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 24, 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
The Corning Incorporated press release dated October 24, 2006 regarding its
financial results for the third quarter ended September 30, 2006 and its fourth
quarter 2006 earnings guidance is attached hereto as Exhibit 99.
The information in this report, being furnished pursuant to Item 2.02 of Form
8-K, shall not be deemed to be "filed" for purposes of Section 18 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to the liabilities of that Section, and is not incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as expressly set forth by specific reference in such
filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibit
99 Press Release dated October 24, 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: October 24, 2006 By /s/ KATHERINE A. ASBECK
-------------------------------
Katherine A. Asbeck
Senior Vice President - Finance
Exhibit 99
----------
FOR RELEASE -- October 24, 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 Third-Quarter Results
LCD volume strong
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced third-quarter
sales of $1.28 billion and net income of $438 million, or $0.27 per share.
Corning's third-quarter results include a charge of $13 million, or $0.01 per
share, primarily reflecting the increase in market value of Corning common stock
to be contributed to settle the asbestos litigation related to Pittsburgh
Corning Corporation. Excluding this charge, Corning's third-quarter net income
would have been $451 million, or $0.28 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.
"This was an excellent quarter for Corning," Wendell P. Weeks, president and
chief executive officer, said. "At the beginning of the third quarter, we were
uncertain about the pace of the recovery from the excess panel inventory
correction in the liquid crystal display (LCD) supply chain. We were pleased
that glass demand improved each month throughout the quarter as our customers
geared up to meet the anticipated fourth-quarter demand for LCD televisions,
notebook computers and desktop monitors," he said.
Third-Quarter Operating Results
Corning's third-quarter sales of $1.28 billion increased slightly over
second-quarter sales of $1.26 billion and by 8 percent over last year's
third-quarter sales of $1.19 billion. Gross margin for the third quarter
remained strong at 44 percent.
Equity earnings for the third quarter were $232 million compared to
second-quarter equity earnings of $256 million, which included a $33 million tax
gain at Dow Corning Corporation. Dow Corning's third-quarter equity earnings
were $78 million.
(more)
Corning Announces Third-Quarter Results
Page Two
Third-quarter sales for Corning's Display Technologies segment were $506
million, a 3 percent increase over 2005 third-quarter sales of $489 million.
Year-over-year LCD glass volume increased 31 percent in the third quarter,
largely offset by price declines and the impact of foreign exchange rates.
Sequentially, third-quarter sales increased 10 percent from second-quarter sales
of $461 million as volume increases of 16 percent were offset somewhat by price
declines and the impact of foreign exchange rates.
Samsung Corning Precision Glass Co., Ltd.'s (SCP) third-quarter volume increased
38 percent year-over-year and 11 percent sequentially. Equity earnings from SCP
were $135 million, up 18 percent over last year and up about 2 percent compared
with the second quarter.
Total LCD glass volume, including both Corning's wholly owned business and SCP,
increased 35 percent year-over-year and 13 percent sequentially.
Telecommunications segment sales for the third quarter were $456 million,
declining 3 percent from the previous quarter but in line with expectations. The
decline was primarily due to lower volume of fiber-to-the-premises (FTTP)
products and price declines.
The company's Environmental Technologies segment had sales of $153 million
compared to second-quarter sales of $152 million, reflecting relatively flat
sales of both automotive and diesel products. In early October, Corning
announced its first long-term diesel emissions-control products supply agreement
with Cummins Emissions Solutions, a business unit of Cummins Inc. Sales in
Corning's Life Sciences segment declined sequentially primarily due to a softer
market in North America and Europe.
Cash Flow/Liquidity Update
Corning ended the third quarter with $2.8 billion in cash and short-term
investments, an increase from $2.5 billion in the previous quarter. The increase
in cash and short-term investments is primarily due to the issuance of $250
million of long-term debt to replace debt repurchased in the second quarter.
"Maintaining significant cash is important to Corning's long-term financial
health and to enable us to invest in new business opportunities that emerge from
our research laboratories," James B. Flaws, vice chairman and chief financial
officer, said.
In the third quarter, Corning had positive free cash flow of $76 million and
remains on track to be free cash flow positive for the year. Free cash flow is a
non-GAAP financial measure.
Fourth-Quarter Outlook
Corning expects fourth-quarter sales to be in the range of $1.28 billion to
$1.33 billion and EPS in the range of $0.26 to $0.29, before special items. This
EPS estimate is a non-GAAP financial measure and excludes any special items.
(more)
Corning Announces Third-Quarter Results
Page Three
Gross margin for the fourth quarter is expected to be in the range of 44 percent
to 46 percent and selling, general and administrative expenses are expected to
be in the range of 17 percent to 18 percent of sales. The fourth-quarter tax
rate is expected to be in the range of 13 percent to 15 percent.
In its Display Technologies segment, Corning expects that fourth-quarter
sequential volume growth for its wholly owned business will be in the range of
20 percent to 30 percent as the strong demand experienced at the end of the
third quarter continues into the fourth quarter. Samsung Corning Precision's
fourth-quarter volume is expected to increase sequentially between 8 percent and
12 percent. Corning expects that fourth-quarter price declines will be
consistent with the third quarter.
"We are expecting our display segment to perform well in the fourth quarter,"
Flaws said. "We anticipate that LCD TV sales will exceed 20 percent of the
global television market this year," he said.
Corning's LCD glass volume for the first three quarters, including both its
wholly owned business and SCP, increased more than 50 percent versus last year.
"With the expected fourth-quarter growth, Corning's full-year volume growth
should be in line with our expectations for the year. Our capability to deliver
larger-generation substrate solutions and environmentally green glass with our
EAGLE XG(TM) composition has allowed us to maintain a market leadership
position," Flaws said.
Corning's fourth-quarter Telecommunications segment sales are expected to
decline sequentially by 20 percent to 25 percent due to normal seasonality,
lower FTTP volume and price declines. Fourth-quarter sales in the company's
Environmental Technologies segment are expected to be flat with the previous
quarter. Fourth-quarter equity earnings are expected to be flat to down 5
percent.
Flaws also said that the company has been encouraged by its initial diesel
products sales and expects that volume should continue to build as the industry
gears up for the implementation of the stricter 2007 U.S. environmental
emissions requirements for diesel engines. He said that the volume ramp should
occur over several quarters into next year.
"An important goal for the long-term success of the company is the development
of a more balanced product portfolio," Weeks said. "We continue to maintain an
investment of approximately 10 percent of our sales into research, development
and engineering. A highlight of our third quarter was the introduction of
Corning's Epic(TM) system, the life science industry's first label-free,
high-throughput drug screening system. Our exploration into new advanced
displays such as single-crystal silicon-on-glass technology, green laser
applications, carbon-based energy storage (fuel cells) and optical fiber-radio
technology are a few examples of some of our more promising early-stage
developments currently in our laboratories," Weeks said. He noted that these
types of technology developments often take as long as 10 years before they are
commercialized into the marketplace.
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Corning Announces Third-Quarter Results
Page Four
Additionally, the company announced that it will be meeting with investors and
presenting at four upcoming conferences: Western New York Investor Conference in
Buffalo, N.Y. on Oct. 31; UBS Global Communications and Technology Conference in
New York on Nov. 14; Credit Suisse Annual Technology Conference in Scottsdale,
Ariz., on Nov. 28 and Lehman Brothers Global Technology Conference in San
Francisco on Dec. 7.
Third-Quarter Conference Call Information
The company will host a third-quarter conference call at 8:30 a.m. EDT on
Wednesday, Oct. 25. To access the call, dial (210) 234-8000. 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 p.m. EDT, Wednesday, Nov.
8. To listen, dial (203) 369-0648. 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.
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 Announces Third-Quarter Results
Page Five
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 Nine months
ended September 30, ended September 30,
------------------------ -------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 1,282 $ 1,188 $ 3,805 $ 3,379
Cost of sales 716 643 2,125 1,922
--------- --------- --------- ---------
Gross margin 566 545 1,680 1,457
Operating expenses:
Selling, general and administrative expenses 218 178 635 553
Research, development and engineering expenses 127 118 379 320
Amortization of purchased intangibles 2 3 8 11
Restructuring, impairment and other charges 2 28 13 46
Asbestos settlement (Note 1) 13 73 137 204
--------- --------- --------- ---------
Operating income 204 145 508 323
Interest income 32 17 82 40
Interest expense (18) (23) (56) (84)
Loss on repurchases and retirement of debt, net (11) (12)
Other income, net 27 17 61 28
--------- --------- --------- ---------
Income before income taxes 245 156 584 295
Provision for income taxes 33 28 55 91
--------- --------- --------- ---------
Income (loss) before minority interests and equity earnings 212 128 529 204
Minority interests (6) (2) (8) (8)
Equity in earnings of associated companies, net
of impairments 232 77 688 422
--------- --------- --------- ---------
Net income $ 438 $ 203 $ 1,209 $ 618
========= ========= ========= =========
Basic earnings per common share (Note 2) $ 0.28 $ 0.14 $ 0.78 $ 0.43
========= ========= ========= =========
Diluted earnings per common share (Note 2) $ 0.27 $ 0.13 $ 0.76 $ 0.41
========= ========= ========= =========
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,
2006 2005
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 979 $ 1,342
Short-term investments, at fair value 1,833 1,092
--------- ---------
Total cash, cash equivalents and short-term investments 2,812 2,434
Trade accounts receivable, net 753 629
Inventories 673 570
Deferred income taxes 64 44
Other current assets 184 183
--------- ---------
Total current assets 4,486 3,860
Investments 2,312 1,729
Property, net 5,082 4,675
Goodwill and other intangible assets, net 331 338
Deferred income taxes 56 10
Other assets 580 595
--------- ---------
Total Assets $ 12,847 $ 11,207
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 20 $ 18
Accounts payable 574 690
Other accrued liabilities 1,726 1,662
--------- ---------
Total current liabilities 2,320 2,370
Long-term debt 1,710 1,789
Postretirement benefits other than pensions 592 593
Other liabilities 996 925
--------- ---------
Total liabilities 5,618 5,677
--------- ---------
Commitments and contingencies
Minority interests 41 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: 1,573 million and 1,552 million 790 776
Additional paid-in capital 11,935 11,548
Accumulated deficit (5,638) (6,847)
Treasury stock, at cost; Shares held: 17 million (196) (168)
Accumulated other comprehensive income 297 178
--------- ---------
Total shareholders' equity 7,188 5,487
--------- ---------
Total Liabilities and Shareholders' Equity $ 12,847 $ 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 Nine months ended
------------------------ September 30,
Sept. 30, June 30, ------------------------
2006 2006 2006 2005
--------- -------- --------- ---------
Cash Flows from Operating Activities:
Net income $ 438 $ 514 $ 1,209 $ 618
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 140 149 430 373
Amortization of purchased intangibles 2 3 8 11
Restructuring, impairment and other charges and (credits) 2 5 13 46
Asbestos settlement 13 (61) 137 204
Stock compensation charges 33 30 95 28
Loss on repurchases and retirement of debt, net 11 11 12
Undistributed earnings of affiliated companies (143) (169) (384) (206)
Deferred taxes 3 (5) (64) (11)
Restructuring payments (3) (2) (9) (21)
Customer deposits, net 12 82 86 376
Employee benefit payments less than expense 3 8 26 44
Changes in certain working capital items:
Trade accounts receivable (122) 68 (119) (78)
Inventories (11) (47) (104) (46)
Other current assets (5) 3 (10) (14)
Accounts payable and other current liabilities,
net of restructuring payments 14 1 (181) (91)
Other, net 35 (9) 31 35
-------- ------- ------- --------
Net cash provided by operating activities 411 581 1,175 1,280
-------- ------- ------- --------
Cash Flows from Investing Activities:
Capital expenditures (338) (274) (892) (1,076)
Acquisitions of businesses, net of cash acquired (16) (16)
Net proceeds from sale or disposal of assets 3 8 11 17
Net increase in long-term investments and other
long-term assets (77)
Short-term investments - acquisitions (838) (647) (2,343) (1,313)
Short-term investments - liquidations 383 485 1,603 1,163
Other, net 13
-------- ------- ------- --------
Net cash used in investing activities (790) (444) (1,714) (1,196)
-------- ------- ------- --------
Cash Flows from Financing Activities:
Repayments of short-term borrowings and current
portion of long-term debt (7) (3) (14) (198)
Proceeds from issuance of long-term debt, net 246 246 147
Repayments of long-term debt (9) (334) (343) (102)
Proceeds from issuance of common stock, net 5 9 20 356
Proceeds from the exercise of stock options 29 32 280 142
Other, net (4) (6) (12) (12)
-------- ------- ------- --------
Net cash provided by (used in) financing activities 260 (302) 177 333
-------- ------- ------- --------
Effect of exchange rates on cash 1 (1) (31)
-------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents (119) (164) (363) 386
Cash and cash equivalents at beginning of period 1,098 1,262 1,342 1,009
-------- ------- ------- --------
Cash and cash equivalents at end of period $ 979 $ 1,098 $ 979 $ 1,395
======== ======= ======= ========
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 September 30, 2006
Net sales $ 506 $ 456 $ 153 $ 68 $ 99 $ 1,282
Depreciation (1) $ 69 $ 36 $ 19 $ 5 $ 9 $ 138
Amortization of purchased intangibles $ 2 $ 2
Research, development and engineering
expenses (2) $ 30 $ 20 $ 30 $ 12 $ 9 $ 101
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) $ (3) $ 3 $ 2 $ 2
Income tax provision $ (22) $ (11) $ (3) $ (1) $ (37)
Earnings (loss) before minority interest
and equity earnings (loss) (4) $ 257 $ 24 $ 7 $ (8) $ (1) $ 279
Minority interests (5) (1) (6)
Equity in earnings of affiliated companies (5) 138 1 9 148
------- ------- -------- -------- -------- --------
Net income (loss) $ 395 $ 20 $ 7 $ (8) $ 7 $ 421
======= ======= ======== ======== ======== ========
Three months ended September 30, 2005
Net sales $ 489 $ 398 $ 144 $ 70 $ 87 $ 1,188
Depreciation (1) $ 48 $ 46 $ 18 $ 5 $ 8 $ 125
Amortization of purchased intangibles $ 3 $ 3
Research, development and engineering
expenses (2) $ 29 $ 21 $ 26 $ 11 $ 7 $ 94
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) (3) $ 28 $ 28
Income tax provision $ (35) $ 2 $ 1 $ 1 $ (31)
Earnings (loss) before minority interest
and equity earnings (loss) (4) $ 268 $ (23) $ 9 $ (1) $ 1 $ 254
Minority interests 1 (2) (1)
Equity in earnings (loss) of affiliated
companies (5) 117 6 (107) 16
------- ------- -------- -------- -------- -------
Net income (loss) $ 385 $ (17) $ 9 $ (1) $ (108) $ 268
======= ======= ======== ======== ======== =======
Nine months ended September 30, 2006
Net sales $ 1,514 $ 1,325 $ 460 $ 215 $ 291 $ 3,805
Depreciation (1) $ 199 $ 121 $ 59 $ 15 $ 29 $ 423
Amortization of purchased intangibles $ 8 $ 8
Research, development and engineering
expenses (2) $ 96 $ 58 $ 91 $ 37 $ 25 $ 307
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) $ 2 $ 5 $ 6 $ 13
Income tax provision $ (72) $ (30) $ (6) $ (5) $ (113)
Earnings (loss) before minority interest
and equity earnings (loss) (4) $ 741 $ 62 $ 16 $ (15) $ 2 $ 806
Minority interests (5) (3) (8)
Equity in earnings (loss) of affiliated
companies (5) 415 4 (1) 8 426
------- ------- -------- -------- -------- -------
Net income (loss) $ 1,156 $ 61 $ 15 $ (15) $ 7 $ 1,224
======= ======= ======== ======== ======== =======
Nine months ended September 30, 2005
Net sales $ 1,224 $ 1,240 $ 438 $ 219 $ 258 $ 3,379
Depreciation (1) $ 133 $ 138 $ 53 $ 15 $ 26 $ 365
Amortization of purchased intangibles $ 10 $ 10
Research, development and engineering
expenses (2) $ 74 $ 57 $ 75 $ 28 $ 20 $ 254
Restructuring, impairment and other charges
and (credits) (before-tax and minority
interest) (3) $ 36 $ (15) $ 21
Income tax provision $ (76) $ (13) $ (5) $ (2) $ (3) $ (99)
Earnings (loss) before minority interest and
equity earnings (loss) (4) $ 586 $ (15) $ 22 $ 4 $ 21 $ 618
Minority interests 1 (9) (8)
Equity in earnings (loss) of affiliated
companies (5) 285 7 (82) 210
------- ------- -------- -------- -------- -------
Net income (loss) $ 871 $ (7) $ 22 $ 4 $ (70) $ 820
======= ======= ======== ======== ======== =======
(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) In the three and nine months ended September 30, 2005, restructuring,
impairment and other charges and (credits) includes a charge of $28 million
for a restructuring plan in the Telecommunications segment.
(4) 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.
(5) In the three and nine months ended September 30, 2006, equity in earnings
(loss) of affiliated companies includes charges of $2 million and $26
million, respectively, in All Other related to impairments for Samsung
Corning. In the three and nine months ended September 30, 2005, equity in
earnings (loss) of affiliated companies includes a charge of $106 million
for Corning's share of Samsung Corning's impairment of certain
manufacturing asset and other charges.
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 Nine months
ended September 30, ended September 30,
------------------------ ------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net income of reportable segments $ 421 $ 268 $ 1,224 $ 820
Unallocated amounts:
Net financing costs (1) 5 (18) (5) (79)
Stock-based compensation expense (33) (12) (95) (27)
Exploratory research (22) (20) (62) (56)
Corporate contributions (7) (6) (24) (18)
Equity in earnings of affiliated companies,
net of impairments (2) 84 61 262 212
Asbestos settlement (3) (13) (73) (137) (204)
Other corporate items (4) 3 3 46 (30)
------ ------- -------- -------
Net income $ 438 $ 203 $ 1,209 $ 618
====== ======= ======== =======
(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 nine months ended September 30, 2006, a $33 million gain
representing our share of a tax settlement relating to an IRS
examination at Dow Corning.
. In the nine months ended September 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 change in the estimated fair value of the
other components of the settlement offer. In the third quarter of 2006 and
2005, Corning recorded a charge of $6 million and $68 million,
respectively, to reflect the movement in Corning's common stock price in
each year and charges of $7 million and $5 million, respectively, 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. In
addition, the following items are also included:
. In the nine months ended September 30, 2006, tax benefits of $48
million from the release of valuation allowances for certain foreign
locations.
. In the nine months ended September 30, 2005, impairment charges of $25
million for an other-than-temporary decline in our investment in
Avanex below its cost basis.
. In the three and nine months ended September 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 third quarter of 2006, Corning recorded a charge of
$13 million (pretax and after-tax) including a mark-to-market charge of $6
million reflecting the increase in Corning's common stock from June 30, 2006 to
September 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
$955 million to reflect the estimated fair value of our asbestos liability.
2. Weighted Average Shares Outstanding
Our weighted average shares outstanding are as follows (in millions):
Three months ended
September 30,
------------------- Three months ended
2006 2005 June 30, 2006
---- ---- ------------------
Basic 1,553 1,488 1,549
Diluted 1,593 1,552 1,597
Diluted used for non-GAAP measures 1,593 1,556 1,597
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2006
---------------------------------------------------------
Three Months Ended Nine Months
----------------------------------- Ended
March 31 June 30 Sept. 30 Sept. 30
-------- ------- -------- --------
Display Technologies $ 547 $ 461 $ 506 $ 1,514
Telecommunications
Fiber and cable 205 234 241 680
Hardware and equipment 192 238 215 645
-------- -------- ------- ---------
397 472 456 1,325
Environmental Technologies
Automotive 121 113 112 346
Diesel 34 39 41 114
-------- -------- ------- ---------
155 152 153 460
Life Sciences 72 75 68 215
Other 91 101 99 291
-------- -------- ------- ---------
Total $ 1,262 $ 1,261 $ 1,282 $ 3,805
======== ======== ======= =========
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 September 30, 2006
(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 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 $ 0.28 $ 258 $ 451
Special items:
Asbestos settlement (a) (0.01) (13) (13)
------- -------- --------
Total EPS and net income $ 0.27 $ 245 $ 438
======= ======== ========
(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 third quarter of 2006, Corning
recorded a gain of $13 million (before- and after-tax) including $6 million
for the change in Corning's common stock price of $24.41 at September 30,
2006, compared to $24.19 at June 30, 2006 and a $7 million charge for the
change in estimated fair value of certain other components of the proposed
asbestos settlement liability.
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 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 $ 257 $ 410
Special items:
Restructuring, impairment and other
(charges) and credits (a) (0.02) (28) (28)
Asbestos settlement (b) (0.04) (73) (73)
Equity in earnings of associated
companies (c) (0.07) (106)
------- ------- -------
Total EPS and net income $ 0.13 $ 156 $ 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
associated with cost reduction efforts in our Telecommunications segment.
Also included in this charge were $2 million of credits for adjustments
related to prior years' restructuring charges.
(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 third quarter of 2005, Corning
recorded a charge of $73 million (before- and after-tax) including $68
million for the change in Corning's common stock price of $19.33 at
September 30, 2005, compared to $16.62 at June 30, 2005 and a $5 million
charge for the change in estimated fair value of certain other components
of the proposed asbestos settlement liability.
(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, 2006
(Unaudited; amounts in millions)
--------------------------------------------------------------------------------
Corning's free cash flow financial measure for the three months ended September
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
September 30, 2006
------------------
Cash flows from operating activities $ 411
Less: Cash flows from investing activities (790)
Plus: Short-term investments - acquisitions 838
Less: Short-term investments - liquidations (383)
------
Free cash flow $ 76
======
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended December 31, 2006
(Unaudited; amounts in millions, except per share amounts)
--------------------------------------------------------------------------------
Corning's earnings per share (EPS) excluding special items for the fourth
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 $0.26 $0.29
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 fourth quarter of 2006, Corning will record a
charge or credit for the change in its common stock price as of December
31, 2006 compared to $24.41, the common stock price at September 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 fourth 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.