Southwall Announces Fourth-Quarter

Southwall Technologies Inc. (NASDAQ: SWTX), a global developer, manufacturer and marketer of thin-film coatings for the automotive glass, electronic display and architectural markets, today reported its financial results for the fourth quarter and fiscal year ended December 31, 2002.

Revenues for the fourth quarter of 2002 were $13.5 million, down 34.1 percent from the $20.5 million recorded for the fourth quarter of 2001.Sequentially, net revenues declined $2.8 million from $16.3 million for the third quarter of 2002.

Net loss for the fourth quarter of 2002 was $6.9 million, or $0.55 per share, compared with a net income of $2.2 million, or $0.25 per diluted share, for the comparable quarter last year. Fourth-quarter net loss included the effect of a $2.6-million restructuring charge for a reduction in force and a progressive consolidation of facilities in the company’s Palo Alto, California operations.

Southwall’s automotive product sales for the fourth quarter were $4.8 million, down from $9.6 million for the fourth quarter of 2001. The decline was due primarily to lower volume and lower average product sale prices. Sales of electronic display products were $6.0 million, down from $6.7 million for the comparable quarter of 2001, primarily as a result of a decrease in shipments and lower average sale prices for products used in flat-panel display and CRT monitors. Sales of architectural products were $2.7 million, down from $4.2 million for the same quarter of 2001, reflecting decreased sales of Heat Mirror® products.

For the fiscal year ended December 31, 2002, Southwall recorded net revenues of $68.8 million, a decline of $14.2 million from the $83.0 million reported for 2001. The company attributed the annual revenue decrease principally to a significant decline in sales of its solar control film products for the automotive industry in Europe. Sales of Southwall’s anti-reflective film for the electronic display markets and solar control film for the residential and commercial architectural glass markets were also down slightly from 2001 to 2002.

“We are not pleased with the overall results of the fourth quarter and the fiscal year,” said Thomas G. Hood, president and chief executive officer of Southwall Technologies. “In addition to disappointing revenues, factors impacting our fourth-quarter operating performance included product claims and returns, higher than expected freight charges resulting from our efforts to mitigate the effects of the West Coast dock strike; and our limited ability to absorb fixed manufacturing costs. Going forward, we expect our previously announced restructuring of Palo Alto operations to reduce our fixed manufacturing costs and thereby improve our gross margin.

“Regarding our outlook for the first quarter of 2003, we are anticipating net revenues between $15.0 million and $16.0 million,” Hood continued. “At this level, we would expect gross margin in the mid-20% range and an overall net loss. As for the rest of the year, we would not expect significant increases in quarterly net revenues. However, we would expect continued improvement in operating costs and expenses as a direct result of the restructuring.”

Hood concluded, “Our priority goals for 2003 are to restore profitability as quickly as possible, to generate positive cash flow on a quarterly basis, and to secure a credit facility for the company. In addition, we plan to implement our new enterprise resource planning (ERP) system; and to increase the focus and effectiveness of our sales, marketing and engineering functions and align them more closely with our customers and target markets. In support of these priorities, we expect to achieve the full benefits of the cost structure improvements that we effected in the fourth quarter of 2002.”

600450 Southwall Announces Fourth-Quarter

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