Corning Incorporated (NYSE:GLW) today announced results for the
second quarter of 2008. Second-Quarter Highlights Sales reached
$1.69 billion, up 19% year over year. Earnings per share were
$2.01, including a $2.429 billion net special gain primarily
related to the release of U.S. deferred tax asset valuation
allowances. Excluding special items, earnings per share were
$0.49,* within the company�s previously announced guidance for the
quarter of $0.47 to $0.50, and up 44% from last year. Display
Technologies combined glass volume (including Corning�s wholly
owned business and Samsung Corning Precision Glass Co., Ltd.)
increased 8% sequentially and 33% year over year. Corning�s wholly
owned business increased 1% sequentially and 26% year over year.
Sequential growth was negatively impacted by an isolated
manufacturing interruption in the second quarter. Samsung Corning
Precision�s (SCP) volume increased 15% sequentially and 40% year
over year. Third-Quarter Outlook Highlights Sales are expected in
the range of $1.65 billion to $1.72 billion, up 6% to 11% compared
to the third quarter last year. Earnings per share, excluding
special items, are anticipated in the range of $0.48 to $0.51*, an
increase of 26% to 34% over last year. Third-quarter guidance
assumes a yen-to-U.S. dollar exchange rate of 108, compared to an
exchange rate of 105 experienced in the second quarter. In
comparison to the second quarter, the weaker yen is expected to
reduce both third-quarter sales and net income by approximately $30
million. Combined LCD glass volume is expected to increase 4% to 9%
sequentially, with the wholly owned business flat to up 5% and SCP
up 8% to 13%. Year over year, the combined glass volume in the
third quarter is expected to increase by more than 21%. Remarking
on the second quarter, Wendell P. Weeks, chairman and chief
executive officer, said, �Despite concerns of a U.S. economic
slowdown, Corning performed very well in the second quarter. We saw
continued strong demand for our LCD glass substrates throughout the
quarter. The U.S. retail data reported by the NPD Group�s retail
tracking service for the month of June showed retail sales of LCD
TV units up 35% year over year. This is consistent with what we�ve
seen in the first half of the year where LCD TV units sold
increased 37% over a year ago.� The NPD Group is an independent
consumer market research firm. *These are non-GAAP financial
measures. The reconciliation between GAAP and non-GAAP measures is
provided in the tables following this news release, as well as on
the company�s investor relations website. �Additionally, we were
very pleased with our Telecommunications segment performance, where
sequential sales growth was 13%,� Weeks said. Quarter Two Financial
Comparisons � � Q2 2008 � Q1 2008 � % Change � Q2 2007 � % Change
Net Sales in millions � $1,692 � $1,617 � 5% � $1,418 � 19% Net
Income in millions � $3,211 � $1,029 � 212% � $489 � 557% Non-GAAP
Net Income in millions* � $782 � $702 � 11% � $546 � 43% GAAP EPS �
$2.01 � $0.64 � 214% � $0.30 � 570% Non-GAAP EPS* � $0.49 � $0.44 �
11% � $0.34 � 44% Overview of Business Segment Results
Second-quarter sales for Corning�s Display Technologies segment
were $809 million, a 2% sequential decline, but a 33% increase over
the second quarter 2007. Year-over-year glass volume increased by
26%. The display segment results were negatively impacted by an
isolated manufacturing interruption which impacted shipments to one
customer during the quarter. Excluding the impact of the
interruption, sequential volume for the wholly owned business would
have been within the original guidance of 2% to 5% growth. The
manufacturing interruption reduced Corning�s second-quarter sales
by $24 million and net income by $16 million. Also, second-quarter
sales and net income were negatively impacted by the
weaker-than-expected yen-to-U.S. dollar exchange rate in the
quarter versus guidance. Normal price declines were within the
anticipated range for the quarter. Telecommunications segment sales
in the second quarter were $477 million, a 13% sequential increase
and a 9% increase over a year ago. The increase was driven by
strong fiber-to-the-premises demand as well as overall strength in
optical fiber sales. Environmental Technologies segment sales were
$209 million in the second quarter, a 6% sequential improvement and
a 9% increase over a year ago. Diesel product sales were strong in
the second quarter, offset somewhat by a decline in automotive
product demand. Specialty Materials segment sales were $104
million, a 25% sequential increase and a 9% increase over second
quarter 2007. The Life Sciences segment had sales of $87 million, a
7% sequential increase and a 12% increase over the second quarter
last year. The positive year-over-year sales comparisons in the
Telecommunications, Environmental Technologies, and Life Sciences
segments reflected stronger euro-to-U.S. dollar exchange rates.
Corning�s second-quarter equity earnings were $360 million, an 18%
sequential increase and a more than 50% increase over the second
quarter 2007. The company�s equity earnings from Dow Corning were
$94 million, compared to $80 million in the previous quarter and
$88 million a year ago. Special Items The company�s second-quarter
results included net special gains of $2.429 billion or $1.52 per
share. This amount includes a charge of $12 million pretax and
after-tax to settle litigation in the company�s Display
Technologies segment and a non-cash charge of $9 million pretax and
after-tax related to the pending Pittsburgh Corning Corporation
bankruptcy proceeding. In the quarter, the company also released
U.S. deferred tax asset valuation allowances totaling $2.45
billion, a non-cash item. As a result of the valuation allowance
release, Corning expects that its ongoing effective tax rate will
increase by about 10 percentage points in 2009. This will not
affect the company�s 2008 ongoing tax rate. James B. Flaws, vice
chairman and chief financial officer, said, �The most important
factor behind the timing of the release of the U.S. valuation
allowance is our increased confidence in sustained profitability in
the U.S. The potential increase in next year�s tax rate has been
previously disclosed and is in most analysts� 2009 estimates.�
Flaws added, �Corning continues to have a large U.S. net operating
loss carry-forward and does not expect to pay cash taxes in the
U.S. for at least four to five years.� Third-Quarter Outlook �We
have recently seen some panel makers, primarily in Taiwan, reduce
their utilization rates due to what we believe is an inventory
build at the set assembly level of the supply chain. Despite this
normal supply chain correction, we continue to believe that the LCD
glass market will grow at the upper end of our original guidance
range of 25% to 30% this year because retail demand for LCD
products has remained strong,� Flaws said. Business Segment
Highlights Combined glass volume in the Display Technologies
segment is expected to increase 4% to 9% sequentially, with the
wholly owned business flat to up 5% and Samsung Corning Precision
up 8% to 13%. Normal price declines in the quarter are expected to
be around 2%. Corning�s Telecommunications segment sales are
expected to be flat to up 5%, primarily due to improved private
networks sales. Environmental Technologies segment sales are
expected to be flat for the quarter. Specialty Materials segment
sales are expected to be flat and sales in the Life Sciences
segment are expected to be consistent with the previous quarter due
to normal seasonality patterns. Dow Corning Corporation earnings
are expected to increase between 20% and 30% for the quarter.
Samsung Corning Precision earnings are expected to be flat to up
slightly sequentially, as volume gains are expected to be offset by
the assumed unfavorable exchange rates and price declines.
�Overall, we believe Corning is more resistant to materials and
energy inflation than it has been in the past due to cost reduction
and changes in business mix. However, our Life Sciences segment and
Corning Cable Systems business have seen significant material cost
increases and will be implementing prices increases to offset these
costs. Dow Corning is also experiencing significant inflation in
certain raw materials costs and has implemented price increases as
a result,� Flaws added. �While there are economic and supply-chain
risks facing us in the second half of the year, we remain
optimistic about our key areas of opportunity,� Flaws said. �LCD TV
sales have been globally strong this year and this trend continued
through June in the U.S. and other regions. Despite fears of a
continued impact of the earthquake in China, preliminary June
retail data shows LCD TV sales up over 60% over the prior year,� he
remarked. The preliminary retail data was supplied by a private
Chinese-based market research company. �The continued retail
strength is very encouraging as we enter the second half of the
year, which is typically the more robust retail season for
electronic goods,� Flaws said. Separately, Corning announced
earlier today that its board of directors and executive committee
approved a new stock repurchase plan of up to $1 billion that will
run through 2009. This is in addition to last year�s $500 million
repurchase authorization of which $125 million remains.
Second-Quarter Conference Call Information The company will host a
second-quarter conference call on Wednesday, July 30 at 8:30 a.m.
EDT. To access the call, dial (800) 700-8174 or international
access call (651) 291-0900 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
13. To listen, dial (800) 475-6701 or international access call
(320) 365-3844. The access code is 935096. The 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
INCOME (Unaudited; in millions, except per share amounts) � � � � �
� Three months Six months ended June 30, ended June 30, 2008 2007
2008 2007 � Net sales $ 1,692 $ 1,418 $ 3,309 $ 2,725 Cost of sales
� 840 � � 759 � � 1,613 � � 1,475 � � Gross margin 852 659 1,696
1,250 � Operating expenses: Selling, general and administrative
expenses 260 229 502 443 Research, development and engineering
expenses 163 137 314 267 Amortization of purchased intangibles 3 2
5 5 Restructuring, impairment and other credits (2 ) (1 ) (2 )
Asbestos settlement charge (credit) (Note 1) � 9 � � 76 � � (318 )
� 186 � � Operating income 417 217 1,194 351 � Interest income 22
35 52 72 Interest expense (15 ) (20 ) (33 ) (41 ) Loss on
repurchase of debt, net (15 ) Other income, net (Note 2) � 39 � �
57 � � 40 � � 89 � � Income before income taxes 463 289 1,253 456
Benefit (provision) for income taxes (Note 3) � 2,388 � � (19 ) �
2,322 � � (75 ) � Income before minority interests and equity
earnings 2,851 270 3,575 381 Minority interests (1 ) 1 (1 ) Equity
in earnings of affiliated companies, net of impairments � 360 � �
220 � � 664 � � 436 � � Net income $ 3,211 � $ 489 � $ 4,240 � $
816 � � Basic earnings per common share (Note 4) $ 2.05 � $ 0.31 �
$ 2.71 � $ 0.52 � Diluted earnings per common share (Note 4) $ 2.01
� $ 0.30 � $ 2.65 � $ 0.51 � Dividends declared per common share $
0.05 � $ 0.10 � � 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, 2008 2007 Assets � Current
assets: Cash and cash equivalents $ 2,175 $ 2,216 Short-term
investments, at fair value � 1,332 � 1,300 Total cash, cash
equivalents and short-term investments 3,507 3,516 Trade accounts
receivable, net of doubtful accounts and allowances 958 856
Inventories 726 631 Deferred income taxes 168 54 Other current
assets � 289 � 237 Total current assets 5,648 5,294 � Investments
3,264 3,036 Property, net of accumulated depreciation 6,944 5,986
Goodwill and other intangible assets, net 303 308 Deferred income
taxes 2,579 202 Other assets � 442 � 389 � Total Assets $ 19,180 $
15,215 � Liabilities and Shareholders� Equity � Current
liabilities: Current portion of long-term debt $ 76 $ 23 Accounts
payable 831 609 Other accrued liabilities � 1,051 � 1,880 Total
current liabilities 1,958 2,512 � Long-term debt 1,474 1,514
Postretirement benefits other than pensions 739 744 Other
liabilities � 1,280 � 903 Total liabilities � 5,451 � 5,673 �
Commitments and contingencies Minority interests 48 46
Shareholders� equity: Common stock - Par value $0.50 per share;
Shares authorized: 3.8 billion; Shares issued: 1,608 million and
1,598 million 804 799 Additional paid-in capital 12,447 12,281
Retained earnings (accumulated deficit) 1,080 (3,002) Treasury
stock, at cost; Shares held: 37 million and 30 million (659) (492)
Accumulated other comprehensive income (loss) � 9 � (90) Total
shareholders� equity � 13,681 � 9,496 � Total Liabilities and
Shareholders� Equity $ 19,180 $ 15,215 � See accompanying notes to
these financial statements. � CORNING INCORPORATED AND SUBSIDIARY
COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in
millions) � � � Three months ended Six months endedJune 30, June
30, 2008 June 30, 2007 2008 2007 Cash Flows from Operating
Activities: Net income $ 3,211 $ 489 $ 4,240 $ 816 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation 162 149 319 299 Amortization of purchased intangibles
3 2 5 5 Asbestos settlement 9 76 (318 ) 186 Restructuring,
impairment and other credits (2 ) (1 ) (2 ) Loss on repurchases of
debt 15 Stock compensation charges 37 35 78 71 Gain on sale of
business (19 ) (19 ) Undistributed earnings of affiliated companies
(232 ) (101 ) (385 ) (168 ) Deferred tax benefit (2,471 ) (2,473 )
Restructuring payments (3 ) (9 ) (10 ) (20 ) Customer deposits, net
of (credits) issued (71 ) (33 ) (137 ) (66 ) Employee benefit
payments (in excess of) less than expense 11 (37 ) (92 ) Changes in
certain working capital items: Trade accounts receivable 4 (79 )
(46 ) (107 ) Inventories (41 ) (26 ) (73 ) (68 ) Other current
assets (31 ) (27 ) (52 ) (84 ) Accounts payable and other current
liabilities, net of restructuring payments 128 3 (104 ) (127 )
Other, net � (26 ) � 17 � � (21 ) � 29 � Net cash provided by
operating activities � 690 � � 475 � � 985 � � 668 � � Cash Flows
from Investing Activities: Capital expenditures (397 ) (204 ) (864
) (466 ) Acquisitions of businesses, net of cash received (4 ) (4 )
Net proceeds (payments) from sale or disposal of assets 2 (10 ) 2
(10 ) Short-term investments - acquisitions (470 ) (396 ) (1,194 )
(949 ) Short-term investments - liquidations � 324 � � 832 � �
1,140 � � 1,630 � Net cash (used in) provided by investing
activities � (541 ) � 218 � � (916 ) � 201 � � Cash Flows from
Financing Activities: Net repayments of short-term borrowings and
current portion of long-term debt (3 ) (2 ) (12 ) (10 ) Retirements
of long-term debt (238 ) Proceeds from issuance of common stock,
net 11 9 15 13 Proceeds from the exercise of stock options 56 47 74
69 Repurchase of common stock (63 ) (125 ) Dividends paid (80 )
(158 ) Other, net � 2 � � � � � � � Net cash used in financing
activities � (77 ) � 54 � � (206 ) � (166 ) Effect of exchange
rates on cash � (21 ) � 4 � � 96 � � 14 � Net increase (decrease)
in cash and cash equivalents 51 751 (41 ) 717 Cash and cash
equivalents at beginning of period � 2,124 � � 1,123 � � 2,216 � �
1,157 � � Cash and cash equivalents at end of period $ 2,175 � $
1,874 � $ 2,175 � $ 1,874 � � Certain amounts for 2007 were
reclassified to conform to 2008 classifications. CORNING
INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS (Unaudited;
in millions) � Our reportable operating segments include Display
Technologies, Telecommunications, Environmental Technologies,
Specialty Materials and Life Sciences. � � � � � � � � Environ-
Display Tele- mental Life Tech- commun- Techn- Specialty Sci- All �
nologies ications ologies Materials ences Other � Total � Three
months ended June 30, 2008 � Net sales $ 809 $ 477 $ 209 $ 104 $ 87
$ 6 $ 1,692 Depreciation (1) $ 92 $ 31 $ 24 $ 7 $ 4 $ 3 $ 161
Amortization of purchased intangibles $ 3 $ 3 Research, development
and engineering expenses (2) � $ 29 $ 25 $ 32 $ 11 $ 2 $ 42 $ 141
Income tax (provision) benefit $ (61 ) $ (2 ) $ (2 ) $ (1 ) $ 3 $
(63 ) Earnings (loss) before equity earnings (3) � $ 441 $ 23 $ 27
$ 4 $ 16 $ (52 ) $ 459 Equity in earnings of affiliated companies $
244 � � � $ 1 � � � � � $ 15 � $ 260 � Net income (loss) $ 685 � $
23 � $ 28 � $ 4 � $ 16 � $ (37 ) $ 719 � � Three months ended June
30, 2007 � Net sales $ 610 $ 438 $ 191 $ 95 $ 78 $ 6 $ 1,418
Depreciation (1) $ 79 $ 32 $ 22 $ 8 $ 4 $ 2 $ 147 Amortization of
purchased intangibles $ 2 $ 2 Research, development and engineering
expenses (2) � $ 22 $ 21 $ 31 $ 13 $ 2 $ 28 $ 117 Re-structuring,
impairment and other credits (before-tax and minority interest) � �
$ (2 ) $ (2 ) Income tax (provision) benefit $ (11 ) $ (6 ) $ (4 )
$ (3 ) $ 2 $ (22 ) Earnings (loss) before minority interest and
equity earnings (loss) (3) � � $ 362 $ 41 $ 13 $ (2 ) $ 11 $ (36 )
$ 389 Minority interests $ (1 ) $ (1 ) Equity in earnings (loss) of
affiliated companies (4) � $ 132 � $ 1 � $ 1 � � � � � $ (6 ) $ 128
� Net income (loss) $ 494 � $ 42 � $ 14 � $ (2 ) $ 11 � $ (43 ) $
516 � � Six months ended June 30, 2008 � Net sales $ 1,638 $ 898 $
406 $ 187 $ 168 $ 12 $ 3,309 Depreciation (1) $ 182 $ 58 $ 48 $ 15
$ 8 $ 6 $ 317 Amortization of purchased intangibles $ 5 $ 5
Research, development and engineering expenses (2) � $ 53 $ 49 $ 65
$ 20 $ 4 $ 78 $ 269 Re-structuring, impairment and other credits
(before related tax benefits and minority interest) � � $ (1 ) $ (1
) Income tax (provision) benefit $ (118 ) $ (7 ) $ (7 ) $ (6 ) $ 5
$ (133 ) Earnings (loss) before minority interest and equity
earnings (3) � � $ 917 $ 33 $ 39 $ 26 $ (97 ) $ 918 Minority
interest $ 1 $ 1 Equity in earnings of affiliated companies $ 447 �
� � $ 2 � � � � � $ 33 � $ 482 � Net income (loss) $ 1,364 � $ 34 �
$ 41 � $ 0 � $ 26 � $ (64 ) $ 1,401 � � Six months ended June 30,
2007 � Net sales $ 1,134 $ 877 $ 370 $ 179 $ 154 $ 11 $ 2,725
Depreciation (1) $ 160 $ 65 $ 43 $ 16 $ 8 $ 3 $ 295 Amortization of
purchased intangibles $ 5 $ 5 Research, development and engineering
expenses (2) � $ 44 $ 40 $ 61 $ 22 $ 4 $ 54 $ 225 Re-structuring,
impairment and other credits (before-tax and minority interest) � �
$ (2 ) $ (2 ) Income tax (provision) benefit $ (53 ) $ (17 ) $ (7 )
$ (7 ) $ 4 $ (80 ) Earnings (loss) before minority interest and
equity earnings (3) � � $ 635 $ 72 $ 23 $ (2 ) $ 21 $ (68 ) $ 681
Minority interest $ (1 ) $ (1 ) Equity in earnings of affiliated
companies (4) $ 245 � $ 2 � $ 1 � � � � � $ 3 � $ 251 � Net income
(loss) $ 880 � $ 74 � $ 24 � $ (2 ) $ 21 � $ (66 ) $ 931 � (1) �
Depreciation expense for Corning�s reportable segments 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. In the three and six months ended June 30, 2008, earnings
(loss) before minority interest and equity earnings (loss) of the
Display Technologies segment included a $12 million litigation
settlement charge. In the three and six months ended June 30, 2007,
earnings (loss) before minority interest and equity earnings (loss)
of the Telecommunications segment included a $19 million gain on
the sale of the European submarine cabling business. � (4) In the
three and six months ended June 30, 2007, equity earnings (loss) of
affiliated companies includes a charge of $15 million in All Other
related to impairments for Samsung Corning Precision�s non-LCD
businesses. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT
RESULTS (Unaudited; in millions) � � � � A reconciliation of
reportable segment net income to consolidated net income follows
(in millions): � Three months ended Six months ended June 30, June
30, 2008 2007 2008 2007 Net income of reportable segments $ 756 $
559 $ 1,465 $ 997 Non-reportable segments (37 ) (43 ) (64 ) (66 )
Unallocated amounts: Net financing costs (1) 4 10 13 18 Stock-based
compensation expense (37 ) (35 ) (78 ) (71 ) Exploratory research
(17 ) (16 ) (35 ) (33 ) Corporate contributions (7 ) (6 ) (18 ) (20
) Equity in earnings of affiliated companies, net of impairments
(2) 100 92 182 185 Asbestos settlement (3) (9 ) (76 ) 318 (186 )
Other corporate items (4) � 2,458 � � 4 � � 2,457 � � (8 ) Net
income $ 3,211 � $ 489 � $ 4,240 � $ 816 � � (1 ) Net financing
costs include interest income, interest expense, and interest costs
and investment gains associated with benefit plans. � (2 ) Includes
the equity earnings of Dow Corning Corporation. � (3 ) In the three
months ended June 30, 2008, Corning recorded a charge of $9 million
to adjust the asbestos liability for the change in value of certain
components of the Amended PCC Plan and the estimated liability for
non-PCC asbestos claims. In the six months ended June 30, 2008,
Corning reduced its liability for asbestos litigation as a result
of the increase in the likelihood of a settlement under recently
proposed terms and a corresponding decrease in the likelihood of a
settlement under terms established in 2003. In the three and six
months ended June 30, 2007, Corning recorded asbestos settlement
expense under the terms of the 2003 Plan of $76 million and $186
million, respectively, to adjust the estimated fair value of the
components of the proposed asbestos settlement at that time. � (4 )
Other corporate items include the tax impact of the unallocated
amounts. In the three months ended June 30, 2008, Corning recorded
a $2.45 billion tax benefit from the release of a valuation
allowance on U.S. tax benefits due to sustained profitability and
positive future earnings projections for the U.S. entities. In
addition, the six months ended June 30, 2007 included a loss of $15
million from the repurchase of $223 million principal amount of our
6.25% Euro notes due 2010. � 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 2003
Plan). On December 21, 2006, the Bankruptcy Court issued an order
denying confirmation of the 2003 Plan. On January 10, 2008, some of
the parties in the proceeding advised the Bankruptcy Court that
they had made substantial progress on an amended plan of
reorganization (the Amended PCC Plan) that resolved issues raised
by the Court in denying the confirmation of the 2003 Plan. � As a
result of progress in the parties� continuing negotiations, Corning
believes the Amended PCC Plan now represents the most probable
outcome of this matter and the probability that the 2003 plan will
become effective has diminished. The proposed settlement under the
Amended PCC Plan requires Corning to contribute its equity interest
in PCC and Pittsburgh Corning Europe, N.V. (PCE) and to contribute
a fixed series of cash payments, recorded at present value on June
30, 2008. Corning will have the option to contribute shares rather
than cash, but the liability is fixed by dollar value and not
number of shares. As a result, the estimated asbestos settlement
liability is no longer impacted by movements in the value of
Corning common stock. The Amended PCC Plan does not include non-PCC
asbestos claims that may be or have been raised against Corning.
Corning has recorded an additional amount for such claims in its
estimated asbestos settlement liability. � In the first quarter of
2008, we recorded a $327 million reduction to our estimated
liability for asbestos litigation as a result of the increase in
the likelihood of a settlement under the Amended PCC Plan and a
corresponding decrease in the likelihood of a settlement under
terms of the 2003 Plan. In the second quarter of 2008, we recorded
an asbestos settlement charge of $9 million to adjust the asbestos
settlement liability for the change in value of the components of
the Amended PCC Plan and the estimated liability for non-PCC
asbestos claims. � 2. Litigation Settlement � In the second quarter
of 2008, Corning recorded a charge of $12 million to settle
litigation associated with our Display Technologies segment. � 3.
Provision for Income Taxes � In the second quarter of 2008, Corning
concluded that it is more likely than not that the Company will
realize substantially all of its U.S. deferred tax assets because
the Company expects to generate sufficient levels of income in the
U.S. As a result, Corning released $2.45 billion of valuation
allowances on its U.S. deferred tax assets. � 4. Weighted Average
Shares Outstanding � Weighted average shares outstanding are as
follows (in millions): � � Three months endedJune 30, Three months
endedMarch 31,2008 2008 2007 � Basic 1,569 1,567 1,566 Diluted
1,600 1,605 1,598 Diluted used for non-GAAP measures 1,600 1,605
1,598 � CORNING INCORPORATED AND SUBSIDIARY COMPANIES QUARTERLY
SALES INFORMATION (Unaudited; in millions) � � � � � � 2008 Three
Months Ended Six MonthsEnded � March 31 June 30 June 30 � Display
Technologies $ 829 $ 809 $ 1,638 � Telecommunications Fiber and
cable 214 248 462 Hardware and equipment � 207 � 229 � 436 421 477
898 � Environmental Technologies Automotive 137 132 269 Diesel � 60
� 77 � 137 197 209 406 � Specialty Materials 83 104 187 � Life
Sciences 81 87 168 � Other � 6 � 6 � 12 � Total $ 1,617 $ 1,692 $
3,309 � 2007 Q1 Q2 Q3 Q4 Total � Display Technologies $ 524 $ 610 $
705 $ 774 $ 2,613 � Telecommunications Fiber and cable 211 219 237
213 880 Hardware and equipment � 228 � 219 � 235 � 217 � 899 439
438 472 430 1,779 � Environmental Technologies Automotive 123 128
126 131 508 Diesel � 56 � 63 � 72 � 58 � 249 179 191 198 189 757 �
Specialty Materials 84 95 95 105 379 � Life Sciences 76 78 78 73
305 � Other � 5 � 6 � 5 � 11 � 27 � Total $ 1,307 $ 1,418 $ 1,553 $
1,582 $ 5,860 � 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, 2008
(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 2008
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 BeforeIncome Taxes � Per Share Net Income �
Earnings per share (EPS) and net income, excluding special items $
0.49 $ 484 $ 782 � Special items: Asbestos settlement (a) - (9 ) (9
) � Litigation settlement (b) (0.01 ) (12 ) (12 ) � Valuation
allowance release (c) � 1.53 � � - � � 2,450 � � Total EPS and net
income $ 2.01 � $ 463 � $ 3,211 � � � (a) In the second quarter of
2008, Corning recorded a charge of $9 million to adjust the
asbestos liability for the change in value of certain components of
the Amended PCC Plan and the estimated liability for non-PCC
asbestos claims. � (b) In the second quarter of 2008, Corning
recorded a charge of $12 million to settle litigation associated
with our Display Technologies segment. � (c) In the second quarter
of 2008, Corning recorded a valuation allowance release of $2.45
billion to reflect the expected realizability of U.S. deferred tax
assets in future years. � CORNING INCORPORATED AND SUBSIDIARY
COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP
FINANCIAL MEASURE Three Months Ended March 31, 2008 (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 2008 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 $ 0.44 $ 463 $
702 � Special items: Asbestos settlement (a) � 0.20 � � 327 � � 327
� Total EPS and net income $ 0.64 � $ 790 � $ 1,029 � � (a) In the
first quarter of 2008, Corning recorded an asbestos settlement
credit of $327 million to adjust the asbestos liability from $1
billion to $675 million, including the components of the Amended
PCC Plan and the estimated liability for non-PCC asbestos claims. �
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 Before Net Share Income Taxes
Income � 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) In the second quarter of 2007, Corning recorded a
charge of $76 million (before- and after-tax) for the change in the
estimated fair value of the components of the proposed asbestos
settlement liability under the terms of the 2003 Plan. � (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 June 30, 2008 (Unaudited; amounts in
millions) � � � � � � � � � � � � � � � � � � Corning�s free cash
flow financial measure for the three and six months ended June 30,
2008 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. � � Sixmonths endedJune 30, 2008 � Threemonths ended June
30, 2008 � Cash flows from operating activities $ 690 $ 985 � Less:
Cash flows from investing activities (541) (916) � Plus: Short-term
investments - acquisitions 470 1,194 � Less: Short-term investments
- liquidations � � (324) � � � � (1,140) � Free cash flow � $ 295 �
� � $ 123 � CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL
MEASURE Three Months Ended September 30, 2008 (Unaudited; amounts
in millions, except per share amounts) � � � � � � � � � � �
Corning�s earnings per share (EPS) excluding special items for the
third quarter of 2008 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 $ 0.48 $ 0.51 � Special
items (a) � � � � � Earnings per share � � � � � � � � � This
schedule will be updated as additional announcements occur. � (a)
From time to time, Corning may record special items which could
result in a gain or loss during the quarter. � � Please note that
the company may pursue other financing, restructuring and
divestiture activities at any time in the future, and that the
potential impact of these events is not included within Corning's
third quarter 2008 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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