Southwall Announces Q3 2009 Results

PALO ALTO, Calif. - (BUSINESS WIRE) - Southwall Technologies Inc. (OTCBB:SWTX) announced third quarter 2009 revenue of $8.6 million, up 3% from second quarter 2009 revenues of $8.3 million and down 19% from third quarter 2008 revenues of $10.6 million. The year over year decrease was primarily due to a decline in sales of automotive and window film products primarily driven by lower market demand caused by the global economic downturn.

Third quarter 2009 net income was $0.7 million, or $0.02 per diluted share, as compared to net income of $1.5 million, or $0.04 per diluted share in second quarter 2009, and $1.0 million, or $0.03 per diluted share in third quarter 2008. Net income in the second quarter 2009 included $0.5 million of other income relating to the receipt of the final milestone payment under the Technology Transfer and Services agreement with Sunfilm.

Third quarter 2009 gross profit was $3.7 million, or 43% of net revenues, as compared to $3.7 million, or 44% of net revenues, in second quarter 2009 and $4.2 million, or 40% of net revenues, in third quarter 2008. The Company posted income from operations of $1.0 million in the third quarter 2009, as compared to $0.9 million in the second quarter 2009 and $1.4 million in the third quarter 2008.

In addition, the Company reached an amicable settlement with Pilkington Automotive GmbH on a patent allowed by the European Patent Office. The agreement consists of an up-front license payment with no future royalties or other licensing restrictions for Southwall or its customers.

"Despite the year over year sales decline, we are generating cash and continue to invest in longer term growth opportunities," said Dennis Capovilla, Southwall's President and CEO. "As the economy begins to stabilize, we see strong potential for growth across all markets relating to energy efficiency, and we remain focused on realizing longer term growth."

About Southwall Technologies Inc.

Southwall Technologies Inc. is recognized as an innovator in the development and manufacture of high performance, energy-saving films and glass products that dramatically improve the energy efficiency of architectural and automotive glass. Southwall is an ISO 9001:2000-certified manufacturer with customers in over 25 countries around the world, including Audi, BMW, Guardian, Peugeot-Citroen, Pilkington, Renault, Saint-Gobain Sekurit, and Volvo.

This press release may contain forward-looking statements, including, without limitation, statements regarding the Company's expectations, beliefs, intentions, or strategies regarding the future. All forward-looking statements in this press release are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those presented. These risks include the possibility that the Company's expected future results will be materially worse than estimated, that the Company may not continue to be profitable in future quarters or may not be able to achieve future long-term growth, that there will be a decline in one or more portions of our business in 2009 or thereafter, that the Company will not be successful in improving operating performance or controlling costs, that the Company will suffer a decline in manufacturing or financial effectiveness, that the Company's new product development will not be successful, that there may be decreasing demand in certain markets and that the Company will not be able to secure additional financing if required, as well as risks associated with any failure to meet potential covenant requirements under future credit facilities. Further risks are detailed in the Company's filings with the Securities and Exchange Commission, including those set forth in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 26, 2009.

SOUTHWALL TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
		Three months ended								Nine months ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
Net revenues		$	8,600			$	10,632			$	23,430			$	34,887
Cost of revenues			4,867				6,383				13,554				20,063
Gross profit			3,733				4,249				9,876				14,824
Operating expenses:
Research & development			771				976				2,118				2,372
Selling, general and administrative			1,960				1,852				5,810				6,170
Total operating expenses			2,731				2,828				7,928				8,542
Income from operations			1,002				1,421				1,948				6,282
Interest expense, net			(321	)			(170	)			(492	)			(433	)
Other income (expense), net			12				(238	)			3,211				(123	)
Income before provision for income taxes			693				1,013				4,667				5,726
Provision for (benefit from) income taxes			(17	)			5				174				326
Net income			710				1,008				4,493				5,400
Deemed dividend on preferred stock			122				122				366				367
Net income attributable to common stockholders		$	588			$	886			$	4,127			$	5,033
Net income per share:
Basic		$	0.02			$	0.03			$	0.14			$	0.18
Diluted		$	0.02			$	0.03			$	0.13			$	0.16
Weighted average shares used in computing net income per share :
Basic			28,728				28,409				28,715				28,099
Diluted			34,685				34,681				34,085				34,016

SOUTHWALL TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
		September 30,				December 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	12,845			$	10,768
Restricted cash			-				282
Accounts receivable, net			4,799				3,709
Inventories, net			4,677				5,965
Other current assets			1,302				745
Total current assets			23,623				21,469
Property, plant and equipment, net			14,233				15,012
Other assets			407				804
Total assets		$	38,263			$	37,285
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt and capital lease obligations		$	1,141			$	1,767
Accounts payable			1,190				596
Accrued compensation			958				1,372
Other accrued liabilities			5,085				5,127
Total current liabilities			8,374				8,862
Term debt and capital lease obligations			3,639				4,501
Other long term liabilities			84				2,514
Total liabilities			12,097				15,877
Series A, convertible preferred stock			4,810				4,810
Stockholders' equity:
Common stock			29				29
Capital in excess of par value			78,292				78,323
Accumulated other comprehensive income			4,565				4,269
Accumulated deficit			(61,530	)			(66,023	)
Total stockholders' equity			21,356				16,598
Total liabilities, preferred stock and stockholders' equity		$	38,263			$	37,285

SOUTHWALL TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
		Nine months ended
		September 30,				September 30,
		2009				2008
Cash flows from operating activities:
Net income		$	4,493			$	5,400
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on settlement of liability			(2,359	)			-
Deferred income tax			(77	)			(49	)
Gain on disposal of property, plant and equipment			(24	)			-
Depreciation and amortization			1,911				2,054
Stock-based compensation			294				162
Changes in operating assets and liabilities:
Accounts receivable, net			(1,072	)			(840	)
Inventories, net			1,336				(304	)
Other current and non-current assets			(65	)			827
Accounts payable and accrued liabilities			(258	)			(870	)
Net cash provided by operating activities			4,179				6,380
Cash flows from investing activities:
Restricted cash			261				-
Proceeds from sale of property, plant and equipment			34				-
Expenditures for property, plant and equipment			(975	)			(1,047	)
Net cash used in investing activities			(680	)			(1,047	)
Cash flows from financing activities:
Proceeds from exercise of stock options			42				293
Borrowings from equipment financing			26				603
Investment credit in Germany			221				-
Repayments of term debt and capital lease obligations			(1,719	)			(883	)
Net cash (used in) provided by financing activities			(1,430	)			13
Effect of foreign exchange rate changes on cash and cash equivalents			8				(165	)
Net increase in cash and cash equivalents			2,077				5,181
Cash and cash equivalents, beginning of period			10,768				6,492
Cash and cash equivalents, end of period		$	12,845			$	11,673

Southwall Technologies Inc.
Mallorie Burak, 650-798-1200