| [July 30, 2008] |
 |
Corning Announces Second-Quarter Results
CORNING, N.Y. --(Business Wire)-- Corning Incorporated (NYSE:GLW) today announced results for the second quarter of 2008.
Second-Quarter Highlights
-- Sales reached $1.69 billion, up 19% year over year.
-- Earnings per share were $2.01, including a $2.429 billion net special gain primarily related to the release of U.S. deferred tax asset valuation allowances.
-- Excluding special items, earnings per share were $0.49,* within the company's previously announced guidance for the quarter of $0.47 to $0.50, and up 44% from last year.
-- Display Technologies combined glass volume (including Corning's wholly owned business and Samsung Corning Precision Glass Co., Ltd.) increased 8% sequentially and 33% year over year. Corning's wholly owned business increased 1% sequentially and 26% year over year. Sequential growth was negatively impacted by an isolated manufacturing interruption in the second quarter. Samsung Corning Precision's (SCP) volume increased 15% sequentially and 40% year over year.
Third-Quarter Outlook Highlights
-- Sales are expected in the range of $1.65 billion to $1.72 billion, up 6% to 11% compared to the third quarter last year.
-- Earnings per share, excluding special items, are anticipated in the range of $0.48 to $0.51*, an increase of 26% to 34% over last year.
-- Third-quarter guidance assumes a yen-to-U.S. dollar exchange rate of 108, compared to an exchange rate of 105 experienced in the second quarter. In comparison to the second quarter, the weaker yen is expected to reduce both third-quarter sales and net income by approximately $30 million.
-- Combined LCD glass volume is expected to increase 4% to 9% sequentially, with the wholly owned business flat to up 5% and SCP up 8% to 13%. Year over year, the combined glass volume in the third quarter is expected to increase by more than 21%.
Remarking on the second quarter, Wendell P. Weeks, chairman and chief executive officer, said, "Despite concerns of a U.S. economic slowdown, Corning performed very well in the second quarter. We saw continued strong demand for our LCD glass substrates throughout the quarter. The U.S. retail data reported by the NPD Group's retail tracking service for the month of June showed retail sales of LCD TV units up 35% year over year. This is consistent with what we've seen in the first half of the year where LCD TV units sold increased 37% over a year ago." The NPD Group is an independent consumer market research firm.
*These are non-GAAP financial measures. The reconciliation between GAAP and non-GAAP measures is provided in the tables following this news release, as well as on the company's investor relations website.
"Additionally, we were very pleased with our Telecommunications segment performance, where sequential sales growth was 13%," Weeks said.
Quarter Two Financial Comparisons
Q2 2008 Q1 2008 % Change Q2 2007 % Change
---------------------------------------------------------------
-------
Net Sales in millions $1,692 $1,617 5% $1,418 19%
------------------------------------------------------------------
----
Net Income in millions $3,211 $1,029 212% $489 557%
-----------------------------------------------------------------
-----
Non-GAAP Net Income
in millions* $782 $702 11% $546 43%
------------------------------------------------------------------
----
GAAP EPS $2.01 $0.64 214% $0.30 570%
-----------------------------------------------------------------
-----
Non-GAAP EPS* $0.49 $0.44 11% $0.34 44%
------------------------------------------------------------------
----
Overview of Business Segment Results
Second-quarter sales for Corning's Display Technologies segment were $809 million, a 2% sequential decline, but a 33% increase over the second quarter 2007. Year-over-year glass volume increased by 26%. The display segment results were negatively impacted by an isolated manufacturing interruption which impacted shipments to one customer during the quarter. Excluding the impact of the interruption, sequential volume for the wholly owned business would have been within the original guidance of 2% to 5% growth. The manufacturing interruption reduced Corning's second-quarter sales by $24 million and net income by $16 million. Also, second-quarter sales and net income were negatively impacted by the weaker-than-expected yen-to-U.S. dollar exchange rate in the quarter versus guidance. Normal price declines were within the anticipated range for the quarter.
Telecommunications segment sales in the second quarter were $477 million, a 13% sequential increase and a 9% increase over a year ago. The increase was driven by strong fiber-to-the-premises demand as well as overall strength in optical fiber sales.
Environmental Technologies segment sales were $209 million in the second quarter, a 6% sequential improvement and a 9% increase over a year ago. Diesel product sales were strong in the second quarter, offset somewhat by a decline in automotive product demand.
Specialty Materials segment sales were $104 million, a 25% sequential increase and a 9% increase over second quarter 2007. The Life Sciences segment had sales of $87 million, a 7% sequential increase and a 12% increase over the second quarter last year. The positive year-over-year sales comparisons in the Telecommunications, Environmental Technologies, and Life Sciences segments reflected stronger euro-to-U.S. dollar exchange rates.
Corning's second-quarter equity earnings were $360 million, an 18% sequential increase and a more than 50% increase over the second quarter 2007. The company's equity earnings from Dow Corning were $94 million, compared to $80 million in the previous quarter and $88 million a year ago.
Special Items
The company's second-quarter results included net special gains of $2.429 billion or $1.52 per share. This amount includes a charge of $12 million pretax and after-tax to settle litigation in the company's Display Technologies segment and a non-cash charge of $9 million pretax and after-tax related to the pending Pittsburgh Corning Corporation bankruptcy proceeding. In the quarter, the company also released U.S. deferred tax asset valuation allowances totaling $2.45 billion, a non-cash item.
As a result of the valuation allowance release, Corning expects that its ongoing effective tax rate will increase by about 10 percentage points in 2009. This will not affect the company's 2008 ongoing tax rate. James B. Flaws, vice chairman and chief financial officer, said, "The most important factor behind the timing of the release of the U.S. valuation allowance is our increased confidence in sustained profitability in the U.S. The potential increase in next year's tax rate has been previously disclosed and is in most analysts' 2009 estimates." Flaws added, "Corning continues to have a large U.S. net operating loss carry-forward and does not expect to pay cash taxes in the U.S. for at least four to five years."
Third-Quarter Outlook
"We have recently seen some panel makers, primarily in Taiwan, reduce their utilization rates due to what we believe is an inventory build at the set assembly level of the supply chain. Despite this normal supply chain correction, we continue to believe that the LCD glass market will grow at the upper end of our original guidance range of 25% to 30% this year because retail demand for LCD products has remained strong," Flaws said.
Business Segment Highlights
-- Combined glass volume in the Display Technologies segment is expected to increase 4% to 9% sequentially, with the wholly owned business flat to up 5% and Samsung Corning Precision up 8% to 13%. Normal price declines in the quarter are expected to be around 2%.
-- Corning's Telecommunications segment sales are expected to be flat to up 5%, primarily due to improved private networks sales.
-- Environmental Technologies segment sales are expected to be flat for the quarter.
-- Specialty Materials segment sales are expected to be flat and sales in the Life Sciences segment are expected to be consistent with the previous quarter due to normal seasonality patterns.
-- Dow Corning Corporation earnings are expected to increase between 20% and 30% for the quarter. Samsung Corning Precision earnings are expected to be flat to up slightly sequentially, as volume gains are expected to be offset by the assumed unfavorable exchange rates and price declines.
"Overall, we believe Corning is more resistant to materials and energy inflation than it has been in the past due to cost reduction and changes in business mix. However, our Life Sciences segment and Corning Cable Systems business have seen significant material cost increases and will be implementing prices increases to offset these costs. Dow Corning is also experiencing significant inflation in certain raw materials costs and has implemented price increases as a result," Flaws added.
"While there are economic and supply-chain risks facing us in the second half of the year, we remain optimistic about our key areas of opportunity," Flaws said. "LCD TV sales have been globally strong this year and this trend continued through June in the U.S. and other regions. Despite fears of a continued impact of the earthquake in China, preliminary June retail data shows LCD TV sales up over 60% over the prior year," he remarked. The preliminary retail data was supplied by a private Chinese-based market research company.
"The continued retail strength is very encouraging as we enter the second half of the year, which is typically the more robust retail season for electronic goods," Flaws said.
Separately, Corning announced earlier today that its board of directors and executive committee approved a new stock repurchase plan of up to $1 billion that will run through 2009. This is in addition to last year's $500 million repurchase authorization of which $125 million remains.
Second-Quarter Conference Call Information
The company will host a second-quarter conference call on Wednesday, July 30 at 8:30 a.m. EDT. To access the call, dial (800) 700-8174 or international access call (651) 291-0900 approximately 10-15 minutes prior to the start of the call. The password is QUARTER TWO. The leader is SOFIO. To listen to a live audio webcast of the call, go to Corning's Web site at www.corning.com/investor_relations and follow the instructions. A replay of the call will begin at approximately 10:30 a.m. EDT, and will run through 5 p.m. EDT, Wednesday, August 13. To listen, dial (800) 475-6701 or international access call (320) 365-3844. The access code is 935096. The webcast will be archived for one year following the call.
Presentation of Information in this News Release
Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning's non-GAAP net income and EPS measures exclude restructuring, impairment and other charges and adjustments to prior estimates for such charges. Additionally, the company's non-GAAP measures exclude adjustments to asbestos settlement reserves required by movements in Corning's common stock price, gains and losses arising from debt retirements, charges or credits arising from adjustments to the valuation allowance against deferred tax assets, equity method charges resulting from impairments of equity method investments or restructuring, impairment or other charges taken by equity method companies, and gains from discontinued operations. The company believes presenting non-GAAP net income and EPS measures is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. These non-GAAP measures are reconciled on the company's Web site at www.corning.com/investor_relations and accompanies this news release.
About Corning Incorporated
Corning Incorporated (www.corning.com) is the world leader in specialty glass and ceramics. Drawing on more than 150 years of materials science and process engineering knowledge, Corning creates and makes keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications and life sciences. Our products include glass substrates for LCD televisions, computer monitors and laptops; ceramic substrates and filters for mobile emission control systems; optical fiber, cable, hardware & equipment for telecommunications networks; optical biosensors for drug discovery; and other advanced optics and specialty glass solutions for a number of industries including semiconductor, aerospace, defense, astronomy and metrology.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of business risks and other uncertainties that could cause actual results to differ materially. These risks and uncertainties include the possibility of changes in global economic and political conditions; currency fluctuations; product demand and industry capacity; competition; manufacturing efficiencies; cost reductions; availability of critical components and materials; new product commercialization; changes in the mix of sales between premium and non-premium products; new plant start-up costs; possible disruption in commercial activities due to terrorist activity, armed conflict, political instability or major health concerns; adequacy of insurance; equity company activities; acquisition and divestiture activities; the level of excess or obsolete inventory; the rate of technology change; the ability to enforce patents; product and components performance issues; stock price fluctuations; and adverse litigation or regulatory developments. Additional risk factors are identified in Corning's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the day that they are made, and Corning undertakes no obligation to update them in light of new information or future events.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share amounts)
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
2008 2007 2008 2007
------- ------- ------- -------
Net sales $1,692 $1,418 $3,309 $2,725
Cost of sales 840 759 1,613 1,475
------- ------- ------- -------
Gross margin 852 659 1,696 1,250
Operating expenses:
Selling, general and
administrative expenses 260 229 502 443
Research, development and
engineering expenses 163 137 314 267
Amortization of purchased
intangibles 3 2 5 5
Restructuring, impairment and
other credits (2) (1) (2)
Asbestos settlement charge
(credit) (Note 1) 9 76 (318) 186
------- ------- ------- -------
Operating income 417 217 1,194 351
Interest income 22 35 52 72
Interest expense (15) (20) (33) (41)
Loss on repurchase of debt, net (15)
Other income, net (Note 2) 39 57 40 89
------- ------- ------- -------
Income before income taxes 463 289 1,253 456
Benefit (provision) for income taxes
(Note 3) 2,388 (19) 2,322 (75)
------- ------- ------- -------
Income before minority interests and
equity earnings 2,851 270 3,575 381
Minority interests (1) 1 (1)
Equity in earnings of affiliated
companies, net of impairments 360 220 664 436
------- ------- ------- -------
Net income $3,211 $ 489 $4,240 $ 816
======= ======= ======= =======
Basic earnings per common share
(Note 4) $ 2.05 $ 0.31 $ 2.71 $ 0.52
======= ======= ======= =======
Diluted earnings per common share
(Note 4) $ 2.01 $ 0.30 $ 2.65 $ 0.51
======= ======= ======= =======
Dividends declared per common share $ 0.05 $ 0.10
======= =======
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
June 30, December 31,
2008 2007
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 2,175 $ 2,216
Short-term investments, at fair value 1,332 1,300
----------- ------------
Total cash, cash equivalents and short-
term investments 3,507 3,516
Trade accounts receivable, net of doubtful
accounts and allowances 958 856
Inventories 726 631
Deferred income taxes 168 54
Other current assets 289 237
----------- ------------
Total current assets 5,648 5,294
Investments 3,264 3,036
Property, net of accumulated depreciation 6,944 5,986
Goodwill and other intangible assets, net 303 308
Deferred income taxes 2,579 202
Other assets 442 389
----------- ------------
Total Assets $ 19,180 $ 15,215
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 76 $ 23
Accounts payable 831 609
Other accrued liabilities 1,051 1,880
----------- ------------
Total current liabilities 1,958 2,512
Long-term debt 1,474 1,514
Postretirement benefits other than pensions 739 744
Other liabilities 1,280 903
----------- ------------
Total liabilities 5,451 5,673
----------- ------------
Commitments and contingencies
Minority interests 48 46
Shareholders' equity:
Common stock - Par value $0.50 per share;
Shares authorized: 3.8 billion;
Shares issued: 1,608 million and 1,598
million 804 799
Additional paid-in capital 12,447 12,281
Retained earnings (accumulated deficit) 1,080 (3,002)
Treasury stock, at cost; Shares held: 37
million and 30 million (659) (492)
Accumulated other comprehensive income
(loss) 9 (90)
----------- ------------
Total shareholders' equity 13,681 9,496
----------- ------------
Total Liabilities and Shareholders' Equity $ 19,180 $ 15,215
=========== ============
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Three months ended
------------------- Six months ended
June 30,
June 30, June 30, ----------------
2008 2007 2008 2007
--------- --------- -------- -------
Cash Flows from Operating
Activities:
Net income $ 3,211 $ 489 $ 4,240 $ 816
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 162 149 319 299
Amortization of purchased
intangibles 3 2 5 5
Asbestos settlement 9 76 (318) 186
Restructuring, impairment
and other credits (2) (1) (2)
Loss on repurchases of
debt 15
Stock compensation
charges 37 35 78 71
Gain on sale of business (19) (19)
Undistributed earnings of
affiliated companies (232) (101) (385) (168)
Deferred tax benefit (2,471) (2,473)
Restructuring payments (3) (9) (10) (20)
Customer deposits, net of
(credits) issued (71) (33) (137) (66)
Employee benefit payments
(in excess of) less than
expense 11 (37) (92)
Changes in certain
working capital items:
Trade accounts
receivable 4 (79) (46) (107)
Inventories (41) (26) (73) (68)
Other current assets (31) (27) (52) (84)
Accounts payable and
other current
liabilities, net of
restructuring
payments 128 3 (104) (127)
Other, net (26) 17 (21) 29
--------- --------- -------- -------
Net cash provided by operating
activities 690 475 985 668
--------- --------- -------- -------
Cash Flows from Investing
Activities:
Capital expenditures (397) (204) (864) (466)
Acquisitions of businesses,
net of cash received (4) (4)
Net proceeds (payments) from
sale or disposal of assets 2 (10) 2 (10)
Short-term investments -
acquisitions (470) (396) (1,194) (949)
Short-term investments -
liquidations 324 832 1,140 1,630
--------- --------- -------- -------
Net cash (used in) provided by
investing activities (541) 218 (916) 201
--------- --------- -------- -------
Cash Flows from Financing
Activities:
Net repayments of short-term
borrowings and current
portion of long-term debt (3) (2) (12) (10)
Retirements of long-term debt (238)
Proceeds from issuance of
common stock, net 11 9 15 13
Proceeds from the exercise of
stock options 56 47 74 69
Repurchase of common stock (63) (125)
Dividends paid (80) (158)
Other, net 2
--------- --------- -------- -------
Net cash used in financing
activities (77) 54 (206) (166)
--------- --------- -------- -------
Effect of exchange rates on cash (21) 4 96 14
--------- --------- -------- -------
Net increase (decrease) in cash
and cash equivalents 51 751 (41) 717
Cash and cash equivalents at
beginning of period 2,124 1,123 2,216 1,157
--------- --------- -------- -------
Cash and cash equivalents at end
of period $ 2,175 $ 1,874 $ 2,175 $1,874
========= ========= ======== =======
Certain amounts for 2007 were reclassified to conform to 2008
classifications.
[FEED_CR
LF] CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Our reportable operating segments include Display Technologies,
Telecommunications, Environmental Technologies, Specialty Materials
and Life Sciences.
Environ-
Display Tele- mental Life
Tech- commun- Techn- Specialty Sci- All
nologies ications ologies Materials ences Other Total
-------- -------- -------- --------- ------ ----- ------
Three months
ended June
30, 2008
Net sales $ 809 $ 477 $ 209 $ 104 $ 87 $ 6 $1,692
Depreciation
(1) $ 92 $ 31 $ 24 $ 7 $ 4 $ 3 $ 161
Amortization
of purchased
intangibles $ 3 $ 3
Research,
development
and
engineering[
FEED_CRLF]expenses (2)$ 29 $ 25 $ 32 $ 11 $ 2 $ 42 $ 141
Income tax
(provision)
benefit $ (61) $ (2) $ (2) $ (1) $ 3 $ (63)
Earnings
(loss)
before
equity[FEED_
CRLF]earnings (3)$ 441 $ 23 $ 27 $ 4 $ 16 $(52) $ 459
Equity in
earnings of
affiliated
companies $ 244 $ 1 $ 15 $ 260
------- ------- ------- -------- ----- ----- -------
Net income
(loss) $ 685 $ 23 $ 28 $ 4 $ 16 $(37) $ 719
======= ======= ======= ======== ===== ===== =======
Three months
ended June
30, 2007
Net sales $ 610 $ 438 $ 191 $ 95 $ 78 $ 6 $1,418
Depreciation
(1) $ 79 $ 32 $ 22 $ 8 $ 4 $ 2 $ 147
Amortization
of purchased
intangibles $ 2 $ 2
Research,
development
and
engineering[
FEED_CRLF]expenses (2)$ 22 $ 21 $ 31 $ 13 $ 2 $ 28 $ 117
Re-
structuring,
impairment
and other
credits
(before-tax
and minority
interest) $ (2) $ (2)
Income tax
(provision)
benefit $ (11) $ (6) $ (4) $ (3) $ 2 $ (22)
Earnings
(loss)
before
minority[FEE
D_CRLF]interest and
equity
earnings
(loss) (3) $ 362 $ 41 $ 13 $ (2) $ 11 $(36) $ 389
Minority
interests $ (1) $ (1)
Equity in
earnings
(loss) of
affiliated
companies
(4) $ 132 $ 1 $ 1 $ (6) $ 128
------- ------- ------- -------- ----- ----- -------
Net income
(loss) $ 494 $ 42 $ 14 $ (2) $ 11 $(43) $ 516
======= ======= ======= ======== ===== ===== =======
Six months
ended June
30, 2008
Net sales $1,638 $ 898 $ 406 $ 187 $168 $ 12 $3,309
Depreciation
(1) $ 182 $ 58 $ 48 $ 15 $ 8 $ 6 $ 317
Amortization
of purchased
intangibles $ 5 $ 5
Research,
development
and
engineering[
FEED_CRLF]expenses (2)$ 53 $ 49 $ 65 $ 20 $ 4 $ 78 $ 269
Re-
structuring,
impairment
and other
credits
(before
related tax
benefits and
minority
interest) $ (1) $ (1)
Income tax
(provision)
benefit $ (118) $ (7) $ (7) $ (6) $ 5 $ (133)
Earnings
(loss)
before
minority[FE
ED_CRLF]interest and
equity
earnings (3)$ 917 $ 33 $ 39 $ 26 $(97) $ 918
Minority
interest $ 1 $ 1
Equity in
earnings of
affiliated
companies $ 447 $ 2 $ 33 $ 482
------- ------- ------- -------- ----- ----- -------
Net income
(loss) $1,364 $ 34 $ 41 $ 0 $ 26 $(64) $1,401
======= ======= ======= ======== ===== ===== =======
Six months
ended June
30, 2007
Net sales $1,134 $ 877 $ 370 $ 179 $154 $ 11 $2,725
Depreciation
(1) $ 160 $ 65 $ 43 $ 16 $ 8 $ 3 $ 295
Amortization
of purchased
intangibles $ 5 $ 5
Research,
development
and
engineering[
FEED_CRLF]expenses (2)$ 44 $ 40 $ 61 $ 22 $ 4 $ 54 $ 225
Re-
structuring,
impairment
and other
credits
(before-tax
and minority
interest) $ (2) $ (2)
Income tax
(provision)
benefit $ (53) $ (17) $ (7) $ (7) $ 4 $ (80)
Earnings
(loss)
before
minority[FEE
D_CRLF]interest and
equity
earnings (3)$ 635 $ 72 $ 23 $ (2) $ 21 $(68) $ 681
Minority
interest $ (1) $ (1)
Equity in
earnings of
affiliated
companies
(4) $ 245 $ 2 $ 1 $ 3 $ 251
------- ------- ------- -------- ----- ----- -------
Net income
(loss) $ 880 $ 74 $ 24 $ (2) $ 21 $(66) $ 931
======= ======= ======= ======== ===== ===== =======
(1) Depreciation expense for Corning's reportable segments includes an
allocation of depreciation of corporate property not specifically
identifiable to a segment.
(2) Research, development, and engineering expenses includes direct
project spending which is identifiable to a segment.
(3) Many of Corning's administrative and staff functions are performed
on a centralized basis. Where practicable, Corning charges these
expenses to segments based upon the extent to which each business
uses a centralized function. Other staff functions, such as
corporate finance, human resources and legal are allocated to
segments, primarily as a percentage of sales. In the three and
six months ended June 30, 2008, earnings (loss) before minority
interest and equity earnings (loss) of the Display Technologies
segment included a $12 million litigation settlement charge. In
the three and six months ended June 30, 2007, earnings (loss)
before minority interest and equity earnings (loss) of the
Telecommunications segment included a $19 million gain on the
sale of the European submarine cabling business.
(4) In the three and six months ended June 30, 2007, equity earnings
(loss) of affiliated companies includes a charge of $15 million
in All Other related to impairments for Samsung Corning
Precision's non-LCD businesses.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
A reconciliation of reportable segment net income to consolidated net
income follows (in millions):
Three months Six months
ended ended
June 30, June 30,
------------- --------------
2008 2007 2008 2007
------- ----- ------- ------
Net income of reportable segments $ 756 $559 $1,465 $ 997
Non-reportable segments (37) (43) (64) (66)
Unallocated amounts:
Net financing costs (1) 4 10 13 18
Stock-based compensation expense (37) (35) (78) (71)
Exploratory research (17) (16) (35) (33)
Corporate contributions (7) (6) (18) (20)
Equity in earnings of affiliated
companies, net of impairments (2) 100 92 182 185
Asbestos settlement (3) (9) (76) 318 (186)
Other corporate items (4) 2,458 4 2,457 (8)
------- ----- ------- ------
Net income $3,211 $489 $4,240 $ 816
======= ===== ======= ======
(1)Net financing costs include interest income, interest expense, and
interest costs and investment gains associated with benefit
plans.
(2)Includes the equity earnings of Dow Corning Corporation.
(3)In the three months ended June 30, 2008, Corning recorded a charge
of $9 million to adjust the asbestos liability for the change in
value of certain components of the Amended PCC Plan and the
estimated liability for non-PCC asbestos claims. In the six
months ended June 30, 2008, Corning reduced its liability for
asbestos litigation as a result of the increase in the likelihood
of a settlement under recently proposed terms and a corresponding
decrease in the likelihood of a settlement under terms
established in 2003. In the three and six months ended June 30,
2007, Corning recorded asbestos settlement expense under the
terms of the 2003 Plan of $76 million and $186 million,
respectively, to adjust the estimated fair value of the
components of the proposed asbestos settlement at that time.
(4)Other corporate items include the tax impact of the unallocated
amounts. In the three months ended June 30, 2008, Corning
recorded a $2.45 billion tax benefit from the release of a
valuation allowance on U.S. tax benefits due to sustained
profitability and positive future earnings projections for the
U.S. entities. In addition, the six months ended June 30, 2007
included a loss of $15 million from the repurchase of $223
million principal amount of our 6.25% Euro notes due 2010.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Asbestos Settlement
On March 28, 2003, Corning announced that it had reached agreement
with the representatives of asbestos claimants for the settlement of
all current and future asbestos claims against Corning and Pittsburgh
Corning Corporation (PCC) which might arise from PCC products or
operations (the 2003 Plan). On December 21, 2006, the Bankruptcy
Court issued an order denying confirmation of the 2003 Plan. On
January 10, 2008, some of the parties in the proceeding advised the
Bankruptcy Court that they had made substantial progress on an
amended plan of reorganization (the Amended PCC Plan) that resolved
issues raised by the Court in denying the confirmation of the 2003
Plan.
As a result of progress in the parties' continuing negotiations,
Corning believes the Amended PCC Plan now represents the most
probable outcome of this matter and the probability that the 2003
plan will become effective has diminished. The proposed settlement
under the Amended PCC Plan requires Corning to contribute its equity
interest in PCC and Pittsburgh Corning Europe, N.V. (PCE) and to
contribute a fixed series of cash payments, recorded at present value
on June 30, 2008. Corning will have the option to contribute shares
rather than cash, but the liability is fixed by dollar value and not
number of shares. As a result, the estimated asbestos settlement
liability is no longer impacted by movements in the value of Corning
common stock. The Amended PCC Plan does not include non-PCC asbestos
claims that may be or have been raised against Corning. Corning has
recorded an additional amount for such claims in its estimated
asbestos settlement liability.
In the first quarter of 2008, we recorded a $327 million reduction to
our estimated liability for asbestos litigation as a result of the
increase in the likelihood of a settlement under the Amended PCC Plan
and a corresponding decrease in the likelihood of a settlement under
terms of the 2003 Plan. In the second quarter of 2008, we recorded an
asbestos settlement charge of $9 million to adjust the asbestos
settlement liability for the change in value of the components of the
Amended PCC Plan and the estimated liability for non-PCC asbestos
claims.
2. Litigation Settlement
In the second quarter of 2008, Corning recorded a charge of $12
million to settle litigation associated with our Display Technologies
segment.
3. Provision for Income Taxes
In the second quarter of 2008, Corning concluded that it is more
likely than not that the Company will realize substantially all of
its U.S. deferred tax assets because the Company expects to generate
sufficient levels of income in the U.S. As a result, Corning released
$2.45 billion of valuation allowances on its U.S. deferred tax
assets.
4. Weighted Average Shares Outstanding
Weighted average shares outstanding are as follows (in millions):
Three months
ended Three
June 30, months
--------------- ended
March 31,
2008 2007 2008
------- ------- ---------
Basic 1,569 1,567 1,566
Diluted 1,600 1,605 1,598
Diluted used for non-GAAP measures 1,600 1,605 1,598
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2008
-------------------------
Six
Three Months Months
Ended Ended
-----------------
March 31 June 30 June 30
-------- -------- -------
Display Technologies $ 829 $ 809 $ 1,638
Telecommunications
Fiber and cable 214 248 462
Hardware and equipment 207 229 436
-------- -------- -------
421 477 898
Environmental Technologies
Automotive 137 132 269
Diesel 60 77 137
-------- -------- -------
197 209 406
Specialty Materials 83 104 187
Life Sciences 81 87 168
Other 6 6 12
-------- -------- -------
Total $ 1,617 $ 1,692 $ 3,309
======== ======== =======
2007
-----------------------------------------
Q1 Q2 Q3 Q4 Total
-------- -------- ------- ------- -------
Display Technologies $ 524 $ 610 $ 705 $ 774 $ 2,613
Telecommunications
Fiber and cable 211 219 237 213 880
Hardware and equipment 228 219 235 217 899
-------- -------- ------- ------- -------
439 438 472 430 1,779
Environmental Technologies
Automotive 123 128 126 131 508
Diesel 56 63 72 58 249
-------- -------- ------- ------- -------
179 191 198 189 757
Specialty Materials 84 95 95 105 379
Life Sciences 76 78 78 73 305
Other 5 6 5 11 27
-------- -------- ------- ------- -------
Total $ 1,307 $ 1,418 $ 1,553 $ 1,582 $ 5,860
======== ======== ======= ======= =======
The above supplemental information is intended to facilitate analysis
of Corning's businesses.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended June 30, 2008
(Unaudited; amounts in millions, except per share amounts)
-------------------------------------------------------------
---------
Corning's net income and earnings per share (EPS) excluding special
items for the second quarter of 2008 are non-GAAP financial measures
within the meaning of Regulation G of the Securities and Exchange
Commission. Non-GAAP financial measures are not in accordance with,
or an alternative to, generally accepted accounting principles
(GAAP). The company believes presenting non-GAAP net income and EPS
is helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the company's underlying
performance. A detailed reconciliation is provided below outlining
the differences between these non-GAAP measures and the directly
related GAAP measures.
------------------------------------------------------------
----------
Income
Per Before Net
Share Income Income
Taxes
------- -------- -------
Earnings per share (EPS) and net income,
excluding special items $ 0.49 $484 $ 782
Special items:
Asbestos settlement (a) - (9) (9)
Litigation settlement (b) (0.01) (12) (12)
Valuation allowance release (c) 1.53 - 2,450
------- ------ -------
Total EPS and net income $ 2.01 $463 $3,211
======= ====== =======
(a) In the second quarter of 2008, Corning recorded a charge of $9
million to adjust the asbestos liability for the change in value
of certain components of the Amended PCC Plan and the estimated
liability for non-PCC asbestos claims.
(b) In the second quarter of 2008, Corning recorded a charge of $12
million to settle litigation associated with our Display
Technologies segment.
(c) In the second quarter of 2008, Corning recorded a valuation
allowance release of $2.45 billion to reflect the expected
realizability of U.S. deferred tax assets in future years.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended March 31, 2008
(Unaudited; amounts in millions, except per share amounts)
-------------------------------------------------------------
---------
Corning's net income and earnings per share (EPS) excluding special
items for the first quarter of 2008 are non-GAAP financial measures
within the meaning of Regulation G of the Securities and Exchange
Commission. Non-GAAP financial measures are not in accordance with,
or an alternative to, generally accepted accounting principles
(GAAP). The company believes presenting non-GAAP net income and EPS
is helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the company's underlying
performance. A detailed reconciliation is provided below outlining
the differences between these non-GAAP measures and the directly
related GAAP measures.
------------------------------------------------------------
----------
Income
Per Before Net
Share Income Income
Taxes
--------- ----------- ------
Earnings per share (EPS) and net income,
excluding special items $ 0.44 $ 463 $ 702
Special items:
Asbestos settlement (a) 0.20 327 327
--------- ----------- ------
Total EPS and net income $ 0.64 $ 790 $1,029
========= =========== ======
(a)In the first quarter of 2008, Corning recorded an asbestos
settlement credit of $327 million to adjust the asbestos liability
from $1 billion to $675 million, including the components of the
Amended PCC Plan and the estimated liability for non-PCC asbestos
claims.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended June 30, 2007
(Unaudited; amounts in millions, except per share amounts)
-------------------------------------------------------------
---------
Corning's net income and earnings per share (EPS) excluding special
items for the second quarter of 2007 are non-GAAP financial measures
within the meaning of Regulation G of the Securities and Exchange
Commission. Non-GAAP financial measures are not in accordance with,
or an alternative to, generally accepted accounting principles
(GAAP). The company believes presenting non-GAAP net income and EPS
is helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the company's underlying
performance. A detailed reconciliation is provided below outlining
the differences between these non-GAAP measures and the directly
related GAAP measures.
------------------------------------------------------------
----------
Per Income Before Net
Share Income Taxes Income
---------- -------------- ---------
Earnings per share (EPS) and net
income, excluding special items $ 0.34 $ 346 $ 546
Special items:
Asbestos settlement (a) (0.05) (76) (76)
Gain on sale of business, net
(b) 0.01 19 19
---------- -------------- ---------
Total EPS and net income $ 0.30 $ 289 $ 489
========== ============== =========
(a)In the second quarter of 2007, Corning recorded a charge of $76
million (before- and after-tax) for the change in the estimated
fair value of the components of the proposed asbestos settlement
liability under the terms of the 2003 Plan.
(b)Amount reflects a $19 million gain on the sale of the European
submarine cabling business.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended June 30, 2008
(Unaudited; amounts in millions)
------------------------------------------------------------
----------
Corning's free cash flow financial measure for the three and six
months ended June 30, 2008 is a non-GAAP financial measure within the
meaning of Regulation G of the Securities and Exchange Commission.
Non-GAAP financial measures are not in accordance with, or an
alternative to, generally accepted accounting principles (GAAP). The
company believes presenting non-GAAP financial measures are helpful
to analyze financial performance without the impact of unusual items
that may obscure trends in the company's underlying performance. A
detailed reconciliation is provided below outlining the differences
between this non-GAAP measure and the directly related GAAP measures.
------------------------------------------------------------
----------
Six
Three months
months ended ended
June 30, June 30,
2008 2008
------------ ---------
Cash flows from operating activities $ 690 $ 985
Less: Cash flows from investing activities (541) (916)
Plus: Short-term investments - acquisitions 470 1,194
Less: Short-term investments - liquidations (324) (1,140)
------------ ---------
Free cash flow $ 295 $ 123
============ =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended September 30, 2008
(Unaudited; amounts in millions, except per share amounts)
-------------------------------------------------------------
---------
Corning's earnings per share (EPS) excluding special items for the
third quarter of 2008 is a non-GAAP financial measure within the
meaning of Regulation G of the Securities and Exchange Commission.
Non-GAAP financial measures are not in accordance with, or an
alternative to, generally accepted accounting principles (GAAP). The
company believes presenting non-GAAP EPS is helpful to analyze
financial performance without the impact of unusual items that may
obscure trends in the company's underlying performance. A detailed
reconciliation is provided below outlining the differences between
this non-GAAP measure and the directly related GAAP measure.
-------------------------------------------------------------
---------
Range
--------------
Guidance: EPS excluding special items $ 0.48 $ 0.51
Special items (a)
------ ------
Earnings per share
----------------------------------------------------------------
------
This schedule will be updated as additional announcements occur.
---------------------------------------------------------------
-------
(a) From time to time, Corning may record special items which could
result in a gain or loss during the quarter.
Please note that the company may pursue other financing, restructuring
and divestiture activities at any time in the future, and that the
potential impact of these events is not included within Corning's
third quarter 2008 guidance.
This schedule contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are based on current expectations and involve
certain risks and uncertainties. Actual results may differ from those
projected in the forward looking statements. Additional information
concerning factors that could cause actual results to materially
differ from those in the forward looking statements is contained in
the Securities and Exchange Commission filings of this Company.
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