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STR Holdings, Inc. Reports Fourth Quarter And Full Year 2011 Results

“We are pleased to conclude this dispute,” said Mr. Yorgensen. “The court ruling and subsequent settlement confirms STR’s reputation for distinctive technological expertise and the important technical advantages provided by our encapsulants. This resolution frees up valuable time and resources and further improves the Company’s strong liquidity position.”

Balance Sheet and Liquidity

STR strengthened its balance sheet during the fourth quarter by generating $25.8 million in operating cash flow from continuing operations. This resulted from lower volume and tight working capital control, as the Company reduced its accounts receivables and raw material inventory. It finished the year with $58.8 million of cash and no debt. The reduction in cash from Q3 2011 is driven by $91.5 million of cash used in discontinued operations, of which the majority is due to taxes paid on the gain from the sale of QA. Capital expenditures amounted to $3.1 million for the quarter.

“We believe our strong balance sheet will allow us to capitalize on opportunities that we identify during this industry down cycle. We are intensely focused on controlling our costs and improving working capital as we weather this difficult environment,” stated Barry A. Morris, STR’s Executive Vice President and Chief Financial Officer.

Guidance

The Company estimates that the first quarter of 2012 will be negatively impacted by demand for modules continually being supplied from existing inventory and seasonal slowness. The Company expects orders for its encapsulants to normalize during the second half of the year.

Based on the above, the Company today provided guidance for the first quarter and full-year 2012 as follows:

Amounts in millions, except per share amounts
 
Quarter ending March 31, 2012 Low   High
Net sales $ 29.0 $ 31.0
Diluted non-GAAP EPS $ 0.05 $ 0.07
 
 
Year ending December 31, 2012 Low   High
Net sales $ 160.0 $ 175.0
Diluted non-GAAP EPS $ 0.25 $ 0.35

Fourth Quarter Conference Call and Presentation

The Company will discuss its financial results and guidance in a conference call today at 4:30 p.m. ET. A live webcast of the conference call and presentation will be available through the Investor Relations section of the Company’s website at www.strholdings.com. Investors accessing the live call by phone from the U.S. should dial 800-561-2693 and enter passcode: 99225578. Those calling from outside the U.S. should dial 617-614-3523 and use the same passcode. A telephone replay will be available approximately two hours after the call concludes through Tuesday, March 20, 2012 by dialing 888-286-8010 from the U.S., or 617-801-6888 from international locations, and entering passcode: 26599417. The webcast and presentation will be archived on the Company’s website for one year.

About STR Holdings, Inc.

STR Holdings, Inc. is a leading global provider of high quality, superior performance encapsulants to the photovoltaic module industry. Further information about STR Holdings, Inc. can be obtained via the Company’s website at www.strholdings.com.

Forward-Looking Statements

This press release and any oral statement made in respect of the information in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to inherent risks and uncertainties. These forward-looking statements present the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business and are based on assumptions that the Company has made in light of its industry experience and perceptions of historical trends, current conditions, expected future developments and other factors management believes are appropriate under the circumstances. However, these forward-looking statements are not guarantees of future performance or financial or operating results. In addition to the risks and uncertainties discussed in this release, the Company faces risks and uncertainties that include, but are not limited to, the following: (i) demand for solar energy in general and solar modules in particular; (ii) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (iii) the effects of the announced reductions to solar incentives in Germany and Italy; (iv) the extent to which we may be required to write-off accounts receivable or inventory; (v) pricing pressures and other competitive factors; (vi) our ability to protect our intellectual property; (vii) volatility in commodity costs, such as resin or paper used in our encapsulants, and our ability to successfully manage any increases in these commodity costs; (viii) our dependence on a limited number of third party suppliers for raw materials for our encapsulants and materials used in our processes; (ix) customer concentration in our business and our relationships with key customers; (x) operating new manufacturing facilities and increasing production capacity at existing facilities; (xi) our reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (xii) potential product performance matters and product liability; (xiii) the extent and duration of the current downturn in the global economy; (xiv) the impact negative credit markets may have on us or our customers or suppliers; (xv) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (xvi) maintaining sufficient liquidity in order to fund future profitable growth and long-term vitality; (xvii) outcomes of litigation and regulatory actions; and (xix) other risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in subsequent periodic reports on Forms 10-K, 10-Q and 8-K. You are urged to carefully review and consider the disclosure found in the Company’s filings which are available on www.sec.gov or www.strholdings.com. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, actual results may vary materially from those projected in these forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements contained in this release, whether as a result of new information, future developments or otherwise, except as may be required by law.

STR Holdings, Inc.
CONDENSED CONSOLIDATED INCOME STATEMENTS
All amounts in thousands except shares and per share amounts
     

Three Months Ended December 31,

Twelve Months Ended December 31,

  2011     2010     2011     2010  
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net sales $ 36,539 $ 69,107 $ 232,431 $ 259,200
Cost of sales   32,289     41,233     160,446     151,824  
 
Gross profit 4,250 27,874 71,985 107,376
 
Selling, general and administrative expenses 8,728 6,248 30,394 25,071
(Reversal) provision for bad debt expense (130 ) (469 ) 379 111
Goodwill impairment 63,948 - 63,948 -
Asset impairment   -     -     1,861     -  
 
Operating (loss) income (68,296 ) 22,095 (24,597 ) 82,194
 
Other (expense) income   (247 )   196     (4,158 )   (776 )
(Loss) earnings from continuing operations before income tax expense (68,543 ) 22,291 (28,755 ) 81,418
Income tax (benefit) expense from continuing operations   (66 )   7,616     10,673     26,669  
Net (loss) earnings from continuing operations $ (68,477 ) $ 14,675 $ (39,428 ) $ 54,749
 
Earnings (loss) from discontinued operations before income tax expense
2,741 (2,000 ) 113,512 (7,581 )
Income tax expense (benefit) from discontinued operations   1,408     (529 )   75,388     (2,143 )
$ 1,333 $ (1,471 ) $ 38,124 $ (5,438 )
 
Net (loss) earnings $ (67,144 ) $ 13,204   $ (1,304 ) $ 49,311  
 
GAAP net (loss) earnings per share:
Basic from continuing operations $ (1.67 ) $ 0.36   $ (0.96 ) $ 1.36  
Basic from discontinued operations   0.04     (0.03 )   0.93     (0.14 )
Total basic GAAP net (loss) earnings per share $ (1.63 ) $ 0.33   $ (0.03 ) $ 1.22  
 
Diluted from continuing operations $ (1.67 ) $ 0.35   $ (0.96 ) $ 1.30  
Diluted from discontinued operations   0.04     (0.04 )   0.93     (0.13 )
Total diluted GAAP net (loss) earnings per share $ (1.63 ) $ 0.31   $ (0.03 ) $ 1.17  
 
(1) Non-GAAP net (loss) earnings per share:
Basic from continuing operations $ (0.05 ) $ 0.38   $ 0.82   $ 1.48  
Basic from discontinued operations   0.04     (0.02 )   1.00     (0.05 )
Total basic non-GAAP net (loss) earnings per share $ (0.01 ) $ 0.36   $ 1.82   $ 1.43  
 
Diluted from continuing operations $ (0.05 ) $ 0.36   $ 0.80   $ 1.42  
Diluted from discontinued operations   0.04     (0.02 )   0.98     (0.06 )
Total diluted non-GAAP net (loss) earnings per share $ (0.01 ) $ 0.34   $ 1.78   $ 1.36  
 
Weighted-average common shares outstanding:
Basic shares outstanding GAAP   41,083,830     40,526,435     40,886,022     40,302,509  
(2) Diluted shares outstanding GAAP   41,083,830     42,396,262     40,886,022     42,126,502  
Stock options - - 543,088 -
Restricted common stock   -     -     397,641     -  
(2) Diluted shares outstanding non-GAAP   41,083,830     42,396,262     41,826,751     42,126,502  
 
(1) Please refer to the reconciliation of Non-GAAP measures included in this press release.
(2) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net earnings per share included in this press release.
STR Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
All amounts in thousands
 
December 31, 2011 December 31, 2010
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 58,794 $ 98,333
Accounts receivable, net 14,535 28,247
Inventories 28,809 31,452
Other current assets 8,168 9,344
Current assets held for sale   -   28,153
Total current assets 110,306 195,529
 
Property, plant and equipment, net 63,474 52,163
Intangible assets, net 226,436 298,816
Other noncurrent assets 1,875 4,686
Noncurrent assets held for sale   -   151,652
Total assets $ 402,091 $ 702,846
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ - $ 1,850
Other current liabilities 20,827 35,086
Current liabilities held for sale   -   14,529
Total current liabilities 20,827 51,465
 
Long-term debt, less current portion - 236,675
Other long-term liabilities 50,759 56,630
Long-term liabilities held for sale   -   30,036
Total liabilities   71,586   374,806
 
STOCKHOLDERS' EQUITY
Stockholders' equity   330,505   328,040
Total liabilities and stockholders' equity $ 402,091 $ 702,846
STR Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
All amounts in thousands
     

Three Months Ended December 31,

Twelve Months Ended December 31,

2011 2010 2011 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net (loss) earnings $ (67,144 ) $ 13,204 $ (1,304 ) $ 49,311
Net (earnings) loss from discontinued operations   (1,333 )   1,471     (38,124 )   5,438  
Net (loss) earnings from continuing operations (68,477 ) 14,675 (39,428 ) 54,749
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
 
Depreciation 2,037 1,756 8,193 6,896
Goodwill impairment 63,948 - 63,948 -
Asset impairment - - 1,861 -
Amortization of intangibles 2,108 2,108 8,432 8,432
Amortization of deferred financing costs 82 332 966 1,327
Write-off of deferred debt costs on early extinguishment of debt - - 3,586 -
Stock-based compensation expense 1,163 1,127 4,436 6,594
Loss on disposal of property, plant and equipment (37 ) - (35 ) 11
Provision for bad debt expense (130 ) (469 ) 379 111
Deferred income tax benefit (4,338 ) (4,600 ) (4,701 ) (4,838 )
Changes in operating assets and liabilities 29,353 4,246 (1,221 ) (17,691 )
Other, net   46     223     402     (619 )
Net cash provided by continuing operations 25,755 19,398 46,818 54,972
Net cash (used in) provided by discontinued operations   (99,285 )   (1,025 )   (109,341 )   3,769  

Net cash (used in) provided by operating activities

$ (73,530 ) $ 18,373   $ (62,523 ) $ 58,741  
 
INVESTING ACTIVITIES
Capital expenditures (3,096 ) (9,131 ) (21,537 ) (16,061 )
Proceeds from sale of fixed assets   42     -     43     -  
Net cash used in continuing operations (3,054 ) (9,131 ) (21,494 ) (16,061 )
Net cash provided by (used in) discontinued operations   7,827     135     274,354     (2,990 )
Net cash provided by (used in) investing activities   4,773     (8,996 )   252,860     (19,051 )
 
FINANCING ACTIVITIES
Net cash (used in) provided by continuing operations   (1,306 )   1,063     (721 )   (443 )
Net cash (used in) discontinued operations   -     (463 )   (238,525 )   (1,981 )
Net cash (used in) provided by financing activities   (1,306 )   600     (239,246 )   (2,424 )
 
Effect of exchange rate changes on cash   (762 )   (65 )   1,073     215  
 
Net (decrease) increase in cash and cash equivalents (70,825 ) 9,912 (47,836 ) 37,481
Cash and cash equivalents, beginning of period   129,619     96,718     106,630     69,149  
Cash and cash equivalents, end of period $ 58,794   $ 106,630   $ 58,794   $ 106,630  
Less cash and cash equivalents of discontinued operations, end of period   -     8,297     -     8,297  
Cash and cash equivalents from continuing operations, end of period $ 58,794   $ 98,333   $ 58,794   $ 98,333  
 
* Free cash flow $ 22,659   $ 10,267   $ 25,281   $ 38,911  
 
* Please refer to the reconciliation of Non-GAAP measures included in this press release.
STR Holdings, Inc.
RECONCILIATION OF NON-GAAP MEASURES
All amounts in thousands except shares and per share amounts
     
Three Months Ended December 31, Twelve Months Ended December 31,
2011 2010 2011 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Non-GAAP (Loss) Earnings Per Share
Net (loss) earnings from continuing operations $ (68,477 ) $ 14,675 $ (39,428 ) $ 54,749
Adjustments to net (loss) earnings from continuing operations:
Amortization of intangibles 2,108 2,108 8,432 8,432
Amortization of deferred financing costs 82 332 4,552 1,327
Stock-based compensation expense 1,163 1,127 4,436 6,594
Secondary offering expense - - - 534
Plant closure costs 464 - 820 -
Asset impairment - - 1,861 -
Goodwill impairment 63,948 63,948 -
Interest expense from prior credit facilities - (2,544 ) (6,699 ) (10,158 )
Tax effect of non-GAAP adjustments   (1,236 )   (243 )   (4,279 )   (1,637 )
Non-GAAP net (loss) earnings from continuing operations $ (1,948 ) $ 15,455   $ 33,643   $ 59,841  
 
Non-GAAP net (loss) earnings per share:
Basic from continuing operations $ (0.05 ) $ 0.38   $ 0.82   $ 1.48  
Diluted from continuing operations $ (0.05 ) $ 0.36   $ 0.80   $ 1.42  
 
Weighted-average common shares outstanding:
Basic   41,083,830     40,526,435     40,886,022     40,302,509  
(1) Diluted   41,083,830     42,396,262     41,826,751     42,126,502  
 
(1) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net earnings per share included in this press release.
 
Three Months Ended December 31, Twelve Months Ended December 31,
2011 2010 2011 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Free Cash Flow
Cash flow from operations from continuing operations $ 25,755 $ 19,398 $ 46,818 $ 54,972
Less:
Capital expenditures   (3,096 )   (9,131 )   (21,537 )   (16,061 )
Free cash flow $ 22,659   $ 10,267   $ 25,281   $ 38,911  

Non-GAAP Financial Measures

To supplement the Company’s condensed consolidated financial statements, which statements are prepared and presented in accordance with generally accepted accounting principles in the United States of America (GAAP), the Company uses non-GAAP financial measures to facilitate better understanding of its operating results. In this press release, there are two non-GAAP financial metrics mentioned: Non-GAAP earnings per share from continuing operations (EPS) and free cash flow as defined below:

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