options were exercised. At December 31, 2006, 26,667 options
of the 338,835 outstanding options exercisable at $1.66 have
not vested.
F-20
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(8) STOCKHOLDERS' EQUITY - CONT'D
(A) STOCK OPTION PLAN - CONT'D
At December 31, 2006, there was approximately $13 of
unrecognized compensation costs related to unvested
share-based compensation awards granted. That cost is expected
to be recognized over the next 1.7 years.
The following table illustrates the effect on net income
(loss) and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123-R during the
years ended December 31, 2005 and 2004 presented. For the
purposes of this proforma disclosure, the value of the options
is estimated using Black-Scholes option pricing model and
amortized to expense over the vesting periods (in thousands,
except per share data).
2005 2004
-------- --------
Net income (loss) - as reported $ 2,711 $ (1,280)
Stock option compensation, net of tax (194) -
-------- --------
Net income - pro forma $ 2,517 $ (1,280)
======== ========
Basic net income (loss) per share:
As reported $ .50 $ (.24)
Pro form $ .50 $ (.24)
Diluted net income (loss) per share)
As reported $ .46 $ (.24)
Pro form $ .46 $ (.24)
F-21
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(8) STOCKHOLDERS' EQUITY - CONT'D
(A) STOCK OPTION PLAN - CONT'D
Changes that occurred in options outstanding during 2006, 2005 and 2004 are
summarized below:
2006 2005 2004
Weighed Weighed Weighed
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year 656,667 $ 1.65 576,667 $ 1.50 576,667 $ 1.50
Expired/ Canceled - - -
Granted - August 2005 - 80,000 $ 1.66 -
Modified - August 2005 - (526,667) (1.50) -
Modified - August 2005 - 526,667 $ 1.66 -
Exercised (287,832) $ 1.65 - -
--------- -------- --------- ---------
Outstanding at end of year 368,835 $ 1.65 656,667 $ 1.65 576,667 $ 1.50
========= ========= =========
Exercisable at end of year 342,168 $ 1.65 576,667 $ 1.65 576,667 $ 1.50
========= ========= =========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for 80,000 grants in 2005: dividend
yield of 0%; expected volatility of 64.12%; risk-free interest rate of
4.69%; and expected lives of five years. For the 526,667 options that
were modified in 2005, an expected life of 2.5 years was used.
F-22
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(8) STOCKHOLDERS' EQUITY - CONT'D
(A) STOCK OPTION PLAN - CONT'D
Cash proceeds, tax benefits and intrinsic value related to
total stock options exercised during the years end December
31, 2006, 2005 and 2004, respectively, are as follows:
2006 2005 2004
------- ------- -------
Proceeds from stock options exercised $ 475 $ - $ -
Tax benefits related to stock options exercised $ 318 $ - $ -
Intrinsic value of stock options exercised $ 636 $ - $ -
The following table summarizes information about stock options
outstanding at December 31, 2006:
Exercise Price Shares Contractual Life
-------------- -------- ----------------
$ 1.50 30,000 2.8 years
$ 1.66 272,167 3.9 years
$ 1.66 66,668 8.6 years
Term in
Shares Average Price Years Value
------- ------------- ------- -------
Outstanding Options: 368,835 $ 1.65 4.71 $ 2,121
Exercising Options 342,168 $ 1.65 4.40 $ 1,967
(B) DIVIDEND DISTRIBUTION
On May 8, 2006, the Company's Board of Directors declared a
special cash dividend of $.06 per share to shareholders of
record as of May 24, 2006. The aggregate amount of the
dividend was $341 and such dividend was paid on June 15, 2006.
(C) PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of
preferred stock. As of December 31, 2006, no shares of
preferred stock have been issued by the Company.
F-23
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(9) EARNINGS (LOSS) PER SHARE
2006 2005 2004
------------ ------------ ------------
Net earnings (loss) $ 2,765,000 $ 2,711,000 $ (1,280,000)
============ ============ ============
Earnings (loss) per share - basic:
Weighted average shares
outstanding during the year 5,667,090 5,470,311 5,470,311
============ ============ ============
Earnings (loss) per common share - basic $ .49 $ .50 $ (.24)
============ ============ ============
Earnings (loss) per share - diluted:
Weighted average shares
outstanding during the year 5,667,090 5,470,311 5,470,311
Effect of stock option dilution 126,682 - -
------------ ------------ ------------
Total shares outstanding for
purposes of calculating diluted
earnings per share 5,793,772 5,470,311 5,470,311
============ ============ ============
Earnings (loss) per common shares
and common share equivalent -
diluted $ .48 $ .50 $ (.24)
============ ============ ============
(10) ACCUMULATED OTHER COMPREHENSIVE INCOME
At December 31, 2006 and 2005, accumulated other comprehensive income,
which consists of net unrealized holding gains on available for sale
securities, is as follows:
2006 2005
---- ----
Beginning balance $ 82 $ 61
Current period change 16 21
---- ----
Ending balance $ 98 $ 82
==== ====
F-24
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
(11) COMMITMENTS AND CONTINGENCIES
(A) PERFORMANCE AND PAYMENT BONDS
The Company is contingently liable to a surety under a general
indemnity agreement. The Company agrees to indemnify the
surety for any payments made on contracts of suretyship,
guaranty or indemnity as a result of the Company not having
the financial capacity to complete projects. Management
believes the likelihood of the surety having to complete
projects is remote. The contingent liability is the cost of
completing all bonded projects, subject to bidding by third
parties, which is an undeterminable amount. Management
believes that all contingent liabilities will be satisfied by
performance on the specific bonded contracts involved.
(B) OPERATING LEASE
The Company is obligated under a non-cancelable operating
lease, for office space with minimum future rental payments at
December 31, 2006 as follows:
YEAR ENDING
DECEMBER 31,
------------
2007 $ 195
2008 199
2009 100
------
$ 494
======
F-25
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(11) COMMITMENTS AND CONTINGENCIES - CONT'D
(B) OPERATING LEASE - CONT'D
Under the terms of the lease agreement, the Company is
obligated to pay monthly rental amounts of approximately $16.
The Company has exercised the first five-year option, that
extended the lease term through June 2004. The Company has
exercised two options, each for a period of one year for the
periods July 2004 through June 2005 and July 2005 through June
2006. The Company also exercised a three-year option that
extended the lease through 2009.
Rent expense for the years ended December 31, 2006, 2005 and
2004 amounted to approximately $191, $185, and $185,
respectively.
(C) OPERATING LEASE- RELATED PARTY
The Company had an operating lease with a related entity
controlled by its Chief Executive Officer for rental of
office, shop and warehouse space, which expired on December
31, 2002. The Company is renting this space on a
month-to-month basis at approximately $8.5 per month.
Rent expense, for the years ended December 31, 2006, 2005 and
2004, amounted to $103 to a related entity controlled by the
Chief Executive Officer in each year.
(D) ENVIRONMENTAL REGULATION
The Company must comply with certain Federal, state and local
regulations involving contract compliance as well as the
disposal of certain toxins. In management's opinion, there are
no environmental contingencies or violations of environmental
laws or regulations, which would have a material adverse
impact on the results of operations or on the Company's
financial condition.
F-26
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(11) COMMITMENTS AND CONTINGENCIES - CONT'D
(E) LEGAL
Other Proposals and Claims. During the ordinary and routine
course of its work on construction projects, the Company may
incur expenses for work outside the scope of its contractual
obligations, for which the owner or general contractor agrees
that the Company will be entitled to additional compensation,
but where there is not yet an agreement on price. The
Company's financial statements include the amounts the Company
believes it will ultimately receive on these authorized
proposals. Also during the course of its work on construction
projects, the Company may incur expenses for work outside the
scope of its contractual obligations, for which no
acknowledgment of liability exists from the owner or general
contractor for such additional work. These claims may include
change proposals for extra work or requests for an equitable
adjustment to the Company's contract price due to unforeseen
disruptions to its work. In accordance with accounting
principles generally accepted in the United States of America
for the construction industry, until written acknowledgment of
the validity of the claims are received, claim recoveries are
not recognized in the accompanying financial statements. No
accruals have been made in the accompanying consolidated
financial statements related to these proposals for which no
acknowledgment of liability exists. While the Company has been
generally successful in obtaining a favorable resolution of
such claims, there is no assurance that the Company will be
successful in the future.
(F) EMPLOYMENT AGREEMENT
The Company's Chief Executive Officer has a written employment
agreement, which expires on December 31, 2007 (See Note 17
(A)). This agreement provides a base annual compensation of
$450 based on a five-day work week, medical insurance,
disability insurance with payments equal to 60% of base
compensation, a $1 million policy of life insurance payable as
directed by him and a car with a chauffeur. His estate is
entitled to two months pay in the event of his death. In
addition, for the period January 1, 2006 through December 31,
2007, he will receive a bonus equal to 9.5% of the Company's
adjusted annual operating profits before taxes, which are in
excess of $250. For the year ended December 31, 2006, accrued
bonus expense related to this agreement was approximately
$570.
F-27
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(11) COMMITMENTS AND CONTINGENCIES - CONT'D
(G) PURCHASE OBLIGATION
On May 4, 2006, the Company entered into an agreement with a
supplier of piping materials, whereby the Company has
committed to purchase certain piping products normally used in
its operations, as well as fabrication services, at set prices
through April 30, 2007. This agreement does not cover all
types of materials the Company utilizes on its projects. The
Company has not been able to obtain fixed pricing on certain
materials, such as copper tubing, due to current pricing
volatility. The Company does not believe that pricing
increases on items not covered by this purchase agreement will
have a material effect on the Company's results of operations.
(12) CREDIT FACILITY
The Company has a line of credit facility from Bank of
America, N.A. which provides borrowings for working capital
purposes up to $2,000. This facility expires on April 1, 2007,
is secured by the Company's assets and is guaranteed by the
Company's subsidiary, KSW Mechanical Services, Inc. (See Note
17(B)).
Advances bear interest, based on the Company's option, at
either the bank's prime lending rate plus one percent per
annum, or the London Interbank Offered Rate("Libor") plus two
and one-half percent per annum.
(13) CONCENTRATION RISKS
(A) LABOR CONCENTRATIONS
The Company's direct labor is supplied primarily by one union
through a collective bargaining agreement, which expires in
June 2008. Although the Company's past experience was
favorable with respect to resolving conflicting demands with
unions, it is always possible that a protracted conflict may
occur which will impact the renewal of the collective
bargaining agreements.
(B) CONTRACT REVENUE/SIGNIFICANT CUSTOMERS
Revenues from the Company's largest customers were
approximately 40%, 18%, 10% and 10% of its contract revenue in
2006, 31%, 11%, 11%, 11% and 10% of its contract revenue in
2005 and 32%, 23% and 16% of its contract revenue in 2004.
F-28
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(14) RETIREMENT PLANS
(A) PROFIT-SHARING/401(k) PLAN
The Company sponsors a profit-sharing/401(k) plan covering
employees not covered under collective bargaining agreements
who meet the age and length of service requirements of the
plan. The Company may make discretionary contributions to the
plan. The total of employee contributions may not exceed
Federal government limits. The Company expensed approximately
$72, $70 and $60 as a 25% matching contribution for the years
ended December 31, 2006, 2005 and 2004, respectively.
(B) MULTIEMPLOYER PENSION PLANS
Employees of the Company who are parties to a collective
bargaining (union) agreement are covered by union pension
plans. The Company makes contributions to multiemployer
pension plans that cover its various union employees. These
plans provide benefits based on union members' earnings and
periods of coverage under the respective plans. The Company
has expensed approximately $2,524, $1,207 and $972 for the
years ended December 31, 2006, 2005 and 2004, respectively,
related to multi-employer pension plans for its union
employees.
(15) BACKLOG
At December 31, 2006, the Company had a backlog of approximately
$110,200. Backlog represents the amount of revenue the Company expects
to realize from work to be performed on uncompleted contracts in
progress at year-end and from contractual agreements on work which has
not commenced.
F-29
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
(16) SELECTED QUARTERLY DATA (UNAUDITED)
The following is unaudited selected quarterly data for the years ended
December 31, 2006 and 2005:
Year ended December 31, 2006
-------------------------------------------------
First Second Third Fourth
quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- --------
Revenues $ 15,761 $ 20,132 $ 21,644 $ 19,591 $ 77,128
Gross profit $ 2,105 $ 2,503 $ 2,440 $ 2,925 $ 9,973
Net income $ 346 $ 618 $ 785 $ 1,016 $ 2,765
Per share of
common stock
earnings
Basic $ .06 $ .11 $ .14 $ .18 $ .49
Diluted $ .06 $ .11 $ .13 $ .18 $ .48
Dividends $ - $ .06 $ - $ - $ .06
Stock prices:
High $ 4.06 $ 6.12 $ 4.60 $ 7.40
Low $ 2.80 $ 3.40 $ 3.66 $ 3.80
Year ended December 31, 2005
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- --------
Revenues $ 9,876 $ 11,552 $ 14,849 $ 17,101 $ 53,378
Gross profit $ 1,143 $ 1,128 $ 1,516 $ 2,694 $ 6,481
Net income $ 155 $ 298 $ 1,262 $ 996 $ 2,711
Per share of
common stock
earnings
Basic $ .03 $ .05 $ .23 $ .19 $ .50
Diluted $ .03 $ .05 $ .23 $ .19 $ .50
Dividends $ - $ - $ - $ - $ -
Stock prices:
High $ .75 $ 1.80 $ 2.30 $ 3.10
Low $ .40 $ .66 $ 1.60 $ 2.06
F-30
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(in thousands, except share data)
----------
(17) SUBSEQUENT EVENTS
(A) EMPLOYMENT AGREEMENT
On March 6, 2007, the Company's Chief Executive Officer's
written employment agreement was extended, under the same
terms and conditions, to December 31, 2009.
(B) CREDIT FACILITY
On March 8, 2007, the Company extended the working capital
credit facility with Bank of America, N.A for a term expiring
March 30, 2008.
F-31
SCHEDULE II
KSW, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
000's
Balance at Charged to Charged to Balance
Beginning costs and other at end
of period expenses accounts Deductions of period
---------- ---------- ---------- ---------- ----------
Description
Year ended December 31, 2006
allowance for doubtful accounts and returns $ 200 $ - $ - $ 200 $ -
========== ========== ========== ========== ==========
Year ended December 31, 2005
allowance for doubtful accounts and returns $ 200 $ - $ - $ - $ 200
========== ========== ========== ========== ==========
Year ended December 31, 2004
allowance for doubtful accounts and returns $ 200 $ - $ - $ - $ 200
========== ========== ========== ========== ==========
Year ended December 31, 2006
deferred income tax valuation $ - $ - $ - $ - $ -
========== ========== ========== ========== ==========
Year ended December 31, 2005
deferred income tax valuation $ 1,220 $ - $ - $ 1,220 $ -
========== ========== ========== ========== ==========
Year ended December 31, 2004
deferred income tax valuation $ 639 $ 581 $ - $ - $ 1,220
========== ========== ========== ========== ==========
F-32
KSW, INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of KSW, Inc.
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-8 (No. 333-217350), filed with
the Commission on February 13, 1997).
3.2 Amended and Restated By-Laws of KSW, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-8 (No. 333-217350), filed with the Commission on
February 13, 1997).
10.1 Form of Modification of Lease Agreement dated as of May 1, 1998 by
and between KSW, Inc, Irvjoy Partners, L.P. and I BLDG Co., Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (Commission File No. 001-32865), filed with the Commission on
March 30, 1999).
10.2 1995 Stock Option Plan of KSW, Inc. (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form 10 (Commission File No. 001-32865), filed with the
Commission on November 24, 1995).
10.3 Employment Agreement, dated September 12, 2005 by and between the
Company, KSW Mechanical Services, Inc. and Floyd Warkol
(incorporated herein by reference to Exhibit 10.20 to the
Company's Current Report on Form 8-K (Commission File No.
001-32865), filed with the Commission on September 12, 2005.
10.4 Amendatory Employment Agreement, dated as of March 6, 2007, by and
between the Company, KSW Mechanical Services, Inc., and Floyd
Warkol.
10.5 Line of Credit Agreement Letter, dated March 14, 2006, between
KSW, Inc. and Bank of America, N.A. together with forms of a Line
of Credit Note, Rider to Line of Credit Note, a pledge security
agreement and guaranty (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
year ended December 3, 2005, filed with the Commission on March
16, 2006).
KSW, INC.
INDEX TO EXHIBITS
10.6 Line of Credit Agreement Letter, dated March 8, 2007, between KSW,
Inc. and Bank of America, N.A.
11 Statement Regarding Computation of Net Earnings (Loss) Per Share.
21.1 List of Subsidiaries.
23.1 Consent of Marden, Harrison & Kreuter, CPAs, P.C.
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a).
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a).
32.1 Certification of Chief Executive Officer required by Rule
13a-14(b) and 18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer required by Rule
13a-14(b) and 18 U.S.C. Section 1350.