-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UaHHSL970dujKy40m25zT/EtEEIBnO8yAmJDHpByzhE3KnLY+zr2vKQejmMcUgCN wpVr+OJJGrQKSSD96pg/zw== 0001012870-96-000207.txt : 19960813 0001012870-96-000207.hdr.sgml : 19960813 ACCESSION NUMBER: 0001012870-96-000207 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWALL TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000813619 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 942551470 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15930 FILM NUMBER: 96608211 BUSINESS ADDRESS: STREET 1: 1029 CORPORATION WAY CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4159629111 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the quarterly period ended June 30, 1996 ------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to ________________ Commission File Number: 0-15930 SOUTHWALL TECHNOLOGIES INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 94-2551470 - ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1029 Corporation Way, Palo Alto, California 94303 - ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 962-9111 -------------- 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 June 30, 1996 there were 6,185,468 shares of the Registrant's Common Stock outstanding. This report, including all attachments, contains 13 pages. SOUTHWALL TECHNOLOGIES INC. INDEX Page Number ----------- PART 1 FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheet - June 30, 1996 and December 31, 1995.........................................3 Consolidated Statement of Operations - three month and six month periods ended June 30, 1996 and July 2, 1995................................4 Consolidated Statement of Cash Flows - six months ended June 30, 1996 and July 2, 1995 .............................................5 Consolidated Statement of Stockholders' Equity - six months ended June 30, 1996................................6 Notes to Consolidated Financial Statements....................7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations..............8 PART II OTHER INFORMATION Item 1 Legal Proceedings..........................................11 Item 2 Changes in Securities......................................11 Item 3 Defaults Upon Senior Securities............................11 Item 4 Submission of Matters to a Vote of Stockholders............11 Item 5 Other Information..........................................12 Item 6 Exhibits and Reports on Form 8-K...........................12 Signatures.................................................13 2 PART 1 FINANCIAL INFORMATION Item 1 Financial Statements - ---------------------------- CONSOLIDATED BALANCE SHEET (in thousands, except per share data)
June 30, December 31, 1996 1995 -------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,787 $ 1,434 Short-term investments 1,005 2,132 Accounts receivable, net of allowance for doubtful accounts of $645 and $534 7,509 5,288 Inventories 6,754 6,624 Other current assets 721 1,166 -------- -------- Total current assets 18,776 16,644 Property and equipment, net 16,027 15,518 Other assets 1,772 1,943 -------- -------- Total assets $ 36,575 $ 34,105 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,797 $ 3,236 Accrued compensation 1,315 1,413 Other accrued liabilities 2,268 2,170 Current portion of long-term debt 103 101 -------- -------- Total current liabilities 7,483 6,920 Long-term debt 2,817 2,890 Deferred income taxes 381 381 -------- -------- Total liabilities 10,681 10,191 -------- -------- Commitments and contingencies Stockholders' equity: Common stock, $.001 par value, 20,000 shares authorized: Issued and outstanding: 6,917 and 6,917 7 7 Capital in excess of par value 46,878 47,206 Accumulated deficit (18,124) (19,339) Less treasury stock of 732 and 981 (2,867) (3,960) -------- -------- Total stockholders' equity 25,894 23,914 -------- -------- Total liabilities and stockholders' equity $ 36,575 $ 34,105 ======== ========
See accompanying notes to consolidated financial statements. 3 SOUTHWALL TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended ------------------ ------------------ June 30, July 2, June 30, July 2, -------- ------- -------- ------- 1996 1995 1996 1995 -------- ------- -------- ------- Net product sales $10,832 $8,154 $21,365 $14,845 Other revenues 158 117 262 127 ------- ------ ------- ------- Net revenues 10,990 8,271 21,627 14,972 ------- ------ ------- ------- Costs and expenses: Cost of product sales 7,548 5,593 14,957 10,195 Research & development 575 536 1,151 1,161 Selling, general and administrative 2,107 1,767 4,207 3,611 ------- ------ ------- ------- Total costs and expenses 10,230 7,896 20,315 14,967 ------- ------ ------- ------- Income (loss) from operations 760 375 1,312 5 Interest income (expense) net ( 10) ( 70) ( 32) ( 70) ------ ------ ------- ------ Income (loss) before income taxes 750 305 1,280 ( 65) Provision for income taxes 46 - 65 - ------ ------ ------- ------- Net income (loss) $ 704 $ 305 $1,215 ( $ 65) ====== ====== ====== ======= Net income (loss) per share $ .10 $ .05 $ .18 $ (.01) ====== ====== ====== ======= Weighted average shares of common stock and common stock equivalents 7,107 6,273 6,934 5,851 ====== ====== ====== =======
See accompanying notes to consolidated financial statements. 4 SOUTHWALL TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended -------------------------------- June 30, 1996 July 2, 1995 ----------------- ------------- Cash flows from operating activities: Net income (loss) $ 1,215 $ ( 65) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,144 1,010 Decrease (increase) in accounts receivable (2,221) (1,355) Decrease (increase) in inventories (130) (2,207) Decrease (increase) in other current assets 445 ( 449) (Decrease) increase in accounts payable and accrued liabilities 654 1,322 ------- ------- Cash provided by (used in) operating activities 1,107 (1,744) ------- ------- Cash flows from investing activities: Decrease (increase) in short-term investments 1,127 2,068 Expenditures for property and equipment and other assets (1,482) (857) ------- ------- Net cash (used in) provided by investing activities ( 355) 1,211 ------- ------- Cash flows from financing activities: Increase in(reduction of) long-term debt (71) 278 (Purchase)issuance of treasury stock, net 672 21 ------- ------- Net cash (used in) provided by financing activities 601 299 ------- ------- Net increase (decrease) in cash and cash equivalents 1,353 ( 234) Cash and cash equivalents, beginning of year 1,434 1,144 ------- ------- Cash and cash equivalents, end of period $ 2,787 $ 910 ======= ======= Supplemental schedule of non-cash investing and financing activities: Treasury stock used for payment of interest $ 93 $ 110
See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Six Months Ended June 30, 1996 (in thousands) (Unaudited)
Common Stock Capital in Total ----------------- excess of Accumulated Treasury Stockholders' Shares Amount par value Deficit Stock Equity ----- ------ ------- -------- ------- ------- Balance; December 31, 1995 6,917 $7 $47,206 $(19,339) $(3,960) $23,914 Interest paid with Treasury stock 5 88 93 Exercise of Options ( 328) 960 632 Employee Stock Purchase Plan ( 5) 45 40 Net income (loss) 1,215 1,215 Balance; June 30, 1996 6,917 $7 $46,878 $(18,124) $(2,867) $25,894 ===== == ======= ======== ======= =======
See accompanying notes to consolidated financial statements. 6 SOUTHWALL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) (Unaudited) Note 1 - Interim Period Reporting: - --------------------------------- While the information presented in the accompanying consolidated financial statements is unaudited, it includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the Company's financial position and results of operations, and changes in financial position as of the dates and for the periods indicated. Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements contained in the Company's Form 10-K for the year ended December 31, 1995. The results of operations for the interim periods presented are not necessarily indicative of the operating results of the full year. Note 2 - Inventories: - -------------------- Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at June 30, 1996 and December 31, 1995, consisted of the following:
June 30, 1996 December 31, 1995 ------------- ----------------- Raw materials $2,352 $2,696 Work-in-process 1,396 989 Finished goods 3,006 2,939 ------ ------ Total $6,754 $6,624 ====== ======
Note 3 - Commitments: - -------------------- During the first quarter of 1996, the Company and SONY Corporation signed an Addendum #1 to Supply Agreement. Under the terms of the Amended Agreement, among other things, SONY has agreed to increase its minimum order of anti-reflective film beginning July 1, 1997 and extending through December 31, 2000, and Southwall has agreed to install any necessary additional manufacturing capacity by July 1, 1997. The Company is currently planning and negotiating to equip a new facility for the manufacturing of anti-reflective film. The Company estimates that it will cost approximately $14 million to equip this facility. The Company is also in negotiations with lending institutions to finance this expansion. 7 Item 2 - Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations - --------------------- Except for the historical information contained herein, the matters discussed in this Form 10-Q Report are forward-looking statements that involve risks and uncertainties, including those discussed below and in the Company's Annual Report on Form 10-K. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgment as of the date of the filing of this From 10-Q Report. The Company disclaims, however, any intent or obligation to update these forward-looking statements. Six Months Ended June 30, 1996 and July 2, 1995 - ----------------------------------------------- Net product sales increased to $21.4 million for the first six months of 1996, compared to $14.9 million for the similar period of 1995. Most of the increase was due to $5.4 million of sales of anti-reflective film for the period compared to $.3 million for the similar period last year. In addition, net product sales of energy conservation products increased by $2.7 million and net product sales of electronics products, other than anti-reflective film, increased by approximately $.6 million, more than offsetting a $1.5 million dollar decline in silver reflector film sales and a $.5 million decrease in our discontinued aerospace product sales. Cost of product sales for the first half of 1996 was 70% of net product sales, compared to 69% for the similar period of 1995. This percentage increase was primarily attributable to some operational problems that occurred during the first quarter of 1996, and to the higher cost of certain metals used in the coating process for most of the Company's products during the first half of 1996. Research and development expenses, as a percent of net product sales, were 5% for the first six months of 1996, compared to 8% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. Selling, general and administrative expense, as a percent of net product sales, decreased to 20% in the first six months of 1996, from 24% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. The absolute dollar increase from $3.6 million in 1995 to $4.2 million in 1996, is attributable to increased sales and marketing expenses associated with the introduction of new products and expansion into the Pacific Rim. Interest income (expense) net, decreased in 1996 compared to 1995 due primarily to losses realized on sales of short term investments during the second quarter of 1995, and reductions in long term debt, partly offset by a decrease in monies invested in 1996. As a result of the factors discussed above, the Company reported pre-tax income of $1.3 million for the first six months of 1996, compared to a pre- tax loss of ($.1 million) for the similar period in 1995. Effective March 31, 1996, the Company terminated its lease of equipment and facilities in Southern California to laminate glass products. The Company continues to market its California Series(TM) clear solar shading laminated glass products, which are being laminated by a sub-contractor, but no longer markets other laminated products. 8 The termination of this lease and discontinuance of the marketing of certain products, as well as the discontinuance of the aerospace product lines discussed above, had no adverse effect on financial results and is not expected to have any adverse effect on future financial results. Three Months Ended June 30, 1996 and July 2, 1995 - ------------------------------------------------- Net product sales increased to $10.8 million for the second quarter of 1996, compared to $8.2 million for the similar period of 1995. The increase was due primarily to a $2.7 million increase in sales of anti-reflective film. In addition, net product sales of energy conservation products was up by $.7 million and other electronics products increased by approximately $.2 million, mostly offsetting a $.7 million dollar decline in silver reflector film sales and a $.3 million decrease in our discontinued aerospace product sales. Cost of product sales for the second quarter of 1996 was 70% of net product sales, compared to 69% for the similar period of 1995. The percentage increase was primarily due to the higher cost of certain metals used in the coating process for most of our products. Research and development expenses, as a percent of net product sales, were 5% for the second quarter of 1996, compared to 7% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. The absolute dollar increase in 1996 is attributable to higher new product development. Selling, general and administrative expense, as a percent of net product sales, decreased to 19% in the second quarter of 1996, from 22% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. The absolute dollar increase from $1.8 million in 1995 to $2.1 million in 1996, is attributable to increased sales and marketing expenses associated with the introduction of new products and expansion into the Pacific Rim. Interest income (expense) net, decreased in 1996 compared to 1995 due primarily to losses realized on sales of short term investments during the second quarter of 1995, and reductions in long term debt, partly offset by a decrease in monies invested in 1996. As a result of the factors discussed above, the Company reported pre-tax income of $.8 million for the second quarter of 1996, compared to pre-tax income of $.3 million for the similar period in 1995. Liquidity and Capital Resources - ------------------------------- At June 30, 1996, the Company's net working capital was $11.3 million compared with $9.7 million at December 31, 1995. The Company has financed itself through cash flow from operations and its existing cash balances. From December 31, 1995, to June 30, 1996, cash and short-term investments increased by $.2 million, while accounts receivable increased by $2.2 million. The increase in accounts receivable is primarily attributable to the increase in net revenues from $9.1 million in the fourth quarter of 1995 to $10.8 million in the second quarter of 1996, most of which occurred during the later portion of the quarter. Additions to property and equipment were approximately $1.2 million during the second quarter of 1996, including $.5 million toward equiping a new 9 facility, still in the planning and design stages, to be dedicated to the production of anti-reflective product. The Company anticipates total capital expenditures of approximately $2.5 million during 1996 for general replacements and discretionary improvements of current facilities. The Company has also issued purchase orders totalling $4.2 million as part of total anticipated commitments of approximately $14 million to equip a new facility to be dedicated to the production of anti-reflective product and to fulfill the supply requirements of a supply agreement. At June 30, 1996, the Company had $3.8 million of cash and short-term investments and a $6 million revolving line of credit, which is subject to certain financial covenants, and which expires in February 1997, but may be extended for additional one year terms with the bank's approval. As of June 30, 1996, there were no borrowings under this line of credit. Existing working capital and cash generated from operations are expected to be adequate to satisfy the Company's capital and operating requirements of existing facilities at least through 1996. The Company is seeking financing for the planned new facility; however, there is no assurance that the Company will be successful. 10 PART II OTHER INFORMATION Item 1 Legal Proceedings and Other Matters The Company has been named a defendant in a lawsuit filed on April 5, 1996 by one of its customers in the United States District Court for the Eastern District of New York. The lawsuit in federal court alleges certain contractual violations by the Company and seeks relief in an aggregate amount in excess of $35 million. The Company believes that this lawsuit is without merit and intends to defend against it vigorously. In addition, the Company is involved in certain other legal actions arising in the ordinary course of business. The Company believes, however, that none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business or its consolidated financial position or results of operations. Item 2 Changes in Securities Not applicable Item 3 Defaults upon Senior Securities Not applicable Item 4 Submission of Matters to a Vote of stockholders (a) The Annual Meeting of Stockholders was held on May 30, 1996. (b) The meeting included the re-election of five members of the Board of Directors, submitted as Proposal I, whose names are as follows: Bruce J. Alexander Joseph B. Reagan Martin M. Schwartz Walter C. Sedgwick J. Larry Smart (c) Other matters voted upon at the stockholders meeting were: Proposal II, ratification of the selection of Price Waterhouse as the Company's independent accountant for the year ending December 31, 1996. Shares of Common Stock were voted as follows: Proposal I (Election of Directors) Total Vote For Total Vote Withheld Each Director From Each Director -------------- ------------------- Bruce J. Alexander 4,957,566.4 26,200.0 Joseph B. Reagan 4,957,566.4 26,200.0 Martin M. Schwartz 4,957,566.4 26,200.0 Walter C. sedgwick 4,957,566.4 26,200.0 J. Larry Smart 4,944,880.4 38,886.0 11 Broker For Against Abstain Non-Vote --- ------- ------- -------- Proposal II (Selection of Accountants) 4,965,953.4 14,223.0 3,590.0 0 (d) Settlements between the registrant and any other participant: None Item 5 Other Information Not applicable Item 6 Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports of Form 8-K - None 12 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. Dated: August 13, 1996 By: /s/ Martin M. Schwartz --------------------------------- Martin M. Schwartz President and Chief Executive Officer By: /s/ Alfred V. Larrenaga --------------------------------- Alfred V. Larrenaga Sr. Vice President and Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 JUN-30-1996 2,787 1,005 8,154 (645) 6,754 18,776 36,497 (20,470) 36,575 7,483 0 0 0 7 25,887 36,575 10,832 10,990 7,548 10,230 0 0 (10) 750 46 704 0 0 0 704 .10 .10
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