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| KSW > SEC Filings for KSW > Form 10-Q on 13-Nov-2009 | All Recent SEC Filings |
13-Nov-2009
Quarterly Report
Results of Operations
Revenues
Total revenues for the quarter ended September 30, 2009 decreased by $12,346,000, or (48.4)% to $13,181,000, as compared to $25,527,000 for the quarter ended September 30, 2008. Total revenues for the nine months ended September 30, 2009 decreased by $18,508,000, or (27.2)%, to $49,508,000, as compared to $68,016,000 for the nine months ended September 30, 2008. This decrease was a result of the economic recession and credit crisis which led to the cancellation of several projects this past December.
As of September 30, 2009, the Company had backlog of approximately $134,300,000.
Approximately $119,600,000 of the September 30, 2009 backlog is not reasonably expected to be completed within the year ending December 31, 2009. New contracts secured during 2009 may also increase 2009 revenues. The amount of backlog not reasonably expected to be completed in the year ending December 2009 is subject to various uncertainties and risks. The Company is actively seeking new projects to add to its backlog. The economic recession has impacted the number of available private projects that the Company may pursue. Therefore, the Company is aggressively pursuing opportunities in the public sector, where the Company has been successful in the past. During the third quarter of 2009, the Company received awards of contracts for chiller plants at the new World Trade Center (awarded to the Company's joint venture discussed under Note 5 to the accompanying consolidated financial statements) and at the Brookhaven National Laboratory.
Cost of Revenues
Cost of revenues for the quarter ended September 30, 2009 decreased by $10,379,000, or (47.6)%, to $11,439,000, as compared to $21,818,000 for the quarter ended September 30, 2008. Cost of revenues for the nine months ended September 30, 2009 decreased by $14,439,000, or (24.5)%, to $44,389,000, as compared to $58,828,000 for the nine
months ended September 30, 2008. The decreases in cost of revenues for the quarter and nine months ended September 30, 2009, as compared to the same periods in 2008, were primarily associated with the decreased revenues.
Gross Profit
Gross profit for the quarter ended September 30, 2009, was $1,742,000, or 13.2% of revenues, as compared to gross profit of $3,709,000, or 14.5% of revenues, for the quarter ended September 30, 2008.
Gross profit for the nine months ended September 30, 2009 was $5,119,000, or 10.3% of revenues, as compared to gross profit of $9,188,000, or 13.5% of revenues, for the nine months ended September 30, 2008.
The decrease in gross profit for the quarter and nine months ended September 30, 2009, as compared to the same periods in 2008, was primarily a result of lower revenues, as well as higher than anticipated costs incurred on several projects. The Company has submitted claims on some of these projects to recoup some of these unanticipated 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 September 30, 2009 decreased by $211,000, or (14.1)%, to $1,285,000, as compared to $1,496,000 for the quarter ended September 30, 2008. SG&A for the nine months ended September 30, 2009 decreased by $103,000 or (2.5)%, to $4,044,000, as compared to $4,147,000 for the nine months ended September 30, 2008.
The decrease in SG&A for the three and nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008, was primarily related to decreases in employment and office costs.
Other Income
Other income for the quarter ended September 30, 2009 was $18,000, as compared to $94,000 for the quarter ended September 30, 2008. Other income for the nine months ended September 30, 2009 was $38,000, as compared to $300,000 for the nine months ended September 30, 2008. The decreases in other income for the quarter and nine months ended September 30, 2009, as compared to the same periods in 2008, were primarily due to a reduction in the interest rates that investments were able to earn, a foreign currency transaction gain and an increase in interest expense related to the Company's mortgage on its Bronx, New York facility.
Provision for Income Taxes
The provision for income taxes for the quarter ended September 30, 2009 was $211,000,
as compared to the provision for income taxes of $986,000 for the quarter ended September 30, 2008. The provision for income taxes for the nine months ended September 30, 2009 was $439,000, as compared to a provision for income taxes of $2,106,000 for the nine months ended September 30, 2008.
Net Income
As a result of the above mentioned items, the Company reported net income of $264,000, or $.04 per share-basic and diluted, for the quarter ended September 30, 2009, as compared to reported net income of $1,321,000, or $.21 per share-basic and diluted, for the quarter ended September 30, 2008.
For the nine months ended September 30, 2009, the Company reported net income of $674,000, or $.11 per share-basic and diluted, as compared to reported net income of $3,235,000, or $.52 per share-basic and $.51 per share-diluted, for the nine months ended September 30, 2008.
Liquidity and Capital Resources
General
The Company's principal capital requirement is to fund its work on construction projects. 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 operations since July 2003.
As of September 30, 2009, total cash and cash equivalents was $15,418,000, a $1,977,000 decrease from the $17,395,000 reported as of September 30, 2008.
Cash used in/ provided by operations
Net cash used in operations was $310,000 for the nine months September 30, 2009. Net cash provided by operations was $2,401,000 for the nine months ended September 30, 2008. Both periods were affected by the timing of cash receipts received from owners and construction managers, by the Company funding its projects as well as the payment of corporate income taxes and executive bonuses. Cash used in operations for the nine months ended September 30, 2009 was also affected by lower revenues which contributed to lower cash receipts received during the period, as compared to the same period in 2008.
Cash used in investing activities
Net cash used in investing activities was $86,000 and $110,000 for the nine months ended September 30, 2009 and 2008, respectively. The Company purchased property
and equipment totaling $79,000 and $108,000 and marketable securities totaling $7,000 and $31,000 during the nine months ended September 30, 2009 and 2008, respectively. In addition, during the nine months ended September 30, 2008, the Company received proceeds from the sale of property and equipment totaling $11,000 and proceeds from the sale of marketable securities totaling $18,000.
Cash used in financing activities
Net cash used in financing activities was $797,000 for the nine months ended September 30, 2009, as compared to $1,128,000 for the nine months ended September 30, 2008.
On June 2, 2009, the Company's Board of Directors declared a cash dividend of $.10 per share. The aggregate amount of the dividend was $624,000 and was paid on July 17, 2009.
On April 30, 2008, the Company's Board of Directors declared a cash dividend of $.20 per share. The aggregate amount of the dividend was $1,258,000 and was paid on June 17, 2008 to stockholders of record as of May 26, 2008.
During the nine months ended September 30, 2008, two executives, an employee and a director exercised options to purchase an aggregate of 43,501 shares contributing cash proceeds of $68,000 to the Company.
Accounting rules require 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 assets for such options. For the nine months ended September 30, 2008, $62,000 of excess tax benefits have been classified as an operating cash outflow and a financing cash inflow.
During the nine months ended September 30, 2009, the Company purchased 46,100 shares of treasury stock, at a cost of $124,000, pursuant to the stock repurchase program discussed under Note 6(C) to the accompanying consolidated financial statements.
In addition, the Company repaid principal payments on its mortgage payable totaling $49,000 during the nine months ended September 30, 2009.
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, 2010, is secured by the Company's assets, and is guaranteed by the Company's subsidiary, KSW Mechanical Services, Inc. There have been 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 (4.25% at September 30, 2009) or the London Inter-Bank Offered Rate ("LIBOR") plus two and one-half percent per annum (2.75% at September 30, 2009).
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 of credit, impairment of security, bankruptcy, or the Company ceasing operations or being unable to pay its debts. Outstanding borrowings under the line of credit must be paid in full at the end of the term.
Commitments
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 September 30, 2009, approximately $56,300,000 of the Company's backlog of $134,300,000 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 Report on Form 10-K for the year ended December 31, 2008.
Recently Issued Accounting Pronouncements
See Note 9 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, cancellation, suspension or delay of projects by customers, 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 "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. 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.
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