Corning Incorporated (NYSE:GLW) today announced second-quarter
sales of $1.42 billion and net income of $489 million, or $0.30 per
share. Corning�s second-quarter results include net special charges
totaling $57 million, or $0.04 per share. Excluding these charges,
Corning�s second-quarter net income would have been $546 million,
or $0.34 per share. These are non-GAAP financial measures. These
and all non-GAAP financial measures are reconciled on the company�s
investor relations Web site and in attachments to this news
release. �We were delighted with our second-quarter performance,�
Wendell P. Weeks, chairman and chief executive officer, said. �Our
Display Technologies business had a strong quarter as consumer
demand for all liquid crystal display (LCD) applications continues
to grow. We also had solid results from our Environmental
Technologies business. Sales of both our light-duty and heavy-duty
diesel products increased and we saw gains in our automotive
business as well. On the other hand, sales in our
Telecommunications segment were softer than we expected.� Corning�s
second-quarter results included the following special items: A $76
million non-cash pretax and after-tax charge primarily reflecting
the increase in market value of Corning common stock to be
contributed to settle the asbestos litigation related to Pittsburgh
Corning Corporation; and a $19 million after-tax gain from the sale
of the company�s European submarine cabling business.
Second-Quarter Operating Results Corning�s second-quarter sales of
$1.42 billion increased 12.7 percent over last year�s
second-quarter sales of $1.26 billion. Sales increased 8.4 percent
when compared to first-quarter sales of $1.31 billion. Gross margin
of 46.5 percent in the second quarter was an all-time record for
the company. Corning�s second-quarter results include a very low
effective tax rate caused, in part, by a favorable tax ruling in
Taiwan which reduced the company�s tax expense by $17 million. In
addition, Corning�s forecasted ongoing tax rate was lowered to a
range of 14 percent to 15 percent. Equity earnings for the second
quarter were $220 million, compared to $216 million in the
first-quarter. Second-quarter equity earnings include $132 million
from Samsung Corning Precision Glass Co., Ltd. (SCP), a 17-percent
increase over SCP�s first-quarter equity earnings of $113 million.
Samsung Corning Precision is Corning�s 50-percent owned equity
venture in Korea which manufactures LCD glass substrates for the
Korean market. The gains at SCP were mostly offset by losses from
Samsung Corning Company, Ltd. Samsung Corning is Corning�s
50-percent owned equity venture in Korea which manufactures glass
panels and funnels for cathode ray tubes for conventional
televisions and computer monitors. Equity earnings from Dow Corning
Corporation were $88 million in the second quarter compared to $92
million in the first quarter. Second-quarter sales for Corning�s
Display Technologies segment were $610 million, a 32-percent
increase from the second quarter of 2006. Second-quarter sales
increased 16 percent from the $524 million of first-quarter sales.
Sequential price declines were in line with the company�s new
pricing strategy and consistent with the first quarter. Volume
increased 20 percent sequentially and 58 percent over the weak
second quarter of 2006. �Continued demand for larger-size glass
substrates, caused by the growing consumer popularity of LCD
televisions, contributed to our volume increases in the second
quarter,� Weeks said. The company said that glass volume also was
driven by larger screen LCD monitor and notebook computer demand in
the quarter. Telecommunications segment sales in the second-quarter
were $438 million, a decline of 7 percent from second-quarter 2006
sales of $472 million, and essentially even with the $439 million
in first-quarter sales. Excluding the sales from the company�s
European submarine cabling business which was sold on April 27,
2007, sales increased 5 percent sequentially. The growth in sales
was lower than the company�s expectations due to a labor strike at
a key European customer and more level purchasing patterns by a
primary fiber-to-the-home customer. This is a non-GAAP financial
measure. The Environmental Technologies segment had sales of $191
million, a 26-percent increase over second-quarter 2006 sales of
$152 million, and a 7-percent increase over the $179 million in
first quarter. The sequential sales increase was fueled primarily
by the continued ramp of heavy-duty diesel products and stronger
automotive product sales in the European market. Corning�s Life
Sciences segment had second-quarter sales of $78 million, a
4-percent increase over second-quarter 2006 sales of $75 million.
Cash Flow/Liquidity Update Corning ended the second quarter with
$3.2 billion in cash and short-term investments, up from $2.9
billion at the end of the first quarter. The company�s debt level
remained at $1.5 billion. Last week, Corning announced that its
board of directors declared a third-quarter cash dividend of $0.05
per share, the company�s first since April of 2001. The board also
approved the repurchase of $500 million of common stock between now
and the end of 2008. �The strength of the company�s financial
position was recently recognized by all three of the financial
rating agencies, who increased our rating to BBB plus or the
equivalent. We are very comfortable that our cash flow will support
our dividend payment and the share repurchase program, while we
also continue to invest in our current businesses and future
technologies,� James B. Flaws, vice chairman and chief financial
officer, said. Flaws added that Corning continues to invest in a
number of emerging technologies that hold significant potential for
the company. �We are receiving very positive feedback from the
pharmaceutical industry on our Epic� System, the world�s first
high-throughput label-free drug screening process, which has the
potential to shorten the drug discovery cycle,� he said. Corning is
also investing in future display technologies including
silicon-on-glass applications that could eventually enable
electronic circuits to be added to display glass; green laser
technology to enable high-quality imaging through handheld devices;
and microreactors, which have the potential to deliver major
process innovation and cost reduction for the chemical processing
industry. Also, earlier in the week, Corning announced that it had
achieved a breakthrough in nanoStructures� optical fiber design
that allows cabled fibers to be bent around very tight corners with
virtually no signal loss. The company will launch a full suite of
fiber, cable and hardware and equipment products based on this new
technology and targeted to the multiple-dwelling unit market this
fall. Third-Quarter Outlook Flaws said that the company expects
third-quarter sales to be in the range of $1.525 billion to $1.575
billion and EPS in the range of $0.34 to $0.37 before special
items. This EPS estimate is a non-GAAP financial measure and
excludes special items. The gross margin percentage for the third
quarter is expected to be in the range of 47 percent to 48 percent.
The company anticipates that its third-quarter tax rate will be
about 17 percent. This reflects a forecasted ongoing tax rate of 14
percent to 15 percent, plus the impact of a $14 million adjustment
to deferred taxes caused by a rate change in Germany. The 14
percent to 15 percent rate is a change from the company�s tax rate
guidance at the beginning of the year. Corning also stated that it
is likely that the company will continue to carry full valuation
allowances on its U.S. deferred tax assets until at least the end
of 2008. As a result, the company does not expect to recognize net
tax expense on U.S. income until 2009 at the earliest. The company
expects its tax rate will move to the �mid-20 percent range� when
it begins to recognize net U.S. tax expense. �We will continue to
monitor our deferred tax asset position and we will provide an
update if there are any changes. Corning does not anticipate paying
cash taxes on U.S. income for many years. Our U.S. tax net
operating loss carryforward is approximately $5 billion and does
not begin to expire until 2023,��Flaws said. Corning anticipates
that its third-quarter sequential LCD volume growth for the
company�s wholly owned business will be in the range of 10 percent
to 15 percent and in the range of 5 percent to 10 percent at SCP.
Price declines for the third quarter are expected to be in line
with the second quarter. Flaws said that some of the volume
strength that Corning experienced in the second quarter may have
been the result of an earlier-than-expected build in the LCD
industry supply chain. �However, we believe that our third-quarter
glass volume will remain strong as the consumer electronics
industry gears up for its seasonally heavy retail season later in
the year,� he said. �We continue to believe that the annual market
volume growth rate for LCD glass will be 35 percent to 40 percent
this year. However, for the next few years, the seasonal purchasing
patterns for glass will continue to evolve as LCD television
becomes a greater share of the total market,� Flaws said. Corning
believes that the LCD television penetration rate will be 36
percent of the global TV market this year and reach 47 percent in
2008. �We are encouraged by what we are seeing in the retail space
with consumers opting for larger LCD televisions which increases
demand for our glass,� Flaws said. Corning�s Telecommunications
segment third-quarter sequential sales growth is expected to be
about 10 percent, excluding the sales of the divested European
submarine cabling business. This is a non-GAAP financial measure.
The anticipated sales growth reflects increased private network
activity and an expected recovery in European hardware and
equipment sales. European equipment demand in the third quarter is
expected to be driven by renewed purchasing from a major
telecommunications carrier and a new fiber-to-the-premises
customer. Third-quarter sales in the company�s Environmental
Technologies segment are expected to be flat sequentially. Diesel
product sales are expected to increase in the quarter but this
increase will likely be offset by declines in automotive products.
While the company still anticipates that sales of diesel products
will increase about 60 percent in 2007, the ramp of heavy-duty
diesel products has been slower than originally anticipated, due to
lower U.S. engine sales after last year�s diesel engine pre-buys,
and the impact of a slowdown in domestic freight shipments. Sales
for the Life Sciences segment are also expected to be flat to down
5 percent sequentially. Equity earnings for the third quarter are
expected to be up about 10 percent from the second quarter. �We had
an outstanding first half,� Flaws said, �and this has given us
solid momentum heading into the second half of the year. We are
especially pleased with the growth we see for our display business
as LCD televisions become a larger part of the overall glass
demand.� Upcoming Investor Meetings Corning Incorporated Chairman
and Chief Executive Officer Wendell P. Weeks and Vice Chairman and
Chief Financial Officer James B. Flaws will meet with investors in
Boston on July 31. Investors interested in meeting with the company
should contact Corning�s investor relations department at (607)
974-8764. Second-Quarter Conference Call Information The company
will host a second-quarter conference call on July 25 at 8:30 a.m.
EDT. To access the call, dial (210) 234-0001 approximately 10-15
minutes prior to the start of the call. The password is QUARTER
TWO. The leader is SOFIO. To listen to a live audio webcast of the
call, go to Corning's Web site at
www.corning.com/investor_relations and follow the instructions. A
replay of the call will begin at approximately 10:30 a.m. EDT, and
will run through 5 p.m. EDT, Wednesday, August 8. To listen, dial
(402) 220-9725. No pass code is required. The audio webcast will be
archived for one year following the call. Presentation of
Information in this News Release Non-GAAP financial measures are
not in accordance with, or an alternative to, GAAP. 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 or credits arising from adjustments to the
valuation allowance against deferred tax assets, equity method
charges resulting from impairments of equity method investments or
restructuring, impairment or other charges taken by equity method
companies, and gains from discontinued operations. The company
believes presenting non-GAAP net income and EPS measures is helpful
to analyze financial performance without the impact of unusual
items that may obscure trends in the company�s underlying
performance. These non-GAAP measures are 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 the world leader in specialty
glass and ceramics. Drawing on more than 150 years of materials
science and process engineering knowledge, Corning creates and
makes keystone components that enable high-technology systems for
consumer electronics, mobile emissions control, telecommunications
and life sciences. Our products include glass substrates for LCD
televisions, computer monitors and laptops; ceramic substrates and
filters for mobile emission control systems; optical fiber, cable,
hardware & equipment for telecommunications networks; optical
biosensors for drug discovery; and other advanced optics and
specialty glass solutions for a number of industries including
semiconductor, aerospace, defense, astronomy and metrology.
Forward-Looking and Cautionary Statements This press release
contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual
results to differ materially. These risks and uncertainties include
the possibility of changes in global economic and political
conditions; currency fluctuations; product demand and industry
capacity; competition; manufacturing efficiencies; cost reductions;
availability of critical components and materials; new product
commercialization; changes in the mix of sales between premium and
non-premium products; new plant start-up costs; possible disruption
in commercial activities due to terrorist activity, armed conflict,
political instability or major health concerns; adequacy of
insurance; equity company activities; acquisition and divestiture
activities; the level of excess or obsolete inventory; the rate of
technology change; the ability to enforce patents; product and
components performance issues; stock price fluctuations; and
adverse litigation or regulatory developments. Additional risk
factors are identified in 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, 2007 � 2006 �
2007 � 2006 � � Net sales $ 1,418 $ 1,261 $ 2,725 $ 2,523 Cost of
sales � 759 � � 720 � � 1,475 � � 1,409 � � Gross margin 659 541
1,250 1,114 � Operating expenses: Selling, general and
administrative expenses 229 194 443 417 Research, development and
engineering expenses 137 128 267 252 Amortization of purchased
intangibles 2 3 5 6 Restructuring, impairment and other charges and
(credits) (2 ) 5 (2 ) 11 Asbestos settlement charge (credit) (Note
1) � 76 � � (61 ) � 186 � � 124 � � Operating income 217 272 351
304 � Interest income 35 26 72 50 Interest expense (20 ) (18 ) (41
) (38 ) Loss on repurchases and retirement of debt, net (11 ) (15 )
(11 ) Other income, net (Note 2) � 57 � � 14 � � 89 � � 34 � �
Income before income taxes 289 283 456 339 Provision for income
taxes � 19 � � 24 � � 75 � � 22 � � Income before minority interest
and equity earnings 270 259 381 317 Minority interests (1 ) (1 ) (1
) (2 ) Equity in earnings of affiliated companies, net of
impairments � 220 � � 256 � � 436 � � 456 � � Net income $ 489 � $
514 � $ 816 � $ 771 � � Basic earnings per common share (Note 3) $
0.31 � $ 0.33 � $ 0.52 � $ 0.50 � Diluted earnings per common share
(Note 3) $ 0.30 � $ 0.32 � $ 0.51 � $ 0.48 � � See accompanying
notes to these financial statements. CORNING INCORPORATED AND
SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (Unaudited; in
millions, except per share amounts) � June 30, December 31, 2007 �
2006 � Assets � Current assets: Cash and cash equivalents $ 1,874 $
1,157 Short-term investments, at fair value � 1,329 � � 2,010 �
Total cash, cash equivalents and short-term investments 3,203 3,167
Trade accounts receivable, net 793 719 Inventories 677 639 Deferred
income taxes 33 47 Other current assets � 301 � � 226 � Total
current assets 5,007 4,798 � Investments 2,720 2,522 Property, net
5,179 5,193 Goodwill and other intangible assets, net 313 316
Deferred income taxes 116 114 Other assets � 205 � � 122 � � Total
Assets $ 13,540 � $ 13,065 � � Liabilities and Shareholders� Equity
� Current liabilities: Current portion of long-term debt $ 19 $ 20
Accounts payable 474 631 Other accrued liabilities � 1,712 � �
1,668 � Total current liabilities 2,205 2,319 � Long-term debt
1,456 1,696 Postretirement benefits other than pensions 714 739
Other liabilities � 956 � � 1,020 � Total liabilities � 5,331 � �
5,774 � � Commitments and contingencies Minority interests 43 45
Shareholders� equity: Common stock - Par value $0.50 per share;
Shares authorized: 3.8 billion; Shares issued: 1,592 million and
1,582 million 796 791 Additional paid-in capital 12,165 12,008
Accumulated deficit (4,179 ) (4,992 ) Treasury stock, at cost;
Shares held: 19 million and 17 million (234 ) (201 ) Accumulated
other comprehensive loss � (382 ) � (360 ) Total shareholders�
equity � 8,166 � � 7,246 � � Total Liabilities and Shareholders�
Equity $ 13,540 � $ 13,065 � � See accompanying notes to these
financial statements. � Certain amounts for 2006 were reclassified
to conform with the 2007 presentation. CORNING INCORPORATED AND
SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions) � Three months ended Six months ended June
30, March 31, June 30, 2007 � 2007 � 2007 � 2006 � Cash Flows from
Operating Activities: Net income $ 489 $ 327 $ 816 $ 771
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 149 150 299 290 Amortization of
purchased intangibles 2 3 5 6 Asbestos settlement 76 110 186 124
Restructuring, impairment and other (credits) charges (2 ) (2 ) 11
Loss on repurchases of debt 15 15 11 Stock compensation charges 35
36 71 62 Gain on sale of business (19 ) (19 ) Undistributed
earnings of affiliated companies (101 ) (67 ) (168 ) (239 )
Deferred tax benefit (67 ) Restructuring payments (9 ) (11 ) (20 )
(6 ) Customer deposits, net of (credits) issued (33 ) (33 ) (66 )
74 Employee benefit payments (in excess of) less than expense (92 )
(92 ) 23 Changes in certain working capital items: Trade accounts
receivable (79 ) (28 ) (107 ) 3 Inventories (26 ) (42 ) (68 ) (93 )
Other current assets (27 ) (57 ) (84 ) (5 ) Accounts payable and
other current liabilities, net of restructuring payments 10 (121 )
(111 ) (195 ) Other, net � 10 � � 3 � � 13 � � (8 ) Net cash
provided by operating activities � 475 � � 193 � � 668 � � 762 � �
Cash Flows from Investing Activities: Capital expenditures (204 )
(262 ) (466 ) (554 ) Acquisitions of businesses, net of cash
received (4 ) (4 ) (16 ) Net (payments) proceeds from sale or
disposal of assets (10 ) (10 ) 8 Net increase in long-term
investments and other long-term assets (77 ) Short-term investments
- acquisitions (396 ) (553 ) (949 ) (1,505 ) Short-term investments
- liquidations � 832 � � 798 � � 1,630 � � 1,220 � Net cash
provided by (used in) investing activities � 218 � � (17 ) � 201 �
� (924 ) � Cash Flows from Financing Activities: Net repayments of
short-term borrowings and current portion of long-term debt (2 ) (8
) (10 ) (7 ) Retirements of long-term debt (238 ) (238 ) (334 )
Proceeds from issuance of common stock, net 9 4 13 15 Proceeds from
the exercise of stock options 47 22 69 251 Other, net � � � � � � �
(8 ) Net cash provided by (used in) financing activities � 54 � �
(220 ) � (166 ) � (83 ) Effect of exchange rates on cash � 4 � � 10
� � 14 � � 1 � Net increase (decrease) in cash and cash equivalents
751 (34 ) 717 (244 ) Cash and cash equivalents at beginning of
period � 1,123 � � 1,157 � � 1,157 � � 1,342 � � Cash and cash
equivalents at end of period $ 1,874 � $ 1,123 � $ 1,874 � $ 1,098
� CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS
(Unaudited; in millions) � Our reportable operating segments
include Display Technologies, Telecommunications, Environmental
Technologies and Life Sciences. � � DisplayTech-nologies
Telecom-munications Environ-mentalTech-nologies LifeSciences
AllOther Total � Three months ended June 30, 2007 Net sales $ 610 $
438 $ 191 $ 78 $ 101 $ 1,418 Depreciation (1) $ 79 $ 32 $ 22 $ 5 $
9 $ 147 Amortization of purchased intangibles $ 2 $ 2 Research,
development and engineering expenses (2) $ 28 $ 21 $ 31 $ 13 $ 13 $
106 Restructuring, impairment and other charges and (credits)
(before-tax and minority interest) $ (2 ) $ (2 ) Income tax
provision $ (11 ) $ (8 ) $ (4 ) $ (23 ) Earnings (loss) before
minority interest and equity earnings (loss) (3) $ 354 $ 39 $ 13 $
(3 ) $ 403 Minority interests $ (1 ) $ (1 ) Equity in earnings
(loss) of affiliated companies $ 132 � $ 1 � $ 1 � � � $ (6 ) $ 128
� Net income (loss) $ 486 � $ 40 � $ 14 � $ 0 � $ (10 ) $ 530 � �
Three months ended June 30, 2006 Net sales $ 461 $ 472 $ 152 $ 75 $
101 $ 1,261 Depreciation (1) $ 68 $ 43 $ 20 $ 5 $ 10 $ 146
Amortization of purchased intangibles $ 3 $ 3 Research, development
and engineering expenses (2) $ 36 $ 18 $ 31 $ 12 $ 8 $ 105
Restructuring, impairment and other charges and (credits)
(before-tax and minority interest) $ (1 ) $ 2 $ 4 $ 5 Income tax
provision $ (21 ) $ (13 ) $ (3 ) $ (1 ) $ (38 ) Earnings (loss)
before minority interest and equity earnings (3) $ 209 $ 40 $ 9 $
(2 ) $ 1 $ 257 Minority interests $ (1 ) $ (1 ) Equity in earnings
of affiliated companies (4) $ 135 � $ 1 � � � � � $ 12 � $ 148 �
Net income (loss) $ 344 � $ 40 � $ 9 � $ (2 ) $ 13 � $ 404 � � Six
months ended June 30, 2007 Net sales $ 1,134 $ 877 $ 370 $ 154 $
190 $ 2,725 Depreciation (1) $ 160 $ 65 $ 43 $ 10 $ 17 $ 295
Amortization of purchased intangibles $ 5 $ 5 Research, development
and engineering expenses (2) $ 55 $ 40 $ 61 $ 25 $ 22 $ 203
Restructuring, impairment and other charges and (credits)
(before-tax and minority interest) $ (2 ) $ (2 ) � � � � � Income
tax provision $ (52 ) $ (22 ) $ (8 ) $ (82 ) Earnings (loss) before
minority interest and equity earnings (3) $ 621 $ 67 $ 22 $ (4 ) $
706 Minority interests $ (1 ) $ (1 ) Equity in earnings of
affiliated companies $ 245 � $ 2 � $ 1 � � � $ 3 � $ 251 � Net
income (loss) $ 866 � $ 69 � $ 23 � $ 0 � $ (2 ) $ 956 � � Six
months ended June 30, 2006 Net sales $ 1,008 $ 869 $ 307 $ 147 $
192 $ 2,523 Depreciation (1) $ 130 $ 85 $ 40 $ 10 $ 20 $ 285
Amortization of purchased intangibles $ 6 $ 6 Research, development
and engineering expenses (2) $ 66 $ 38 $ 61 $ 25 $ 16 $ 206
Restructuring, impairment and other charges and (credits)
(before-tax and minority interest) $ 6 $ 2 $ 3 $ 11 Income tax
provision $ (50 ) $ (19 ) $ (3 ) $ (4 ) $ (76 ) Earnings (loss)
before minority interest and equity earnings (loss) (3) $ 484 $ 38
$ 9 $ (7 ) $ 3 $ 527 Minority interests $ (2 ) $ (2 ) Equity in
earnings (loss) of affiliated companies (4) $ 277 � $ 3 � $ (1 ) �
� $ (1 ) $ 278 � Net income (loss) $ 761 � $ 41 � $ 8 � $ (7 ) $ 0
� $ 803 � � (1) Depreciation expense for Corning�s reportable
segments is recorded based on the assets of each segment and also
includes an allocation of depreciation of corporate property not
specifically identifiable to a segment. � (2) Research,
development, and engineering expenses includes direct project
spending which is identifiable to a segment. � (3) Many of
Corning�s administrative and staff functions are performed on a
centralized basis. Where practicable, Corning charges these
expenses to segments based upon the extent to which each business
uses a centralized function. Other staff functions, such as
corporate finance, human resources and legal are allocated to
segments, primarily as a percentage of sales. � (4) In the three
and six months ended June 30, 2007, equity in earnings (loss) of
affiliated companies includes charges of $15 million in All Other
related to impairments for Samsung Corning. In the three and six
months ended June 30, 2006, equity in earnings (loss) of affiliated
companies includes charges of $3 million and $24 million,
respectively, in All Other related to impairments for Samsung
Corning. CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT
RESULTS (Unaudited; in millions) � A reconciliation of reportable
segment net income to consolidated net income (loss) follows (in
millions): � Three months ended Six months June 30, ended June 30,
2007 � 2006 � 2007 � 2006 � Net income of reportable segments $ 530
$ 404 $ 956 $ 803 Unallocated amounts: Net financing costs (1) 10
(2 ) 18 (10 ) Stock-based compensation expense (34 ) (30 ) (70 )
(62 ) Exploratory research (2) (29 ) (19 ) (57 ) (40 ) Corporate
contributions (6 ) (9 ) (20 ) (17 ) Equity in earnings of
affiliated companies, net of impairments (3) 92 108 185 178
Asbestos settlement (4) (76 ) 61 (186 ) (124 ) Other corporate
items (5) � 2 � � 1 � � (10 ) � 43 � Net income $ 489 � $ 514 � $
816 � $ 771 � � (1 ) Net financing costs include interest expense,
interest income, and interest costs and investment gains associated
with benefit plans. (2 ) Exploratory research includes $12 million
and $22 million of spending in the three and six months ended June
30, 2007, respectively, on development programs such as silicon on
glass, green lasers and micro-reactors. � (3 ) In the three and six
months ended June 30, 2006, equity in earnings of affiliated
companies, net of impairments, includes a $33 million gain
representing our share of a tax settlement relating to an IRS
examination at Dow Corning. � (4 ) The asbestos settlement
arrangement to be incorporated into the Pittsburgh Corning
Corporation (PCC) reorganization plan, if the reorganization plan
becomes effective, will require Corning to relinquish its equity
interest in PCC, contribute its equity interest in Pittsburgh
Corning Europe (PCE), and 25 million shares of Corning common stock
to a trust. Corning also agreed to make cash payments over the six
years from the effective date of the settlement and to assign
certain insurance policy proceeds from its primary insurance and a
portion of its excess insurance at the time of the settlement. The
asbestos liability requires adjustment to fair value based upon
movements in 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
second quarter of 2007 and 2006, Corning recorded a charge of $70
million and credit of $68 million, respectively, to reflect the
movement in Corning�s common stock price in each year and charges
of $6 million and $7 million, respectively, to reflect changes in
the estimated fair value of the other components of the settlement
offer. In the six months ended June 30, 2007 and 2006, Corning
recorded charges of $171 million and $114 million, respectively, to
reflect the movement in Corning�s common stock price in each year
and charges of $15 million and $10 million, respectively, to
reflect changes in the estimated fair value of other components of
the settlement offer. � (5 ) Other corporate items include the tax
impact of the unallocated amounts. In addition, the following items
are also included: -- In the six months ended June 30, 2007, loss
of $15 million from the repurchase of $223 million principal amount
of our 6.25% Euro notes due 2010. � -- In the three months and six
months ended June 30, 2006, tax benefits of $10 million and $48
million, respectively, from the release of valuation allowances for
certain foreign locations. 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, if approved, will require Corning to relinquish its
equity interest in PCC, contribute its equity interest in
Pittsburgh Corning Europe N.V. (PCE), a Belgian corporation, and
contribute 25 million shares of Corning common stock. Corning also
agreed to make cash payments with a value of $131 million, in March
2003, over six years from the effective date of the settlement and
to assign insurance policy proceeds from its primary insurance and
a portion of its excess insurance at the time of the settlement. �
As a result of the proposed asbestos settlement, any changes in the
estimated fair value of the components of the proposed settlement
agreement will be recognized in Corning�s quarterly results until
the date of the contribution to the settlement trust. In the second
quarter of 2007, Corning recorded a charge of $76 million (pretax
and after-tax) including a mark-to-market charge of $70 million
reflecting the increase in Corning�s common stock from March 31,
2007 to June 30, 2007 and a $6 million charge to adjust the
estimated fair value of certain other components of the proposed
asbestos settlement. � Beginning with the first quarter of 2003,
Corning has recorded total net charges of $1 billion to reflect the
estimated fair value of our asbestos liability. � 2. Gain on Sale
of Business � In the second quarter of 2007, Corning recognized a
gain of $19 million from the sale of its European submarine cabling
business. Quarterly sales of this business for 2006 and 2007 were
as follows: � 2007 2006 Quarter 1 $30 $19 Quarter 2 9 28 Quarter 3
0 38 Quarter 4 0 33 $39 $118 � 3. Weighted Average Shares
Outstanding � Weighted average shares outstanding are as follows
(in millions): � Three months ended Three months ended June 30,
March 31, 2007 2007 2006 � Basic 1,567 1,549 1,563 Diluted 1,605
1,597 1,600 Diluted used for non-GAAP measures 1,605 1,597 1,600
CORNING INCORPORATED AND SUBSIDIARY COMPANIES QUARTERLY SALES
INFORMATION (Unaudited; in millions) � � � 2007 Three Months Ended
Six Months Ended June 30 March 31 June 30 � Display Technologies $
524 $ 610 $ 1,134 � Telecommunications Fiber and cable 211 219 430
Hardware and equipment � 228 � 219 � 447 439 438 877 �
Environmental Technologies Automotive 123 128 251 Diesel � 56 � 63
� 119 179 191 370 � Life Sciences 76 78 154 � Other � 89 � 101 �
190 � Total $ 1,307 $ 1,418 $ 2,725 � 2006 Q1 Q2 Q3 Q4 Total �
Display Technologies $ 547 $ 461 $ 506 $ 619 $ 2,133 �
Telecommunications Fiber and cable 205 234 241 197 877 Hardware and
equipment � 192 � 238 � 215 � 207 � 852 397 472 456 404 1,729 �
Environmental Technologies Automotive 121 113 112 105 451 Diesel �
34 � 39 � 41 � 50 � 164 155 152 153 155 615 � Life Sciences 72 75
68 72 287 � Other � 91 � 101 � 99 � 119 � 410 � Total $ 1,262 $
1,261 $ 1,282 $ 1,369 $ 5,174 � The above supplemental information
is intended to facilitate analysis of Corning�s businesses. CORNING
INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP
FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June
30, 2007 (Unaudited; amounts in millions, except per share amounts)
� Corning�s net income and earnings per share (EPS) excluding
special items for the second quarter of 2007 are non-GAAP financial
measures within the meaning of Regulation G of the Securities and
Exchange Commission. Non-GAAP financial measures are not in
accordance with, or an alternative to, generally accepted
accounting principles (GAAP). The company believes presenting
non-GAAP net income and EPS is helpful to analyze financial
performance without the impact of unusual items that may obscure
trends in the 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 (Loss) Before Net Share Income Taxes Income (Loss) �
Earnings per share (EPS) and net income, excluding special items $
0.34 $ 346 $ 546 � Special items: Asbestos settlement (a) (0.05 )
(76 ) (76 ) � Gain on sale of business, net (b) � 0.01 � � 19 � �
19 � � Total EPS and net income $ 0.30 � $ 289 � $ 489 � � � (a) As
a result of 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 2007, Corning recorded a charge of $76
million (before- and after-tax) including a charge of $70 million
for the change in Corning�s common stock price of $25.55 at June
30, 2007, compared to $22.74 at March 31, 2007 and a $6 million
charge for the change in the estimated fair value of certain other
components of the proposed asbestos settlement liability. � (b)
Amount reflects a $19 million gain on the sale of the European
submarine cabling business. CORNING INCORPORATED AND SUBSIDIARY
COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP
FINANCIAL MEASURE Three Months Ended March 31, 2007 (Unaudited;
amounts in millions, except per share amounts) � Corning�s net
income and earnings per share (EPS) excluding special items for the
first quarter of 2007 are non-GAAP financial measures within the
meaning of Regulation G of the Securities and Exchange Commission.
Non-GAAP financial measures are not in accordance with, or an
alternative to, generally accepted accounting principles (GAAP).
The company believes presenting non-GAAP net income and EPS is
helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the 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 (Loss) Before Net Share
Income Taxes Income (Loss) � Earnings per share (EPS) and net
income, excluding special items $ 0.28 $ 292 $ 452 � Special items:
Asbestos settlement (a) (0.07 ) (110 ) (110 ) � Loss on repurchase
of debt, net (b) � (0.01 ) � (15 ) � (15 ) � Total EPS and net
income $ 0.20 � $ 167 � $ 327 � � � (a) As a result of 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 first quarter of 2007,
Corning recorded a credit of $110 million (before- and after-tax)
including a charge of $101 million for the change in Corning�s
common stock price of $22.74 at March 31, 2007, compared to $18.71
at December 31, 2006 and a $9 million charge for the change in
estimated fair value of certain other components of the proposed
asbestos settlement liability. � (b) Amount reflects a $15 million
loss on the repurchase of $223 million principal amount of our
6.25% Euro notes due 2010. 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. � � Income (Loss) Net Per Before Income
Share Income Taxes (Loss) � Earnings per share (EPS) and net
income, excluding special items $ 0.26 $ 233 $ 421 � Special items:
Asbestos settlement (a) 0.04 61 61 � Loss on repurchases of debt,
net (0.01 ) (11 ) (11 ) � Provision for income taxes (b) 0.01 10 �
Equity in earnings of affiliated companies (c) � 0.02 � � � � 33 �
� Total EPS and net income $ 0.32 � $ 283 � $ 514 � (a) As a result
of 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 June 30, 2007 (Unaudited; amounts in
millions) � Corning�s free cash flow financial measure for the
three months ended June 30, 2007 is a non-GAAP financial measure
within the meaning of Regulation G of the Securities and Exchange
Commission. Non-GAAP financial measures are not in accordance with,
or an alternative to, generally accepted accounting principles
(GAAP). The company believes presenting non-GAAP financial measures
are helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the company�s underlying
performance. A detailed reconciliation is provided below outlining
the differences between this non-GAAP measure and the directly
related GAAP measures. � � Three months ended June 30, 2007 � Cash
flows from operating activities $ 475 � Less: Cash flows from
investing activities 218 � Plus: Short-term investments -
acquisitions 396 � Less: Short-term investments - liquidations �
(832 ) � Free cash flow $ 257 � CORNING INCORPORATED AND SUBSIDIARY
COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP
FINANCIAL MEASURE Telecommunications Segment (Unaudited; amounts in
millions) � Corning�s comment, �Excluding the sales from the
Company�s European submarine cabling business which was sold on
April 30, 2007, sales increased 5 percent, sequentially.� includes
non-GAAP financial measures within the meaning of Regulation G of
the Securities and Exchange Commission. Non-GAAP financial measures
are not in accordance with, or an alternative to, generally
accepted accounting principles (GAAP). The company believes
presenting this non-GAAP improvement in segments sales 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. � � � Sales vs. Prior Quarter Three months
ended � June 30, March 31, % 2007 2007 Change � Telecommunications
segment sales excluding sales from the Company's European submarine
cabling business $ 429 $ 409 5% � Sales of the European submarine
cabling business � 9 � 30 � � Telecommunications segment sales $
438 $ 439 0% CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL
MEASURE Telecommunications Segment (Unaudited; amounts in millions)
� Corning�s comment, �The Telecommunications segment third quarter
sequential sales growth is expected to be about 10 percent,
excluding the sales of the divested European submarine cabling
business.� includes a non-GAAP financial measure within the meaning
of Regulation G of the Securities and Exchange Commission. Non-GAAP
financial measures are not in accordance with, or an alternative
to, generally accepted accounting principles (GAAP). The company
believes presenting this non-GAAP improvement in segment sales is
helpful to analyze financial performance without the impact of
unusual items that may obscure trends in the 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, 2007 � �
Second quarter 2007 Telecommunications segment sales $ 438 � Less:
European submarine cabling business sales � (9 ) � Second quarter
2007 Telecommunications segment sales excluding European cabling
business sales 429 � Expected 10% third-quarter 2007
Telecommunications sales growth � 43 � � Third-quarter 2007
expected Telecommunications sales $ 472 � CORNING INCORPORATED AND
SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
TO GAAP FINANCIAL MEASURE Three Months Ended September 30, 2007
(Unaudited; amounts in millions, except per share amounts) �
Corning�s earnings per share (EPS) excluding special items for the
third quarter of 2007 is a non-GAAP financial measure within the
meaning of Regulation G of the Securities and Exchange Commission.
Non-GAAP financial measures are not in accordance with, or an
alternative to, generally accepted accounting principles (GAAP).
The company believes presenting non-GAAP EPS is helpful to analyze
financial performance without the impact of unusual items that may
obscure trends in the 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 $ 0.34 $ 0.37 � 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, if the reorganization
plan is approved, 25 million shares of Corning common stock to a
trust. The common stock will be contributed to the trust, after the
plan has been approved by the asbestos claimants and bankruptcy
court. The portion of the asbestos liability to be settled in
common stock requires adjustment each quarter based upon movements
in Corning�s common stock price prior to contribution of the shares
to the trust. In the third quarter of 2007, Corning will record a
charge or credit for the change in its common stock price as of
September 30, 2007 compared to $25.55, the common stock price at
June 30, 2007. In addition, Corning will record an adjustment to
the asbestos liability to reflect the change in fair value of any
of the other components of the proposed asbestos settlement. Please
note that the company may pursue other financing, restructuring and
divestiture activities at any time in the future, and that the
potential impact of these events is not included within Corning's
third quarter 2007 guidance. This schedule contains forward looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements are based on
current expectations and involve certain risks and uncertainties.
Actual results may differ from those projected in the forward
looking statements. Additional information concerning factors that
could cause actual results to materially differ from those in the
forward looking statements is contained in the Securities and
Exchange Commission filings of this Company.
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