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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1997
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
0-21818
---------------------
(Commission File No.)
DAW TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
UTAH 87-0464280
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(State or other jurisdiction (IRS Employer
of incorporation or Identification No.)
organization)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 977-3100
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 ( )
As of May 13, 1997, the Registrant had 12,419,586 shares of Common Stock,
$0.01 par value outstanding.
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Daw Technologies, Inc.
TABLE OF CONTENTS
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<S> <C> <C>
PART I FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 1997 and December 31, 1996. . . . . 1
Condensed Statements of Earnings - Three months ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Statements of Cash Flows - Three months ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Daw Technologies, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
March 31, Dec. 31,
1997 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,469 $ 3,258
Contracts receivable, net 27,414 27,394
Costs and estimated earnings in excess of billings
on contracts in progress 4,384 7,169
Inventories 1,270 1,583
Deferred income tax asset 315 318
Other current assets 1,561 1,996
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Total current assets 37,413 41,718
PROPERTY AND EQUIPMENT, NET
AT COST 7,411 7,693
OTHER ASSETS 80 84
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$44,904 $49,495
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------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 9,456 $10,782
Billings in excess of costs and estimated
earnings on contracts in progress 8,066 7,505
Lines of credit 1,841 5,696
Current portion of long-term obligations 623 623
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Total current liabilities 19,986 24,606
LONG TERM OBLIGATIONS, less current portion 1,578 1,730
DEFERRED INCOME TAX LIABILITY 220 221
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares of
$.01 par value; none issued and outstanding - -
Common stock, authorized 50,000,000 shares of
$.01 par value; issued and outstanding 12,396,730
shares 124 124
Additional paid-in-capital 15,188 15,188
Retained earnings 7,808 7,626
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Total shareholders' equity 23,120 22,938
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$44,904 $49,495
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</TABLE>
See accompanying notes to condensed financial statements.
1
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except share data)
Three months ended
March 31,
----------------------
1997 1996
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Contract revenue $16,795 $23,383
Cost of contracts 14,212 20,272
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Gross profit 2,583 3,111
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Selling, general and administrative expenses 2,076 1,996
Research and development 74 32
Depreciation and amortization 106 97
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2,256 2,125
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Earnings from operations 327 986
Other income (expense)
Interest expense (113) (121)
Other income, net 76 131
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(37) 10
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Earnings before income taxes 290 996
Income taxes (108) (378)
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NET EARNINGS $ 182 $ 618
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------- -------
Earnings per share $ 0.01 $ 0.05
Weighted average common shares outstanding 12,396,730 12,330,254
See accompanying notes to condensed financial statements.
2
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
Three months ended
March 31,
------------------
1997 1996
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 182 $ 618
Adjustments to reconcile net earnings
to net cash provided by (used in) operating
activities
Depreciation and amortization 426 386
Provision for losses on contracts receivable 100 43
Deferred taxes 2 -
Changes in assets and liabilities
Contracts receivable (120) (5,011)
Costs and estimated earnings in excess
of billings on contracts in progress 2,785 (343)
Inventories 313 (1,157)
Other current assets 435 110
Accounts payable and accrued liabilities (1,065) (1,442)
Income taxes payable (261) 323
Billings in excess of costs and estimated
earnings on contracts in progress 561 1,914
Other assets 4 (9)
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Net cash provided by (used in)
operating activities 3,362 (4,568)
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Cash flows from investing activities
Payments for purchase of property
and equipment (144) (862)
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(continued)
See accompanying notes to condensed financial statements.
3
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands, except share data)
Three months ended
March 31,
----------------------
1997 1996
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Cash flows from financing activities
Net change in line of credit (3,855) 1,444
Payments of long-term debt - (22)
Payments of obligations under
capital leases (152) (128)
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Net cash provided by (used in)
financing activities (4,007) 1,294
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Net decrease in cash and
cash equivalents (789) (4,136)
Cash and cash equivalents at beginning of period 3,258 5,885
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Cash and cash equivalents at end of period $ 2,469 $ 1,749
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR
Interest $ 113 $ 121
Income taxes 368 -
See accompanying notes to condensed financial statements.
4
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Daw Technologies, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
1. INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared by Daw Technologies, Inc. (the "Company" or "Daw") in accordance with
generally accepted accounting principles for interim financial reporting and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared under generally accepted accounting principles have been
condensed or omitted pursuant to such regulations. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
Company's financial position, results of operations and cash flows have been
included. All such adjustments are of a normal recurring nature. This report
on Form 10-Q for the three months ended March 31, 1997 should be read in
conjunction with the Company's annual report on Form 10-K for the calendar year
ended December 31, 1996. The results of operations for the three months ended
March 31, 1997 may not be indicative of the results that may be expected for the
year ending December 31, 1997.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share". The
statement is effective for financial statements for periods ending after
December 15, 1997, and changes the method in which earnings per share will be
determined. Adoption of this statement by the Company will not have a material
impact on earnings per share.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statments for the
three months ended March 31, 1996, to conform to the 1997 presentation.
4. LINES OF CREDIT
At March 31, 1997, the Company had lines of credit totaling $11.5 million,
of which $9.7 million was available at the end of the quarter. Amounts drawn
under the lines bear interest at a commercial loan variable rate index (8.50% at
March 31, 1997) and are due no later than June 1, 1997, with options to renew on
an annual basis. The lines are secured by contracts receivable and inventories.
The Company had borrowings under the lines of $1,841 and $5,696 as of March 31,
1997, and December 31, 1996, respectively. The lines of credit agreements
contain restrictive covenants imposing limitations on payments on cash
dividends, purchases or redemptions of capital stock, indebtedness and other
matters.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. All data in the tables
are in thousands, except for percentages and per-share data.
The Company is an integrated systems solution provider of cleanrooms and
cleanroom component systems for the semiconductor industry. In recent years,
the Company has typically had one to five significant customers, each of
which accounted for more than 10% of the Company's annual revenues; these
customers do not necessarily remain significant in subsequent years. The
semiconductor industry has been historically cyclical in nature. The
semiconductor industry has been experiencing a cyclical downturn that began
in 1996 and has continued through the first quarter of 1997. Industry
analysts attribute the current downturn to overcapacity in the DRAM market,
created by extensive capital spending from 1994 through the first quarter of
1996 by semiconductor manufacturers. Analysts believe the downturn is
expected to be shorter than past downturns because of the continued robust
forecast for personal computers through the end of the decade.
The current industry downturn has resulted in lower capital spending by
the semiconductor manufacturers during the third and fourth quarters of 1996
and the first quarter of 1997. Management believes the downturn will continue
through the second and possibly the third quarters of 1997. However, the
length and severity of the economic downturn is still subject to significant
uncertainty. This has resulted in fewer contracts available to bid, a
significant increase in price competition on contracts that were awarded, and
reduced margins on such contracts. During the first quarter of 1997, the
Company experienced fewer new contract awards resulting in a decrease in the
Company's backlog from $53.8 million at March 31, 1996 to $21.0 million at
March 31, 1997. Although the Company has experienced an increase in the
contract bidding activity during the first quarter of 1997 compared to the
last 2 quarters, management believes that the above-described events
adversely affected its revenues and profitability in the first quarter of
1997 and anticipates the industry downturn will continue to adversely affect
its revenues and profitability through the second quarter of 1997. If the
industry downturn continues longer than current expectations, the Company
experiences reductions or delays in contracts currently in progress, or the
Company is not successful in securing contracts at reasonable gross margins
that it is currently bidding on, the above-described events could have a
significant impact on the Company's operations throughout the remainder of
1997.
Although there is uncertainty surrounding the length and severity of this
current downturn in the semiconductor industry, management believes that
changes taking place in the industry should result in expanded capital
expenditures in the long-term. In response to the current downturn,
management has taken steps to reduce the Company's cost structure including a
reduction in the Company's work force of approximately ten percent during the
fourth quarter of 1996 and the first quarter of 1997. During the remainder
of the downturn, management will monitor the Company's cost structure and
take appropriate actions as considered necessary, but continue to develop
6
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state of the art cleanroom technology and provide world-class support to the
Company's customers.
The Company's contract revenue and operating results fluctuate
substantially from quarter to quarter depending on such factors as the
timing of significant customer orders, the timing of revenue and cost
recognition, variations in contract mix, changes in customer buying patterns,
fluctuations in the semiconductor equipment market, utilization of capacity,
manufacturing productivity and efficiency, availability of key components
and trends in the economies of the geographical regions in which the Company
operates.
The Company uses the percentage-of-completion method of accounting for
its contracts. The Company recognizes revenue in proportion to the costs
incurred to date in relation to the total anticipated costs. Revenue
recognized may not be the same as progress billings to the customer.
Underbillings are reflected in an asset account (costs and estimated earnings
in excess of billings on contracts in progress), and overbillings are
reflected in a liability account (billings in excess of costs and estimated
earnings on contracts in progress).
The Company generates revenue in three geographic regions; North America,
Asia/Pacific Rim and Europe. Contracts in the Asia/Pacific Rim region are
generally denominated in United States dollars. Although risk of fluctuations
in currency value does not affect such dollar-denominated contracts, changes
in the relative value of the dollar could make the Company less competitive
in this region. Contracts to be performed in Europe may be denominated in
local currency, and the Company bears the risk of changes in the relative
value of the dollar and the local currencies. The Company has in the past
and may in the future attempt to hedge against currency fluctuations on
contracts denominated in local currencies. There can be no assurance,
however, that such hedging will fully insulate the Company from fluctuations
or will not expose the Company to additional risks of loss.
The Company's business and operations have not been materially affected
by inflation during the periods for which financial information is presented.
7
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RESULTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
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1997 1996
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STATEMENTS OF EARNINGS DATA:
Contract revenue ................... $16,795 $23,383
Cost of contracts .................. 14,212 20,272
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Gross profit ....................... 2,583 3,111
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Selling, general and
administrative expenses........... 2,076 1,996
Research and development ........... 74 32
Depreciation and amortization ...... 106 97
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2,256 2,125
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Earnings from operations ........... 327 986
Other income (expense), net ........ (37) 10
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Earnings before income taxes ....... 290 996
Income taxes ....................... (108) (378)
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Net earnings ....................... $ 182 $ 618
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MARCH 31, 1997 DECEMBER 31, 1996
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BALANCE SHEETS DATA:
Cash and cash equivalents .......... $ 2,469 $ 3,258
Working capital .................... 17,427 17,112
Total assets ....................... 44,904 49,495
Total liabilities .................. 21,784 26,557
Total shareholder's equity ......... 23,120 22,938
8
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Contract revenue for the first quarter of 1997 decreased by 28.2% to $16.8
million compared to $23.4 million for the first quarter of 1996. This decrease
is attributed to the downturn in the semiconductor industry as more fully
discussed above. The downturn has resulted in fewer contracts being worked on
during the first quarter of 1997 compared with the first quarter of 1996.
Gross profit for first quarter of 1997 decreased by 17.0% to $2.6 million
from $3.1 million for the first quarter of 1996 but increased as a percentage of
contract revenue to 15.4% for the first quarter of 1997 from 13.3% for the first
quarter of 1996. The increase in gross profit as a percentage of revenue was
primarily the result of continual improvement in the Company's manufacturing
facility creating greater efficiencies and less costs to produce product and
better project management resulting in less problems at the construction sites
which allows the Company to install its product with less time and labor
expense. In addition, contracts in process during the first quarter of 1997 were
generally awarded at higher margins than those in process during the first
quarter of 1996.
Selling, general and administrative expenses for the first quarter of 1997
increased 4.0% to $2.1 million, or 12.4% of contract revenue, compared to $2.0
million, or 8.5% of contract revenue for the first quarter of 1996. The
increase is the result of higher sales costs during the first quarter of 1997
compared to the first quarter of 1996. During the first quarter of 1997 the
Company was involved with numerous proposals throughout the world.
Research and development expense for the first quarter of 1997 increased
131.3% to $74,000 compared to $32,000 for the first quarter of 1996. The
increase is the result of a more focused effort to develop innovative products,
to be on the cutting edge of the 300 millimeter manufacturing facility
technology and to modify existing products to be less expensive to produce and
easier to install.
Depreciation and amortization expense for the first quarter of 1997
increased to $106,000 compared to $97,000 for the first quarter of 1996. The
majority of the increase is the result of leasehold improvements made in the
second and third quarters of 1996 to expand and remodel the Company's facility.
Interest expense for the first quarter of 1997 decreased to $113,000
compared to $121,000 for the first quarter of 1996. This decrease is directly
related to decreased borrowings against the Company's credit line during the
first quarter of 1997 compared to borrowings during the first quarter of 1996.
The lines of credit variable interest rate at the end of the first quarter of
1997 was 8.50% as compared to 8.25% at the end of the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was $17.4 million compared to $17.1 at
December 31, 1996. This includes cash and cash equivalents of $2.5 million at
March 31, 1997 and $3.3 million at December 31, 1996. The Company's
operations generated $3.4 million of cash during the first quarter of 1997,
compared to $4.6 million of cash used by operations during the first quarter
of 1996. During the first quarter of 1997, the Company experienced an
increase in receivables, but a decrease in costs and estimated earnings in
excess of billings on contracts in progress, and inventories. In addition,
the Company paid down accounts payable and accrued liabilities during the
first quarter of 1997.
At March 31, 1997, the Company had lines of credit totaling $11.5 million,
of which $9.7 million was available at the end of the quarter. Amounts drawn
under the lines bear interest at a commercial loan variable rate index (8.50% at
March 31, 1997) and are due no later than June 1, 1997, with options to renew on
an annual basis. The lines are secured by
9
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contracts receivable and inventories. The Company had borrowings under the
lines of $1,841 and $5,696 as of March 31, 1997, and December 31, 1996,
respectively. The lines of credit agreements contain restrictive covenants
imposing limitations on payments on cash dividends, purchases or redemptions
of capital stock, indebtedness and other matters.
Management believes that existing cash balances, borrowings available
under the line of credit, and cash generated from operations will be adequate
to meet the Company's anticipated cash requirements through March 31, 1998.
However, in the event the Company experiences adverse operating performance
or above-anticipated capital expenditure requirements, additional financing
may be required. There can be no assurance that such additional financing,
if required, would be available on favorable terms.
FACTORS AFFECTING FUTURE RESULTS
The Company's future operations will be impacted by, among other factors,
the length and severity of the current economic downturn in the semiconductor
industry as more fully discussed above. The length and severity of the current
economic downturn in the semiconductor industry remains subject to a high degree
of uncertainty. The Company's operations are also subject to additional risks
and uncertainties that could result in actual operating results differing
materially from anticipated operating results and past operating results and
trends. These risks and uncertainties include pricing pressures, cancellations
of existing contracts, timing of significant customer orders, increased
competition, and changes in semiconductor and cleanroom technology.
INFORMATION CONTAINED IN THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE," OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT INCLUDE,
BUT ARE NOT LIMITED TO, THOSE IDENTIFIED IN THIS REPORT, DESCRIBED FROM TIME TO
TIME IN THE COMPANY'S OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS, OR
DISCUSSED IN THE COMPANY'S PRESS RELEASES. ACTUAL RESULTS MAY VARY MATERIALLY
FROM EXPECTATIONS.
10
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
REGULATION S-K
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the three months ended March 31, 1997.
SIGNATURES
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.
DAW TECHNOLOGIES, INC.
----------------------
(Registrant)
By: /s/ DAVID R. GROW
-----------------------------------
Its: Chief Operating Officer and Secretary
11
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 AND THE
CONDENSED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,469
<SECURITIES> 0
<RECEIVABLES> 27,889
<ALLOWANCES> (475)
<INVENTORY> 1,270
<CURRENT-ASSETS> 37,413
<PP&E> 13,576
<DEPRECIATION> (6,165)
<TOTAL-ASSETS> 44,904
<CURRENT-LIABILITIES> 19,986
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 22,996
<TOTAL-LIABILITY-AND-EQUITY> 44,904
<SALES> 16,795
<TOTAL-REVENUES> 16,795
<CGS> 14,212
<TOTAL-COSTS> 16,468
<OTHER-EXPENSES> (76)
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 290
<INCOME-TAX> 108
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
