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, 2006
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
(Registrant's 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:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] 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
Item 7.01. Regulation FD Disclosure
The Corning Incorporated press release dated July 25, 2006, regarding its
financial results for the second quarter ended June 30, 2006 and its third
quarter 2006 earnings guidance, is attached hereto as Exhibit 99.
The information in this report, being furnished pursuant to Item 2.02 and 7.01
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, 2006, issued by Corning Incorporated.
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, 2006 By /s/ JANE D. POULIN
------------------------
Jane D. Poulin
Chief Accounting Officer
Exhibit 99
----------
FOR RELEASE -- July 25, 2006
Media Relations Contact: Investor Relations Contact:
Daniel F. Collins Kenneth C. Sofio
(607) 974-4197 (607) 974-7705
collinsdf@corning.com sofiokc@corning.com
Corning Announces Second-Quarter Results
Company meets EPS guidance
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced second-quarter
sales of $1.26 billion and net income of $514 million, or $0.32 per share. These
results include net special gains of $93 million, or $0.06 per share.
Excluding these net special gains, Corning's second-quarter net income would
have been $421 million, or $0.26 per share. These are non-GAAP financial
measures. These and all non-GAAP financial measures are reconciled on the
company's investor relations Web site and in attachments to this news release.
Wendell P. Weeks, president and chief executive officer, said, "We were pleased
to meet our earnings-per-share (EPS) guidance as we overcame the impact of the
second-quarter panel inventory correction on our Display Technologies segment.
The decline in Display Technologies' quarterly performance was offset by
strength in our Telecommunications segment and lower operating expenses."
Corning's second-quarter results included the following special gains and
charges:
.. A $61 million gain primarily to reflect the decrease in the market value of
Corning common stock to be contributed to settle the asbestos litigation
related to Pittsburgh Corning Corporation.
.. A $10 million reduction in income tax expense related to the release of the
valuation allowance on certain deferred tax assets in Australia.
.. A gain of $33 million in equity earnings related to Dow Corning
Corporation's settlement with the U.S. Internal Revenue Service regarding
liabilities for tax years 1992 to 2003. The settlement resolves all federal
tax issues related to Dow Corning's implant settlement.
.. An $11 million charge related to Corning's ongoing debt-reduction program.
Second-Quarter Operating Results
Corning's second-quarter sales of $1.26 billion were even with first-quarter
sales and increased 11 percent over last year's second-quarter sales of $1.14
billion. As expected, gross margin for the second quarter was 43 percent, a
slight decline from the previous quarter's gross margin of 45 percent.
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Corning Announces Second-Quarter Results
Page Two
Equity earnings for the second quarter were $256 million, including the $33
million tax gain from Dow Corning. First-quarter equity earnings of $200 million
included a $21 million impairment charge for Samsung Corning Company, Ltd.
(Samsung Corning), a producer of glass panels and funnels for cathode ray tubes.
Excluding the special items in both quarters, Corning's second-quarter equity
earnings were even with the first quarter. Including the $33 million tax gain,
our second-quarter equity earnings in Dow Corning were $104 million.
Second-quarter sales for Corning's Display Technologies segment were $461
million, an 11-percent increase over 2005 second-quarter sales of $415 million.
Year-over-year liquid crystal display (LCD) glass volume increased by 38 percent
in the second quarter, but this was largely offset by the change in foreign
exchange rates and price declines. Sequentially, second-quarter sales declined
16 percent from first-quarter sales of $547 million, primarily due to volume
declines of 14 percent and lower prices. As expected, price declines were less
than those in the first quarter.
Samsung Corning Precision Glass Co., Ltd.'s (SCP) second-quarter volume
increased 52 percent year-over-year and 3 percent sequentially. Equity earnings
from SCP were $133 million in the second quarter, compared to $140 million in
the previous quarter, which included about $7 million in nonrecurring gains.
Total LCD glass volume, including both Corning's wholly owned business and SCP,
declined 6 percent sequentially in the second quarter. Net income for the
Display Technologies segment was $344 million, down 18 percent from $417 million
last quarter, but up 20 percent versus the second quarter of 2005.
"The quarterly sales decline in Display Technologies was disappointing, but as
we have warned in the past, supply-chain issues can occur in any given quarter.
Our LCD volume decline of 6 percent was consistent with our May 22 guidance
change," Weeks said.
Second-quarter Telecommunications segment sales increased 19 percent to $472
million versus $397 million in the first quarter. The increase was driven by
strong demand from U.S. and European carriers for the company's fiber and cable
and hardware and equipment products. Fiber-to-the-premises (FTTP) sales in the
second quarter increased significantly over the previous quarter's performance.
In the company's Environmental Technologies segment, sales of $152 million were
slightly lower than sales of $155 million in the first quarter. An increase in
diesel retrofit sales was offset by lower automotive sales, especially in North
America. Corning's Life Sciences segment sales increased $3 million to $75
million in the second quarter.
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Corning Announces Second-Quarter Results
Page Three
Cash Flow/Liquidity Update
Corning ended the second quarter with $2.48 billion in cash and short-term
investments, consistent with the previous quarter. The company's debt level
declined to $1.5 billion compared to $1.8 billion at the end of the first
quarter. James B. Flaws, vice chairman and chief financial officer, said, "As we
continue to focus on improving the company's overall financial health, you can
expect us to opportunistically issue or refinance certain debt over the
remainder of the year." In the second quarter Corning had positive free cash
flow of $299 million and remains on track to be free cash flow positive for the
year. Free cash flow is a non-GAAP financial measure. Flaws also noted that
Moody's Investor Service recently raised Corning's overall debt rating to Baa2
with a stable outlook.
Third-Quarter Outlook
Corning expects third-quarter sales to be in the range of $1.26 billion to $1.33
billion, and EPS in the range of $0.22 to $0.26 before special items. This EPS
estimate is a non-GAAP financial measure and excludes any special items.
Gross margin for the third quarter is expected to be in the range of 41 percent
to 43 percent. The third-quarter tax rate is expected to be between 15 percent
and 20 percent.
For its Display Technologies segment, Corning anticipates that third-quarter
sequential volume growth for its wholly owned business will be in the range of 5
percent to 15 percent as the supply-chain correction begins to ease and the LCD
industry gears up for the holiday buying season. Samsung Corning Precision
should also see sequential volume increases in the range of 5 percent to 15
percent. Corning expects third-quarter price declines in its wholly owned
business to be in line with the previous quarter.
"As we start the third quarter, we believe there will be inventory adjustments
by some panel manufacturers, while others are beginning to increase production
levels," Flaws said. "However, the long-term LCD market dynamics remain
positive. We have not changed our expectation that the overall glass market
volume growth will be between 40 percent and 50 percent in 2006. We believe that
LCD TV penetration will reach about 20 percent of the global television market
this year, nearly doubling that of 2005."
Corning's Telecommunications segment third-quarter sales are expected to be flat
to down slightly. Third-quarter sales in the company's Environmental
Technologies segment are also expected to be flat.
Excluding the impact of the $33 million second-quarter tax gain at Dow Corning,
third-quarter equity earnings are expected to be down 5 to 10 percent, as
stronger earnings at Dow Corning may be offset by lower earnings at SCP and
nonrecurring charges at Samsung Corning.
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Corning Announces Second-Quarter Results
Page Four
Weeks said, "While our first-half 2006 performance met our expectations, we need
to be cautious about the potential negative impact that economic conditions and
political tensions could have on consumer sentiment. The LCD TV market is
strongly weighted towards the fourth quarter and we need a robust retail holiday
season to achieve our goals. The good news is that retail prices for LCD TVs
have declined substantially and that should accelerate consumer demand."
Separately, the company also announced that it will be meeting with Boston-area
investors on Tuesday, August 1 and will host a luncheon at 12:30 p.m. Investors
interested in attending the luncheon should contact Corning's investor relations
department at (607) 974-8764.
Second-Quarter Conference Call Information
The company will host a second-quarter conference call at 8:30 a.m. EDT on
Wednesday, July 26. To access the call, dial (210) 234-0003. The password is
QUARTER TWO. The leader is SOFIO. A replay of the call will begin at
approximately 10:30 a.m. EDT, and will run through 5 p.m. EDT, Wednesday, August
9. To listen, dial (402) 220-9709. No pass code is required. To listen to a live
audio webcast of the call, go to Corning's Web site:
http://www.corning.com/investor_relations, and follow the instructions. 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. Corning's non-GAAP net income and EPS measure excludes restructuring,
impairment and other charges and adjustments to prior estimates for such
charges. Additionally, the company's non-GAAP measure excludes adjustments to
asbestos settlement reserves required by movements in Corning's common stock
price, gains and losses arising from debt retirements, charges resulting from
the impairment of equity or cost method investments, or adjustments to deferred
tax assets, and gains or losses recognized in equity earnings from
restructuring, impairment or other charges or credits taken by equity method
companies. Corning's free cash flow financial measures are also non-GAAP
measures. The company believes presenting non-GAAP free cash flow; net income
and EPS measures are 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 accompany this news release.
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Corning Announces Second-Quarter Results
Page Five
About Corning Incorporated
Corning Incorporated (www.corning.com) is a diversified technology company that
concentrates its efforts on high-impact growth opportunities. Corning combines
its expertise in specialty glass, ceramic materials, polymers and the
manipulation of the properties of light, with strong process and manufacturing
capabilities to develop, engineer and commercialize significant innovative
products for the telecommunications, flat panel display, environmental,
semiconductor, and life sciences industries.
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; tariffs, import duties and currency
fluctuations; product demand and industry capacity; competition; manufacturing
efficiencies; cost reductions; availability and costs of critical components and
materials; new product development and commercialization; order activity and
demand from major customers; changes in the mix of sales between premium and
non-premium products; facility expansions and new plant start-up costs; possible
disruption in commercial activities due to terrorist activity, armed conflict,
political instability or major health concerns; adequacy and availability of
insurance; capital spending; 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 OPERATIONS
(Unaudited; in millions, except per share amounts)
Three months Six months
ended June 30, ended June 30,
------------------------ -------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 1,261 $ 1,141 $ 2,523 $ 2,191
Cost of sales 720 658 1,409 1,279
--------- --------- --------- ---------
Gross margin 541 483 1,114 912
Operating expenses:
Selling, general and administrative expenses 194 191 417 375
Research, development and engineering expenses 128 104 252 202
Amortization of purchased intangibles 3 3 6 8
Restructuring, impairment and other charges
and (credits) 5 (1) 11 18
Asbestos settlement (Note 1) (61) 143 124 131
--------- --------- --------- ---------
Operating income 272 43 304 178
Interest income 26 13 50 23
Interest expense (18) (26) (38) (61)
Loss on repurchases and retirement of debt, net (Note 2) (11) (12) (11) (12)
Other income, net 14 20 34 11
--------- --------- --------- ---------
Income before income taxes 283 38 339 139
Provision for income taxes (Note 3) (24) (44) (22) (63)
--------- --------- --------- ---------
Income (loss) before minority interests and equity earnings 259 (6) 317 76
Minority interests (1) (5) (2) (6)
Equity in earnings of associated companies, net
of impairments (Note 4) 256 176 456 345
--------- --------- --------- ---------
Net income $ 514 $ 165 $ 771 $ 415
========= ========= ========= =========
Basic earnings per common share (Note 5) $ 0.33 $ 0.11 $ 0.50 $ 0.29
========= ========= ========= =========
Diluted earnings per common share (Note 5) $ 0.32 $ 0.11 $ 0.48 $ 0.28
========= ========= ========= =========
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,
2006 2005
--------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,098 $ 1,342
Short-term investments, at fair value 1,377 1,092
--------- ---------
Total cash, cash equivalents and short-term investments 2,475 2,434
Trade accounts receivable, net 633 629
Inventories 664 570
Deferred income taxes 65 44
Other current assets 198 183
--------- ---------
Total current assets 4,035 3,860
Investments 2,150 1,729
Property, net 5,032 4,675
Goodwill and other intangible assets, net 333 338
Deferred income taxes 51 10
Other assets 598 595
--------- ---------
Total Assets $ 12,199 $ 11,207
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 22 $ 18
Accounts payable 705 690
Other accrued liabilities 1,645 1,662
--------- ---------
Total current liabilities 2,372 2,370
Long-term debt 1,475 1,789
Postretirement benefits other than pensions 596 593
Other liabilities 1,032 925
--------- ---------
Total liabilities 5,475 5,677
--------- ---------
Commitments and contingencies
Minority interests 40 43
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,569 million and 1,552 million 787 776
Additional paid-in capital 11,872 11,548
Accumulated deficit (6,076) (6,847)
Treasury stock, at cost; Shares held: 17 million (191) (168)
Accumulated other comprehensive income 292 178
--------- ---------
Total shareholders' equity 6,684 5,487
--------- ---------
Total Liabilities and Shareholders' Equity $ 12,199 $ 11,207
========= =========
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, March 31, -------------------------
2006 2006 2006 2005
--------- --------- --------- ---------
Cash Flows from Operating Activities:
Net income $ 514 $ 257 $ 771 $ 415
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 149 141 290 246
Amortization of purchased intangibles 3 3 6 8
Restructuring, impairment and other charges and (credits) 5 6 11 18
Asbestos settlement (61) 185 124 131
Stock compensation charges 30 32 62 13
Loss on repurchases and retirement of debt, net 11 11 12
Undistributed earnings of affiliated companies (169) (70) (239) (133)
Deferred taxes (5) (62) (67) 7
Restructuring payments (2) (4) (6) (16)
Customer deposits, net 82 (8) 74 232
Employee benefit payments less than expense 8 15 23 29
Changes in certain working capital items:
Trade accounts receivable 68 (65) 3 (89)
Inventories (47) (46) (93) (39)
Other current assets 3 (8) (5) (40)
Accounts payable and other current liabilities,
net of restructuring payments 1 (196) (195) (129)
Other, net (9) 1 (8) 20
-------- -------- -------- -------
Net cash provided by operating activities 581 181 762 685
-------- -------- -------- -------
Cash Flows from Investing Activities:
Capital expenditures (274) (280) (554) (698)
Acquisitions of businesses, net of cash acquired (16) (16)
Net proceeds from sale or disposal of assets 8 8 17
Net increase in long-term investments and other
long-term assets (77) (77)
Short-term investments - acquisitions (647) (858) (1,505) (703)
Short-term investments - liquidations 485 735 1,220 762
Other, net 10
-------- -------- -------- -------
Net cash used in investing activities (444) (480) (924) (612)
-------- -------- -------- -------
Cash Flows from Financing Activities:
Repayments of short-term borrowings and current
portion of long-term debt (3) (4) (7) (195)
Proceeds from issuance of long-term debt, net 147
Retirements of long-term debt (334) (334) (102)
Proceeds from issuance of common stock, net 9 6 15 344
Proceeds from the exercise of stock options 32 219 251 59
Other, net (6) (2) (8) (6)
-------- -------- -------- -------
Net cash provided by (used in) financing activities (302) 219 (83) 247
-------- -------- -------- -------
Effect of exchange rates on cash 1 1 (28)
-------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents (164) (80) (244) 292
Cash and cash equivalents at beginning of period 1,262 1,342 1,342 1,009
-------- -------- -------- -------
Cash and cash equivalents at end of period $ 1,098 $ 1,262 $ 1,098 $ 1,301
======== ======== ======== =======
Certain amounts for 2005 were reclassified to conform to 2006 classifications.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Our reportable operating segments include Display Technologies,
Telecommunications, Environmental Technologies and Life Sciences.
Display Telecom- Environmental Life All
Technologies munications Technologies Sciences Other Total
------------ ----------- ------------- -------- -------- ---------
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 (loss) (3) $ 209 $ 40 $ 9 $ (2) $ 1 $ 257
Minority interests (1) (1)
Equity in earnings (loss) of affiliated
companies (4) 135 1 12 148
------- ------- -------- -------- -------- --------
Net income (loss) $ 344 $ 40 $ 9 $ (2) $ 13 $ 404
======= ======= ======== ======== ======== ========
Three months ended June 30, 2005
Net sales $ 415 $ 415 $ 146 $ 75 $ 90 $ 1,141
Depreciation (1) $ 44 $ 46 $ 18 $ 5 $ 9 $ 122
Amortization of purchased intangibles $ 2 $ 2
Research, development and engineering
expenses (2) $ 24 $ 19 $ 26 $ 9 $ 6 $ 84
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) $ 8 $ (15) $ (7)
Income tax provision $ (33) $ (7) $ (3) $ (1) $ (2) $ (46)
Earnings (loss) before minority interest
and equity earnings (loss) (3) $ 199 $ (10) $ 4 $ 1 $ 17 $ 211
Minority interests (5) (5)
Equity in earnings (loss) of affiliated
companies 87 1 8 96
------- ------- -------- -------- -------- --------
Net income (loss) $ 286 $ (8) $ 4 $ 1 $ 20 $ 303
======= ======= ======== ======== ======== ========
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) $ $ 803
======= ======= ======== ======== ======== ========
Six months ended June 30, 2005
Net sales $ 735 $ 842 $ 294 $ 149 $ 171 $ 2,191
Depreciation (1) $ 85 $ 92 $ 35 $ 10 $ 18 $ 240
Amortization of purchased intangibles $ 7 $ 7
Research, development and engineering
expenses (2) $ 45 $ 36 $ 49 $ 17 $ 13 $ 160
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) $ 8 $ (15) $ (7)
Income tax provision $ (41) $ (15) $ (6) $ (2) $ (4) $ (68)
Earnings (loss) before minority interest
and equity earnings (loss) (3) $ 318 $ 8 $ 13 $ 5 $ 20 $ 364
Minority interests (7) (7)
Equity in earnings (loss) of affiliated
companies 168 1 25 194
------- ------- -------- -------- -------- --------
Net income (loss) $ 486 $ 9 $ 13 $ 5 $ 38 $ 551
======= ======= ======== ======== ======== ========
(1) Depreciation expense for Corning's 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 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.
(4) 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.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
A reconciliation of reportable segment net income (loss) to consolidated net
income (loss) follows (in millions):
Three months Six months
ended June 30, ended June 30,
------------------------ ------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net income of reportable segments $ 404 $ 303 $ 803 $ 551
Unallocated amounts:
Net financing costs (1) (2) (24) (10) (61)
Stock-based compensation expense (30) (9) (62) (15)
Exploratory research (19) (17) (40) (36)
Corporate contributions (9) (7) (17) (12)
Equity in earnings of affiliated companies,
net of impairments (2) 70 81 140 152
Asbestos settlement (3) 61 (143) (124) (131)
Other corporate items (4) 39 (19) 81 (33)
--------- --------- --------- ---------
Net income $ 514 $ 165 $ 771 $ 415
========= ========= ========= =========
(1) Net financing costs include interest expense, interest income, and interest
costs and investment gains associated with benefit plans.
(2) Equity in earnings of affiliated companies, net of impairments, includes
the following items:
. In the three and six months ended June 30, 2006, a $33 million gain
representing our share of a tax settlement relating to an IRS
examination at Dow Corning.
. In the three and six months ended June 30, 2005, a gain of $11 million
for our share of a gain on the issuance of subsidiary stock at Dow
Corning.
(3) The asbestos settlement arrangement to be incorporated into the Pittsburgh
Corning Corporation (PCC) reorganization plan, when 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 Corning's common stock price prior to contribution of the
shares to the trust as well as changes in the estimated fair value of the
other components of the settlement offer. In the second quarter of 2006 and
2005, Corning recorded a credit of $68 million and a charge of $137
million, respectively, to reflect the movement in Corning's common stock
price in each year and charges of $7 million and $6 million, respectively,
to reflect changes in the estimated fair value of other components of the
settlement offer. In the six months ended June 30, 2006 and 2005, Corning
recorded charges of $114 million and $121 million, respectively, to reflect
the movement in Corning's common stock price in each year and charges of
$10 million in each year to reflect changes in the estimated fair value of
other components of the settlement offer.
(4) Other corporate items include the tax impact of the unallocated amounts
plus the following items:
. In the three 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.
. In the three and six months ended June 30, 2005, impairment charges of
$6 million and $25 million, respectively, for an other-than-temporary
decline in our investment in Avanex below its cost basis.
. In the three and six months ended June 30, 2005, restructuring credits
of $7 million for adjustments to prior years' reserves.
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 proposed settlement, when
the plan becomes effective, 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 Corning's quarterly results until the date of the contribution to
the settlement trust. In the second quarter of 2006, Corning recorded a credit
of $61 million (pretax and after-tax) including a mark-to-market credit of $68
million reflecting the decrease in Corning's common stock from March 31, 2006 to
June 30, 2006 and a $7 million charge to adjust the estimated fair value of
certain other components of the proposed asbestos settlement.
Beginning with the first quarter of 2003, we have recorded total net charges of
$942 million to reflect the estimated fair value of our asbestos liability.
2. Debt
In the second quarter of 2006, we redeemed $315 million principal amount of our
outstanding notes in three separate transactions resulting in losses of $11
million.
3. Provision for Income Taxes
In the second quarter of 2006, Corning recorded a $10 million tax benefit from
the release of a valuation allowance on Australian tax benefits due to sustained
profitability of Corning's Australian entities and positive future earnings
projections for the Australian consolidated group.
4. Equity in Earnings of Associated Companies
In the second quarter of 2006, equity in earnings of associated companies
includes a gain of $33 million related to Dow Corning's settlement with the IRS
regarding liabilities for tax years 1992 to 2003. This settlement resolves all
Federal tax issues related to Dow Corning's implant settlement.
5. Weighted Average Shares Outstanding
Our weighted average shares outstanding are as follows (in millions):
Three months ended
June 30,
------------------ Three months ended
2006 2005 March 31, 2006
---- ---- -----------------
Basic 1,549 1,438 1,541
Diluted 1,597 1,517 1,592
Diluted used for non-GAAP measures 1,597 1,523 1,592
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2006
------------------------------------
Three
Months Ended Six Months
--------------------- Ended
March 31 June 30 June 30
-------- ------- -------
Display Technologies $ 547 $ 461 $ 1,008
Telecommunications
Fiber and cable 205 234 439
Hardware and equipment 192 238 430
-------- -------- -------
397 472 869
Environmental Technologies
Automotive 121 113 234
Diesel 34 39 73
-------- -------- -------
155 152 307
Life Sciences 72 75 147
Other 91 101 192
-------- -------- -------
Total $ 1,262 $ 1,261 $ 2,523
======== ======== =======
2005
--------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
-------- --------- ------- ------- --------
Display Technologies $ 320 $ 415 $ 489 $ 518 $ 1,742
Telecommunications
Fiber and cable 212 213 216 193 834
Hardware and equipment 215 202 182 190 789
-------- -------- ------- ------- --------
427 415 398 383 1,623
Environmental Technologies
Automotive 127 125 121 109 482
Diesel 21 21 23 33 98
-------- -------- ------- ------- --------
148 146 144 142 580
Life Sciences 74 75 70 63 282
Other 81 90 87 94 352
-------- -------- ------- ------- --------
Total $ 1,050 $ 1,141 $ 1,188 $ 1,200 $ 4,579
======== ======== ======= ======= ========
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, 2006
(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 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 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 $ 0.26 $ 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 associated companies (c) 0.02 33
------- -------- --------
Total EPS and net income $ 0.32 $ 283 $ 514
======= ======== ========
(a) As a result of Corning's proposed asbestos settlement, any changes in the
estimated fair value of the components of the proposed settlement agreement
will be recognized in Corning's 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 Corning's 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 Corning's
valuation allowance on Australian tax benefits.
(c) Amount reflects a $33 million increase in equity earnings representing
Corning's share of a favorable tax settlement from the completion of an IRS
examination at Dow Corning.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended March 31, 2006
(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 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 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 $ 0.27 $ 241 $ 425
Special items:
Asbestos settlement (a) (0.12) (185) (185)
Provision for income taxes (b) 0.02 38
Equity in earnings of associated companies (c) (0.01) (21)
------- -------- --------
Total EPS and net income $ 0.16 $ 56 $ 257
======= ======== ========
(a) As a result of Corning's proposed asbestos settlement, any changes in the
estimated fair value of the components of the proposed settlement agreement
will be recognized in our quarterly results until the date of the
contribution to the settlement trust. In the first quarter of 2006, Corning
recorded a charge of $185 million (before- and after-tax) including $182
million for the change in its common stock price of $26.92 at March 31,
2006, compared to $19.66 at December 31, 2005 and $3 million for the change
in estimated fair value of certain other components of the proposed
asbestos settlement liability.
(b) Amount reflects a $38 million tax benefit from the release of our valuation
allowance on certain deferred tax assets in Germany.
(c) Amount reflects a charge of $21 million to reflect Corning's share of an
impairment charge at Samsung Corning Co., Ltd., a South Korea-based
manufacturer of glass panels and funnels for cathode ray tube television
and display monitors.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended June 30, 2005
(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 2005 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 measure.
--------------------------------------------------------------------------------
Per Income Before Net
Share Income Taxes Income
------- ------------- --------
EPS and net income, excluding special items $ 0.20 $ 192 $ 312
Special items:
Restructuring, impairment and other (charges) and credits (a) 1 (3)
Asbestos settlement (b) (0.09) (143) (143)
Loss on repurchases and retirement of debt, net (c) (0.01) (12) (12)
Equity in earnings of associated companies (d) 0.01 11
------- ------- -------
Total EPS and net income $ 0.11 $ 38 $ 165
======= ======= =======
(a) In the second quarter of 2005, Corning recorded net credits of $1 million
(net charge of $3 million after-tax and minority interest) included in
restructuring, impairment and other charges and (credits). A summary of
these credits and charges follows:
. We recorded net credits of $7 million ($3 million after-tax and
minority interest), primarily for adjustments to prior years'
restructuring and impairment reserves.
. We recorded an additional impairment charge of $6 million (pretax and
after-tax) for an other than temporary decline in the fair value of
our investment in Avanex Corporation (Avanex) below its adjusted cost
basis. Our investment in Avanex is accounted for as an
available-for-sale security under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." At June 30, 2005,
shares of Avanex stock were trading at $0.90 per share compared to our
adjusted cost basis of $1.30 per share (after adjusting for the first
quarter of 2005 impairment charge). We intend to sell our shares of
Avanex and, subject to restrictions and the trading volume in Avanex
stock, we expect to complete this activity in early 2006. As we do not
expect the market value of the Avanex shares to recover in this
timeframe, the additional impairment in the second quarter was
required.
(b) As a result of Corning's proposed asbestos settlement, any changes in the
estimated fair value of the components of the proposed settlement agreement
will be recognized in Corning's quarterly results until the date of the
contribution to the settlement trust. In the second quarter of 2005,
Corning recorded a charge of $143 million (before- and after-tax) including
$137 million for the change in Corning's common stock price of $16.62 at
June 30, 2005, compared to $11.13 at March 31, 2005 and a $6 million charge
for the change in estimated fair value of certain other components of the
proposed asbestos settlement liability.
(c) In the second quarter of 2005, we redeemed for cash the $100 million
principal amount of our 7% debentures due March 15, 2007. We recognized a
$12 million loss upon the early redemption of these debentures.
(d) In the second quarter of 2005, Dow Corning Corporation recorded a gain on
the issuance of subsidiary stock. Our equity earnings included $11 million
related to this gain.
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)
--------------------------------------------------------------------------------
Corning's free cash flow financial measure for the three months ended June 30,
2006 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 measure.
--------------------------------------------------------------------------------
Three
months ended
June 30, 2006
-------------
Cash flows from operating activities $ 581
Less: Cash flows from investing activities (444)
Plus: Short-term investments - acquisitions 647
Less: Short-term investments - liquidations (485)
------
Free cash flow $ 299
======
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended September 30, 2006
(Unaudited; amounts in millions, except per share amounts)
--------------------------------------------------------------------------------
Corning's earnings per share (EPS) excluding special items for the third quarter
of 2006 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 $0.22 $0.26
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 Corning's asbestos settlement arrangement to be incorporated
into the Pittsburgh Corning Corporation reorganization plan, Corning will
contribute, when the reorganization plan becomes effective, 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 Corning's common stock price prior to contribution of the
shares to the trust. In the third quarter of 2006, Corning will record a
charge or credit for the change in its common stock price as of September
30, 2006 compared to $24.19, the common stock price at June 30, 2006. 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 2006 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.