The word "bankruptcy" conjures up a lot of images about a company. It's an albatross that has left many companies relegated to the history books, either unable to emerge from court protection altogether, or if that obstacle was overcome, unable to shake the "bankruptcy" stain enough to keep the business viable.
Daw Technologies LLC, which filed for Chapter 11 bankruptcy in 2003, has emerged as a company that still relies on its longtime technological prowess. But the Salt Lake City-based company is now a leaner enterprise that is enjoying both profitability and growth.
Daw is back to cleaning up in the "clean-room" industry and is branching into a few other endeavors where its technology is a good fit.
"We knew the first years (out of bankruptcy) would be the stabilization years," said Jim Collings, Daw's chief executive officer. "We're just now at the process where we're evolving out of the stabilization period and into what we think will be a significant growth period."
Few people make it inside clean rooms because of the controlled nature of the environment inside. Workers often clad in white fabric from head to toe, with their faces behind a clear shield use the rooms when they are involved in research or high-tech, biomedical and pharmaceutical manufacturing when their duties require conditions relatively free of pollutants such as dust and airborne microbes. The movies "Outbreak," "The Andromeda Strain" and "Creepshow" featured clean rooms, as did an Intel Corp. commercial a few years back that had occupants boogying to "Play That Funky Music."
Complicated technology goes into making a clean room, but it's based on a simple thing: air. Keeping air moving means keeping dust and other contaminants away from silicon wafers, microelectronics, pharmaceuticals and various elements that require a pristine environment.
"In this room right here," Collings said in a conference room at the company's Salt Lake headquarters, "you may have a complete air change within the room maybe once or twice an hour, whereas in a clean room, you would have a complete air change, running through the filter system, two or three times a minute."
In some cases, all air in a clean room is exchanged in just a few seconds, with huge air handlers forcing filtered air through the ceiling and down through a perforated floor in a closed system. Positive pressure is maintained inside, meaning air flows out rather than into the room when a door is opened. In the most stringent circumstances, at most only a micron of unwanted stuff about 1/25,000th of an inch, or the puniest speck of dust can be found in a square-foot area.
Daw has about 30 employees, including a pair in Austin, Texas. The company designs and constructs the rooms and installs the air handlers manufactured by Cleanpak, Huntair or Unitech. The walls are made by Webbcore in Hubbard, Ore., and ceilings are manufactured by Unitech in Salt Lake City.
Daw's province is not confined to the high-tech world. Anyone who has encountered a gush of air as they entered a Wal-Mart or a grocery store might have been puffed by a Daw product. The company produces EnviroZone "air doors" that are up to 60 feet wide and smaller "air curtains." The doorway technology works on similar principles as clean rooms, and the air burst serves as an insulator between outdoor and indoor environments for improved energy efficiency, even without doors.
"It doesn't completely keep it (outside air) out, but it does a very good job of maintaining the ambient temperature inside," said Don McCauley, Daw's senior vice president of finance and chief financial officer.
"It's also an insect barrier," Collings added. "Insects don't like to fly through the wind."
Rise and fall
Daw has both flown with the breeze and into it. The company was founded in 1983 from Daw Inc., which specialized in drywall. A little investment in that part of the business soon landed the company a $3.5 million clean-room system contract. Four years later, Daw Technologies Inc. was spun out, and it prospered, becoming a public company in 1992. By 1996, it was a $113 million company. A 220,000-square-foot manufacturing facility in Salt Lake helped increase the company's employee count to about 400 worldwide.
"Back then, the whole semiconductor industry was evolving. Back in the '90s, we built some of the biggest fabs (fabrication labs) in the world. We were an international company and built some of the first and biggest fabs in China, Singapore, Indonesia, all throughout Europe," Collings said. "But, like every industry, the semiconductor industry began to mature."
A downturn in that industry, combined with some management focus outside the company, resulted in the huge manufacturing facility becoming a liability. Mike Smith, an employee since 1991 and now manager of the company's branch in Austin, said high salaries for middle managers and the overhead of the manufacturing operations burdened the company.
"The strength had always been our field people and our construction management side of the business, but what got us into trouble was getting into the manufacturing business. It was such an overhead drain," Smith said.
The company's quandary was needing to have manufacturing capacity and equipment to handle the busy times but being unable to easily scale down during downturns, Smith said. "Products are what identified us with the market, but the manufacture of those products and keeping that overhead to do all that is what killed us. You just can't shut overhead off enough to overcome a downturn."
The first cutbacks in manufacturing occurred in 1999.
Collings said that when he and McCauley came to Daw in 2002, with the mission of turning the company around, "the company was losing, depending on the month, anywhere between $450,000 and $600,000 a month."
"It was a public company," Collings said. "We had to make some changes."
The "hard choices" included layoffs, Collings said. Lots of them, primarily in manufacturing. Changes in the company's business model, including relying on other firms to handle manufacturing, allowed the company "to rise up and down depending on the cyclical nature of the industry," he said.
But even tougher times were ahead. In April 2002, the company was forced to make financial restatements, dating back to October 1999, because accounting errors with its European operations missed about $10 million in losses. Quarterly net losses followed.
Then, in 2003, US Bank withdrew a credit line and later "swept away" the company's account. That left Daw unable to meet its payroll in March of that year.
"We had no choice but to put the company into Chapter 11," Collings recalled.
"There was a stretch there during bankruptcy, I didn't know day to day if I would have a job," Smith said.
The Chapter 11 process lasted less than a year. Assets were sold to investors, and Daw Technologies LLC, a privately held company, began in January 2004 with a mere 26 employees down from the 225 when the company still had manufacturing facilities.
Relationships were forged with key vendors "we made them our partners rather than our competitors," Collings said and some do the manufacturing that the Utah plant once handled. Outside workers also are hired for projects, sometimes by the hundred.
"In the first year, 2004, we had some losses," Collings said, declining to provide specific figures. "The past three years, we've been significantly profitable. In 2005, it was slightly under a million. The last two years, it's been significantly over a million."
During the past two years, Daw has landed and completed big-dollar clean-room projects for IBM in New York and Samsung in Austin.
Although Daw no longer is involved in manufacturing, it always retained its product design and construction expertise. Collings cites innovative and experienced employees as the main reason for the company's success after the emergence from bankruptcy.
"They have 19-plus years specifically focused on clean-room tech construction," he said.
That expertise can help clients save money on construction costs, he said. "A construction manager can face an issue on a job and either make you $40,000 in a split-second decision or cost you $40,000 in split-second decision, depending on how he decides to approach a particular aspect."
McCauley said any company with Chapter 11 in its history has to address customer confidence, vendor confidence and employee confidence. "The foundation of the company was the people who knew what they were doing," he said.
Vendors, many of them burned during Chapter 11, now have a good relationship with Daw, although McCauley acknowledges that "the first year was a little challenging."
Customer confidence came from strong principles, ethics and common sense, Collings said.
"We would always be seen as fair and appropriate. That way, we have confidence with our customers that we will never gouge them. We have confidence with vendors that we will pay them on time and live up to our terms and never 'cram' them to build up our own margins," he said. "We believe in the philosophy of 'whatever goes around comes around' or karma or whatever it is. It's true. It really works on your behalf, if you govern yourself by fairness and ethics."
Employee confidence came from giving the workers who saw the company through the tough times some equity in the company and a profit-sharing plan. Financial discipline, hard-wired into management's mentality during the Chapter 11 process, is now widespread.
"It was a matter of aligning everyone," Collings said. "There really is something to the profit-sharing plan. Everybody has a stake in the company. Everybody watches cash because of the profit-sharing plan."
Faith in the future
Daw's future appears bright with hundreds of clean-room sites throughout the world in its portfolio, as well as the EnviroZone products that comprise about one-fourth of the company's business, strong product and construction-services groups and a soon-to-be-announced new business segment.
Collings hopes the clean-room technology can grow in the pharmaceutical, biomedical and surgical-room industries. He estimates that the company's revenue and net income will double during the next two to 2 1/2 years.
"Last year was a great year," Smith said. "This year, even though the economy is slowing, we've started off the year great. We have a good backlog, we're lean," and the company is now more nimble in its ability to scale back production when necessary.
Hard to believe for a company with bankruptcy in its history. Despite the depths the company reached, Collings said, he did not question its ability to thrive."Whether you call it faith and hope or confidence and optimism, whatever you call it, you have an intuitive feel for it, and you know it has a potential to be successful, and then you have to have the tenacity to fight through it. Put one foot in front of the other," he said.
Daw Technologies LLC
Headquarters: 1600 W. 2200 South, Suite 201
Number of employees: About 30
Operations: Designer and installer of controlled environments, primarily clean rooms, and designer of clean-room products
Structure: Privately owned
E-mail: [email protected]