Southwall Restructures Palo Alto Operations to Improve Cost Structure; Expects to Take Charge in Fourth Quarter

    PALO ALTO, Calif.--Dec. 18, 2002--Southwall Technologies Inc. , a global developer, manufacturer and marketer of thin-film coatings for the automotive glass, electronic display and architectural markets, today announced that it has commenced restructuring actions to improve its cost structure for 2003 and 2004.
    These actions include a reduction in force and a progressive consolidation of facilities in the company's Palo Alto, California operations, in conjunction with a transfer of product lines to its expanding manufacturing operations in Dresden, Germany. In the fourth quarter, Southwall expects to take a restructuring charge of between $2.5 million and $3.0 million for severance costs related to the reduction in force and recognition of remaining lease obligations for excess facilities in Palo Alto.
    The reduction in force affected approximately 37 positions, or 13% of Southwall's total headcount, and followed the earlier reductions announced in August 2002. Severance costs associated with these positions are estimated to be approximately $0.4 million. Southwall has reduced its work force by 20% since the beginning of the year and now has approximately 243 employees worldwide. Palo Alto operations currently consist of approximately 107 employees, down from 170 a year ago.
    The consolidation of facilities is expected to reduce Southwall's facilities requirements in Palo Alto from six buildings to three buildings by the end of 2003. The lease on one building is scheduled to expire at the end of 2002. The company plans to vacate two other buildings prior to the expiration of their leases in 2003 and recognize the remaining lease obligations, estimated to be between $2.1 million and $2.6 million, in the fourth quarter of 2002.
    As a result of these restructuring actions, Southwall expects to reduce its total operating expenses by approximately $3.7 million in 2003 and approximately $4.4 million in 2004.
    "The continued growth and success of our manufacturing operations in Germany have provided sufficient capacity for us to transition a number of product lines from California," said Thomas G. Hood, president and chief executive officer of Southwall Technologies. "Since California operations carry disproportionately higher costs relative to our other plants in Germany and Arizona, it is in the company's best interests to balance its cost base geographically for improved efficiencies and economies. We believe that reducing our labor and facilities costs now will lead to lower operating expenses and position us for sustainable profitability in the years ahead."
    Southwall management plans to have a teleconference at 10:30 a.m. ET / 7:30 a.m. PT on Thursday, December 19, to discuss today's news and introduce its new senior vice president and chief financial officer, Michael E. Seifert, as announced on December 17. This call will be broadcast live for all investors and archived for one month, until 1/19/03 at www.southwall.com. In addition, a telephone replay will be available until 12/26/02 at (800) 642-1687, code number 7238130.
    Southwall Technologies (www.southwall.com) designs and produces thin film coatings that selectively absorb, reflect or transmit light. Southwall products are used in a number of automotive, electronic display and architectural glass products to enhance optical and thermal performance characteristics, improve user comfort and reduce energy costs. Southwall exports advanced thin film coatings to over 25 countries around the world for use in products manufactured by such companies as Audi, BMW, DaimlerChrysler, Renault, Peugeot-Citroen, Volvo, Saint-Gobain Sekurit, Pilkington, Hewlett-Packard, and Mitsubishi Electric.

    This press release may contain forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995), 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 cost savings from the above-described restructuring will not be as substantial or as beneficial to the Company as indicated, that the German facility will not have the excess capacity that is anticipated in the future, that the Company's competitiveness and productivity will not improve, that shipments to customers will be materially less than anticipated, that yields and throughputs will not be improved and production targets may not be met, or that the markets will soften, as well as risks associated with its failure to meet covenants under credit facilities and strains on the Company's liquidity. Further risks are detailed in the Company's filing with the Securities and Exchange Commission, including those set forth in the Company's most recent Form 10-K filed on April 1, 2002, and its most recent Form 10-Q, filed November 13, 2002.