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CORNING INC /NY — Earnings Release 2007
Jul 25, 2007
29942_rns_2007-07-25_9747126b-4b77-4900-a7b2-cfd9d9ca6a94.zip
Earnings Release
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8-K 1 q28k.htm CORNING'S Q2, 2007 FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) July 25, 2007
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
| New York | 1-3247 | 16-0393470 |
|---|---|---|
| (State or other jurisdiction | (Commission | (I.R.S. Employer |
| of incorporation) | File Number) | Identification No.) |
| One Riverfront Plaza, Corning, New York | 14831 |
|---|---|
| (Address of principal executive offices) | (Zip Code) |
(607) 974-9000
(Registrants telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
The Corning Incorporated press release dated July 25, 2007 regarding its financial results for the second quarter ended June 30, 2007 and its third quarter 2007 earnings guidance is attached hereto as Exhibit 99.
The information in this report, being furnished pursuant to Item 2.02 of Form 8-K, shall not be deemed to be filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that Section, and is not incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibit
99 Press Release dated July 25, 2007, issued by Corning Incorporated.
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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.
| CORNING INCORPORATED | ||
|---|---|---|
| Registrant | ||
| Date: July 25, 2007 | By /s/ | KATHERINE A. ASBECK |
| Katherine A. Asbeck | ||
| Senior Vice President - Finance |
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Exhibit 99
FOR RELEASE JULY 25, 2007
| Media Relations Contact: | Additional Contact: |
|---|---|
| Daniel F. Collins | Kenneth C. Sofio |
| (607) 974-4197 | (607) 974-7705 |
| [email protected] | [email protected] |
Corning Announces Second-Quarter Results
Strong LCD glass demand continues
CORNING, N.Y. Corning Incorporated (NYSE:GLW) today announced second-quarter sales of $1.42 billion and net income of $489 million, or $0.30 per share.
Cornings second-quarter results include net special charges totaling $57 million, or $0.04 per share. Excluding these charges, Cornings second-quarter net income would have been $546 million, or $0.34 per share. These are non-GAAP financial measures. These and all non-GAAP financial measures are reconciled on the companys investor relations Web site and in attachments to this news release.
We were delighted with our second-quarter performance, Wendell P. Weeks, chairman and chief executive officer, said. Our Display Technologies business had a strong quarter as consumer demand for all liquid crystal display (LCD) applications continues to grow. We also had solid results from our Environmental Technologies business. Sales of both our light-duty and heavy-duty diesel products increased and we saw gains in our automotive business as well. On the other hand, sales in our Telecommunications segment were softer than we expected.
Cornings second-quarter results included the following special items: A $76 million non-cash pretax and after-tax charge primarily reflecting the increase in market value of Corning common stock to be contributed to settle the asbestos litigation related to Pittsburgh Corning Corporation; and a $19 million after-tax gain from the sale of the companys European submarine cabling business.
Second-Quarter Operating Results
Cornings second-quarter sales of $1.42 billion increased 12.7 percent over last years second-quarter sales of $1.26 billion. Sales increased 8.4 percent when compared to first-quarter sales of $1.31 billion. Gross margin of 46.5 percent in the second quarter was an all-time record for the company.
Cornings second-quarter results include a very low effective tax rate caused, in part, by a favorable tax ruling in Taiwan which reduced the companys tax expense by $17 million. In addition, Cornings forecasted ongoing tax rate was lowered to a range of 14 percent to 15 percent.
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Corning Announces Second-Quarter Results
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Equity earnings for the second quarter were $220 million, compared to $216 million in the first-quarter. Second-quarter equity earnings include $132 million from Samsung Corning Precision Glass Co., Ltd. (SCP), a 17-percent increase over SCPs first-quarter equity earnings of $113 million. Samsung Corning Precision is Cornings 50-percent owned equity venture in Korea which manufactures LCD glass substrates for the Korean market. The gains at SCP were mostly offset by losses from Samsung Corning Company, Ltd. Samsung Corning is Cornings 50-percent owned equity venture in Korea which manufactures glass panels and funnels for cathode ray tubes for conventional televisions and computer monitors. Equity earnings from Dow Corning Corporation were $88 million in the second quarter compared to $92 million in the first quarter.
Second-quarter sales for Cornings Display Technologies segment were $610 million, a 32-percent increase from the second quarter of 2006. Second-quarter sales increased 16 percent from the $524 million of first-quarter sales. Sequential price declines were in line with the companys new pricing strategy and consistent with the first quarter. Volume increased 20 percent sequentially and 58 percent over the weak second quarter of 2006.
Continued demand for larger-size glass substrates, caused by the growing consumer popularity of LCD televisions, contributed to our volume increases in the second quarter, Weeks said. The company said that glass volume also was driven by larger screen LCD monitor and notebook computer demand in the quarter.
Telecommunications segment sales in the second-quarter were $438 million, a decline of 7 percent from second-quarter 2006 sales of $472 million, and essentially even with the $439 million in first-quarter sales. Excluding the sales from the companys European submarine cabling business which was sold on April 27, 2007, sales increased 5 percent sequentially. The growth in sales was lower than the companys expectations due to a labor strike at a key European customer and more level purchasing patterns by a primary fiber-to-the-home customer. This is a non-GAAP financial measure.
The Environmental Technologies segment had sales of $191 million, a 26-percent increase over second-quarter 2006 sales of $152 million, and a 7-percent increase over the $179 million in first quarter. The sequential sales increase was fueled primarily by the continued ramp of heavy-duty diesel products and stronger automotive product sales in the European market.
Cornings Life Sciences segment had second-quarter sales of $78 million, a 4-percent increase over second-quarter 2006 sales of $75 million.
Cash Flow/Liquidity Update
Corning ended the second quarter with $3.2 billion in cash and short-term investments, up from $2.9 billion at the end of the first quarter. The companys debt level remained at $1.5 billion. Last week, Corning announced that its board of directors declared a third-quarter cash dividend of $0.05 per share, the companys first since April of 2001. The board also approved the repurchase of $500 million of common stock between now and the end of 2008.
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Corning Announces Second-Quarter Results
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The strength of the companys financial position was recently recognized by all three of the financial rating agencies, who increased our rating to BBB plus or the equivalent. We are very comfortable that our cash flow will support our dividend payment and the share repurchase program, while we also continue to invest in our current businesses and future technologies, James B. Flaws, vice chairman and chief financial officer, said.
Flaws added that Corning continues to invest in a number of emerging technologies that hold significant potential for the company. We are receiving very positive feedback from the pharmaceutical industry on our Epic® System, the worlds first high-throughput label-free drug screening process, which has the potential to shorten the drug discovery cycle, he said. Corning is also investing in future display technologies including silicon-on-glass applications that could eventually enable electronic circuits to be added to display glass; green laser technology to enable high-quality imaging through handheld devices; and microreactors, which have the potential to deliver major process innovation and cost reduction for the chemical processing industry. Also, earlier in the week, Corning announced that it had achieved a breakthrough in nanoStructures optical fiber design that allows cabled fibers to be bent around very tight corners with virtually no signal loss. The company will launch a full suite of fiber, cable and hardware and equipment products based on this new technology and targeted to the multiple-dwelling unit market this fall.
Third-Quarter Outlook
Flaws said that the company expects third-quarter sales to be in the range of $1.525 billion to $1.575 billion and EPS in the range of $0.34 to $0.37 before special items. This EPS estimate is a non-GAAP financial measure and excludes special items. The gross margin percentage for the third quarter is expected to be in the range of 47 percent to 48 percent. The company anticipates that its third-quarter tax rate will be about 17 percent. This reflects a forecasted ongoing tax rate of 14 percent to 15 percent, plus the impact of a $14 million adjustment to deferred taxes caused by a rate change in Germany. The 14 percent to 15 percent rate is a change from the companys tax rate guidance at the beginning of the year.
Corning also stated that it is likely that the company will continue to carry full valuation allowances on its U.S. deferred tax assets until at least the end of 2008. As a result, the company does not expect to recognize net tax expense on U.S. income until 2009 at the earliest. The company expects its tax rate will move to the mid-20 percent range when it begins to recognize net U.S. tax expense.
We will continue to monitor our deferred tax asset position and we will provide an update if there are any changes. Corning does not anticipate paying cash taxes on U.S. income for many years. Our U.S. tax net operating loss carryforward is approximately $5 billion and does not begin to expire until 2023, Flaws said.
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Corning Announces Second-Quarter Results
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Corning anticipates that its third-quarter sequential LCD volume growth for the companys wholly owned business will be in the range of 10 percent to 15 percent and in the range of 5 percent to 10 percent at SCP. Price declines for the third quarter are expected to be in line with the second quarter. Flaws said that some of the volume strength that Corning experienced in the second quarter may have been the result of an earlier-than-expected build in the LCD industry supply chain. However, we believe that our third-quarter glass volume will remain strong as the consumer electronics industry gears up for its seasonally heavy retail season later in the year, he said.
We continue to believe that the annual market volume growth rate for LCD glass will be 35 percent to 40 percent this year. However, for the next few years, the seasonal purchasing patterns for glass will continue to evolve as LCD television becomes a greater share of the total market, Flaws said.
Corning believes that the LCD television penetration rate will be 36 percent of the global TV market this year and reach 47 percent in 2008. We are encouraged by what we are seeing in the retail space with consumers opting for larger LCD televisions which increases demand for our glass, Flaws said.
Cornings Telecommunications segment third-quarter sequential sales growth is expected to be about 10 percent, excluding the sales of the divested European submarine cabling business. This is a non-GAAP financial measure. The anticipated sales growth reflects increased private network activity and an expected recovery in European hardware and equipment sales. European equipment demand in the third quarter is expected to be driven by renewed purchasing from a major telecommunications carrier and a new fiber-to-the-premises customer.
Third-quarter sales in the companys Environmental Technologies segment are expected to be flat sequentially. Diesel product sales are expected to increase in the quarter but this increase will likely be offset by declines in automotive products. While the company still anticipates that sales of diesel products will increase about 60 percent in 2007, the ramp of heavy-duty diesel products has been slower than originally anticipated, due to lower U.S. engine sales after last years diesel engine pre-buys, and the impact of a slowdown in domestic freight shipments.
Sales for the Life Sciences segment are also expected to be flat to down 5 percent sequentially.
Equity earnings for the third quarter are expected to be up about 10 percent from the second quarter.
We had an outstanding first half, Flaws said, and this has given us solid momentum heading into the second half of the year. We are especially pleased with the growth we see for our display business as LCD televisions become a larger part of the overall glass demand.
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Corning Announces Second-Quarter Results
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Upcoming Investor Meetings
Corning Incorporated Chairman and Chief Executive Officer Wendell P. Weeks and Vice Chairman and Chief Financial Officer James B. Flaws will meet with investors in Boston on July 31. Investors interested in meeting with the company should contact Cornings investor relations department at (607) 974-8764.
Second-Quarter Conference Call Information
The company will host a second-quarter conference call on July 25 at 8:30 a.m. EDT. To access the call, dial (210) 234-0001 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 8. To listen, dial (402) 220-9725. No pass code is required. The audio 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. Cornings non-GAAP net income and EPS measures exclude restructuring, impairment and other charges and adjustments to prior estimates for such charges. Additionally, the companys non-GAAP measures exclude adjustments to asbestos settlement reserves required by movements in Cornings 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 companys underlying performance. These non-GAAP measures are reconciled on the companys 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.
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Corning Announces Second-Quarter Results
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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 Cornings 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.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
| Three months — ended June 30, | Six months — ended June 30, | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Net sales | $ 1,418 | $ 1,261 | $ 2,725 | $ 2,523 |
| Cost of sales | 759 | 720 | 1,475 | 1,409 |
| Gross margin | 659 | 541 | 1,250 | 1,114 |
| Operating expenses: | ||||
| Selling, general and administrative expense | 229 | 194 | 443 | 417 |
| Research, development and engineering expenses | 137 | 128 | 267 | 252 |
| Amortization of purchased intangibles | 2 | 3 | 5 | 6 |
| Restructuring, impairment and other charges and (credits) | (2) | 5 | (2) | 11 |
| Asbestos settlement charge (credit) (Note 1) | 76 | (61) | 186 | 124 |
| Operating income | 217 | 272 | 351 | 304 |
| Interest income | 35 | 26 | 72 | 50 |
| Interest expense | (20) | (18) | (41) | (38) |
| Loss on repurchases and retirement of debt, net | (11) | (15) | (11) | |
| Other income, net (Note 2) | 57 | 14 | 89 | 34 |
| Income before income taxes | 289 | 283 | 456 | 339 |
| Provision for income taxes | 19 | 24 | 75 | 22 |
| Income before minority interest and equity earnings | 270 | 259 | 381 | 317 |
| Minority interests | (1) | (1) | (1) | (2) |
| Equity in earnings of affiliated companies, net of impairments | 220 | 256 | 436 | 456 |
| Net income | $ 489 | $ 514 | $ 816 | $ 771 |
| Basic earnings per common share (Note 3) | $ 0.31 | $ 0.33 | $ 0.52 | $ 0.50 |
| Diluted earnings per common share (Note 3) | $ 0.30 | $ 0.32 | $ 0.51 | $ 0.48 |
See accompanying notes to these financial statements.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
| June 30, | December 31, | |
|---|---|---|
| 2007 | 2006 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 1,874 | $ 1,157 |
| Short-term investments, at fair value | 1,329 | 2,010 |
| Total cash, cash equivalents and short-term investments | 3,203 | 3,167 |
| Trade accounts receivable, net | 793 | 719 |
| Inventories | 677 | 639 |
| Deferred income taxes | 33 | 47 |
| Other current assets | 301 | 226 |
| Total current assets | 5,007 | 4,798 |
| Investments | 2,720 | 2,522 |
| Property, net | 5,179 | 5,193 |
| Goodwill and other intangible assets, net | 313 | 316 |
| Deferred income taxes | 116 | 114 |
| Other assets | 205 | 122 |
| Total Assets | $ 13,540 | $ 13,065 |
| Liabilities and Shareholders Equity | ||
| Current liabilities: | ||
| Current portion of long-term debt | $ 19 | $ 20 |
| Accounts payable | 474 | 631 |
| Other accrued liabilities | 1,712 | 1,668 |
| Total current liabilities | 2,205 | 2,319 |
| Long-term debt | 1,456 | 1,696 |
| Postretirement benefits other than pensions | 714 | 739 |
| Other liabilities | 956 | 1,020 |
| Total liabilities | 5,331 | 5,774 |
| Commitments and contingencies | ||
| Minority interests | 43 | 45 |
| Shareholders equity: | ||
| Common stock Par value $0.50 per share; Shares authorized: 3.8 billion; Shares issued: 1,592 million and 1,582 million | 796 | 791 |
| Additional paid-in capital | 12,165 | 12,008 |
| Accumulated deficit | (4,179) | (4,992) |
| Treasury stock, at cost; Shares held: 19 million and 17 million | (234) | (201) |
| Accumulated other comprehensive loss | (382) | (360) |
| Total shareholders equity | 8,166 | 7,246 |
| Total Liabilities and Shareholders Equity | $ 13,540 | $ 13,065 |
See accompanying notes to these financial statements.
Certain amounts for 2006 were reclassified to conform with the 2007 presentation.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
| Three months ended — June 30, | March 31, | Six months ended — June 30, | ||
|---|---|---|---|---|
| 2007 | 2007 | 2007 | 2006 | |
| Cash Flows from Operating Activities: | ||||
| Net income | $ 489 | $ 327 | $ 816 | $ 771 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation | 149 | 150 | 299 | 290 |
| Amortization of purchased intangibles | 2 | 3 | 5 | 6 |
| Asbestos settlement | 76 | 110 | 186 | 124 |
| Restructuring, impairment and other (credits) charges | (2) | (2) | 11 | |
| Loss on repurchases of debt | 15 | 15 | 11 | |
| Stock compensation charges | 35 | 36 | 71 | 62 |
| Gain on sale of business | (19) | (19) | ||
| Undistributed earnings of affiliated companies | (101) | (67) | (168) | (239) |
| Deferred tax benefit | (67) | |||
| Restructuring payments | (9) | (11) | (20) | (6) |
| Customer deposits, net of (credits) issued | (33) | (33) | (66) | 74 |
| Employee benefit payments (in excess of) less than expense | (92) | (92) | 23 | |
| Changes in certain working capital items: | ||||
| Trade accounts receivable | (79) | (28) | (107) | 3 |
| Inventories | (26) | (42) | (68) | (93) |
| Other current assets | (27) | (57) | (84) | (5) |
| Accounts payable and other current liabilities, net of restructuring payments | 10 | (121) | (111) | (195) |
| Other, net | 10 | 3 | 13 | (8) |
| Net cash provided by operating activities | 475 | 193 | 668 | 762 |
| Cash Flows from Investing Activities: | ||||
| Capital expenditures | (204) | (262) | (466) | (554) |
| Acquisitions of businesses, net of cash received | (4) | (4) | (16) | |
| Net (payments) proceeds from sale or disposal of assets | (10) | (10) | 8 | |
| Net increase in long-term investments and other long-term assets | (77) | |||
| Short-term investments acquisitions | (396) | (553) | (949) | (1,505) |
| Short-term investments liquidations | 832 | 798 | 1,630 | 1,220 |
| Net cash provided by (used in) investing activities | 218 | (17) | 201 | (924) |
| Cash Flows from Financing Activities: | ||||
| Net repayments of short-term borrowings and current portion of long-term debt | (2) | (8) | (10) | (7) |
| Retirements of long-term debt | (238) | (238) | (334) | |
| Proceeds from issuance of common stock, net | 9 | 4 | 13 | 15 |
| Proceeds from the exercise of stock options | 47 | 22 | 69 | 251 |
| Other, net | (8) | |||
| Net cash provided by (used in) financing activities | 54 | (220) | (166) | (83) |
| Effect of exchange rates on cash | 4 | 10 | 14 | 1 |
| Net increase (decrease) in cash and cash equivalents | 751 | (34) | 717 | (244) |
| Cash and cash equivalents at beginning of period | 1,123 | 1,157 | 1,157 | 1,342 |
| Cash and cash equivalents at end of period | $ 1,874 | $ 1,123 | $ 1,874 | $ 1,098 |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Our reportable operating segments include Display Technologies, Telecommunications, Environmental Technologies and Life Sciences.
| Display Technologies | Telecom- munications | Environmental Technologies | Life Sciences | All Other | Total | |
|---|---|---|---|---|---|---|
| Three months ended June 30, 2007 | ||||||
| Net sales | $ 610 | $ 438 | $ 191 | $ 78 | $ 101 | $ 1,418 |
| Depreciation (1) | $ 79 | $ 32 | $ 22 | $ 5 | $ 9 | $ 147 |
| Amortization of purchased intangibles | $ 2 | $ 2 | ||||
| Research, development and engineering expenses (2) | $ 28 | $ 21 | $ 31 | $ 13 | $ 13 | $ 106 |
| Restructuring, impairment and other charges and (credits) (before-tax and minority interest) | $ (2) | $ (2) | ||||
| Income tax provision | $ (11) | $ (8) | $ (4) | $ (23) | ||
| Earnings (loss) before minority interest and equity earnings (loss) (3) | $ 354 | $ 39 | $ 13 | $ (3) | $ 403 | |
| Minority interests | $ (1) | $ (1) | ||||
| Equity in earnings (loss) of affiliated companies | $ 132 | $ 1 | $ 1 | $ (6) | $ 128 | |
| Net income (loss) | $ 486 | $ 40 | $ 14 | $ 0 | $ (10) | $ 530 |
| Three months ended June 30, 2006 | ||||||
| Net sales | $ 461 | $ 472 | $ 152 | $ 75 | $ 101 | $ 1,261 |
| Depreciation (1) | $ 68 | $ 43 | $ 20 | $ 5 | $ 10 | $ 146 |
| Amortization of purchased intangibles | $ 3 | $ 3 | ||||
| Research, development and engineering expenses (2) | $ 36 | $ 18 | $ 31 | $ 12 | $ 8 | $ 105 |
| Restructuring, impairment and other charges and (credits) (before-tax and minority interest) | $ (1) | $ 2 | $ 4 | $ 5 | ||
| Income tax provision | $ (21) | $ (13) | $ (3) | $ (1) | $ (38) | |
| Earnings (loss) before minority interest and equity earnings (3) | $ 209 | $ 40 | $ 9 | $ (2) | $ 1 | $ 257 |
| Minority interests | $ (1) | $ (1) | ||||
| Equity in earnings of affiliated companies (4) | $ 135 | $ 1 | $ 12 | $ 148 | ||
| Net income (loss) | $ 344 | $ 40 | $ 9 | $ (2) | $ 13 | $ 404 |
| Six months ended June 30, 2007 | ||||||
| Net sales | $ 1,134 | $ 877 | $ 370 | $ 154 | $ 190 | $ 2,725 |
| Depreciation (1) | $ 160 | $ 65 | $ 43 | $ 10 | $ 17 | $ 295 |
| Amortization of purchased intangibles | $ 5 | $ 5 | ||||
| Research, development and engineering expenses (2) | $ 55 | $ 40 | $ 61 | $ 25 | $ 22 | $ 203 |
| Restructuring, impairment and other charges and (credits) (before-tax and minority interest) | $ (2) | $ (2) | ||||
| Income tax provision | $ (52) | $ (22) | $ (8) | $ (82) | ||
| Earnings (loss) before minority interest and equity earnings (3) | $ 621 | $ 67 | $ 22 | $ (4) | $ 706 | |
| Minority interests | $ (1) | $ (1) | ||||
| Equity in earnings of affiliated companies | $ 245 | $ 2 | $ 1 | $ 3 | $ 251 | |
| Net income (loss) | $ 866 | $ 69 | $ 23 | $ 0 | $ (2) | $ 956 |
| Six months ended June 30, 2006 | ||||||
| Net sales | $ 1,008 | $ 869 | $ 307 | $ 147 | $ 192 | $ 2,523 |
| Depreciation (1) | $ 130 | $ 85 | $ 40 | $ 10 | $ 20 | $ 285 |
| Amortization of purchased intangibles | $ 6 | $ 6 | ||||
| Research, development and engineering expenses (2) | $ 66 | $ 38 | $ 61 | $ 25 | $ 16 | $ 206 |
| Restructuring, impairment and other charges and (credits) (before-tax and minority interest) | $ 6 | $ 2 | $ 3 | $ 11 | ||
| Income tax provision | $ (50) | $ (19) | $ (3) | $ (4) | $ (76) | |
| Earnings (loss) before minority interest and equity earnings (loss) (3) | $ 484 | $ 38 | $ 9 | $ (7) | $ 3 | $ 527 |
| Minority interests | $ (2) | $ (2) | ||||
| Equity in earnings (loss) of affiliated companies (4) | $ 277 | $ 3 | $ (1) | $ (1) | $ 278 | |
| Net income (loss) | $ 761 | $ 41 | $ 8 | $ (7) | $ 0 | $ 803 |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
(1) Depreciation expense for Cornings reportable segments is recorded based on the assets of each segment and also 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 Cornings 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.
(4) In the three and six months ended June 30, 2007, equity in earnings (loss) of affiliated companies includes charges of $15 million in All Other related to impairments for Samsung Corning. In the three and six months ended June 30, 2006, equity in earnings (loss) of affiliated companies includes charges of $3 million and $24 million, respectively, in All Other related to impairments for Samsung Corning.
A reconciliation of reportable segment net income to consolidated net income (loss) follows (in millions):
| Three months ended — June 30, | Six months ended — June 30, | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Net income of reportable segments | $ 530 | $ 404 | $ 956 | $ 803 |
| Unallocated amounts: | ||||
| Net financing costs (1) | 10 | (2) | 18 | (10) |
| Stock-based compensation expense | (34) | (30) | (70) | (62) |
| Exploratory research (2) | (29) | (19) | (57) | (40) |
| Corporate contributions | (6) | (9) | (20) | (17) |
| Equity in earnings of affiliated companies, net of impairments (3) | 92 | 108 | 185 | 178 |
| Asbestos settlement (4) | (76) | 61 | (186) | (124) |
| Other corporate items (5) | 2 | 1 | (10) | 43 |
| Net income | $ 489 | $ 514 | $ 816 | $ 771 |
(1) Net financing costs include interest expense, interest income, and interest costs and investment gains associated with benefit plans.
(2) Exploratory research includes $12 million and $22 million of spending in the three and six months ended June 30, 2007, respectively, on development programs such as silicon on glass, green lasers and micro-reactors.
(3) In the three and six months ended June 30, 2006, equity in earnings of affiliated companies, net of impairments, includes a $33 million gain representing our share of a tax settlement relating to an IRS examination at Dow Corning.
(4) The asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation (PCC) reorganization plan, if the reorganization plan becomes effective, will require Corning to relinquish its equity interest in PCC, contribute its equity interest in Pittsburgh Corning Europe (PCE), and 25 million shares of Corning common stock to a trust. Corning also agreed to make cash payments over the six years from the effective date of the settlement and to assign certain insurance policy proceeds from its primary insurance and a portion of its excess insurance at the time of the settlement. The asbestos liability requires adjustment to fair value based upon movements in Cornings common stock price prior to contribution of the shares to the trust as well as change in the estimated fair value of the other components of the settlement offer. In the second quarter of 2007 and 2006, Corning recorded a charge of $70 million and credit of $68 million, respectively, to reflect the movement in Cornings common stock price in each year and charges of $6 million and $7 million, respectively, to reflect changes in the estimated fair value of the other components of the settlement offer. In the six months ended June 30, 2007 and 2006, Corning recorded charges of $171 million and $114 million, respectively, to reflect the movement in Cornings common stock price in each year and charges of $15 million and $10 million, respectively, to reflect changes in the estimated fair value of other components of the settlement offer.
(5) Other corporate items include the tax impact of the unallocated amounts. In addition, the following items are also included:
In the six months ended June 30, 2007, loss of $15 million from the repurchase of $223 million principal amount of our 6.25% Euro notes due 2010.
In the three months and six months ended June 30, 2006, tax benefits of $10 million and $48 million, respectively, from the release of valuation allowances for certain foreign locations.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- 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 proposed settlement, if approved, will require Corning to relinquish its equity interest in PCC, contribute its equity interest in Pittsburgh Corning Europe N.V. (PCE), a Belgian corporation, and contribute 25 million shares of Corning common stock. Corning also agreed to make cash payments with a value of $131 million, in March 2003, over six years from the effective date of the settlement and to assign insurance policy proceeds from its primary insurance and a portion of its excess insurance at the time of the settlement.
As a result of the proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Cornings quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2007, Corning recorded a charge of $76 million (pretax and after-tax) including a mark-to-market charge of $70 million reflecting the increase in Cornings common stock from March 31, 2007 to June 30, 2007 and a $6 million charge to adjust the estimated fair value of certain other components of the proposed asbestos settlement.
Beginning with the first quarter of 2003, Corning has recorded total net charges of $1 billion to reflect the estimated fair value of our asbestos liability.
- Gain on Sale of Business
In the second quarter of 2007, Corning recognized a gain of $19 million from the sale of its European submarine cabling business. Quarterly sales of this business for 2006 and 2007 were as follows:
| 2007 | 2006 | |
|---|---|---|
| Quarter 1 | $ 30 | $ 19 |
| Quarter 2 | 9 | 28 |
| Quarter 3 | 0 | 38 |
| Quarter 4 | 0 | 33 |
| $ 39 | $ 118 |
- Weighted Average Shares Outstanding
Weighted average shares outstanding are as follows (in millions):
| Three months ended — June 30, | Three months ended | ||
|---|---|---|---|
| 2007 | 2006 | March 31, 2007 | |
| Basic | 1,567 | 1,549 | 1,563 |
| Diluted | 1,605 | 1,597 | 1,600 |
| Diluted used for non-GAAP measures | 1,605 | 1,597 | 1,600 |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
| 2007 | |||
|---|---|---|---|
| Six | |||
| Three | Months | ||
| Months Ended | Ended | ||
| March 31 | June 30 | June 30 | |
| Display Technologies | $ 524 | $ 610 | $ 1,134 |
| Telecommunications | |||
| Fiber and cable | 211 | 219 | 430 |
| Hardware and equipment | 228 | 219 | 447 |
| 439 | 438 | 877 | |
| Environmental Technologies | |||
| Automotive | 123 | 128 | 251 |
| Diesel | 56 | 63 | 119 |
| 179 | 191 | 370 | |
| Life Sciences | 76 | 78 | 154 |
| Other | 89 | 101 | 190 |
| Total | $ 1,307 | $ 1,418 | $ 2,725 |
| 2006 — Q1 | Q2 | Q3 | Q4 | Total | |
|---|---|---|---|---|---|
| Display Technologies | $ 547 | $ 461 | $ 506 | $ 619 | $ 2,133 |
| Telecommunications | |||||
| Fiber and cable | 205 | 234 | 241 | 197 | 877 |
| Hardware and equipment | 192 | 238 | 215 | 207 | 852 |
| 397 | 472 | 456 | 404 | 1,729 | |
| Environmental Technologies | |||||
| Automotive | 121 | 113 | 112 | 105 | 451 |
| Diesel | 34 | 39 | 41 | 50 | 164 |
| 155 | 152 | 153 | 155 | 615 | |
| Life Sciences | 72 | 75 | 68 | 72 | 287 |
| Other | 91 | 101 | 99 | 119 | 410 |
| Total | $ 1,262 | $ 1,261 | $ 1,282 | $ 1,369 | $ 5,174 |
The above supplemental information is intended to facilitate analysis of Cornings businesses.
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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)
Cornings 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 companys underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures.
| Per Share | Income (Loss) Before Income Taxes | Net Income (Loss) | |
|---|---|---|---|
| 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) As a result of Cornings proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Cornings quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2007, Corning recorded a charge of $76 million (before- and after-tax) including a charge of $70 million for the change in Cornings common stock price of $25.55 at June 30, 2007, compared to $22.74 at March 31, 2007 and a $6 million charge for the change in the estimated fair value of certain other components of the proposed asbestos settlement liability.
(b) Amount reflects a $19 million gain on the sale of the European submarine cabling business.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended March 31, 2007
(Unaudited; amounts in millions, except per share amounts)
Cornings net income and earnings per share (EPS) excluding special items for the first 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 companys underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures.
| Per | Income (Loss) — Before | Net — Income | |
|---|---|---|---|
| Share | Income Taxes | (Loss) | |
| Earnings per share (EPS) and net income, excluding special items | $ 0.28 | $ 292 | $ 452 |
| Special items: | |||
| Asbestos settlement (a) | (0.07) | (110) | (110) |
| Loss on repurchase of debt, net (b) | (0.01) | (15) | (15) |
| Total EPS and net income | $ 0.20 | $ 167 | $ 327 |
(a) As a result of Cornings proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Cornings quarterly results until the date of the contribution to the settlement trust. In the first quarter of 2007, Corning recorded a credit of $110 million (before- and after-tax) including a charge of $101 million for the change in Cornings common stock price of $22.74 at March 31, 2007, compared to $18.71 at December 31, 2006 and a $9 million charge for the change in estimated fair value of certain other components of the proposed asbestos settlement liability.
(b) Amount reflects a $15 million loss on the repurchase of $223 million principal amount of our 6.25% Euro notes due 2010.
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended June 30, 2006
(Unaudited; amounts in millions, except per share amounts)
Cornings net income and earnings per share (EPS) excluding special items for the second quarter of 2006 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 companys underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures.
| Per | Income (Loss) — Before | Net — Income | |
|---|---|---|---|
| Share | Income Taxes | (Loss) | |
| Earnings per share (EPS) and net income, | |||
| excluding special items | $ 0.26 | $ 233 | $ 421 |
| Special items: | |||
| Asbestos settlement (a) | 0.04 | 61 | 61 |
| Loss on repurchases of debt, net | (0.01) | (11) | (11) |
| Provision for income taxes (b) | 0.01 | 10 | |
| Equity in earnings of affiliated companies (c) | 0.02 | 33 | |
| Total EPS and net income | $ 0.32 | $ 283 | $ 514 |
(a) As a result of Cornings proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Cornings quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2006, Corning recorded a gain of $61 million (before- and after-tax) including $68 million for the change in Cornings common stock price of $24.19 at June 30, 2006, compared to $26.92 at March 31, 2006 and a $7 million charge for the change in estimated fair value of certain other components of the proposed asbestos settlement liability.
(b) Amount reflects a $10 million tax benefit from the release of Cornings valuation allowance on Australian tax benefits.
(c) Amount reflects a $33 million increase in equity earnings representing Cornings share of a favorable tax settlement from the completion of an IRS examination at Dow Corning.
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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)
Cornings free cash flow financial measure for the three months ended June 30, 2007 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 companys underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measures.
| Three months ended June 30, 2007 | |
|---|---|
| Cash flows from operating activities | $ 475 |
| Less: Cash flows from investing activities | 218 |
| Plus: Short-term investments acquisitions | 396 |
| Less: Short-term investments liquidations | (832) |
| Free cash flow | $ 257 |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Telecommunications Segment
(Unaudited; amounts in millions)
Cornings comment, Excluding the sales from the Companys European submarine cabling business which was sold on April 30, 2007, sales increased 5 percent, sequentially. includes 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 this non-GAAP improvement in segment sales is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the companys underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures.
| Sales vs. Prior Quarter | |||
|---|---|---|---|
| Three months ended | |||
| June 30, 2007 | March 31, 2007 | % Change | |
| Telecommunications segment sales excluding sales from the Companys European submarine cabling business | $ 429 | $ 409 | 5% |
| Sales of the European submarine cabling business | 9 | 30 | |
| Telecommunications segment sales | $ 438 | $ 439 | 0% |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Telecommunications Segment
(Unaudited; amounts in millions)
Cornings comment, The Telecommunications segment third quarter sequential sales growth is expected to be about 10 percent, excluding the sales of the divested European submarine cabling business. includes 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 this non-GAAP improvement in segment sales is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the companys underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measure.
| Three months ended September 30, 2007 | |
|---|---|
| Second quarter 2007 Telecommunications segment sales | $ 438 |
| Less: European submarine cabling business sales | (9) |
| Second quarter 2007 Telecommunications segment sales excluding European cabling business sales | 429 |
| Expected 10% third-quarter 2007 Telecommunications sales growth | 43 |
| Third-quarter 2007 expected Telecommunications sales | $ 472 |
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CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended September 30, 2007
(Unaudited; amounts in millions, except per share amounts)
Cornings earnings per share (EPS) excluding special items for the third quarter of 2007 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 companys underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measure.
| Guidance: EPS excluding special items |
|---|
| Special items: |
| Restructuring, impairment, and other (charges) and credits (a) |
| Asbestos settlement (b) |
| Earnings per share |
This schedule will be updated as additional announcements occur.
(a) From time to time, Corning may need to make adjustments to estimates used in the determination of prior year restructuring and impairment charges, which could result in a gain or loss during the quarter.
(b) As part of Cornings asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation reorganization plan, Corning will contribute, if the reorganization plan is approved, 25 million shares of Corning common stock to a trust. The common stock will be contributed to the trust, after the plan has been approved by the asbestos claimants and bankruptcy court. The portion of the asbestos liability to be settled in common stock requires adjustment each quarter based upon movements in Cornings common stock price prior to contribution of the shares to the trust. In the third quarter of 2007, Corning will record a charge or credit for the change in its common stock price as of September 30, 2007 compared to $25.55, the common stock price at June 30, 2007. In addition, Corning will record an adjustment to the asbestos liability to reflect the change in fair value of any of the other components of the proposed asbestos settlement.
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 2007 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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