STR Holdings, Inc. Reports Third Quarter 2012 Results

Non-GAAP net loss from continuing operations for the third quarter of 2012, which excludes certain tax-effected adjustments (as disclosed following the non-GAAP reconciliation table at the end of this press release), was $(1.1) million, or $(0.0 3) per diluted share. This compares to non-GAAP net earnings from continuing operations of $0.0 million, or $0.00 per diluted share, for the second quarter of 2012 and non-GAAP net earnings from continuing operations of $8.8 million, or $0.21 per diluted share, for the third quarter of 2011.

Balance Sheet and Liquidity

During the third quarter of 2012, the Company had negative operating cash flow from continuing operations of $(0.7) million primarily due to unfavorable timing of foreign tax payments of $2.5 million. Free cash flow from continuing operations was $(1.8) million during the third quarter of 2012. The Company finished the third quarter of 2012 with $70.6 million of cash and no debt. In addition, the Company received approximately $8.0 million of cash from income tax refunds in October that will be reflected in its October cash balance.

Guidance

The Company today provided guidance for the fourth quarter and updated its full-year 2012 guidance as follows:

STR Holdings, Inc.
Business Outlook
Amounts in millions, except per share amounts
Quarter ending December 31, 2012					Low			High
Net sales					$	14.0		$	16.0
Diluted non-GAAP EPS					$	(0.09)		$	(0.07)
Year ending December 31, 2012					Low			High
Net sales					$	93.0		$	95.0
Diluted non-GAAP EPS					$	(0.05)		$	(0.03)

Third 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 [phone] and enter passcode: 57545208. Those calling from outside the U.S. should dial [phone] and use the same passcode. A telephone replay will be available approximately two hours after the call concludes through Wednesday, November 14 , 2012, by dialing [phone] from the U.S., or [phone] from international locations, and entering passcode: 76494891. 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 press release, the Company faces risks and uncertainties that include, but are not limited to, the following: (i) technological changes in the solar energy industry or the Company’s failure to develop and introduce or integrate new technologies could render its encapsulants uncompetitive or obsolete, particularly in China; (ii) excess capacity in the solar supply chain; (iii) its ability to increase its market share; (iv) demand for solar energy in general and solar modules in particular; (v) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (vi) the effects of the announced reductions to solar incentives in Germany and Italy; (vii) trade complaints and lawsuits diminishing the growth of the solar industry; (viii) the extent to which it may be required to write-off accounts receivable, inventory or intangible assets; (ix) product pricing pressures and other competitive factors; (x) customer concentration in its business and its relationships with key customers; (xi) its ability to protect its intellectual property; (xii) volatility in commodity costs, such as resin or paper used in its encapsulants, and its ability to successfully manage any increases in these commodity costs; (xiii) its dependence on a limited number of third-party suppliers for raw materials for its encapsulants and materials used in its processes; (xiv) operating new manufacturing facilities and increasing production capacity at existing facilities; (xv) its reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (xvi) potential product performance matters and product liability; (xvii) the extent and duration of the current downturn in the global economy; (xviii) the impact negative credit markets may have on the Company or its customers or suppliers; (xix) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (xx) maintaining sufficient liquidity in order to fund future profitable growth and long-term vitality; (xxi) outcomes of litigation and regulatory actions; and (xxii) the 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 http://www.sec.gov or http://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 statement 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 September 30,								Nine Months Ended September 30,
			2012				2011				2012				2011
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net sales		$	23,092			$	56,237			$	79,294			$	195,892
Cost of sales			22,510				41,665				75,127				128,157
Gross profit			582				14,572				4,167				67,735
Selling, general and administrative expenses			5,844				6,838				20,298				21,666
Provision (recovery) for bad debt expense			47				(532	)			497				509
Goodwill impairment			-				-				82,524				-
Asset impairment			-				1,861				-				1,861
Operating (loss) income			(5,309	)			6,405				(99,152	)			43,699
Other (expense) income			(1,070	)			(3,632	)			5,771				(3,911	)
(Loss) earnings from continuing operations before income tax (benefit) expense			(6,379	)			2,773				(93,381	)			39,788
Income tax (benefit) expense from continuing operations			(2,800	)			(1,044	)			(5,250	)			10,739
Net (loss) earnings from continuing operations		$	(3,579	)		$	3,817			$	(88,131	)		$	29,049
Discontinued operations:
Earnings from discontinued operations before income tax (benefit) expense			-				117,314				-				110,771
Income tax (benefit) expense from discontinued operations			(4,246	)			75,841				(4,246	)			73,980
Net earnings from discontinued operations		$	4,246			$	41,473			$	4,246			$	36,791
Net earnings (loss)		$	667			$	45,290			$	(83,885	)		$	65,840
GAAP net earnings (loss) per share:
Basic from continuing operations		$	(0.09	)		$	0.09			$	(2.13	)		$	0.71
Basic from discontinued operations			0.11				1.02				0.10				0.90
Total basic GAAP net earnings (loss) per share		$	0.02			$	1.11			$	(2.03	)		$	1.61
Diluted from continuing operations		$	(0.09	)		$	0.09			$	(2.13	)		$	0.69
Diluted from discontinued operations			0.11				1.00				0.10				0.88
Total diluted GAAP net earnings (loss) per share		$	0.02			$	1.09			$	(2.03	)		$	1.57
(1) Non-GAAP net (loss) earnings per share:
Basic from continuing operations		$	(0.03	)		$	0.21			$	0.05			$	0.87
Basic from discontinued operations			0.11				1.05				0.10				0.97
Total basic non-GAAP net earnings per share		$	0.08			$	1.26			$	0.15			$	1.84
Diluted from continuing operations		$	(0.03	)		$	0.21			$	0.05			$	0.85
Diluted from discontinued operations			0.11				1.04				0.10				0.94
Total diluted non-GAAP net earnings per share		$	0.08			$	1.25			$	0.15			$	1.79
Weighted-average common shares outstanding:
Basic shares outstanding GAAP			41,439,827				40,972,552				41,277,975				40,853,480
(2) Diluted shares outstanding GAAP			41,439,827				41,503,070				41,277,975				41,985,525
Stock options			-				-				-				-
Restricted common stock			-				-				151				-
(2) Diluted shares outstanding non-GAAP			41,439,827				41,503,070				41,278,126				41,985,525
(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
						September 30, 2012					December 31, 2011
						(Unaudited)					(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents						$	70,625				$	58,794
Accounts receivable, net							7,309					14,535
Inventories							13,998					28,809
Other current assets							13,419					8,168
Total current assets							105,351					110,306
Property, plant and equipment, net							67,807					63,474
Intangible assets, net							137,589					143,912
Goodwill							-					82,524
Other noncurrent assets							1,077					1,875
Total assets						$	311,824				$	402,091
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable						$	4,279				$	4,647
Accrued liabilities							7,960					9,445
Income taxes payable							2,306					6,735
Total current liabilities							14,545					20,827
Deferred tax liabilities							45,116					48,585
Other long-term liabilities							2,121					2,174
Total liabilities						$	61,782				$	71,586
STOCKHOLDERS' EQUITY
Stockholders' equity							250,042					330,505
Total liabilities and stockholders' equity						$	311,824				$	402,091

STR Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
All amounts in thousands
					Three Months Ended September 30,									Nine Months Ended September 30,
						2012				2011					2012				2011
					(Unaudited)				(Unaudited)					(Unaudited)				(Unaudited)
OPERATING ACTIVITIES
Net earnings (loss)					$	667			$	45,290				$	(83,885	)		$	65,840
Net earnings from discontinued operations						4,246				41,473					4,246				36,791
Net (loss) earnings from continuing operations						(3,579	)			3,817					(88,131	)			29,049
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Depreciation						2,042				2,363					6,157				6,156
Goodwill impairment						-				-					82,524				-
Asset impairment						-				1,861					-				1,861
Amortization of intangibles						2,107				2,108					6,323				6,324
Amortization of deferred financing costs						55				221					218				884
Write-off of deferred debt costs						844				3,586					844				3,586
Stock-based compensation expense						704				1,073					3,682				3,273
Loss on disposal of property, plant and equipment						2				2					2				2
Provision (recovery) for bad debt expense						47				(532	)				497				509
Deferred income tax (benefit) expense						(1,244	)			217					(3,055	)			(363	)
Changes in operating assets and liabilities						(1,961	)			4,149					19,138				(30,574	)
Other, net						250				(1,631	)				365				356
Net cash (used in) provided by continuing operations						(733	)			17,234					28,564				21,063
Net cash used in discontinued operations						-				(8,104	)				(5,786	)			(10,056	)
Net cash (used in) provided by operating activities					$	(733	)		$	9,130				$	22,778			$	11,007
INVESTING ACTIVITIES
Capital expenditures					$	(1,052	)		$	(3,906	)			$	(10,477	)		$	(18,441	)
Proceeds from sale of fixed assets						-				1					-				1
Net cash used in continuing operations						(1,052	)			(3,905	)				(10,477	)			(18,440	)
Net cash provided by discontinued operations						-				268,520					-				266,527
Net cash (used in) provided by investing activities					$	(1,052	)		$	264,615				$	(10,477	)		$	248,087
FINANCING ACTIVITIES
Net cash (used in) provided by continuing operations					$	(24	)		$	(88	)			$	1			$	585
Net cash used in discontinued operations						-				(237,600	)				-				(238,525	)
Net cash (used in) provided by financing activities					$	(24	)		$	(237,688	)			$	1			$	(237,940	)
Effect of exchange rate changes on cash						243				(1,815	)				(471	)			1,835
Net (decrease) increase in cash and cash equivalents						(1,566	)			34,242					11,831				22,989
Cash and cash equivalents, beginning of period						72,191				95,377					58,794				106,630
Cash and cash equivalents, end of period					$	70,625			$	129,619				$	70,625			$	129,619
* Free cash flow from continuing operations					$	(1,785	)		$	13,328				$	18,087			$	2,622
* 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 September 30,								Nine Months Ended September 30,
					2012				2011				2012				2011
				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Non-GAAP (Loss) Earnings Per Share
Net (loss) earnings from continuing operations				$	(3,579	)		$	3,817			$	(88,131	)		$	29,049
Adjustments to net (loss) earnings from continuing operations:
Amortization of intangibles					2,107				2,108				6,323				6,324
Amortization of deferred financing costs					899				3,807				1,062				4,470
Stock-based compensation expense					704				1,073				3,682				3,273
Accelerated depreciation					-				356				-				356
Asset impairment					-				1,861				-				1,861
Goodwill impairment					-				-				82,524				-
Interest expense from prior credit facilities					-				(1,722	)			-				(6,699	)
Tax effect of non-GAAP adjustments					(1,254	)			(2,539	)			(3,639	)			(3,043	)
Non-GAAP net (loss) earnings from continuing operations				$	(1,123	)		$	8,761			$	1,821			$	35,591
Non-GAAP net (loss) earnings per share:
Basic from continuing operations				$	(0.03	)		$	0.21			$	0.05			$	0.87
Diluted from continuing operations				$	(0.03	)		$	0.21			$	0.05			$	0.85
Weighted-average common shares outstanding:
Basic					41,439,827				40,972,552				41,277,975				40,853,480
(1) Diluted					41,439,827				41,503,070				41,278,126				41,985,525
(1) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net (loss) earnings per share included in this press release.
				Three Months Ended September 30,								Nine Months Ended September 30,
					2012				2011				2012				2011
				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Free Cash Flow from Continuing Operations
Cash flow from operations from continuing operations				$	(733	)		$	17,234			$	28,564			$	21,063
Less:
Capital expenditures					(1,052	)			(3,906	)			(10,477	)			(18,441	)
Free cash flow				$	(1,785	)		$	13,328			$	18,087			$	2,622

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 from continuing operations as defined below:

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