December 11, 2007
Securities and Exchange Commission
Washington, D.C. 20549-7010
Attn: John Cash
Branch Chief
RE: Form 10-K for the fiscal year ended December 31, 2006
File #1-32865
Ladies and Gentlemen:
This letter sets forth the responses of KSW, Inc. (the "Company") to the comment
contained in the letter from the Staff of the Securities and Exchange Commission
(the "Commission"), dated November 29, 2007, with respect to the
above-referenced filing. For your convenience, we have repeated in bold type the
comment exactly as set forth in the November 29, 2007 comment letter. The
Company's response to the comment is set forth immediately below the text of the
comment.
Notes to the Consolidated Financial Statements
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Note 8. Stockholders' Equity
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(A) Stock Option Plan, Page F-19
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1. We note that you have adopted SFAS 123(R) as of January 1, 2006 and that
you recorded an expense of $640,000 relating to the exercising of 287,832
options by six individuals during the year ended December 31, 2006. Please
explain to us your accounting for these options that resulted in this expense
and please cite the specific accounting literature that you relied on to record
the expense as a result of these individuals exercising their options. We also
note that additional stock compensation was recognized as a result of vesting
during the period.
Response:
Year ended December 31, 2006
In reviewing the comment by the Commission, and the applicable accounting
literature, we have determined that the Company has incorrectly recorded an
expense in its 2006 consolidated financial statements when options that had
vested prior to the adoption of SFAS 123(R) were exercised.
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Securities and Exchange Commission
December 11, 2007
On January 1, 2006, the Company adopted SFAS 123(R) using the modified
prospective method.
At various times during 2006, an aggregate of 287,832 fully vested options were
exercised. The Company incorrectly recorded expense for the intrinsic value of
these exercised options equal to the difference between the option exercise
price and the quoted market value for the Company's common stock on each of the
exercise dates.
As a result, the Company incorrectly reported selling, general and
administrative expenses totaling $636,000 in connection with the exercising of
stock options during the year ended December 31, 2006. This error had no effect
on reported revenue, gross profit, cash position, or total stockholders' equity,
but reduced reported net earnings for 2006 by $343,000, or $0.06 per share-basic
and diluted.
The Company disclosed expenses related to the exercise of stock options, net of
taxes, in Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") in its Annual Report on Form 10-K, as well as in
an earnings press release. In each of these documents, net earnings and earnings
per share were presented both with and without the effect of stock option
expense. Total expenses recorded for the exercise of stock options were also
disclosed in the footnotes to the consolidated financial statements.
For the year ended December 31, 2006, the Company reported net earnings of
$2,765,000, or $0.49 per share-basic and $0.48 per share-diluted. The Company
also disclosed in the MD&A in its Annual Report on Form 10-K that stock option
expenses recorded during the period reduced net income by $374,000, or $0.07 per
share-basic and diluted. This reduction of $374,000 correctly included $29,000
related to the vesting of stock options under SFAS 123(R) and $2,000 of payroll
tax expense related to previously vested stock options exercised during 2006.
The $374,000 reduction incorrectly included compensation expenses related to the
exercise of stock options totaling $ 343,000, or $0.06 per share-basic and
diluted. After reversing this expense, net income will increase from $2,765,000
to $3,108,000.
The Company reported fourth quarter 2006 earnings by issuing a press release and
a Current Report on Form 8-K. This press release began with a discussion of
fourth quarter 2006 results and then described expenses related to stock options
and a reversal of an allowance. A similar discussion of the results for the year
ended December 31, 2006 followed.
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Securities and Exchange Commission
December 11, 2007
Nine months ended September 30, 2007
As previously stated, the Company has incorrectly recognized expenses when stock
options were exercised during 2006. This error continued in the Company's three
quarterly filings during 2007.
At various times during the nine months ended September 30, 2007, an aggregate
of 140,416 fully vested options were exercised.
As a result, the Company incorrectly reported selling, general and
administrative expenses totaling $662,000 in connection with the exercising of
stock options during the nine months ended September 30, 2007. This had no
effect on reported revenue, gross profit, cash position, or total stockholders'
equity, but reduced reported net earnings for the nine months ended September
30, 2007 by $357,000, or $0.05 per share-basic and $0.06 per share-diluted.
As it had done in 2006, the Company disclosed expenses related to the exercise
of stock options, net of taxes, in the MD&A in each of its three 2007 Quarterly
Reports on Form 10-Q, as well as in earnings press releases. In each of these
documents, earnings and earnings per share were presented both with and without
the effect of stock option expense. Total expenses recorded for the exercise of
stock options were also disclosed in the footnotes to the consolidated financial
statements.
Proposed Correction
The Company does not believe that a restatement is needed, since 2006 earnings,
as well as earnings for each of the first three quarters of 2007, were disclosed
both with the stock option expenses and without the stock option expenses in the
Annual Report on Form 10-K, in each Quarterly Report on Form 10-Q for 2007, and
in earnings press releases and related Current Reports on Form 8-K. Although the
corrected amounts reflect a change to the Company's previously reported
earnings, the corrected earnings amounts are not materially different from the
amounts disclosed as earnings without the effect of stock option expenses. The
investor public was made aware of these expenses, knew the results with and
without the expenses, and had adequate information to make an investment
decision. We believe restatement of the prior periods would not provide any new
information.
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Securities and Exchange Commission
December 11, 2007
Based on the above, the Company proposes to report the corrections of the errors
prospectively in its Annual Report on Form 10-K for the year ended December 31,
2007. We also propose to adjust the 2006 and 2007 unaudited selected quarterly
information included in the footnotes to the consolidated financial statements
in the same filing. We also propose to issue a press release and a Current
Report on Form 8-K describing the reporting error and the corrected earnings for
2006 and the first three quarters of 2007.
The Company hereby acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o staff comments or changes to disclosure in response to staff comments in
the filings reviewed by the staff do not foreclose the Commission from
taking any action with respect to the filing; and
o the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
If any member of the Commission's Staff has any questions regarding the
foregoing, or desires further information or clarification in connection
therewith, please contact the undersigned at 718-340-1444 or James Oliviero at
718-340-1409.
Very truly yours,
KSW, INC.
/s/ Richard Lucas
Richard Lucas
Chief Financial Officer
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