Southwall Announces Third-Quarter Results

Net revenues for the third quarter of 2002 were $16.3 million, down from the $22.8 million for the third quarter of 2001 and from $19.7 million for the second quarter of 2002.Net income for the third quarter of 2002 was $0.1 million, or $0.01 per diluted share, down from $2.4 million, or $0.28 per diluted share, for the same quarter last year and from $1.4 million sequentially.Total diluted shares outstanding increased by 44 percent from the third quarter of 2001, as a result of a public stock offering completed in July 2002. The year-over-year decline in net income was the result of lower sales and reduced gross margin of 28 percent, compared with 31 percent for the third quarter of 2001.

"We are disappointed to report such a sharp decline in revenues and profits after five quarters of strong performance," said Thomas G. Hood, chief executive officer of Southwall Technologies. "To remain profitable at this level of sales reflected our continuing focus on controlling costs in an uncertain economic climate. We are taking advantage of available machine capacity to accelerate the development and testing of new products in a production environment. We have also benefited from a new program to recover expended precious metals used in production, thereby contributing to a reduction of material costs."

Southwall Technologies' automotive product sales were down by $4.6 million, or 45 percent, from the third quarter of 2001. The decline was due primarily to lower volume and lower average product sale prices. Sales of electronic display products decreased by $2.6 million, or 35 percent from the comparable quarter of 2001, primarily as a result of a decrease in shipments and lower average sale prices for products used in flat-screen CRT monitors. This was partially offset by higher sales of products used in LCDs and plasma display products. Sales of architectural products were down by $0.7 million, or 13 percent, from the same quarter of 2001, reflecting decreased sales of Heat Mirror® products.

Hood continued, "Based on orders currently on hand and customer trends we anticipate a sequential improvement in revenue in the fourth quarter of 2002. We expect automotive product sales to remain flat for the fourth quarter. At the same time, we expect to see a recovery in fourth-quarter shipments across the entire line of display products. Additionally, we received our first order for a tablet computer application, for which product will ship in the fourth quarter. The third-quarter decline in architectural sales was disappointing, after a strong first half of 2002. We are now producing this product line in Germany and focusing on increasing sales in Europe and the Middle East."

In the third quarter of 2002, Southwall completed a follow-on public offering of 3.85 million shares of common stock, generating net proceeds of approximately $16 million.

"With this additional capital, we reduced our debt by nearly $4.0 million during the third quarter" and plan to pay down approximately another $4.0 million in the fourth quarter." said Robert R. Freeman, Southwall Technologies" senior vice president and chief financial officer. "This has strengthened the company's balance sheet, after a period of significant capital investment, and also improved its liquidity during the current economic slowdown. In view of the increased strength of the balance sheet, we expect to put in place a new working capital facility this quarter."

Third-Quarter Results Teleconference
The management of Southwall Technologies plans to hold a teleconference on third-quarter results at 12:30 p.m. Eastern Time (9:30 a.m. Pacific) time on Thursday, October 24, 2002. This call will be webcast live for all investors on the corporate website at www.southwall.com. An audio archive of the webcast will be available on this site from approximately one hour after the call is over through November 24, 2002.