UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
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
KSW, INC.
---------
(Exact name of registrant as specified in its charter)
Delaware 11-3191686
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
37-16 23rd Street, Long Island City, New York 11101
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
718-361-6500
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Accelerated Non-Accelerated Smaller Reporting
Filer [ ] Filer [ ] Filer [ ] Company [X]
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Outstanding at
Class May 7, 2008
----- -----------
Common stock, $.01 par value 6,280,824
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2008
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TABLE OF CONTENTS
Page No.
- -------------------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
March 31, 2008 (unaudited) and December 31, 2007 3
Consolidated Statements of Income-
Three months ended March 31, 2008 and 2007 (unaudited) 4
Consolidated Statements of Comprehensive Income-
Three months ended March 31, 2008 and 2007 (unaudited) 5
Consolidated Statement of Stockholders' Equity-
Three months ended March 31, 2008 (unaudited) 6
Consolidated Statements of Cash Flows-
Three months ended March 31, 2008 and 2007 (unaudited) 7
Notes to Consolidated Financial Statements- 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 17
- -------------------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 1A Risk Factors 17
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 19
Item 6 Exhibits 19
- -------------------------------------------------------------------------------------------
SIGNATURE 20
INDEX TO EXHIBITS 21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
--------------------
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, 2008 December 31, 2007
-------------- -----------------
ASSETS (unaudited)
- ------
Current assets:
Cash and cash equivalents $15,961 $16,232
Marketable securities 1,788 1,892
Accounts receivable 16,248 14,133
Retainage receivable 8,413 6,647
Costs and estimated earnings in excess of
billings on uncompleted contracts 658 1,107
Prepaid expenses and other receivables 340 359
Prepaid income taxes 77 -
------- -------
Total current assets 43,485 40,370
Property and equipment, net of accumulated
depreciation and amortization of $2,111 and $2,091
at 3/31/08 and 12/31/07, respectively 259 254
Deferred income taxe s and other 194 313
------- -------
Total assets $43,938 $40,937
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $16,635 $14,182
Retainage payable 4,072 3,636
Accrued payroll and benefits 827 1,519
Accrued expenses - 175
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,119 4,031
Income taxes payable - 5
------- -------
Total current liabilities 25,653 23,548
------- -------
Commitments and contingencies (Note 5)
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, 6,280,824 and 6,244,324 shares issued
and outstanding at 3/31/08 and 12/31/07, respectively 63 62
Additional paid-in capital 13,259 13,139
Retained earnings 5,001 4,161
Accumulated other comprehensive income (loss):
Net unrealized holding gains (losses) on available -
for-sale securities (38) 27
------- -------
Total stockholders' equity 18,285 17,389
------- -------
Total liabilities and stockholders' equity $43,938 $40,937
======= =======
See accompanying notes to consolidated financial statements.
3
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)
Three Months Three Months
Ended March 31, 2008 Ended March 31, 2007
-------------------- --------------------
Revenues $ 20,491 $ 17,991
Cost of revenues 18,174 15,501
--------- ---------
Gross profit 2,317 2,490
Selling, general and administrative expenses 1,308 1,013
--------- ---------
Operating income 1,009 1,477
Other income:
Interest income, net 124 113
--------- ---------
Income before provision for income taxes 1,133 1,590
Provision for income taxes 293 692
--------- ---------
Net income $ 840 $ 898
========= =========
Earnings per common share:
Basic $ .13 $ .15
Diluted $ .13 $ .15
Weighted average common
shares outstanding:
Basic 6,261,098 6,088,444
Diluted 6,324,415 6,210,085
See accompanying notes to consolidated financial statements.
4
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Three Months
Ended March 31, 2008 Ended March 31, 2007
-------------------- --------------------
Net income $ 840 $ 898
-------- -------
Other comprehensive income (loss) before
income tax (benefit):
Unrealized holding gains (losses) arising
during the period (119) 15
Less: reclassification adjustment
for gains included in net income - -
-------- -------
Other comprehensive income (loss)
before income tax (benefit) (119) 15
Income tax (benefit) related to items
of other comprehensive income (loss) (54) 7
-------- -------
Other comprehensive income (loss), net of
income tax (benefit) (65) 8
-------- -------
Total comprehensive income $ 775 $ 906
======== =======
See accompanying notes to consolidated financial statements.
5
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2008
(in thousands, except share data)
(unaudited)
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income (loss) Total
------ ------ ------- -------- ------------- -----
Balances, January 1, 2008 6,244,324 $ 62 $ 13,139 $ 4,161 $ 27 $ 17,389
Net income - - - 840 - 840
Share transactions under employee stock option plan 36,500 1 56 - - 57
Amortization of share based compensation - - 2 - - 2
Tax benefits from exercise of employee stock option
plan - - 62 - - 62
Net unrealized losses on available-for-sale securities - - - - (65) (65)
--------- ------ -------- ------- ------ --------
Balances, March 31, 2008 6,280,824 $ 63 $ 13,259 $ 5,001 $ (38) $ 18,285
========= ====== ======== ======= ====== ========
See accompanying notes to consolidated financial statements.
6
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Three Months
Ended March 31, 2008 Ended March 31, 2007
-------------------- --------------------
Cash flows from operating activities:
Net income $ 840 $ 898
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 20 17
Deferred income taxes 173 187
Tax benefits from exercise of stock options (62) (149)
Stock-based compensation expense related
to stock option plan 2 5
Changes in operating assets and liabilities:
Accounts receivable (2,115) (3,287)
Retainage receivable (1,766) 54
Costs and estimated earnings in excess
of billings on uncompleted contracts 449 399
Prepaid expenses and other receivables 19 144
Prepaid income taxes (15)
Accounts payable 2,453 (20)
Retainage payable 436 92
Accrued payroll and benefits (692) (76)
Accrued expenses (175) (226)
Billings in excess of costs and estimated
earnings on uncompleted contracts 88 1,380
Income taxes payable (5) (1,231)
------- -------
Net cash used in operating
activities (350) (1,813)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (25)
Purchases of marketable securities (15) -
------- -------
Net cash used in investing activities (40) -
------- -------
Cash flows from financing activities:
Proceeds from exercise of employee stock option plan 57 117
Tax benefits from exercise of stock options 62 149
------- -------
Net cash provided by financing activities 119 266
------- -------
Net decrease in cash and cash equivalents (271) (1,547)
Cash and cash equivalents, beginning of period 16,232 14,085
------- -------
Cash and cash equivalents, end of period $15,961 $12,538
------- -------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 2 $ 1
Income taxes $ 136 $ 1,739
See accompanying notes to consolidated financial statements.
7
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Nature of Operations and Basis of Presentation
----------------------------------------------
KSW, Inc. and its Subsidiary, collectively the "Company", furnishes and installs
heating, ventilating and air conditioning systems and process 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. The Company considers itself to operate as one operating
segment.
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and disclosures required by accounting principles generally
accepted in the United States of America. These consolidated statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2007.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments necessary for a fair presentation of the
consolidated financial position of the Company as of March 31, 2008, and its
results of operations, comprehensive income and cash flows for the three month
periods ended March 31, 2008 and 2007. Because of the possible fluctuations in
the marketplace in the construction industry, operating results of the Company
on a quarterly basis may not be indicative of operating results for the full
year ending December 31, 2008.
2. Significant Accounting Policies
-------------------------------
The significant accounting policies followed by the Company and its subsidiary
in preparing its consolidated financial statements are set forth in Note (2) to
such consolidated financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2007. The Company has made no
significant changes to these policies during 2008.
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 has not had a material impact on the Company's
consolidated results of operations or 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
8
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 the Company's financial statements beginning with the first
quarter of 2008. The adoption of SFAS No. 159 has not had a material impact on
the Company's consolidated results of operations or financial condition.
3. Stockholders' Equity
--------------------
(A) 1995 Stock Option Plan
----------------------
During the quarter ended March 31, 2008, the Company incurred compensation
expense related to the vesting of stock options totaling approximately $2,000.
In addition, a director, an executive and an employee exercised an aggregate of
36,500 options during the quarter ended March 31, 2008.
During the quarter ended March 31, 2007, the Company incurred compensation
expense related to the vesting of stock options totaling approximately $5,000.
In addition, an executive and a former director exercised an aggregate of 70,500
options during the quarter ended March 31, 2007.
As of March 31, 2008, there is approximately $2,000 of unrecognized compensation
expense related to unvested stock-based compensation awards granted. That cost
is expected to be recognized over the next two quarters.
This stock option plan expired December 2005. Therefore, no new options can be
granted under this plan.
Options were granted to certain employees and directors at prices equal to the
market value of the stock on the dates the options were granted. The options
granted generally have a term of 10 years from the grant date and granted
options vest ratably over a three year period. The fair value of each option is
amortized into compensation expense on a straight-line basis between the grant
date for the option and each vesting date. The Company estimates the fair value
of all stock option awards as of the date of the grant by applying the Black
- -Scholes pricing valuation model. The application of this valuation model
involves assumptions that are judgmental and sensitive in the determination of
compensation expense which would include the expected stock price volatility,
risk-free interest rate, weighted-average expected life of the options and the
dividend yield.
Historical information is the primary basis for the selection of the expected
volatility, expected dividend yield and the expected lives of options. The risk
free interest rate was selected based upon yields of U.S. Treasury issues with a
term equal to the expected life of the option being valued. Stock option
activity for the quarter ended March 31, 2008 was as follows:
9
Weighted Average
Number Weighted Average Remaining Contractual Aggregate
of Shares Exercise Price Term in Years Intrinsic Value
--------- -------------- ------------- ---------------
Outstanding at January 1, 2008 189,002 $ 1.58
Expired/canceled - -
Granted -
Exercised (36,500) $ 1.57
-------
Outstanding at March 31, 2008 152,502 $ 1.58 3.5 $677,000
-------
Exercisable at March 31, 2008 145,502 $ 1.58 3.3 $636,000
Cash proceeds, tax benefits and intrinsic value related to total stock options
exercised during the quarters ended March 31, 2008 and 2007 are as follows:
Three Months Ended Three Months Ended
March 31, 2008 March 31, 2007
-------------- --------------
Proceeds from stock options exercised $ 57,000 $ 117,000
Tax benefits related to stock options exercised $ 62,000 $ 149,000
Intrinsic value of stock options exercised $ 143,000 $ 341,000
(B) 2007 Stock Option Plan
----------------------
By resolution dated May 8, 2007, the Company's Board of Directors adopted,
subject to stockholder approval at the May 2008 Annual Meeting of Stockholders,
the KSW, Inc. 2007 Stock Option Plan (the "2007 Plan"). This plan was approved
at the annual shareholder meeting which was held on May 6, 2008. Pursuant to the
2007 Plan, 300,000 shares of common stock of the Company are reserved for
issuance to employees, consultants and directors of the Company. The primary
purpose of the 2007 Plan is to reward and retain key employees. No options have
been issued to officers or employees under this 2007 Plan. Under this plan, the
Company has issued to a Company director options to purchase 20,000 shares of
the Company's common stock at an exercise price of $6.95 per share.
(C) Dividend
--------
On April 30, 2008, the Company's Board of Directors declared a cash dividend of
$.20 per share. The aggregate amount of the dividend will be approximately
$1,256,000 to be paid on June 17, 2008 to shareholders of record as of May 26,
2008.
10
4. Earnings per Share
------------------
Three Months Ended Three Months Ended
March 31, 2008 March 31, 2007
-------------- --------------
Net income $ 840,000 $ 898,000
========== ==========
Earnings per share - basic:
- ---------------------------
Weighted average shares outstanding
during the period 6,261,098 6,088,444
---------- ----------
Earnings per share - basic $ .13 $ .15
---------- ----------
Earnings per share - diluted:
- -----------------------------
Weighted average shares outstanding
during the period 6,261,098 6,088,444
Effect of stock option
dilution 63,317 121,641
---------- ----------
Total shares outstanding for purposes of
calculating diluted earnings per share 6,324,415 6,210,085
---------- ----------
Earnings per share - diluted $ .13 $ .15
========== ==========
5. Commitment and Contingencies
----------------------------
Proposals and Claims. 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 acknowledgments of the
validity of the claims are received, the claims are not recognized in the
accompanying consolidated 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.
6. Recently Issued Accounting Pronouncements
-----------------------------------------
In December 2007, the FASB issued Statement No. 141 (revised 2007), "Business
Combinations" ("SFAS 141-R"). SFAS 141-R changes the accounting for acquisitions
specifically eliminating the step acquisition model, changing the recognition of
contingent consideration from being recognized when it is probable to being
recognized at the time of acquisition, disallowing the capitalization of
transaction costs and changes when restructurings related to acquisition can be
recognized. The standard is effective for
11
fiscal years beginning on or after December 15, 2008 and will only impact the
accounting for acquisitions that are made after adoption.
In December 2007, the FASB issued Statement No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160").
This statement is effective for fiscal years beginning on or after December 15,
2008, with earlier adoption prohibited. This statement requires the recognition
of a noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the Company's equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the consolidated income statement. It
also amends certain of ARB No. 51's consolidation procedures for consistency
with the requirements of SFAS 141-R. This statement also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The Company has not determined the effect, if any, the
adoption of SFAS 160 will have on the Company's consolidated financial position
or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
- ---------------------
Revenues
Total revenues for the quarter ended March 31, 2008 increased by $2,500,000, or
13.9% to $20,491,000, as compared to $17,991,000 for the quarter ended March 31,
2007. This increase in revenues was a result of the Company's performance on its
backlog of work.
As of March 31, 2008, the Company had backlog of approximately $127,300,000.
Approximately $ 57,000,000 of the March 31, 2008 backlog is not reasonably
expected to be completed within the year ended December 31, 2008. New contracts
secured during 2008 will also increase 2008 revenues. The amount of backlog not
reasonably expected to be completed in the next fiscal year is subject to
various uncertainties and risks. The Company is actively seeking new projects to
add to its backlog.
Cost of Revenues
Costs of revenues for the quarter ended March 31, 2008 increased by $2,673,000,
or 17.2% to $18,174,000, as compared to $15,501,000 for the quarter ended March
31, 2007. The increase in costs of revenues for the quarter ended March 31, 2008
as compared to March 31, 2007, is primarily associated with the increased
revenues.
During the quarter ended March 31, 2008, the union which supplies the majority
of the Company's direct labor, notified the Company, as well as other
signatories to the collective bargaining agreement, that it had incorrectly
billed for wages and fringe benefits for 2006 and 2007. The Company recorded
additional costs of approximately $85,000 to account for this billing error
during the quarter ended March 31, 2008.
12
Gross Profit
Gross profit for the quarter ended March 31, 2008 was $2,317,000, or 11.3% of
revenues, as compared to a gross profit of $2,490,000, or 13.8% of revenues, for
the quarter ended March 31, 2007. The decrease in gross profit for the quarter
ended March 31, 2008, as compared to the quarter ended March 31, 2007, was
primarily a result of higher than anticipated costs incurred on several
projects. The Company has submitted claims on certain of these projects to
recoup some of these costs. In accordance with accounting principles generally
accepted in the United States of America for the construction industry, the
Company does not record any income from claims until the claims have been
received or awarded. While there is no assurance that these costs will be
reimbursed, the Company believes its claims are meritorious.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the quarter ended
March 31, 2008 increased by $295,000, or 29.1% to $1,308,000, as compared to
$1,013,000 for the quarter ended March 31, 2007. This increase in SG&A for the
quarter ended March 31, 2008, as compared to the quarter ended March 31, 2007,
was primarily a result of increased employment costs.
Other Income
Other income for the quarter ended March 31, 2008 was $124,000, as compared to
$113,000 for the quarter ended March 31, 2007. This increase was a result of
interest earned.
Provision for Income Taxes
The provision for income taxes for the quarter ended March 31, 2008 was
$293,000, as compared to the provision for income taxes of $692,000 for the
quarter ended March 31, 2007. The tax expense was lower than the Company's
effective tax rate during the quarter ended March 31, 2008 as a result of the
Company's ability to utilize the Domestic Production Activities Deduction, a
credit available to qualifying entities in the construction and other
industries.
Net Income
As a result of the above mentioned items, the Company reported net income of
$840,000, or $.13 per share-basic and diluted, for the quarter ended March 31,
2008, as compared to reported net income of $898,000, or $.15 per share-basic
and diluted, for the quarter ended March 31, 2007.
Liquidity and Capital Resources
- -------------------------------
General
The Company's principal capital requirement is to fund its work on construction
projects.
13
Projects are billed monthly 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 their respective contract terms. The
Company has historically relied primarily on internally generated funds and bank
borrowings to finance its operations. The Company has a line of credit which is
subject to certain conditions. The Company has not relied on bank borrowings to
finance its operation since July 2003.
As of March 31, 2008, total cash and cash equivalents was $15,961,000, an
increase over the $12,538,000 reported as of March 31, 2007.
Cash used in operations
Net cash used in operations was $350,000 for the quarter ended March 31, 2008,
as compared to $1,813,000 for the quarter ended March 31, 2007. Both periods
were affected by the funding of newer projects, the payment of corporate income
taxes and executive bonuses.
Cash used in investing activities
Net cash used in investing activities was $40,000 for the quarter ended March
31, 2008. The Company purchased property and equipment totaling $25,000 and
marketable securities totaling $15,000 during the quarter ended March 31, 2008.
There was no cash from investing activities during the quarter ended March 31,
2007.
Cash provided by financing activities
Net cash provided by financing activities during the quarters ended March 31,
2008 and 2007 was $119,000 and $266,000, respectively.
During the quarter ended March 31, 2008, an executive, an employee and a
director exercised options to purchase an aggregate of 36,500 shares,
contributing cash proceeds of $57,000 to the Company.
During the quarter ended March 31, 2007, an executive and a former director
exercised options to purchase an aggregate of 70,500 shares, contributing cash
proceeds of $117,000 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, $62,000 and $149,000 of excess tax benefits for the quarters ended March
31, 2008 and 2007, respectively, have been classified as an operating cash
outflow and a financing cash inflow.
14
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
expires on April 1, 2009, is secured by the Company's assets, and is guaranteed
by the Company's subsidiary, KSW Mechanical Services, Inc. There were no
borrowings against this line of credit.
Advances bear interest, at the Company's option, at either the bank's prime
lending rate plus one percent per annum (6.25% at March 31, 2008) or the London
Inter-Bank Offered Rate ("LIBOR") plus two and one-half percent per annum (5.19%
at March 31, 2008).
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 obtains its surety bonds from Federal Insurance Company, a member of
Chubb Group of Insurance Companies. 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 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 that might result from
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.
The Company's bonding limits have been sufficient given the volume and size of
the Company's contracts. The Company's surety may require that the Company
maintain certain tangible net worth levels, and may require additional
guarantees if the Company should desire increased bonding limits. At March 31,
2008, approximately $37,000,000 of the Company's backlog of $127,300,000 is
anticipated to be bonded.
Critical Accounting Policies and Estimates
- ------------------------------------------
There have been no material changes in the accounting policies and estimates
that the Company considers to be "critical" from those disclosed in the
Company's Annual
15
Report on Form 10-K for the year-ended December 31, 2007.
Recently Issued Accounting Pronouncements
- -----------------------------------------
See Note (6) to the consolidated financial statements for a summary of recently
issued accounting pronouncements and their impact on the Company.
Forward-Looking Statements
- --------------------------
Certain statements contained in this report are not historical facts and
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 words such as "believe",
"expect", "anticipate", "intend", "plan", "foresee", "likely", "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. This document describes factors that
could cause actual results to differ materially from expectations of the
Company. 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. Such risks, uncertainties, and other important factors
include, among others: inability to obtain bonding, inability to retain senior
management, low labor productivity and shortages of skilled labor, a rise in the
price of steel products, economic downturn, reliance on certain customers,
competition, inflation, the adverse effect of terrorist concerns and activities
on public budgets and insurance costs, the unavailability of private funds for
construction, and other various matters, many of which are beyond the Company's
control and other factors as are described in "Item 1A. Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007. Forward-looking statements speak only as of the date of the document in
which they are made. Other than required by applicable law, the Company
disclaims any obligation or undertaking to provide any updates or revisions to
any forward-looking statements to reflect any changes in the Company's
expectations or any changes in events, conditions or circumstances on which the
forward-looking statements are based.
ITEM 3. QUANTITITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------
The Company does not utilize futures, options or other derivative instruments.
As of March 31, 2008, the Company has invested $1,788,000 in marketable
securities.
16
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
As of December 31, 2007, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework established in INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based
on this evaluation, management determined that as of December 31, 2007, there
was a material weakness in our internal control over financial reporting in that
the Company incorrectly recorded stock based compensation expense. In light of
this, management concluded that, as of December 31, 2007, the Company did not
maintain effective internal control over financial reporting. As defined by the
Public Company Accounting Oversight Board Auditing Standard No. 5, a material
weakness is a deficiency or a combination of deficiencies, such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
During the quarter ended March 31, 2008, this deficiency was corrected by the
Company engaging a public accounting firm, on an as-needed basis, to consult on
accounting and tax related issues.
The Company carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of March 31, 2008. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of March 31, 2008.
Other than discussed above, 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 quarter ended March 31, 2008, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - Other Information
- ---------------------------
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes related to risk factors from those items
previously disclosed in the Company's December 31, 2007 Annual Report on Form
10-K except for the following:
17
During the first quarter of 2008, the prices of steel pipe and related
materials, which constitute approximately 10% of the Company's project costs,
increased significantly. The Company has a long-term purchase agreement,
expiring October 31, 2008, that fixes the price for a portion of its steel
purchase requirements. The Company has also increased its projected material
costs in its estimates for future work. These actions have limited the short
- -term effect of the steep increase in the costs of steel pipe and related
materials. However, there is no assurance that steel prices will abate and,
accordingly, the Company has been unable to secure a new long-term contract for
its steel purchase requirements. To the extent the Company is unable to estimate
future increases or recover these costs, continued increases may have an adverse
effect on the Company's results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 6, 2008 in Queens,
New York, for the purpose of (i) electing two Class I Directors to serve until
the annual meeting of stockholders in the year 2011; (ii) ratifying the
appointment of J.H. Cohn LLP, as independent auditors for the fiscal year ending
December 31, 2008; and (iii) ratifying the adoption of the 2007 Stock Option
Plan of KSW, Inc., adopted by the Board of Directors on May 8, 2007. Proxies
were solicited from holders of 6,271,924 outstanding shares of Common Stock as
of the close of business on March 4, 2008, as described in the Company's Proxy
Statement dated April 3, 2008. Stanley Kreitman and John A. Cavanagh were
elected as Class I Directors, and the appointment of J.H. Cohn LLP and the
adoption of the 2007 Stock Option Plan of KSW, Inc. were ratified by the
following votes:
(1) To elect two Class I Directors to serve until the annual meeting of
stockholders in the year 2011.
Votes For Votes Witheld Broker Non-Votes
--------- ------------- ----------------
Stanley Kreitman 5,159,171 228,103
John A. Cavanagh 5,324,342 62,932
Floyd Warkol, Warren O. Kogan and Innis O'Rourke, Jr. continue to serve as
directors of the Company after the Annual Meeting of Stockholders.
18
(2) To ratify the appointment of J.H. Cohn LLP as the Company's independent
auditors for the fiscal year ending December 31, 2008.
Votes For Votes Against Votes Abstained
- --------- ------------- ---------------
5,380,405 2,803 4,065
(3) To ratify the adoption of the 2007 Stock Option Plan of KSW, Inc.
Votes For Votes Against Votes Abstained
- --------- ------------- ---------------
1,522,861 433,852 6,989
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 11 - Statement regarding Computation of Earnings per Share (see
Note 4 to the Consolidated Financial Statements included elsewhere in
this Report)
Exhibit 31.1 - Certification of Chief Executive Officer required by
Rule 13a-14(a)
Exhibit 31.2 - Certification of Chief Financial Officer required by
Rule 13a-14(a)
Exhibit 32.1 - Certification of Chief Executive Officer required by
Rule 13a-14(b) and 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer required by
Rule 13a-14(b) and 18 U.S.C. Section 1350
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KSW, INC.
Date: May 7, 2008
/s/Richard W. Lucas
----------------------
Richard W. Lucas
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
20
KSW, INC.
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
11 Statement Regarding Computation of Earnings per Share(see Note 4 to
the Consolidated Financial Statements included elsewhere in this Report)
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. [SEC]1350
32.2 Certification of Chief Financial Officer required by Rule 13a-14 (b)
and 18 U.S.C. [SEC]1350
21