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 20, 2004
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
New York 1-3247 16-0393470
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Riverfront Plaza, Corning, New York 14831
(Address of principal executive offices) (Zip Code)
(607) 974-9000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
- --------------------------------------------------------
Item 7.01 Regulation FD Disclosure
- -----------------------------------
The following information is furnished pursuant to Item 2.02, "Results of
Operations and Financial Condition" and Item 7.01, "Regulation FD Disclosure."
On October 20, 2004, Corning Incorporated issued a press release setting forth
Corning Incorporated's third quarter 2004 earnings. A copy of Corning
Incorporated's press release is attached hereto as Exhibit 99 and hereby
incorporated by reference.
Exhibit Index
99 Press Release dated October 20, 2004 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 20, 2004 By /s/ KATHERINE A. ASBECK
------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
Exhibit 99
----------
FOR RELEASE -- OCTOBER 20, 2004
Media Relations Contact: Investor Relations Contact:
Daniel F. Collins Kenneth C. Sofio
(607) 974-4197 (607) 974-7705
collinsdf@corning.com sofiokc@corning.com
Corning Reports Third-Quarter Results
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced third-quarter
sales of $1.006 billion, and that it incurred a net loss of $2.491 billion or
$1.78 per share. This net loss includes a number of noncash special items that
reduced Corning's results by $2.704 billion or $1.92 per share in the quarter.
"Our third-quarter results reflect Corning's highest level of sales since the
fourth quarter of 2001," James R. Houghton, chairman and chief executive
officer, said. "We are disappointed with the magnitude of the noncash accounting
charges we took in the quarter, but we continue to be pleased with our
sequential revenue improvement and our strong gross margin. We believe that our
business strategy is working, and we are well on track to meet our performance
objectives for the year," he said.
Corning's third-quarter net income was reduced by $2.704 billion or $1.92 per
share as a result of the following:
.. Restructuring, impairment and other charges and credits of $1.794 billion
($1.798 billion after-tax and minority interest) primarily related to the
previously announced impairment of goodwill and fixed assets in the
Telecommunications segment.
.. A $50 million gain to reflect the decrease in the market value of Corning
common stock to be contributed to settle the asbestos litigation related to
Pittsburgh Corning Corporation.
.. A $4 million charge related to Corning's ongoing debt reduction program.
.. A $937 million increase in the company's income tax expense as a result of
the company's previously-announced decision to provide a valuation
allowance against a significant portion of its deferred tax assets.
.. A previously-announced $35 million impairment of equity method investments
in the Telecommunications segment, included in equity earnings of
associated companies, net of impairments.
.. A $20 million gain related to the final settlement of escrowed proceeds
from the fourth-quarter 2002 sale of Corning Precision Lens, recorded as
income from discontinued operation.
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Corning Reports Third-Quarter Results
Page Two
Third-Quarter Operating Results
Corning's third-quarter sales of $1.006 billion increased 4 percent over the
previous quarter's sales of $971 million. The sequential increase was the result
of continued growth of the Display Technologies segment and stronger than
expected sales in the Telecommunications segment.
The company's operating performance remained strong with gross margins reaching
40 percent versus 36 percent last quarter. Corning continued to record strong
quarterly equity earnings from Samsung Corning Precision Glass Co., Ltd and Dow
Corning Corporation.
Sales for the Display Technologies segment grew 6 percent to $295 million
compared to $277 million for the second quarter. Liquid crystal display (LCD)
glass volume grew sequentially 4 percent and year-over-year it increased greater
than 70 percent. Pricing for the quarter remained stable. Net income for the
segment increased 5 percent to $142 million from $135 million in the previous
quarter.
Telecommunications segment sales were $412 million, a 5 percent improvement over
second-quarter sales of $392 million. The segment recorded a net loss of $1.820
billion versus a net loss of $21 million in the previous quarter, primarily due
to goodwill, fixed assets and equity method investment impairment charges of
$1.837 billion. Fiber volume increased more than 20 percent sequentially while
pricing was essentially flat. The segment's third-quarter results reflected the
strength of the company's fiber and cable and hardware and equipment volumes in
North America, principally driven by its participation in Verizon's ramp up of
its fiber-to-the-premises project. Corning said that its fiber exports to China
have been impacted by the recent anti-dumping preliminary determination but not
to the levels originally anticipated.
Environmental Technologies segment sales for the third quarter were $136
million, a decline from the previous quarter's sales of $141 million. Quarterly
sales were impacted by a recent slowdown in diesel products retrofit sales.
Segment earnings were down primarily due to disappointing manufacturing
performance and higher development spending on diesel products. The Life
Sciences segment saw third-quarter revenues and earnings off slightly from the
previous quarter.
Cash Flow/Liquidity Update
Corning ended the third quarter with $1.7 billion in cash and short-term
investments, an increase from the previous quarter's balance of $1.6 billion.
The improved cash flow performance was primarily due to the receipt of customer
deposits and proceeds from divestitures. The company's debt-to-capital ratio
increased to 42 percent versus 31 percent at the end of last quarter as a result
of the loss in the third quarter.
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Corning Reports Third-Quarter Results
Page Three
"Putting aside the noncash accounting charges, we had a very strong third
quarter," James B. Flaws, vice chairman and chief financial officer, said. "We
surpassed a billion dollars in quarterly sales, we continued to improve our
gross margins, and we again experienced strong cash flow," he said.
Fourth-Quarter Outlook
The company said that it expects fourth-quarter sales to be in the range of $950
million to $1 billion and earnings per share in the range of $0.10 to $0.12
before special items. This earning per share estimate is a non-GAAP financial
measure and excludes any previously announced special items. A reconciliation of
the non-GAAP financial estimate is on the company's Investor Relations web site
and accompanies this news release. Corning expects that foreign exchange rates
will remain stable, and that its gross margin will be in the range of 37 percent
to 38 percent.
In its Display Technologies segment, Corning expects that its LCD glass
sequential sales volume will increase between 3 percent and 10 percent, with
continued stable pricing. The company expects to bring on some additional
capacity this quarter, but it said that current customer demand exceeds
Corning's ability to supply the market.
Wendell P. Weeks, president and chief operating officer, said that the consumer
electronics industry has recently begun to reduce retail pricing on LCD monitors
and LCD televisions. "We are now seeing some historically low prices for LCD
monitors, which we believe in turn, will drive retail sales in the fourth
quarter. It is our belief that the global LCD glass market volume will grow
approximately 60 percent this year, and Corning's glass volume will grow 65
percent to 70 percent this year. It is important to note that the pace of growth
is subject to normal business factors, including the level of inventory supply
within the supply chain," Weeks said.
In the Telecommunications segment, the company anticipates that fourth-quarter
fiber volumes will decline 10 percent to 20 percent, reflecting typical seasonal
declines in North America and greater Europe, while volumes in China should be
similar to the third quarter. Fourth-quarter pricing declines are expected to be
less than 5 percent.
Presentation of Information in this News Release
Corning's earnings estimate for the fourth quarter is a non-GAAP financial
measure as it excludes the impact of any potential gains or losses arising from
previously announced restructuring actions; any potential gains or losses
arising from debt repurchases or debt retirements; and any further adjustments
to the asbestos settlement reserve required by movement in Corning's stock
price. The company believes presenting earnings estimates that exclude these
items is helpful in understanding Corning's operating results. This earnings
estimate is reconciled on the company's website at
www.corning.com/investor_relations and accompanies this news release.
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Corning Reports Third-Quarter Results
Page Four
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, life
sciences and semiconductor industries.
Third-Quarter Conference Call Information
The company will host a third-quarter conference call at 8:30 a.m. EST on
Thursday, Oct.21. To access the call, dial (517) 308-9004. The password is
Earnings. The leader is Sofio. A replay of the call will begin at approximately
10:30 a.m. EST and will run through 5 p.m. EST, Thursday, Nov. 4. To listen,
dial (203) 369-1765, no pass code is required. To listen to a live audio webcast
of the call at 8:30 a.m. on Thursday, Oct.21, please go to Corning's Web site
and follow the instructions: http://www.corning.com/investor_relations. The
audio webcast will be archived for one year following the call.
Forward-Looking and Cautionary Statements
This news release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic and political conditions; tariffs, import duties
and currency fluctuations; product demand and industry capacity; competitive
products and pricing; manufacturing efficiencies; cost reductions; availability
and costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers in the liquid
crystal display industry and other businesses; capital spending by larger
customers in the liquid crystal display industry and other businesses; changes
in the mix of sales between premium and non-premium products; facility
expansions and new plant start-up costs; possible disruption in commercial
activities due to terrorist activity, armed conflict, political instability or
major health concerns; ability to obtain financing and capital on commercially
reasonable terms; adequacy and availability of insurance; capital resource and
cash flow activities; capital spending; equity company activities; interest
costs; acquisition and divestiture activities; the level of excess or obsolete
inventory; the rate of technology change; the ability to enforce patents;
product and components performance issues; changes in key personnel; stock price
fluctuations; and adverse litigation or regulatory developments. These and other
risk factors are identified in Corning's filings with the Securities and
Exchange Commission. Forward-looking statements speak only as of the day that
they are made, and Corning undertakes no obligation to update them in light of
new information or future events.
###
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
For the three months For the nine months
ended September 30, ended September 30,
------------------------ ------------------------
2004 2003 2004 2003
--------- -------- --------- ---------
Net sales $ 1,006 $ 772 $ 2,821 $ 2,270
Cost of sales 602 546 1,771 1,663
--------- -------- --------- ---------
Gross margin 404 226 1,050 607
Operating expenses:
Selling, general and administrative expenses 153 147 479 447
Research, development and engineering expenses 88 80 257 258
Amortization of purchased intangibles 9 10 28 28
Restructuring, impairment and other charges and
(credits) 1,794 (10) 1,794 90
Asbestos settlement (50) 51 16 388
--------- -------- --------- ---------
Operating loss (1,590) (52) (1,524) (604)
Interest income 6 7 16 24
Interest expense (36) (36) (109) (118)
(Loss) gain on repurchases and retirement
of debt, net (4) 2 (36) 19
Other income, net 5 5 6 11
--------- -------- --------- ---------
Loss from continuing operations before income taxes (1,619) (74) (1,647) (668)
(Provision) benefit for income taxes (985) 30 (997) 208
--------- -------- --------- ---------
Loss from continuing operations before minority
interests and equity earnings (2,604) (44) (2,644) (460)
Minority interests (3) 2 (14) 72
Equity in earnings of associated companies, net of
impairments 96 75 310 194
--------- -------- --------- ---------
(Loss) income from continuing operations (2,511) 33 (2,348) (194)
Income from discontinued operation 20 20
--------- -------- --------- ---------
Net (loss) income $ (2,491) $ 33 $ (2,328) $ (194)
========= ======== ========= =========
Basic (loss) earnings per common share from:
Continuing operations $ (1.79) $ 0.03 $ (1.70) $ (0.15)
Discontinued operation 0.01 0.01
--------- -------- --------- ---------
Basic (loss) earnings per common share $ (1.78) $ 0.03 $ (1.69) $ (0.15)
========= ======== ========= =========
Diluted (loss) earnings per common share from:
Continuing operations $ (1.79) $ 0.02 $ (1.70) $ (0.15)
Discontinued operation 0.01 0.01
--------- -------- --------- ---------
Diluted (loss) earnings per common share $ (1.78) $ 0.02 $ (1.69) $ (0.15)
========= ======== ========= =========
Certain amounts for 2003 were reclassified to conform with 2004 classifications.
See Notes to Consolidated Financial Statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
September 30, December 31,
2004 2003
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,147 $ 833
Short-term investments, at fair value 592 433
--------- ---------
Total cash, cash equivalents and short-term investments 1,739 1,266
Trade accounts receivable, net 538 525
Inventories 498 467
Deferred income taxes 81 242
Other current assets 214 194
--------- ---------
Total current assets 3,070 2,694
Investments 1,233 1,045
Property, net 3,505 3,620
Goodwill 276 1,735
Other intangible assets, net 132 166
Deferred income taxes 450 1,225
Other assets 203 267
--------- ---------
Total Assets $ 8,869 $ 10,752
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 214 $ 146
Accounts payable 489 333
Other accrued liabilities 1,027 1,074
--------- ---------
Total current liabilities 1,730 1,553
Long-term debt 2,438 2,668
Postretirement benefits other than pensions 605 619
Other liabilities 498 412
Commitments and contingencies
Minority interests 30 36
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Series C mandatory convertible preferred stock - Shares issued: 5.75 million;
Shares outstanding: 637 thousand and 854 thousand 64 85
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,418 million and 1,401 million 709 701
Additional paid-in capital 10,342 10,298
Accumulated deficit (7,472) (5,144)
Treasury stock, at cost; Shares held: 17 million and 58 million (166) (574)
Accumulated other comprehensive income 91 98
--------- ---------
Total shareholders' equity 3,568 5,464
--------- ---------
Total Liabilities and Shareholders' Equity $ 8,869 $ 10,752
========= =========
Certain amounts for 2003 were reclassified to conform with 2004 classifications.
See Notes to Consolidated Financial Statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
For the three months ended For the nine months ended
-------------------------- September 30,
Sept. 30, June 30, ------------------------
2004 2004 2004 2003
--------- -------- --------- ---------
Cash flows from operating activities:
(Loss) income from continuing operations $ (2,511) $ 108 $ (2,348) $ (194)
Adjustments to reconcile net (loss) income from continuing
operations to net cash provided by operating activities:
Amortization of purchased intangibles 9 9 28 28
Depreciation 119 120 359 363
Restructuring, impairment and other charges and (credits) 1,794 (34) 1,794 90
Asbestos settlement (50) 47 16 388
Loss (gain) on repurchases and retirement of debt, net 4 9 36 (19)
Undistributed earnings of associated companies (107) (63) (199) (84)
Minority interests, net of dividends paid 3 11 14 (76)
Deferred taxes 974 5 939 (259)
Interest expense on convertible debentures 1 1 4 15
Restructuring payments (18) (22) (74) (201)
Income tax refund 191
Customer deposits 100 100
Changes in certain working capital items:
Trade accounts receivable 14 (26) (29) 5
Inventories (19) (1) (52) 73
Other current assets (32) 4 (25) 34
Accounts payable and other current liabilities,
net of restructuring payments 35 60 29 (228)
Other, net 20 34 51 (60)
-------- ------- -------- --------
Net cash provided by operating activities 336 262 643 66
-------- ------- -------- --------
Cash flows from investing activities:
Capital expenditures (254) (168) (556) (204)
Net proceeds from sale of businesses 100 100 9
Net proceeds from sale or disposal of assets 11 26 46 39
Net increase in long-term investments and other
long-term assets (4)
Short-term investments - acquisitions (263) (404) (969) (1,426)
Short-term investments - liquidations 296 230 810 1,481
Restricted investments - liquidations 1 3 6 16
-------- ------- -------- --------
Net cash used in investing activities (109) (313) (563) (89)
-------- ------- -------- --------
Cash flows from financing activities:
Net repayments of loans payable (102) (7) (111) (160)
Proceeds from issuance of long-term debt, net 46 442
Repayments of long-term debt (4) (9) (154) (1,100)
Proceeds from issuance of common stock, net 9 13 33 651
Cash dividends to preferred shareholders (1) (3) (6) (15)
Proceeds from the exercise of stock options 7 15 34
-------- ------- -------- --------
Net cash provided by (used in) financing activities (45) 9 238 (624)
-------- ------- -------- --------
Effect of exchange rates on cash 1 (4) (4) 30
-------- ------- -------- --------
Net (decrease) increase in cash and cash equivalents 183 (46) 314 (617)
Cash and cash equivalents at beginning of period 964 1,010 833 1,426
-------- ------- -------- --------
Cash and cash equivalents at end of period $ 1,147 $ 964 $ 1,147 $ 809
======== ======= ======== ========
Certain amounts for 2003 were reclassified to conform with 2004 classifications.
See Notes to Consolidated Financial Statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Effective with the first quarter of 2004, we have revised our reportable
operating segments from Telecommunications and Technologies to
Telecommunications, Display Technologies, Environmental Technologies, and Life
Sciences. Prior year information has been restated to conform with this
revision.
Telecom- Display Environmental Life Unallocated Consolidated
munications Technologies Technologies Sciences and Other Total
----------- ------------ ------------- -------- ----------- ------------
For the three months ended September 30, 2004
Net sales $ 412 $ 295 $ 136 $ 75 $ 88 $ 1,006
Research, development and engineering
expenses (1) $ 21 $ 22 $ 23 $ 9 $ 13 $ 88
Restructuring, impairment and other charges
and (credits) $ 1,802 $ (8) $ 1,794
Interest expense (2) $ 9 $ 15 $ 7 $ 1 $ 4 $ 36
(Provision) benefit for income taxes $ (9) $ (39) $ (1) $ (936) $ (985)
(Loss) income before minority interests and
equity (losses) earnings (3)(4) $(1,785) $ 74 $ 2 $ (895) $ (2,604)
Minority interests (5) (3) (3)
Equity in (losses) earnings of associated
companies, net of impairments (6) (35) 68 63 96
Income from discontinued operations 20 20
------- ------- -------- -------- -------- --------
Net (loss) income $(1,820) $ 142 $ 0 $ 2 $ (815) $ (2,491)
======= ======= ======== ======== ======== ========
For the three months ended September 30, 2003
Net sales $ 370 $ 144 $ 121 $ 70 $ 67 $ 772
Research, development and engineering
expenses (1) $ 25 $ 12 $ 22 $ 7 $ 14 $ 80
Restructuring, impairment and other charges
and (credits) $ (2) $ (8) $ (10)
Interest expense (2) $ 16 $ 9 $ 5 $ 6 $ 36
(Provision) benefit for income taxes $ 16 $ (13) $ (2) $ (1) $ 30 $ 30
(Loss) income before minority interests and
equity earnings (3)(4) $ (28) $ 25 $ 2 $ 3 $ (46) $ (44)
Minority interests (5) 2 2
Equity in (losses) earnings of associated
companies, net of impairments 1 39 1 34 75
------- ------- -------- -------- -------- --------
Net (loss) income $ (27) $ 64 $ 3 $ 3 $ (10) $ 33
======= ======= ======== ======== ======== ========
For the nine months ended September 30, 2004
Net sales $ 1,116 $ 802 $ 418 $ 233 $ 252 $ 2,821
Research, development and engineering
expenses (1) $ 69 $ 57 $ 64 $ 27 $ 40 $ 257
Restructuring, impairment and other charges
and (credits) $ 1,797 $ (3) $ 1,794
Interest expense (2) $ 41 $ 37 $ 17 $ 4 $ 10 $ 109
(Provision) benefit for income taxes $ 25 $ (97) $ (5) $ (6) $ (914) $ (997)
(Loss) income before minority interests
and equity (losses) earnings (3)(4) $(1,853) $ 191 $ 10 $ 12 $ (1,004) $ (2,644)
Minority interests (5) 1 (15) (14)
Equity in (losses) earnings of associated
companies, net of impairments (6) (32) 204 138 310
Income from discontinued operations 20 20
------- ------- -------- -------- -------- --------
Net (loss) income $(1,884) $ 395 $ 10 $ 12 $ (861) $ (2,328)
======= ======= ======== ======== ======== ========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Telecom- Display Environmental Life Unallocated Consolidated
munications Technologies Technologies Sciences and Other Total
----------- ------------ ------------- -------- ----------- ------------
For the nine months ended September 30, 2003
Net sales $ 1,069 $ 396 $ 353 $ 215 $ 237 $ 2,270
Research, development and engineering
expenses (1) $ 95 $ 36 $ 63 $ 21 $ 43 $ 258
Restructuring, impairment and other charges
and (credits) $ (30) $ 120 $ 90
Interest expense (2) $ 59 $ 27 $ 15 $ 4 $ 13 $ 118
(Provision) benefit for income taxes $ 46 $ (30) $ (6) $ (7) $ 205 $ 208
(Loss) income before minority interests
and equity (losses) earnings (3)(4) $ (141) $ 60 $ 11 $ 15 $ (405) $ (460)
Minority interests (5) 72 72
Equity in (losses) earnings of associated
companies, net of impairments (6) (10) 94 110 194
------- ------- -------- -------- -------- --------
Net (loss) income $ (151) $ 154 $ 11 $ 15 $ (223) $ (194)
======= ======= ======== ======== ======== ========
(1) Non-direct research, development and engineering expenses are allocated
based upon direct project spending for each segment.
(2) Interest expense is allocated to segments based on a percentage of segment
net operating assets. Consolidated subsidiaries with independent capital
structures do not receive additional allocations of interest expense.
(3) Many of Corning's administrative and staff functions are performed on a
centralized basis. Where practicable, Corning charges these expenses to
segments based upon the extent to which each business uses a centralized
function. Other staff functions, such as corporate finance, human resources
and legal are allocated to segments primarily as a percentage of sales.
(4) (Loss) income before minority interests and equity (losses) earnings
includes an allocation of depreciation of corporate property, plant and
equipment not specifically identifiable to a segment. Related depreciable
assets are not allocated to segment assets.
(5) Minority interests includes the following restructuring, impairment and
other charges and (credits):
For the three and nine months ended September 30, 2004, gains from the
sale of assets of Corning Asahi Video Products Company in excess of
assumed salvage value of $4 and $17, respectively.
For the nine months ended September 30, 2003, charges of $59 related
to impairment of long-lived assets of Corning Asahi Video Products
Company.
(6) Equity in (losses) earnings of associated companies, net of impairments
includes the following charges related to impairments of equity investments
in the Telecommunications segment:
$35 million for the three and nine months ended September 30, 2004.
$7 million for the nine months ended September 30, 2003.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
A reconciliation of reportable segment net (loss) income to consolidated net
(loss) income follows:
For the three months For the nine months
ended September 30, ended September 30,
------------------------ ------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net income (loss) of reportable segments $ (1,676) $ 43 $ (1,467) $ 29
Non-reportable operating segments net income (loss) (1) 9 (1) 10 (48)
Unallocated amounts:
Non-segment loss and other (2) (3) (4) (10) (33)
Non-segment restructuring, impairment and
other (charges) and credits 1 (3) 5 (13)
Asbestos settlement 50 (51) (16) (388)
Interest income 6 7 16 24
(Loss) gain on repurchases of debt (4) 2 (36) 19
(Provision) benefit for income taxes (3) (934) 19 (931) 152
Equity in earnings of associated companies, net
of impairments (4) 40 21 81 64
Income from discontinued operations 20 20
--------- --------- --------- ---------
Net (loss) income $ (2,491) $ 33 $ (2,328) $ (194)
========= ========= ========= =========
(1) Non-reportable operating segments net income (loss) includes the results of
non-reportable operating segments.
(2) Non-segment loss and other includes the results of non-segment operations
and other corporate activities.
(3) (Provision) benefit for income taxes includes taxes associated with
non-segment restructuring, impairment and other charges and $937 for the
impact of establishing a valuation allowance against certain deferred tax
assets in the third quarter of 2004.
(4) Equity in earnings of associated companies, net of impairments includes
amounts derived from corporate investments, primarily Dow Corning
Corporation.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Restructuring, Impairment and Other Charges and (Credits)
In the third quarter of 2004, we recorded net charges of $1,794 million ($1,798
million after-tax and minority interest) included in restructuring, impairment
and other charges and (credits). A summary of the charges/(credits) follows:
(a) Telecommunications segment charges totaling $1,802 million included the
following:
. Goodwill - Pursuant to Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets," goodwill is required to be tested for
impairment annually at the reporting unit level. The reporting unit
for our Telecommunications segment goodwill is our Telecommunications
operating segment. While our annual goodwill recoverability assessment
is completed in the fourth quarter, it is the culmination of our
annual strategic planning process that runs from June to October.
Management performed an assessment in the third quarter of 2004 and
reviewed the outcome with Corning's board of directors on October 6,
2004. The result of this strategic review is that we have lowered our
estimates and projections for the long-term revenue growth of the
Telecommunications segment.
Based on our updated estimates for the long-term growth of the
Telecommunications segment, management concluded that the fair value
of the Telecommunications segment was below its carrying amount.
Accordingly, we recorded an impairment charge of $1,420 million to
reduce the carrying value of goodwill to its estimated fair value of
approximately $120 million.
. Fixed Assets - As a result of the lowered long-term outlook for the
Telecommunications segment discussed above, Corning recorded asset
impairment charges of $374 million in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
These charges primarily relate to the permanent abandonment of the
unfinished phase II expansion of the Concord, North Carolina optical
fiber plant. This portion of the facility was only partially completed
before Corning mothballed the entire Concord plant in October 2002.
. Loss on sale of business - Corning completed the previously-announced
sale of its frequency controls business for net proceeds of $80
million and recorded a loss of $14 million.
. Other - Corning recorded net credits of $6 million for adjustments to
prior years' restructuring and impairment charges.
(b) In the third quarter of 2004, Corning completed the final sale of Corning
Asahi Video Products Company assets to Henan Anyang CPT Glass Bulb Group,
Xinyi Electronic Glass, Co., LTD, a Chinese corporation. In connection with
this asset sale, Corning recorded a gain of $8 million before minority
interest.
2. Asbestos Settlement
On March 28, 2003, we announced that we had reached agreement with the
representatives of asbestos claimants for the settlement of all current and
future asbestos claims against us and Pittsburgh Corning Corporation ("PCC"),
which might arise from PCC products or operations. Accordingly, we recorded a
charge of $298 million in the first quarter of 2003. The charge included the
value of 25 million shares of Corning common stock that we will contribute as
part of the settlement. Also at that time, we indicated that any changes in the
value of our common stock contribution would be recognized in our quarterly
results through the date of contribution to the settlement trust. As required,
we recorded a mark-to-market credit of $50 million in the third quarter of 2004
reflecting the decrease in Corning's common stock from June 30 to September 30,
2004. Beginning with the first quarter of 2003, we have recorded total net
charges of $429 million to reflect the initial settlement and to mark-to-market
the value of our common stock. We will make our contributions to the settlement
trust under the agreement after the plan is approved, becomes effective and is
no longer subject to appeal.
3. Long-Term Debt
In the third quarter of 2004, we issued 6 million shares of common stock and
paid $4 million in cash in exchange for 57,500 of our 3.5% convertible
debentures with a book value of $58 million. In accordance with SFAS No. 84,
"Induced Conversions of Convertible Debt," Corning recognized a charge of $4
million reflecting the fair value of the incremental consideration given (i.e.,
the cash) beyond those required by the terms of the debentures.
4. Provision for Income Taxes
In the third quarter of 2004, we increased our tax expense by $937 million as a
result of the company's decision to establish a valuation allowance against a
significant portion of its deferred tax assets, primarily in the U.S. We
performed an assessment of positive and negative evidence regarding the
realization of our net deferred tax assets as required by SFAS No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires that a valuation
allowance be established when it is more likely than not that all or a portion
of a deferred tax asset will not be realized. SFAS 109 further requires that
"greater weight be given to previous cumulative losses than the outlook for
future profitability when determining whether deferred tax assets can be used."
We have incurred significant losses in the U.S. due primarily to the
restructuring and impairment charges and operating losses in our
Telecommunications segment over the last four years. As a result of the third
quarter impairment charges and the lowering of our long-term outlook for the
Telecommunications segment, our largest U.S. business, we concluded that a
valuation allowance against these tax assets is required until realization is
more assured.
5. Equity Investments
In the third quarter of 2004, Corning recorded impairment charges of $35 million
to write-down certain Telecommunications segment equity-method investments to
their estimated fair value. As a result of Corning's revised Telecommunications
segment outlook, we determined that these investments were no longer strategic
assets. Accordingly, we recorded a charge to fully impair the book values of our
investments in these entities. These impairment charges are included in "equity
in earnings of associated companies, net of impairments" in the statements of
operations.
6. Discontinued Operation
In the third quarter of 2004, we reached a final settlement agreement with 3M
Company for disbursement of funds held in escrow as part of our December 2002
sale of our precision lens business. Accordingly, we recognized a gain of $20
million upon receipt of these proceeds. This gain is included in "income from
discontinued operation" in the statements of operations.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2004
-----------------------------------
Three
Months Ended Nine Months
----------------------------------- Ended
March 31 June 30 Sept. 30 Sept. 30
-------- ------- -------- --------
Telecommunications
Fiber and cable $ 149 $ 192 $ 202 $ 543
Hardware and equipment 163 200 210 573
-------- -------- ------- --------
312 392 412 1,116
Display Technologies 230 277 295 802
Environmental Technologies 141 141 136 418
Life Sciences 79 79 75 233
Other
Conventional video components 2 2
Other businesses 80 82 88 250
-------- -------- ------- --------
82 82 88 252
Total $ 844 $ 971 $ 1,006 $ 2,821
======== ======== ======= ========
2003
--------------------------------------------------------------
Three Months Ended
------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Total
-------- ------- -------- ------- -----
Telecommunications
Fiber and cable $ 193 $ 178 $ 209 $ 180 $ 760
Hardware and equipment 141 154 151 166 612
Photonic technologies 18 15 10 11 54
-------- -------- ------- ------- --------
352 347 370 357 1,426
Display Technologies 117 135 144 199 595
Environmental Technologies 115 117 121 123 476
Life Sciences 73 72 70 66 281
Other
Conventional video components 25 24 14 2 65
Other businesses 64 57 53 73 247
-------- -------- ------- ------- --------
89 81 67 75 312
Total $ 746 $ 752 $ 772 $ 820 $ 3,090
======== ======== ======= ======= ========
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
Nine Months Ended September 30, 2004
(Unaudited; amounts in millions, except per share amounts)
- --------------------------------------------------------------------------------
Corning's earnings excluding certain items for the third quarter is a non-GAAP
financial measure within the meaning of Regulation G of the Securities and
Exchange Commission. The company believes presenting earnings estimates that
exclude these items is helpful in understanding Corning's operating results.
This non-GAAP measure is not in accordance with and should not be considered an
alternative of measurements required under generally accepted accounting
principles (GAAP). A detailed reconciliation is provided below outlining the
differences between this non-GAAP measure and the directly related GAAP measure.
- --------------------------------------------------------------------------------
Per Income Before Net
Share Income Taxes Income
------- ------------- --------
Earnings per share (EPS) and net income,
excluding certain items $ 0.14 $ 129 $ 213
Certain items:
Restructuring, impairment and other charges and (credits) (a) (1.28) (1,794) (1,798)
Asbestos settlement (b) 0.04 50 50
(Loss) gain on repurchases and retirement of debt, net (c) (4) (4)
(Provision) benefit for income taxes (d) (0.67) (937)
Equity in earnings of associated companies, net of impairments (e) (0.02) (35)
Income from discontinued operations (f) 0.01 20
------- -------- --------
Total EPS and net income $ (1.78) $ (1,619) $ (2,491)
======= ======== ========
(a) Corning recorded charges of $1.794 billion in the third quarter of 2004.
The following charges are associated with its Telecommunications segment:
$1.420 billion to impair goodwill; $374 million to impair certain fixed
assets; and $14 million for the completion of the sale of the frequency
controls business. Also in the third quarter of 2004, Corning completed the
final sale of Corning Asahi Video Products Company assets to Henan Anyang
CPT Glass Bulb Group, Xinyi Electronic Glass, Co., LTD. and recorded a gain
of $8 million before minority interest. Lastly, Corning recorded net
credits of $6 million for adjustments to prior year restructuring and
impairment charges.
(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. This portion of the asbestos
liability requires quarterly adjustment based upon movements in Corning's
common stock price prior to contribution of the shares to the trust. In the
third quarter of 2004, Corning recorded a credit of $50 million for the
change in its common stock price of $11.08 at September 30, 2004 compared
to $13.06, the common stock price at June 30, 2004.
(c) From time to time, Corning may repurchase or retire debt, which could
result in a gain or loss during the quarter. In the third quarter of 2004,
Corning retired certain amounts of its 3.5% convertible bonds due 2008,
resulting in a loss of $4 million.
(d) In the third quarter of 2004, Corning increased income tax expense by $937
million as a result of the company's previously-announced decision to
provide a valuation allowance against a significant portion of its deferred
tax assets.
(e) This amount reflects charges for impairments of certain non-strategic
equity method investments in Corning's Telecommunications segment.
(f) This gain relates to the final settlement of the sale of Corning's
precision lens business to 3M Company.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended December 31, 2004
(Unaudited; amounts in millions, except per share amounts)
- --------------------------------------------------------------------------------
Corning's earnings estimate excluding certain items for the third quarter is a
non-GAAP financial measure within the meaning of Regulation G of the Securities
and Exchange Commission. The company believes presenting earnings estimates that
exclude these items is helpful in understanding Corning's operating results.
This non-GAAP measure is not in accordance with and should not be considered an
alternative of measurements required under generally accepted accounting
principles (GAAP). A detailed reconciliation is provided below outlining the
differences between this non-GAAP measure and the directly related GAAP measure.
- --------------------------------------------------------------------------------
Range
----------------------
Guidance: Earnings per share (EPS) excluding certain items $0.10 $0.12
Certain items excluded from guidance:
Asbestos settlement (a)
Restructuring, impairment and other charges and (credits) (b)
(Loss) gain on repurchases and retirements of debt, net (c) ----- -----
Earnings per share
----------------------------------------------------------------
This schedule will be updated as additional announcements occur.
----------------------------------------------------------------
(a) 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 2004, Corning will record a
charge or credit for the change in its common stock price as of December
31, 2004 compared to $11.08, the common stock price at September 30, 2004.
(b) 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.
(c) From time to time, Corning may repurchase or retire debt, which could
result in a gain or loss during the quarter.
Please note that the company may pursue other financing, restructuring and
divestiture activities at any time in the future, and that the potential impact
of these events is not included within Corning's third quarter 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.