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) October 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 October 26, 2005, regarding its
financial results for the quarter ended September 30, 2005 and its fourth
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
(d) Exhibit
99 Press Release dated October 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: October 26, 2005 By /s/ KATHERINE A. ASBECK
-------------------------------
Katherine A. Asbeck
Senior Vice President - Finance
Exhibit 99
----------
FOR RELEASE -- OCTOBER 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 Announces Third-Quarter Results
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced third-quarter
sales of $1.188 billion and net income of $203 million, or $0.13 per share. Net
income includes special charges of $202 million, or $0.13 per share.
Excluding these special charges, Corning's earnings per share (EPS) would have
been $0.26, exceeding the company's previously announced EPS guidance range of
$0.20 to $0.22 per share for the third quarter. 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.
Wendell P. Weeks, president and chief executive officer, said, "We are very
pleased with Corning's overall performance in the third quarter. We experienced
excellent sales growth, improved gross margins and strong equity earnings."
Corning's third-quarter net income was reduced by $202 million, or $0.13 per
share, as a result of the following charges:
. Net restructuring charges of $28 million (pretax and after-tax) related to
previously announced cost-reduction plans in the Telecommunications
segment.
. A $68 million 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.
. A previously announced reduction in equity earnings of $106 million
reflecting Corning's share of impairment and other charges taken by Samsung
Corning Co., Ltd., a Korean manufacturer of glass panels and funnels for
cathode ray tube (CRT) television and computer monitors.
Third-Quarter Operating Results
Corning's third-quarter sales of $1.188 billion increased 18 percent over last
year's third-quarter sales of $1.006 billion and 4 percent over the previous
quarter's sales of $1.141 billion. Third-quarter gross margins for the company
improved to 46 percent versus 42 percent for the previous quarter.
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Corning Announces Third-Quarter Results
Page Two
Equity earnings for the third quarter were $74 million and include the $106
million charge at Samsung Corning. Without this charge, Corning's third-quarter
equity earnings improved sequentially, reflecting strong performance by Samsung
Corning Precision Glass Co., Ltd. (SCP), offset by slightly lower results at Dow
Corning Corporation.
Corning's third-quarter net income benefited from a $14 million tax adjustment
resulting from the conclusion of the IRS audit of the company's 2001 and 2002
tax returns and from an overall lower effective tax rate. James B. Flaws, vice
chairman and chief financial officer, said, "Lower taxes added $0.02 to our EPS
in the quarter. However, even without this benefit, our results exceeded the top
of our guidance range by $0.02 per share."
Third-quarter sales for Corning's Display Technologies segment were $489
million, an 18-percent increase over the previous quarter's sales of $415
million and a 66-percent increase from sales of $295 million in the third
quarter of 2004. Liquid crystal display (LCD) glass volume increased 22 percent
over second-quarter 2005 volume and 73 percent over third-quarter 2004 volume.
Pricing for the quarter was flat sequentially, while exchange rates in the
quarter had a 4-percent negative impact on sales versus the second quarter.
Samsung Corning Precision, a 50-percent owned equity venture in Korea which
manufactures LCD glass substrates, increased its volume by 22 percent
sequentially. Equity earnings from SCP were up about 35 percent in the third
quarter to $114 million versus $85 million in the second quarter. Second-quarter
equity earnings at SCP had been negatively impacted by a number of nonrecurring
items.
Net income for the Display Technologies segment, which includes results of
Corning's wholly owned business and equity earnings from SCP, grew 49 percent
from $243 million in the second quarter to $363 million in the third quarter.
These results reflect strong operating performance and the lower tax rate in the
quarter.
"We are delighted with the third-quarter results of our Display Technologies
segment and with the continued adoption of LCD technology in both the desktop
monitor and television markets. Our quarterly glass volume for the combined
wholly owned business and SCP is up 78 percent over last year," Weeks said. "We
are also experiencing a rapid increase in market demand for large-size glass
substrates. Generation 5 and larger substrates accounted for more than 75
percent of our total sales volume in the third quarter. We believe that the
continued drop in retail pricing is enabling LCD televisions to gain market
acceptance. Our preliminary data indicates that LCD televisions reached
10-percent penetration in the overall television market in the third quarter,
which is double last year's level," Weeks said.
(more)
Corning Announces Third-Quarter Results
Page Three
Telecommunications segment sales declined 4 percent sequentially to $398 million
versus $415 in the second quarter of this year. The sales decline was due
primarily to lower fiber-to-the-premises (FTTP) hardware and equipment sales.
The segment experienced higher-than-anticipated optical fiber volume for the
quarter, but this was more than offset by lower hardware and equipment sales.
The Telecommunications segment recorded a net loss of $30 million compared to a
net loss of $13 million in the second quarter. The increased loss in the third
quarter was primarily the result of the $28 million restructuring charge.
In the third quarter, Environmental Technologies segment sales were $144 million
compared to $146 million in the second quarter. The Life Sciences segment had
third-quarter sales of $70 million compared to second-quarter sales of $75
million.
Cash Flow/Liquidity Update
Corning finished the quarter with $2.4 billion in cash and short-term
investments, a $300 million improvement over the second-quarter balance of $2.1
billion. The increase was the result of strong operating cash flow which
included the receipt of $144 million in net customer deposits in the Display
Technologies segment.
Flaws said, "We reached a new financial milestone in the third quarter as our
cash and short-term investments exceeded our total debt by more than $300
million. Also during the quarter, Moody's Investor Service upgraded our
long-term debt rating and outlook to Baa3 and stable, respectively. We remain on
track to reduce our total debt to below $2 billion by the end of this year."
Fourth-Quarter Outlook
Corning said that it expects fourth-quarter sales to be in the range of $1.18
billion to $1.24 billion and EPS in the range of $0.21 to $0.23 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. Gross margin for the fourth quarter is expected to be in the range of
43 percent to 45 percent. Corning expects that the fourth-quarter tax rate will
be in the 20 percent to 25 percent range.
In the Display Technologies segment, the company is anticipating that its
fourth-quarter sequential volume growth will be in the range of 3 percent to 10
percent. The company expects its wholly owned business will see quarterly volume
growth in the range of 5 percent to 15 percent and Samsung Corning Precision's
volume will be in the range of flat to up 5 percent. Pricing in the fourth
quarter is expected to be down slightly.
(more)
Corning Announces Third-Quarter Results
Page Four
"The fourth quarter should be another strong quarter for Corning in the LCD
market. The growth rate will be a little slower than the past two quarters due
to fewer new fab ramps by our customers. We also expect some seasonality impact
as customers prepare for the slightly lower quarter one end market demand,"
Weeks said.
Regarding recent news reports about potential excess inventory in the LCD
industry, Weeks added, "We are remaining vigilant in monitoring industry
inventory levels and will adjust our production should it be warranted. As we
have reminded investors, supply chain fluctuations could influence our results
in any given quarter. However, we are comfortable that the industry's current TV
panel inventory is appropriate for the expected year-over-year doubling in
demand, as well as the strong seasonal demand in the fourth quarter."
Weeks also said, "We are looking forward to a strong 2006 in the LCD market.
While the LCD television market is in its early stages, we believe it will
account for 10 percent of the global TV market this year and could reach 20
percent to 25 percent by 2007." He pointed out that Corning's customers continue
to bring their larger size fabs on line in order to produce LCD TV panels at
lower costs. Corning is already shipping small quantities of Gen 7.5 glass from
SCP and is preparing to produce Gen 7.5 and Gen 8 glass in its wholly owned
facilities in 2006.
Corning's Telecommunications segment fourth-quarter sales are expected to be
down 4 percent to 7 percent from the third quarter as a result of seasonal
declines in the market. The company's Environmental Technologies and Life
Sciences segments fourth-quarter sales are expected to be consistent with the
third quarter.
The company expects equity earnings from Dow Corning to be about $50 million in
the fourth quarter, traditionally its weakest quarter.
"We are expecting another solid performance in the fourth quarter," Weeks said.
"Our challenges are to maintain our facility expansions in the Display
Technologies segment in line with the overall industry growth; to continue to
reduce our LCD glass costs to offset any pricing pressures we may experience;
and to preserve our innovative technology leadership in the LCD industry."
Third-Quarter Conference Call Information
The company will host a third-quarter conference call at 8:30 a.m. EDT on
Thursday Oct. 27. To access the call, dial (210) 234-0004. The password is
Quarter Three. The leader is Sofio. A replay of the call will begin at
approximately 10:30 a.m. EDT, and will run through 5:00 p.m. EST, Thursday, Nov.
10. To listen, dial (402) 220-9717, 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.
(more)
Corning Announces Third-Quarter Results
Page Five
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 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 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 a non-GAAP EPS measure is
helpful to analyze financial performance without the impact of unusual items
that may obscure trends in the company's underlying performance. This non-GAAP
measure is reconciled on the company's Web site at
www.corning.com/investor_relations and accompanies this news release.
About Corning Incorporated
Corning Incorporated (www.corning.com) is 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 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 Nine months
ended September 30, ended September 30,
------------------------ ------------------------
2005 2004 2005 2004
--------- -------- --------- ---------
Net sales $ 1,188 $ 1,006 $ 3,379 $ 2,821
Cost of sales 643 602 1,922 1,771
--------- -------- --------- ---------
Gross margin 545 404 1,457 1,050
Operating expenses:
Selling, general and administrative expenses 178 153 553 479
Research, development and engineering expenses 118 88 320 257
Amortization of purchased intangibles 3 9 11 28
Restructuring, impairment and other charges (Note 1) 28 1,794 46 1,794
Asbestos settlement (Note 2) 68 (50) 189 16
--------- -------- --------- ---------
Operating income (loss) 150 (1,590) 338 (1,524)
Interest income 17 6 40 16
Interest expense (25) (36) (90) (109)
Loss on repurchases and retirement of debt, net (4) (12) (36)
Other income, net 17 5 28 6
--------- -------- --------- ---------
Income (loss) from continuing operations before
income taxes 159 (1,619) 304 (1,647)
Provision for income taxes (Note 3) (28) (985) (91) (997)
--------- -------- --------- ---------
Income (loss) from continuing operations before
minority interests and equity earnings 131 (2,604) 213 (2,644)
Minority interests (2) (3) (8) (14)
Equity in earnings of associated companies, net of
impairments (Note 4) 74 96 412 310
--------- -------- --------- ---------
Income (loss) from continuing operations 203 (2,511) 617 (2,348)
Income from discontinued operation 20 20
--------- -------- --------- ---------
Net income (loss) $ 203 $ (2,491) $ 617 $ (2,328)
========= ======== ========= =========
Basic earnings (loss) per common share from:
Continuing operations $ 0.14 $ (1.79) $ 0.43 $ (1.70)
Discontinued operation 0.01 0.01
--------- -------- --------- ---------
Basic earnings (loss) per common share $ 0.14 $ (1.78) $ 0.43 $ (1.69)
========= ======== ========= =========
Diluted earnings (loss) per common share from:
Continuing operations $ 0.13 $ (1.79) $ 0.41 $ (1.70)
Discontinued operation 0.01 0.01
--------- -------- --------- ---------
Diluted earnings (loss) per common share $ 0.13 $ (1.78) $ 0.41 $ (1.69)
========= ======== ========= =========
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
September 30, December 31,
2005 2004
----------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,395 $ 1,009
Short-term investments, at fair value 1,023 872
--------- ---------
Total cash, cash equivalents and short-term investments 2,418 1,881
Trade accounts receivable, net 631 585
Inventories 559 535
Deferred income taxes 87 94
Other current assets 204 188
--------- ---------
Total current assets 3,899 3,283
Investments 1,605 1,484
Property, net 4,367 3,941
Goodwill and other intangible assets, net 380 398
Deferred income taxes 487 472
Other assets 145 166
--------- ---------
Total Assets $ 10,883 $ 9,744
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings, including current portion of long-term debt $ 293 $ 478
Accounts payable 554 682
Other accrued liabilities 1,384 1,178
--------- ---------
Total current liabilities 2,231 2,338
Long-term debt 1,804 2,214
Postretirement benefits other than pensions 594 600
Other liabilities 1,001 747
--------- ---------
Total liabilities 5,630 5,899
--------- ---------
Commitments and contingencies
Minority interests 27 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: 0 and 637 thousand 64
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,534 million and 1,424 million 767 712
Additional paid-in capital 11,280 10,363
Accumulated deficit (6,692) (7,309)
Treasury stock, at cost; Shares held: 16 million (164) (162)
Accumulated other comprehensive income 35 148
--------- ---------
Total shareholders' equity 5,226 3,816
--------- ---------
Total Liabilities and Shareholders' Equity $ 10,883 $ 9,744
========= =========
Certain amounts for 2004 were reclassified to conform to 2005 presentation.
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Three months ended Nine months ended
---------------------- September 30,
Sept. 30, June 30, ------------------------
2005 2005 2005 2004
--------- -------- --------- ---------
Cash Flows from Operating Activities:
Net income (loss) $ 203 $ 165 $ 617 $ (2,328)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 127 126 373 359
Amortization of purchased intangibles 3 3 11 28
Restructuring, impairment and other charges and (credits) 28 (1) 46 1,794
Asbestos settlement 68 137 189 16
Gain on sale of discontinued operation (20)
Loss on repurchases and retirement of debt, net 12 12 36
Undistributed earnings of associated companies (70) (103) (196) (199)
Minority interests, net of dividends paid 1 5 7 14
Deferred taxes (18) 4 (11) 939
Interest expense on convertible debentures 2 3 4
Restructuring payments (6) (7) (21) (75)
Employee retirement plan payments (in excess of)
less than expense 15 13 44 (12)
Customer deposits, net 144 212 376 100
Changes in certain working capital items:
Trade accounts receivable 11 (35) (78) (29)
Inventories (7) (46) (52)
Other current assets 26 (24) (14) (25)
Accounts payable and other current liabilities,
net of restructuring payments 38 22 (91) 29
Other, net 32 12 59 64
-------- ------- -------- --------
Net cash provided by operating activities 595 543 1,280 643
-------- ------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (378) (375) (1,076) (556)
Net proceeds from sale of businesses 100
Net proceeds from sale or disposal of assets 1 16 17 46
Short-term investments - acquisitions (610) (389) (1,313) (969)
Short-term investments - liquidations 401 276 1,163 810
Restricted investments - liquidations 1 3 6
Other, net 1 9 10
-------- ------- -------- --------
Net cash used in investing activities (584) (463) (1,196) (563)
-------- ------- -------- --------
Cash Flows from Financing Activities:
Net repayments of loans payable (3) (3) (198) (111)
Proceeds from issuance of long-term debt, net 99 147 442
Repayments of long-term debt (100) (102) (154)
Proceeds from issuance of common stock, net 9 332 356 33
Cash dividends to preferred shareholders (1) (1) (3) (6)
Proceeds from the exercise of stock options 83 50 142 34
Other, net (2) (9)
-------- ------- -------- --------
Net cash provided by financing activities 86 377 333 238
-------- ------- -------- --------
Effect of exchange rates on cash (3) (3) (31) (4)
-------- ------- -------- --------
Net increase in cash and cash equivalents 94 454 386 314
Cash and cash equivalents at beginning of period 1,301 847 1,009 833
-------- ------- -------- --------
Cash and cash equivalents at end of period $ 1,395 $ 1,301 $ 1,395 $ 1,147
======== ======= ======== ========
Certain amounts for 2004 were reclassified to conform with 2005 presentation.
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 September 30, 2005
Net sales $ 489 $ 398 $ 144 $ 70 $ 87 $ 1,188
Research, development and engineering
expenses (1) $ 32 $ 27 $ 29 $ 15 $ 15 $ 118
Restructuring, impairment and other charges
and (credits) $ 28 $ 28
Interest expense (2) $ 12 $ 6 $ 5 $ 1 $ 1 $ 25
(Provision) benefit for income taxes $ (30) $ 2 $ 1 $ (1) $ (28)
Income (loss) before minority interests and
equity earnings (losses) (3) $ 246 $ (37) $ (5) $ (7) $ (66) $ 131
Minority interests (4) 1 (3) (2)
Equity in earnings (losses) of associated
companies, net of impairments (5) 117 6 (49) 74
------- ------- -------- -------- -------- --------
Net income (loss) $ 363 $ (30) $ (5) $ (7) $ (118) $ 203
======= ======= ======== ======== ======== ========
Three months ended September 30, 2004
Net sales $ 295 $ 412 $ 136 $ 75 $ 88 $ 1,006
Research, development and engineering
expenses (1) $ 22 $ 21 $ 23 $ 9 $ 13 $ 88
Restructuring, impairment and other charges
and (credits) $ 1,802 $ (8) $ 1,794
Interest expense (2) $ 15 $ 9 $ 7 $ 1 $ 4 $ 36
(Provision) benefit for income taxes $ (39) $ (9) $ (1) $ (936) $ (985)
Income (loss) before minority interests and
equity earnings (losses) (3) $ 74 $(1,785) $ 2 $ (895) $ (2,604)
Minority interests (4) (3) (3)
Equity in earnings (losses) of associated
companies, net of impairments (5) 68 (35) 63 96
Income from discontinued operations 20 20
------- ------- -------- -------- -------- --------
Net income (loss) $ 142 $(1,820) $ 0 $ 2 $ (815) $ (2,491)
======= ======= ======== ======== ======== ========
Nine months ended September 30, 2005
Net sales $ 1,224 $ 1,240 $ 438 $ 219 $ 258 $ 3,379
Research, development and engineering
expenses (1) $ 84 $ 71 $ 84 $ 38 $ 43 $ 320
Restructuring, impairment and other charges
and (credits) $ 36 $ 10 $ 46
Interest expense (2) $ 40 $ 25 $ 15 $ 3 $ 7 $ 90
(Provision) benefit for income taxes $ (94) $ 1 $ 2 $ 3 $ (3) $ (91)
Income (loss) before minority interests
and equity earnings (losses) (3) $ 482 $ (41) $ (11) $ (13) $ (204) $ 213
Minority interests (4) 1 (9) (8)
Equity in earnings of associated
companies, net of impairments (5) 285 6 121 412
------- ------- -------- -------- -------- --------
Net income (loss) $ 767 $ (34) $ (11) $ (13) $ (92) $ 617
======= ======= ======== ======== ======== ========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Display Telecom- Environmental Life Unallocated Consolidated
Technologies munications Technologies Sciences and Other Total
------------ ----------- ------------- -------- ----------- ------------
Nine months ended September 30, 2004
Net sales $ 802 $ 1,116 $ 418 $ 233 $ 252 $ 2,821
Research, development and engineering
expenses (1) $ 57 $ 69 $ 64 $ 27 $ 40 $ 257
Restructuring, impairment and other charges
and (credits) $ 1,797 $ (3) $ 1,794
Interest expense (2) $ 37 $ 41 $ 17 $ 4 $ 10 $ 109
(Provision) benefit for income taxes $ (97) $ 25 $ (5) $ (6) $ (914) $ (997)
Income (loss) before minority interests
and equity earnings (losses) (3) $ 191 $(1,853) $ 10 $ 12 $ (1,004) $ (2,644)
Minority interests (4) 1 (15) (14)
Equity in earnings (losses) of associated
companies, net of impairments (5) 204 (32) 138 310
Income from discontinued operations 20 20
------- ------- -------- -------- -------- --------
Net income (loss) $ 395 $(1,884) $ 10 $ 12 $ (861) $ (2,328)
======= ======= ======== ======== ======== ========
(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 nine months ended September 30, 2005, minority interests
include gains of $4 million for adjustments to prior years' restructuring
and impairment reserves associated with CAV. For the three and nine months
ended September 30, 2004, minority interests include gains of $4 million
and $17 million, respectively, from the sale of CAV assets in excess of
assumed salvage value.
(5) Equity in earnings (losses) of associated companies, net of impairments,
includes the following:
For the three and nine months ended September 30, 2005, a charge of $106
million for Corning's share of Samsung Corning's impairment of certain
manufacturing assets and other charges.
For the three and nine months ended September 30, 2004, an impairment
charge of $35 million to write down certain Telecommunications equity
method investments to fair value.
A reconciliation of reportable segment net income (loss) to consolidated net
income (loss) follows (in millions):
Three months Nine months
ended September 30, ended September 30,
------------------------ -------------------------
2005 2004 2005 2004
--------- --------- --------- ----------
Net income of reportable segments $ 321 $ (1,676) $ 709 $ (1,467)
Non-reportable operating segments net income (1) (119) 9 (96) 10
Unallocated amounts:
Non-segment loss and other (2) (4) (3) (7) (10)
Non-segment restructuring, impairment and
other (charges) and credits (3) 1 (25) 5
Asbestos settlement (68) 50 (189) (16)
Interest income 17 6 40 16
Loss on repurchases of debt (4) (12) (36)
Provision for income taxes (4) (3) (934) (7) (931)
Equity in earnings of associated companies (5) 59 40 204 81
Income from discontinued operations 20 20
--------- --------- --------- ---------
Net (loss) income $ 203 $ (2,491) $ 617 $ (2,328)
========= ========= ========= =========
(1) Non-reportable operating segments net income includes the results of
non-reportable operating segments. For the three and nine months ended
September 30, 2005, we recorded a charge of $106 million for our share of
Samsung Corning's impairment of certain manufacturing assets and other
charges for severance and exit costs.
(2) Non-segment loss and other includes the results of non-segment operations
and other corporate activities.
(3) For the three and nine months ended September 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) Provision 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 third quarter of 2005, we recorded a charge of $28 million (before- and
after-tax and minority interest) which primarily included severance costs to
continue to reduce costs in our Telecommunications segment. Additional expenses,
not included in this charge, related to relocating manufacturing assets,
accelerated depreciation, and shutdown activities are not expected to be
material and will be expensed as incurred in future periods. Also included in
this charge were $2 million of credits for adjustments related to prior years'
restructuring charges.
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 $68 million in the third quarter of 2005 reflecting the
increase in Corning's common stock from June 30, 2005 to September 30, 2005.
Beginning with the first quarter of 2003, we have recorded total net charges of
$635 million to reflect the initial settlement and to mark-to-market the value
of our common stock.
3. Provision for Income Taxes
For the three months ended September 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 items for which a U.S. tax benefit was not provided were a worthless
stock deduction, the asbestos settlement charge, and restructuring, impairment
and other charges.
4. Equity in Earnings of Associated Companies
In the third quarter of 2005, Samsung Corning Co., Ltd., a South Korea-based
manufacturer of glass panels and funnels for cathode ray tube television and
display monitors, recorded an impairment charge for certain of its manufacturing
assets and severance and exit costs. Our equity earnings were reduced by $106
million for Corning's share of these charges.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2005
----------------------------------------------------
Three
Months Ended Nine Months
----------------------------------- Ended
March 31 June 30 Sept. 30 Sept. 30
-------- -------- -------- --------
Display Technologies $ 320 $ 415 $ 489 $ 1,224
Telecommunications
Fiber and cable 212 213 216 641
Hardware and equipment 215 202 182 599
-------- -------- ------- --------
427 415 398 1,240
Environmental Technologies
Automotive 127 125 121 373
Diesel 21 21 23 65
-------- -------- ------- --------
148 146 144 438
Life Sciences 74 75 70 219
Other 81 90 87 258
-------- -------- ------- --------
Total $ 1,050 $ 1,141 $ 1,188 $ 3,379
======== ======== ======= ========
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 125 121 120 113 479
Diesel 16 20 16 17 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 September 30, 2005
(Unaudited; amounts in millions, except per share amounts)
--------------------------------------------------------------------------------
Corning's net income and earnings per share (EPS) excluding special items for
the third 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 $ 0.26 $ 255 $ 405
Special items:
Restructuring, impairment and other (charges) and credits (a) (0.02) (28) (28)
Asbestos settlement (b) (0.04) (68) (68)
Equity in earnings of associated companies (c) (0.07) (106)
------- ------- -------
Total EPS and net income $ 0.13 $ 159 $ 203
======= ======= =======
(a) In the third quarter of 2005, we recorded a charge of $28 million (before-
and after-tax and minority interest) which included severance costs to
continue to reduce costs in our Telecommunications segment. Additional
expenses, not included in this charge, related to relocating manufacturing
assets, accelerated depreciation, and shutdown activities are not expected
to be material and will be expensed as incurred in future periods. Also
included in this charge were $2 million of credits for adjustments related
to prior years' restructuring charges.
(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
third quarter of 2005, Corning recorded a charge of $68 million for the
change in its common stock price of $19.33 at September 30, 2005, compared
to $16.62, the common stock price at June 30, 2005.
(c) In the third quarter of 2005, Samsung Corning Co., Ltd., a South
Korea-based manufacturer of glass panels and funnels for cathode ray tube
television and display monitors, recorded an impairment charge for certain
of its manufacturing assets and severance and exit costs. Our equity
earnings were reduced by $106 million for Corning's share of these charges.
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)
--------------------------------------------------------------------------------
Corning's free cash flow financial measure for the three months ended September
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
Sept. 30, 2005
--------------
Cash flows from operating activities $ 595
Less: Cash flows from investing activities (584)
Plus: Short-term investments - acquisitions 610
Less: Short-term investments - liquidations (401)
Less: Restricted investments - liquidations (1)
---------
Free cash flow $ 219
=========
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 $ $
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.
On October 7, 2005, the assets of O.T.I. S.r.l., a wholly-owned foreign
subsidiary, were substantially liquidated. As a result, a gain of $84
million (pretax and after-tax) related to cumulative translation adjustment
will be realized in income in the fourth 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 fourth
quarter of 2005, Corning will record a charge or credit for the change in
its common stock price as of December 31, 2005 compared to $19.33, the
common stock price at September 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 fourth 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.