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 26, 2005
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 26, 2005, regarding its
financial results for the quarter ended June 30, 2005 and its third quarter 2005
earnings guidance, is attached hereto as Exhibit 99.
The information in this report, being furnished pursuant to Item 2.01 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.
Safe Harbor Statement
Statements contained in the Item 7.01 Regulation FD Disclosure and the exhibit
to this report that state the company's or its management's expectations or
predictions of the future are forward-looking statements intended to be covered
by the safe harbor provisions of the Securities Act of 1933 and the Exchange
Act. The company's actual results could differ materially from those projected
in such forward-looking statements. Factors that could affect those results
include those mentioned in the documents that the company has filed with the
Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits
(c) Exhibit
99 Press Release dated July 26, 2005, 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 26, 2005 By /s/ KATHERINE A. ASBECK
-------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
Exhibit 99
----------
FOR RELEASE -- JULY 26, 2005
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 Reports Second-Quarter Results
10th consecutive quarterly sales increase
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced second-quarter
sales of $1.141 billion, with net income of $165 million, or $0.11 per share.
Net income includes net special charges of $141 million, or $0.09 per share.
Excluding these net charges, Corning's earnings per share (EPS) would have been
$0.20, exceeding the company's previously announced EPS guidance range of $0.17
to $0.19. This EPS is a non-GAAP financial measure. This and all non-GAAP
financial measures are reconciled on the company's investor relations Web site
and in attachments to this news release.
"We are pleased with our second-quarter performance and our 10th consecutive
quarterly sales increase driven by the strong growth in our Display Technologies
segment," Wendell P. Weeks, president and chief executive officer, said. "Our
first-half results demonstrate that Corning's growth strategy is succeeding."
Second-Quarter Operating Results
Corning's second-quarter sales of $1.141 billion increased 17 percent over last
year's second-quarter sales of $971 million, and increased 9 percent over the
previous quarter's sales of $1.05 billion. Gross margin for the second quarter
improved to 42 percent versus 41 percent in the first quarter. The
second-quarter gross margin exceeded the company's expectation of 40 percent and
was its highest since the first quarter of 2001. The gross-margin improvement is
primarily the result of stronger overall performance in the Display Technologies
segment, brought on by increased demand for larger-size glass substrates and
strong manufacturing performance.
Equity earnings for the second quarter were $172 million, compared to the first
quarter's equity earnings of $166 million. Corning's equity earnings from Dow
Corning Corporation were $77 million, including an $11 million non-recurring
gain in the second quarter, versus $68 million in the first quarter.
(more)
Corning Reports Second Quarter Results
Page Two
Corning's Display Technologies segment achieved record sales of $415 million in
the second quarter, a 30-percent increase over first-quarter sales of $320
million and a 50-percent sales increase over second-quarter 2004 sales of $277
million. The sequential quarterly sales increase was the result of a 32-percent
volume increase and flat overall pricing. Exchange rates in the quarter had a
3-percent negative impact on sales. Segment gross margins increased from 60
percent in the first quarter to 65 percent in the second quarter.
Samsung Corning Precision Glass Co., Ltd., a 50-percent equity venture in Korea,
increased its sequential glass volume by 27 percent. Strong volume gains at
Samsung Corning Precision were offset by a number of nonrecurring items and the
negative impact of exchange rates in the second quarter. Equity earnings from
Samsung Corning Precision were up 6 percent in the second quarter at $85 million
versus $80 million in the first quarter.
Net income for the Display Technologies segment, which includes Corning's wholly
owned business and equity earnings from Samsung Corning Precision, grew 51
percent from $161 million in the first quarter to $243 million in the second
quarter. The increase was due to strong sales and gross margin improvement, as
well as the nonrecurrence of a $20 million after-tax foreign exchange loss
incurred in the first quarter, offset by a higher tax rate and
lower-than-expected earnings growth at Samsung Corning Precision.
"Market demand for flat panel desk top monitors, notebook computers and flat
screen televisions continue to fuel the growth of our liquid crystal display
(LCD) business," Weeks said. "In fact," he said, "our second-quarter sales of
glass substrates were larger than our total Display Technologies segment sales
for 2002." He added that retail pricing declines and a movement to larger sizes
have resulted in greater-than-expected penetration of LCD desktop monitors in
the market. Weeks said, "Our preliminary estimates indicate that LCD monitor
sales reached 67 percent of total monitor sales in the second quarter, compared
to 60 percent in the first quarter of this year."
Telecommunications segment sales declined 3 percent sequentially to $415 million
versus $427 million in the first quarter of this year. The sales decline was due
to lower fiber-to-the-premises (FTTP) hardware and equipment sales, which were,
in turn, primarily the result of supply chain inventory declines during the
second quarter. The decline in FTTP product sales was almost offset by seasonal
increases in demand. Optical fiber volume and pricing were essentially flat with
first-quarter results. The segment incurred a net loss of $13 million compared
to net income of $9 million in the first quarter. The second-quarter loss
includes an $8 million charge to adjust prior years' restructuring reserves.
(more)
Corning Reports Second Quarter Results
Page Three
Weeks said, "The FTTP market continues to be a growth opportunity for us,
particularly for sales of our hardware and equipment products. While we did
experience a second-quarter sales decline, we believe this is the result of
customer inventory reduction and not a slowdown in FTTP deployment."
Second-quarter Environmental Technologies segment sales were $146 million
compared to $148 million in the first quarter. The Life Sciences segment had
second-quarter sales of $75 million, basically flat with first-quarter sales of
$74 million.
Special Items
Corning's second-quarter results included net special charges totaling $141
million after-tax and minority interest, of which $137 million was a pretax and
after-tax charge to reflect the increase in market value of Corning common stock
to be contributed to settle the asbestos litigation related to Pittsburgh
Corning Corporation. In addition, the company recognized a $12 million pretax
and after-tax loss on the repurchase of debt, a $1 million pretax gain ($3
million after-tax and minority interest charge) to adjust restructuring
reserves, and the previously discussed $11 million nonrecurring gain at Dow
Corning.
Cash Flow/Liquidity Update
Corning ended the second quarter with $2.1 billion in cash and short-term
investments, an increase of $568 million from the previous quarter's balance of
$1.5 billion. The increase was largely the result of the receipt of $212 million
of customer deposits in the Display Technologies segment and net cash proceeds
of $323 million from the issuance of 20 million shares of common stock. These
proceeds will primarily be used to fund the anticipated fourth-quarter
repurchase of the company's outstanding zero-coupon convertible debentures.
James B. Flaws, vice chairman and chief financial officer, said, "We have made
excellent progress in restoring Corning to sound financial health. During the
quarter, we reduced our debt by an additional $183 million, and we attained
investment-grade credit ratings from two of the three rating agencies. We are
carefully balancing our capital spending with our need to protect the financial
health of the company."
Third-Quarter Outlook
Corning said that it expects third-quarter sales to be in the range of $1.14
billion to $1.19 billion and EPS in the range of $0.20 to $0.22 before special
items. This EPS estimate is a non-GAAP financial measure and excludes any
possible special items. This and all non-GAAP financial measures are reconciled
on the company's investor relations Web site and in attachments to this news
release. The company expects its gross margin to be between 41 percent and 42
percent, comparable to the second quarter. Corning expects that the
third-quarter tax rate will be in the 20 percent to 25 percent range.
(more)
Corning Reports Second Quarter Results
Page Four
In the Display Technologies segment, the company is anticipating that
third-quarter sequential volume growth for its wholly owned business and Samsung
Corning Precision will be in the range of 10 percent to 20 percent both
individually and in the aggregate. Pricing in the third quarter is expected to
be flat to down slightly.
"Corning's third-quarter volume growth will be largely dependent upon our
ability to continue to bring on additional large generation LCD glass melting
and finishing capacity, and our customers' ability to ramp up their new
large-size generation fabs to meet the increasing industry demand," Weeks said.
He added that Samsung Corning Precision has been shipping Gen 7 glass to the
Samsung Electronics and Sony equity venture and has begun manufacturing Gen 7.5
glass substrates for LG. Philips. "And our construction of Gen 8 size glass
capacity in Japan is underway," he added. Corning noted that it continues to
believe that the global LCD glass market volume remains on track to grow in
excess of 50 percent this year.
Weeks said that the growth of LCD televisions continues to meet the expectations
of the industry and the company continues to expect overall LCD television
penetration will reach 10 percent of the TV market this year. "We have seen a
40-percent decline in the retail price of an LCD television year-over-year, and
this has helped fuel demand," he said.
Corning's Telecommunications segment third-quarter sales are expected to be in
the range of flat to down 5 percent from second-quarter sales. The company's
third-quarter fiber volume is expected to be flat to down 5 percent, with fiber
pricing down less than 5 percent. Corning believes that its FTTP sales will be
consistent with the second quarter.
The company expects equity earnings from Dow Corning to be $50 million to $60
million in the third quarter, consistent with prior guidance, Flaws said. "Dow
Corning had a very strong first half of the year, and it typically experiences
slightly weaker performance in the second half due to seasonality. Also, Dow
Corning will be doing a maintenance shutdown at one of its major facilities in
the fall."
Weeks said, "Corning had an excellent first half of the year. We believe that we
are well positioned for success through the remainder of the year." During the
company's investor conference call on Wednesday morning, Flaws will remind
investors about the company's plan, which was discussed at its annual investor
meeting in February, to contribute up to 10 million shares of common stock
during the second half of the year to fund Corning's U.S. pension plan. He also
will provide further detail on the company's plan to adopt the new accounting
rules for stock-based compensation, which will result in additional expense of
up to $90 million in 2006. This amount is higher than the original estimate of
$60 million the company provided earlier.
(more)
Corning Reports Second Quarter Results
Page Five
The company also announced that it will be meeting with Boston area investors on
August 1 and will host a luncheon at 12:30 p.m. EDT at the Boston Harbor Hotel.
Investors interested in attending 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 27. To access the call, dial (773) 681-5826. The password is
RESULTS. A replay of the call will begin at approximately 10:30 a.m. EDT, and
will run through 5:00 p.m. EDT, Wednesday, August. 10. To listen, dial (203)
369-1382, no pass code is required. To listen to a live audio webcast of the
call, please go to Corning's Web site and follow the instructions:
http://www.corning.com/investor_relations. 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 measures exclude restructuring,
impairment and other charges and adjustments to prior estimates for such
charges. Additionally, the company's non-GAAP measures exclude adjustments to
asbestos settlement reserves required by movements in Corning's common stock
price, gains and losses arising from debt retirements, charges resulting from
the impairment of equity or cost method investments and gains or losses
recognized in equity earnings from restructuring, impairment or other charges or
credits taken by equity method companies. The company believes presenting
non-GAAP net income and EPS measures is helpful to analyze financial performance
without the impact of unusual items that may obscure trends in the company's
underlying performance. These non-GAAP measures are reconciled on the company's
Web site at www.corning.com/investor_relations and accompany this news release.
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.
(more)
Corning Reports Second Quarter Results
Page Six
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 or
fluctuations in global economic and political conditions; tariffs, import duties
and currency fluctuations; product demand and industry capacity; competitive
products and pricing; manufacturing efficiencies; cost reductions; availability
and costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the liquid crystal display industry and other
businesses; 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; ability to obtain financing and capital on
commercially reasonable terms; adequacy and availability of insurance; capital
resource and cash flow activities; capital spending; equity company activities;
interest costs; 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; changes in key personnel;
stock price fluctuations; and adverse litigation or regulatory developments.
These and other 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,
------------------------ ------------------------
2005 2004 2005 2004
--------- -------- --------- ---------
Net sales $ 1,141 $ 971 $ 2,191 $ 1,815
Cost of sales 658 625 1,279 1,169
--------- -------- --------- ---------
Gross margin 483 346 912 646
Operating expenses:
Selling, general and administrative expenses 191 166 375 326
Research, development and engineering expenses 104 85 202 169
Amortization of purchased intangibles 3 9 8 19
Restructuring, impairment and other charges and
(credits) (Note 1) (1) (34) 18
Asbestos settlement (Note 2) 137 47 121 66
--------- -------- --------- ---------
Operating income 49 73 188 66
Interest income 13 4 23 10
Interest expense (28) (37) (65) (73)
Loss on repurchases and retirement of debt, net (Note 3) (12) (9) (12) (32)
Other income, net 20 5 11 1
--------- -------- --------- ---------
Income (loss) before income taxes 42 36 145 (28)
Provision for income taxes (Note 4) (44) (24) (63) (12)
--------- -------- --------- ---------
(Loss) income before minority interests and
equity earnings (2) 12 82 (40)
Minority interests (5) (11) (6) (11)
Equity in earnings of associated companies (Note 5) 172 107 338 214
--------- -------- --------- ---------
Net income $ 165 $ 108 $ 414 $ 163
========= ======== ========= =========
Basic earnings per common share $ 0.11 $ 0.08 $ 0.29 $ 0.12
========= ======== ========= =========
Diluted earnings per common share $ 0.11 $ 0.07 $ 0.28 $ 0.11
========= ======== ========= =========
Shares used in computing per share amounts for:
Basic earnings per common share 1,438 1,383 1,422 1,371
========= ======== ========= =========
Diluted earnings per common share 1,517 1,495 1,508 1,446
========= ======== ========= =========
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share and per share amounts)
June 30, December 31,
2005 2004
----------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,301 $ 1,009
Short-term investments, at fair value 814 872
--------- ---------
Total cash, cash equivalents and short-term investments 2,115 1,881
Trade accounts receivable, net 645 585
Inventories 552 535
Deferred income taxes 93 94
Other current assets 223 188
--------- ---------
Total current assets 3,628 3,283
Investments 1,546 1,484
Property, net 4,220 3,941
Goodwill and other intangible assets, net 383 398
Deferred income taxes 464 472
Other assets 156 166
--------- ---------
Total Assets $ 10,397 $ 9,744
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings, including current portion of long-term debt $ 288 $ 478
Accounts payable 609 682
Other accrued liabilities 1,214 1,178
--------- ---------
Total current liabilities 2,111 2,338
Long-term debt 1,915 2,214
Postretirement benefits other than pensions 593 600
Other liabilities 887 747
--------- ---------
Total liabilities 5,506 5,899
--------- ---------
Commitments and contingencies
Minority interests 28 29
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Series C mandatory convertible preferred stock - Shares issued: 5.75 million;
Shares outstanding: 616 thousand and 637 thousand 62 64
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,487 million and 1,424 million 743 712
Additional paid-in capital 11,043 10,363
Accumulated deficit (6,895) (7,309)
Treasury stock, at cost; Shares held: 16 million (158) (162)
Accumulated other comprehensive income 68 148
--------- ---------
Total shareholders' equity 4,863 3,816
--------- ---------
Total Liabilities and Shareholders' Equity $ 10,397 $ 9,744
========= =========
Certain amounts for 2004 were reclassified to conform to 2005 classifications.
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, ------------------------
2005 2005 2005 2004
--------- --------- --------- ---------
Cash Flows from Operating Activities:
Net income $ 165 $ 249 $ 414 $ 163
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 126 120 246 240
Amortization of purchased intangibles 3 5 8 19
Restructuring, impairment and other charges and (credits) (1) 19 18
Asbestos settlement 137 (16) 121 66
Loss on repurchases and retirement of debt, net 12 12 32
Undistributed earnings of associated companies (103) (23) (126) (92)
Minority interests, net of dividends paid 5 1 6 11
Deferred taxes 4 3 7 (35)
Restructuring payments (7) (9) (16) (56)
Customer deposits, net 212 20 232
Changes in certain working capital items:
Trade accounts receivable (35) (54) (89) (43)
Inventories (39) (39) (33)
Other current assets (24) (16) (40) 7
Accounts payable and other current liabilities,
net of restructuring payments 22 (151) (129) (6)
Other, net 27 33 60 34
-------- -------- -------- -------
Net cash provided by operating activities 543 142 685 307
-------- -------- -------- -------
Cash Flows from Investing Activities:
Capital expenditures (375) (323) (698) (302)
Net proceeds from sale or disposal of assets 16 1 17 35
Short-term investments - acquisitions (389) (314) (703) (1,102)
Short-term investments - liquidations 276 486 762 745
Other, net 9 1 10 5
-------- -------- -------- -------
Net cash used in investing activities (463) (149) (612) (619)
-------- -------- -------- -------
Cash Flows from Financing Activities:
Repayments of short-term borrowings and current
portion of long-term debt (3) (192) (195) (9)
Proceeds from issuance of long-term debt, net 99 48 147 396
Repayments of long-term debt (100) (2) (102) (150)
Proceeds from issuance of common stock, net 332 12 344 24
Proceeds from exercise of stock options 50 9 59 27
Other, net (1) (5) (6) (5)
-------- -------- -------- -------
Net cash provided by (used in) financing activities 377 (130) 247 283
-------- -------- -------- -------
Effect of exchange rates on cash (3) (25) (28) (5)
-------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents 454 (162) 292 (34)
Cash and cash equivalents at beginning of period 847 1,009 1,009 688
-------- -------- -------- -------
Cash and cash equivalents at end of period $ 1,301 $ 847 $ 1,301 $ 654
======== ======== ======== =======
Certain amounts for 2004 were reclassified to conform to 2005 classifications.
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Display Telecom- Environmental Life Unallocated Consolidated
Technologies munications Technologies Sciences and Other Total
------------ ----------- ------------- -------- ----------- ------------
Three months ended June 30, 2005
Net sales $ 415 $ 415 $ 146 $ 75 $ 90 $ 1,141
Research, development and engineering
expenses (1) $ 27 $ 22 $ 29 $ 12 $ 14 $ 104
Restructuring, impairment and other charges
and (credits) $ 8 $ (9) $ (1)
Interest expense (2) $ 12 $ 8 $ 4 $ 1 $ 3 $ 28
(Provision) benefit for income taxes $ (47) $ 1 $ 2 $ 2 $ (2) $ (44)
Income (loss) before minority interests and
equity earnings (3) $ 156 $ (13) $ (4) $ (4) $ (137) $ (2)
Minority interests (4) (5) (5)
Equity in earnings of associated companies 87 85 172
------ ------ ------- ------- ------- -------
Net income (loss) $ 243 $ (13) $ (4) $ (4) $ (57) $ 165
====== ====== ======= ======= ======= =======
Three months ended June 30, 2004
Net sales $ 277 $ 392 $ 141 $ 79 $ 82 $ 971
Research, development and engineering
expenses (1) $ 19 $ 23 $ 21 $ 9 $ 13 $ 85
Restructuring, impairment and other charges
and (credits) $ (1) $ (33) $ (34)
Interest expense (2) $ 11 $ 16 $ 5 $ 2 $ 3 $ 37
(Provision) benefit for income taxes $ (32) $ 11 $ (2) $ (2) $ 1 $ (24)
Income (loss) before minority interests and
equity earnings (3) $ 64 $ (21) $ 4 $ 5 $ (40) $ 12
Minority interests (4) (11) (11)
Equity in earnings of associated companies 71 36 107
------ ------ ------- ------- ------- -------
Net income (loss) $ 135 $ (21) $ 4 $ 5 $ (15) $ 108
====== ====== ======= ======= ======= =======
Six months ended June 30, 2005
Net sales $ 735 $ 842 $ 294 $ 149 $ 171 $ 2,191
Research, development and engineering
expenses (1) $ 52 $ 44 $ 55 $ 23 $ 28 $ 202
Restructuring, impairment and other charges
and (credits) $ 8 $ 10 $ 18
Interest expense (2) $ 28 $ 19 $ 10 $ 2 $ 6 $ 65
(Provision) benefit for income taxes $ (64) $ (1) $ 2 $ 2 $ (2) $ (63)
Income (loss) before minority interests and
equity earnings (3) $ 236 $ (4) $ (6) $ (6) $ (138) $ 82
Minority interests (4) (6) (6)
Equity in earnings of associated companies 168 170 338
------ ------ ------- ------- ------- -------
Net income (loss) $ 404 $ (4) $ (6) $ (6) $ 26 $ 414
====== ====== ======= ======= ======= =======
Display Telecom- Environmental Life Unallocated Consolidated
Technologies munications Technologies Sciences and Other Total
------------ ----------- ------------- -------- ----------- ------------
Six months ended June 30, 2004
Net sales $ 507 $ 704 $ 282 $ 158 $ 164 $ 1,815
Research, development and engineering
expenses (1) $ 35 $ 48 $ 41 $ 18 $ 27 $ 169
Restructuring, impairment and other charges
and (credits) $ (5) $ 5
Interest expense (2) $ 22 $ 32 $ 10 $ 3 $ 6 $ 73
(Provision) benefit for income taxes $ (58) $ 34 $ (5) $ (5) $ 22 $ (12)
Income (loss) before minority interests and
equity earnings (3) $ 117 $ (68) $ 10 $ 10 $ (109) $ (40)
Minority interests (4) 1 (12) (11)
Equity in earnings of associated companies 136 3 75 214
------ ------ ------- ------- ------- -------
Net income (loss) $ 253 $ (64) $ 10 $ 10 $ (46) $ 163
====== ====== ======= ======= ======= =======
(1) Non-direct research, development and engineering expenses are allocated
based upon direct project spending for each segment.
(2) Interest expense is allocated to segments based on a percentage of segment
net operating assets. Consolidated subsidiaries with independent capital
structures do not receive additional allocations of interest expense.
(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) For the three and six months ended June 30, 2005, minority interests
include gains of $4 million for adjustments to prior years' restructuring
and impairment reserves associated with Corning Asahi Video Products (CAV).
For the three and six months ended June 30, 2004, minority interests
include gains of $13 and $14, respectively, from the sale of CAV assets in
excess of assumed salvage value.
A reconciliation of reportable segment net income to consolidated net income
follows (in millions):
Three months Six months
ended June 30, ended June 30,
------------------------ ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income of reportable segments $ 222 $ 123 $ 388 $ 209
Non-reportable operating segments net income (1) 13 19 23 1
Unallocated amounts:
Non-segment loss and other (2) (1) (4) (3) (7)
Non-segment restructuring, impairment and
other (charges) and credits (3) (6) 4 (25) 4
Asbestos settlement (137) (47) (121) (66)
Interest income 13 4 23 10
Loss on repurchases of debt (12) (9) (12) (32)
Benefit for income taxes (4) (4) 1 (4) 3
Equity in earnings of associated companies (5) 77 17 145 41
--------- --------- --------- ---------
Net income $ 165 $ 108 $ 414 $ 163
========= ========= ========= =========
(1) Non-reportable operating segments net income includes the results of
non-reportable operating segments.
(2) Non-segment loss and other includes the results of non-segment operations
and other corporate activities.
(3) For the three and six months ended June 30, 2005, non-segment
restructuring, impairment and other (charges) and credits includes
impairment charges for the other than temporary decline in the market value
of Avanex shares. Refer to Note 1 (Restructuring, Impairment and Other
Charges and (Credits)).
(4) Benefit for income taxes includes taxes associated with non-segment
restructuring, impairment and other (charges) and credits.
(5) Equity in earnings of associated companies includes amounts derived from
Dow Corning.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Restructuring, Impairment and Other Charges and (Credits)
In the second quarter of 2005, we 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 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 Financial Accounting
Standards Board Statement of Financial Accounting Standards 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 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.
2. Asbestos Settlement
On March 28, 2003, we announced that we had reached agreement with the
representatives of asbestos claimants for the settlement of all current and
future asbestos claims against us and Pittsburgh Corning Corporation (PCC),
which might arise from PCC products or operations. Accordingly, we recorded a
charge of $298 million in the first quarter of 2003. The charge included the
value of 25 million shares of Corning common stock that we will contribute as
part of the settlement if the PCC plan of reorganization is approved and becomes
effective. Also at that time, we indicated that any changes in the value of our
common stock contribution would be recognized in our quarterly results through
the date of contribution to the settlement trust. As required, we recorded a
mark-to-market charge of $137 million in the second quarter of 2005 reflecting
the increase in Corning's common stock from March 31 to June 30, 2005. Beginning
with the first quarter of 2003, we have recorded total net charges of $567
million to reflect the initial settlement and to mark-to-market the value of our
common stock.
3. Loss on Repurchases and Retirement of Debt, net
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.
4. Provision for Income Taxes
For the three months ended June 30, 2005, the tax provision reflected the impact
of maintaining a valuation allowance on the majority of our net deferred tax
assets. As a result, U.S. (federal, state and local) and certain foreign income
taxes attributable to pretax income or losses were not provided. The most
significant item for which a U.S. tax benefit was not provided was the asbestos
settlement charge. Such items increased our effective tax rate from 23% to 105%.
5. Equity in Earnings of Associated Companies
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
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2005
-------------------------------------
Three
Months Ended Six Months
--------------------- Ended
March 31 June 30 June 30
-------- ------- -------
Display Technologies $ 320 $ 415 $ 735
Telecommunications
Fiber and cable 212 213 425
Hardware and equipment 215 202 417
-------- -------- -------
427 415 842
Environmental Technologies
Automotive 127 125 252
Diesel 21 21 42
-------- -------- -------
148 146 294
Life Sciences 74 75 149
Other 81 90 171
-------- -------- -------
Total $ 1,050 $ 1,141 $ 2,191
======== ======== =======
2004
--------------------------------------------------------------
Three Months Ended
------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Total
--------- -------- -------- -------- --------
Display Technologies $ 230 $ 277 $ 295 $ 311 $ 1,113
Telecommunications
Fiber and cable 149 192 202 212 755
Hardware and equipment 163 200 210 211 784
-------- -------- ------- ------- --------
312 392 412 423 1,539
Environmental Technologies
Automotive 125 121 119 114 479
Diesel 16 20 17 16 69
-------- -------- ------- ------- --------
141 141 136 130 548
Life Sciences 79 79 75 71 304
Other 82 82 88 98 350
-------- -------- ------- ------- --------
Total $ 844 $ 971 $ 1,006 $ 1,033 $ 3,854
======== ======== ======= ======= ========
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, 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 $ 190 $ 306
Special items:
Restructuring, impairment and other (charges) and credits (a) 1 (3)
Asbestos settlement (b) (0.09) (137) (137)
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 $ 42 $ 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 part of Corning's asbestos settlement arrangement to be incorporated
into the Pittsburgh Corning Corporation plan of reorganization, Corning
will contribute, if the reorganization plan becomes effective, 25 million
shares of Corning common stock to a trust. This portion of the asbestos
liability requires quarterly adjustment based upon movements in Corning's
common stock price prior to contribution of the shares to the trust. In the
second quarter of 2005, Corning recorded a charge of $137 million for the
change in its common stock price of $16.62 at June 30, 2005 compared to
$11.13, the common stock price at March 31, 2005.
(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, 2005
(Unaudited; amounts in millions)
--------------------------------------------------------------------------------
Corning's free cash flow financial measure for the three months ended June 30,
2005 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, 2005
-------------
Cash flows from operating activities $ 543
Less: Cash flows from investing activities (463)
Plus: Short-term investments - acquisitions 389
Less: Short-term investments - liquidations (276)
---------
Free cash flow $ 193
=========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended September 30, 2005
(Unaudited; amounts in millions, except per share amounts)
--------------------------------------------------------------------------------
Corning's earnings per share (EPS) excluding special items for the third quarter
of 2005 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 $ 0.20 $ 0.22
Special items:
Restructuring, impairment and other
(charges) and credits (a)
Asbestos settlement (b)
(Loss) gain on repurchases and retirements
of debt, net (c) ------ -------
EPS
----------------------------------------------------------------
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 years' 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 plan of reorganization, Corning
will contribute, if the reorganization plan becomes effective, 25 million
shares of Corning common stock to a trust. This portion of the asbestos
liability requires adjustment based upon movements in Corning's common
stock price prior to contribution of the shares to the trust. In the third
quarter of 2005, Corning will record a charge or credit for the change in
its common stock price as of September 30, 2005 compared to $16.62, the
common stock price at June 30, 2005.
(c) From time to time, Corning may repurchase or retire debt, which could
result in a gain or loss during the quarter.
Please note that the company may pursue other financing, restructuring and
divestiture activities at any time in the future, and that the potential impact
of these events is not included within Corning's third quarter 2005 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.