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 22, 2003
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)
Item 9. Regulation FD Disclosure (including Item 12 information).
------------------------------------------------------------------
The following information is furnished pursuant to Item 12, "Results of
Operations and Financial Conditions" under Item 9, "Regulation FD Disclosure" of
Form 8-K as directed by the U.S. Securities and Exchange Commission in Release
No. 34-47583.
The Corning Incorporated press release dated October 22, 2003, regarding its
financial results for the quarter ended September 30, 2003, is attached hereto
as Exhibit 99.1. This press release includes certain non-GAAP financial
measures. A reconciliation of those measures to the most directly comparable
GAAP measures is attached hereto as Exhibit 99.2.
(c) Exhibit Index
99.1 Press Release dated October 22, 2003, issued by Corning Incorporated.
99.2 Reconciliation of non-GAAP financial measures.
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 22, 2003 By /s/ KATHERINE A. ASBECK
------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
Exhibit 99.1
------------
FOR RELEASE -- OCTOBER 22, 2003
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 Net Income
CORNING, N.Y.-- Corning Incorporated (NYSE: GLW) today announced that it had
third-quarter sales of $772 million and net income of $33 million or $0.02
diluted earnings per share.
"We have been relentless throughout the year in focusing on our three leadership
priorities: maintaining our financial health; restoring profitability; and
continuing to invest in our future. I am particularly pleased that we achieved
our profitability goal in the third quarter," James R. Houghton, chairman and
chief executive officer, said. "The hard work and dedication of all our
employees is paying off," he said.
Corning said its third-quarter results include net pretax charges of $39 million
(net after-tax and minority interest charges of $22 million or $0.02 per share).
These include:
.. A $51 million charge ($31 million after-tax) to reflect the increase in the
market value of Corning's common stock to be contributed to settle the
asbestos litigation related to Pittsburgh Corning Corporation.
.. A $10 million gain ($8 million after-tax and minority interest) primarily
related to the reversal of prior years' restructuring and impairment
charges. This amount also includes a gain on the sale of certain Corning
Asahi Video Products Company (CAV) assets, a loss on the sale of certain
photonics business assets and a minor restructuring charge in the
telecommunications segment.
.. A net gain of $2 million ($1 million after-tax) related to debt
repurchases.
Third-Quarter Operating Results
Third-quarter sales of $772 million surpassed the company's guidance range of
$740 million to $765 million and increased by $20 million over second-quarter
sales. Corning's technologies segment sales for the quarter were $396 million
compared to sales of $400 million for the second quarter. Sales increases in the
company's Display Technologies and Environmental Technologies businesses were
offset primarily by declines in the conventional television tube business (CAV),
which Corning decided to exit earlier this year.
(more)
Corning Reports Third Quarter Net Income
Page Two
The Display Technologies business recorded its eighth consecutive quarter of
sequential sales growth of liquid crystal display (LCD) glass with a 7 percent
volume increase over the previous quarter. The volume increase was due to the
continued popularity of notebook computers, the displacement at the desktop of
CRTs by flat panel monitors and the migration to larger screen sizes by panel
manufacturers. The business experienced stable prices and continued favorable
foreign exchange rates in the quarter.
Sales in Corning's environmental business were $121 million for the third
quarter versus $117 million for the previous quarter, a sequential increase of 3
percent. The increase was the result of diesel and automotive ceramic substrate
demand and the industry's shift to thin-wall and ultra-thin wall solutions. This
business also continued to benefit from favorable foreign exchange rates in the
quarter.
Corning's telecommunications segment sales were $370 million, an increase of $23
million over second-quarter sales of $347 million. The gain was due to a
sequential increase in fiber volume of almost 20 percent, driven primarily by
seasonal strength in North America and Europe, along with continued demand in
Japan and China. Fiber pricing for the quarter was down less than 5 percent. The
telecommunications segment also benefited from several submarine cable project
sales in the third quarter.
Equity earnings for the third quarter were $75 million, a $15 million increase
over second quarter equity earnings, driven by strong performance by Samsung
Corning Precision Glass Company. Corning's equity earnings from Dow Corning were
$22 million for the quarter compared to $25 million in the second quarter.
Corning began to recognize equity earnings from Dow Corning in January of this
year.
Cash Flow Update
The company ended the third quarter with $1.4 billion in cash and short-term
investments, a decline of $96 million from the second quarter. The decline
included $383 million of net debt repayments, substantially offset by $370
million of net proceeds from the July common stock offering. In addition,
Corning made $58 million in restructuring payments and a $70 million voluntary
pension fund contribution. The company's debt-to-capital ratio was 35 percent at
the end of the third quarter, a significant improvement from the second-quarter
ratio of 40 percent.
Fourth-Quarter Outlook
Corning said it anticipates fourth-quarter sales to be in the range of $740
million to $765 million, with earnings per share in the range of $0.03 to $0.04,
before special items. The company expects fourth-quarter sales in its
technologies segment to grow, led by sequential volume increases in LCD glass of
15 percent to 20 percent, with continued stable pricing. The company said that
the volume increase will be driven by the rapid ramp up of Generation 5 glass
production in Taiwan and Generation 6 glass manufacturing in Japan. The growth
in Display Technologies is expected to be partially offset by seasonal declines
in the Life Sciences and Environmental Technologies businesses.
(more)
Corning Reports Third Quarter Net Income
Page Three
Telecommunications segment fourth-quarter sales are expected to be down from
third quarter levels due to lower submarine cable project sales and anticipated
fiber volume declines of 15 percent to 20 percent. The expected decline in fiber
volume is primarily the result of traditional seasonal slowdowns in North
America and Europe. Fiber pricing declines are expected to be less than 5
percent.
Remarking on the company's performance, James B. Flaws, vice chairman and chief
financial officer, said, "We clearly have been tested over the past two years by
the severe downturn in the telecommunications market. We have passed this test
with our return to profitability and improved balance sheet and are now poised
for long-term growth with three exciting business opportunities.
"First, demand for flat panel desktop monitors is approaching 40 percent market
penetration and their popularity continues to grow. The number of LCD
televisions purchased this year will double over last year, and we should see
significant growth in larger size glass panels for LCD televisions in the
future. The combination of an emerging LCD TV market and larger flat panel
desktop monitors plays to a unique competitive advantage for Corning as we bring
on additional Generation 5 and Generation 6 manufacturing capacity next year to
meet the expected market demand," he said.
Flaws added, "We also are investing to seize the significant opportunities that
the global diesel emissions market presents, and we will continue innovating our
product offering for the automotive passenger car market. Finally, we believe
that fiber-to-the-premises represents a long-term opportunity for Corning as
favorable public policy in the U.S. and elsewhere will spur future
telecommunications industry investment."
On Thursday, Oct. 30, Corning will be hosting an investor luncheon at the Hilton
Hotel in San Francisco. Corning also will host an investor luncheon at the
Westin Hotel in Portland, Oregon, on Friday, Nov. 7. Both luncheons, which will
begin at noon, are a part of the company's ongoing investor outreach program. To
reserve a seat at either luncheon, please register through the investor
relations Web page at www.corning.com or contact Corning's investor relations
department by calling 607-974-8764.
Presentation of Information in this News Release
Corning's earnings estimate for the fourth quarter is a non-GAAP financial
measure as it excludes any potential gains or losses arising from previously
announced restructuring actions, any further adjustments to the asbestos
settlement reserve required by movement in Corning's stock price and income from
discontinued operations. The company believes presenting earnings estimates that
exclude these items is helpful in understanding Corning's operating results.
Corning provides a reconciliation of the non-GAAP earnings per share estimate to
a GAAP earnings per share estimate on our investor relations Web site at
www.corning.com/investor_relations.
(more)
Corning Reports Third Quarter Net Income
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, information display, environmental,
semiconductor, and life sciences industries.
Third-Quarter Conference Call Information
The company will host a third-quarter conference call at 8:30 a.m. EDT on
Thursday, Oct. 23. To access the call, dial (630) 395-0018. The password is
Earnings. The leader is Sofio. A replay of the call will begin at approximately
10:30 a.m. EDT and will run through 5 p.m. EDT, Thursday, Nov. 6. To listen,
dial (402) 220-3489, no passcode is required. To listen to a live audio webcast
of the call at 8:30 a.m. on Thursday, Oct. 23, please go to our website and
follow the instructions: http://www.corning.com/investor_relations. The audio
webcast will be archived for 14 days following the call.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic and political conditions; tariffs, import duties
and currency fluctuations; product demand and industry capacity; competitive
products and pricing; manufacturing efficiencies; cost reductions; availability
and costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the liquid crystal display industry and other
businesses; changes in the mix of sales between premium and non-premium
products; facility expansions and new plant start-up costs; possible disruption
in commercial activities due to terrorist activity, armed conflict, political
instability or major health concerns; ability to obtain financing and capital on
commercially reasonable terms; adequacy and availability of insurance; capital
resource and cash flow activities; capital spending; equity company activities;
interest costs; acquisition and divestiture activities; the level of excess or
obsolete inventory; the rate of technology change; the ability to enforce
patents; product and components performance issues; changes in key personnel;
stock price fluctuations; and adverse litigation or regulatory developments.
These and other risk factors are identified in Corning's filings with the
Securities and Exchange Commission. Forward-looking statements speak only as of
the day that they are made, and Corning undertakes no obligation to update them
in light of new information or future events.
###
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $ 772 $ 762 $ 2,270 $ 2,428
Cost of sales 546 633 1,663 1,931
--------- --------- --------- ---------
Gross margin 226 129 607 497
Operating expenses
Selling, general and administrative expenses 147 157 447 533
Research, development and engineering expenses 80 113 258 370
Amortization of purchased intangibles 10 11 28 33
Restructuring, impairment and other charges
and credits (10) 125 90 619
--------- --------- --------- ---------
Operating loss (1) (277) (216) (1,058)
Interest income 7 10 24 34
Interest expense (36) (44) (118) (136)
Asbestos settlement (51) (388)
Gain on repurchases of debt, net 2 22 19 90
Other income (expense), net 5 (1) 11 (10)
--------- --------- --------- ---------
Loss from continuing operations before income taxes (74) (290) (668) (1,080)
Benefit for income taxes (30) (91) (208) (325)
--------- --------- --------- ---------
Loss from continuing operations before minority
interests and equity earnings (44) (199) (460) (755)
Minority interests 2 5 72 17
Equity in earnings of associated companies, net
of impairments 75 42 194 97
--------- --------- --------- ---------
Income (loss) from continuing operations 33 (152) (194) (641)
Income from discontinued operations, net of
income taxes 19 48
--------- --------- --------- ---------
Net income (loss) 33 (133) (194) (593)
Dividend requirements of preferred stock (128) (128)
--------- --------- --------- ---------
Earnings (loss) attributable to common shareholders $ 33 $ (261) $ (194) $ (721)
========= ========= ========= =========
Basic earnings (loss) per common share from:
Continuing operations $ 0.03 $ (0.27) $ (0.15) $ (0.79)
Discontinued operations 0.02 0.05
--------- --------- --------- ---------
Basic earnings (loss) per common share $ 0.03 $ (0.25) $ (0.15) $ (0.74)
========= ========= ========= =========
Diluted earnings (loss) per common share from:
Continuing operations $ 0.02 $ (0.27) $ (0.15) $ (0.79)
Discontinued operations 0.02 0.05
--------- --------- --------- ---------
Diluted earnings (loss) per common share $ 0.02 $ (0.25) $ (0.15) $ (0.74)
========= ========= ========= =========
Shares used in computing per share amounts for:
Basic earnings (loss) per common share 1,314 1,036 1,253 977
========= ========= ========= =========
Diluted earnings (loss) per common share 1,390 1,036 1,253 977
========= ========= ========= =========
See notes to consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
Unaudited
September 30, December 31,
2003 2002
----------- -------------
Assets
Current assets:
Cash and cash equivalents $ 809 $ 1,426
Short-term investments, at fair value 608 664
--------- ---------
Total cash and short-term investments 1,417 2,090
Trade accounts receivable, net 498 470
Inventories 491 559
Deferred income taxes 375 296
Other accounts receivable 117 358
Prepaid expenses and other current assets 70 52
--------- ---------
Total current assets 2,968 3,825
Restricted cash and investments 66 82
Investments 985 769
Property, net 3,582 3,705
Goodwill 1,730 1,715
Other intangible assets, net 175 213
Deferred income taxes 1,106 887
Other assets 202 210
--------- ---------
Total assets $ 10,814 $ 11,406
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 49 $ 204
Accounts payable 310 339
Other accrued liabilities 1,089 1,137
--------- ---------
Total current liabilities 1,448 1,680
Long-term debt 2,819 3,963
Postretirement benefits other than pensions 614 617
Other liabilities 615 396
Commitments and contingencies
Minority interests 36 59
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: 1.05 million and 1.55 million 105 155
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,388 million and 1,267 million 694 634
Additional paid-in capital 10,275 9,695
Accumulated deficit (5,115) (4,921)
Treasury stock, at cost; Shares held: 58 million and 70 million (581) (702)
Accumulated other comprehensive loss (96) (170)
--------- ---------
Total shareholders' equity 5,282 4,691
--------- ---------
Total liabilities and shareholders' equity $ 10,814 $ 11,406
========= =========
Certain amounts for 2002 were reclassified to conform with 2003 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
Sept. 30, June 30, September 30,
--------- --------- ----------------------
2003 2003 2003 2002
--------- --------- --------- --------
Cash flows from operating activities:
Income (loss) from continuing operations $ 33 $ (22) $ (194) $ (641)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities:
Amortization of purchased intangibles 10 9 28 33
Depreciation 113 132 363 471
Asbestos settlement 51 39 388
Restructuring, impairment and other charges and credits (10) 49 90 619
Gain on repurchases of debt, net of inducements (2) (13) (19) (90)
Undistributed earnings of associated companies (60) (25) (84) (4)
Minority interests, net of dividends paid (6) (33) (76) (17)
Deferred tax benefit (25) (56) (259) (145)
Interest expense on convertible debentures 2 6 15 30
Restructuring payments (58) (49) (201) (193)
Decreases (increases) in restricted cash 22 (18) 1 (20)
Income tax refund 191
Employee benefits in excess of expense (65) (8) (93) (27)
Changes in certain working capital items:
Trade accounts receivable (12) 30 5 97
Inventories 39 27 73 88
Other current assets 38 (14) 34 (117)
Accounts payable and other current liabilities,
net of restructuring payments (55) (55) (228) (259)
Other, net 3 26 32 (46)
-------- -------- -------- -------
Net cash provided by (used in) operating activities 18 25 66 (221)
-------- -------- -------- -------
Cash flows from investing activities:
Capital expenditures (94) (55) (204) (279)
Acquisitions of businesses, net of cash acquired (29)
Proceeds from sale of precision lens business 9
Net proceeds from sale or disposal of assets (4) 30 39 62
Increase in long-term investments and other long-term assets (4) (4) (18)
Short-term investments - acquisitions (365) (633) (1,426) (1,557)
Short-term investments - liquidations 525 587 1,481 2,123
Restricted investments - acquisitions (117)
Restricted investments - liquidations 9 3 15 67
Other, net 1 (2)
-------- -------- -------- -------
Net cash provided by (used in) investing activities 71 (72) (89) 250
-------- -------- -------- -------
Cash flows from financing activities:
Net (repayments of) proceeds from loans payable (106) 8 (160) (502)
Proceeds from issuance of long-term debt 11
Repayments of long-term debt (277) (634) (1,100) (190)
Proceeds from issuance of Series C preferred stock 558
Proceeds from issuance of common stock, net 370 278 651 47
Repurchases of common stock for treasury (23)
Cash dividends paid to preferred shareholders (9) (3) (15) (67)
Other, net (8)
-------- -------- -------- -------
Net cash used in financing activities (22) (351) (624) (174)
-------- -------- -------- -------
Effect of exchange rates on cash (5) 18 30 23
-------- -------- -------- -------
Cash provided by (used in) continuing operations 62 (380) (617) (122)
Cash provided by discontinued operations 68
-------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents 62 (380) (617) (54)
Cash and cash equivalents at beginning of period 747 1,127 1,426 1,037
-------- -------- -------- -------
Cash and cash equivalents at end of period $ 809 $ 747 $ 809 $ 983
======== ======== ======== =======
Certain amounts for 2002 were reclassified to conform with 2003 classifications.
See notes to the consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Telecom- Non-segment/ Consolidated
munications Technologies Other items Total
----------- ------------ ------------ ------------
For the three months ended September 30, 2003
Net sales $ 370 $ 396 $ 6 $ 772
Research, development and engineering expenses $ 25 $ 55 $ 80
Restructuring, impairment and other charges and credits (1) $ (2) $ (11) $ 3 $ (10)
Interest expense $ 16 $ 20 $ 36
(Benefit) provision for income taxes $ (16) $ 5 $ (19) $ (30)
(Loss) income before minority interests and equity earnings $ (28) $ 14 $ (30) $ (44)
Minority interests 2 2
Equity in earnings of associated companies 1 53 21 75
-------- -------- ------- --------
Net (loss) income $ (27) $ 69 $ (9) $ 33
======== ======== ======= ========
For the three months ended September 30, 2002
Net sales $ 366 $ 392 $ 4 $ 762
Research, development and engineering expenses $ 71 $ 42 $ 113
Restructuring, impairment and other charges and credits (1) $ 90 $ 6 $ 29 $ 125
Interest expense $ 27 $ 19 $ (2) $ 44
(Benefit) provision for income taxes $ (91) $ 1 $ (1) $ (91)
Loss before minority interests and equity (losses) earnings $ (193) $ (5) $ (1) $ (199)
Minority interests 5 5
Equity in (losses) earnings of associated companies (5) 43 4 42
Income from discontinued operations 19 19
-------- -------- ------- --------
Net (loss) income $ (198) $ 43 $ 22 $ (133)
======== ======== ======= ========
For the nine months ended September 30, 2003
Net sales $ 1,069 $ 1,184 $ 17 $ 2,270
Research, development and engineering expenses $ 95 $ 165 $ (2) $ 258
Restructuring, impairment and other charges and credits (1) $ (30) $ 107 $ 13 $ 90
Interest expense $ 59 $ 59 $ 118
Benefit for income taxes $ (46) $ (10) $ (152) $ (208)
Loss before minority interests and equity (losses) earnings $ (141) $ (84) $ (235) $ (460)
Minority interests 72 72
Equity in (losses) earnings of associated companies (10) 140 64 194
-------- -------- ------- --------
Net (loss) income $ (151) $ 128 $ (171) $ (194)
======== ======== ======= ========
For the nine months ended September 30, 2002
Net sales $ 1,268 $ 1,146 $ 14 $ 2,428
Research, development and engineering expenses $ 243 $ 127 $ 370
Restructuring, impairment and other charges and credits (1) $ 459 $ 9 $ 151 $ 619
Interest expense $ 84 $ 52 $ 136
(Benefit) provision for income taxes $ (346) $ 5 $ 16 $ (325)
Loss before minority interests and equity (losses) earnings $ (715) $ (13) $ (27) $ (755)
Minority interests 16 1 17
Equity in (losses) earnings of associated companies (26) 117 6 97
Income from discontinued operations 48 48
-------- -------- ------- --------
Net (loss) income $ (741) $ 120 $ 28 $ (593)
======== ======== ======= ========
(1) Related tax (expense) benefit:
Three months ended September 30, 2003: $2, $(2), $0 and $0.
Three months ended September 30, 2002: $28, $2, $9 and $39.
Nine months ended September 30, 2003: $0, $22, $4 and $26.
Nine months ended September 30, 2002: $153, $3, $49 and $205.
See notes to the consolidated financial statements.
Non-segment/other items net (loss) income is detailed below:
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- --------- ---------- ----------
Non-segment (loss) income and other (1) $ (4) $ (5) $ (29) $ 16
Non-segment restructuring, impairment and other
charges and credits (3) (29) (13) (151)
Interest income 7 10 24 34
Asbestos settlement (51) (388)
Gain on repurchases of debt, net 2 22 19 90
Benefit (provision) for income taxes 19 1 152 (16)
Minority interests 1
Equity in earnings of associated companies (2) 21 4 64 6
Income from discontinued operations 19 48
--------- -------- --------- ---------
Net (loss) income $ (9) $ 22 $ (171) $ 28
========= ======== ========= =========
(1) Includes non-segment operations and other corporate activities.
(2) Includes amounts derived from corporate investments and activities,
primarily Dow Corning Corporation in 2003.
See notes to the consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions except headcount and per share amounts)
When used in these notes, the terms "we," "our" or "us" refer to Corning
Incorporated and its consolidated subsidiaries.
1. Restructuring, Impairment and Other Charges and Credits
In the third quarter of 2003, we recorded restructuring, impairment and other
charges of $16 ($13 after-tax), offset by credits of $26 ($21 after-tax and
minority interest), resulting in a net pre-tax credit of $10 ($8 after-tax and
minority interest). A summary of these charges and credits follow:
Photonic Technologies
On July 31, 2003, we completed the sale of certain photonic technologies
business assets to Avanex Corporation ("Avanex") in exchange for 21 restricted
shares of Avanex common stock, which we valued at approximately $53. The
transaction generated a loss on sale of $13 ($9 after-tax). In accordance with
the sale agreement, Avanex acquired assets related to the optical amplifier
facility in Erwin, NY and the optical component plant in Milan, Italy. We also
paid Avanex $22 in cash. Approximately 400 employees of the photonic
technologies business became employees of Avanex in the third quarter.
In the third quarter of 2003, we recorded a charge of $3 ($4 after-tax) related
to the exit of the photonic technologies business for employee separation costs.
We expect to close our pump laser facility in Bedford, MA by the end of the
year. Pursuant to a separate arrangement with Avanex, we are manufacturing pump
lasers for sale to Avanex in the fourth quarter of 2003. This activity will be
completed and the facility closed by December 31, 2003.
Credits
In the third quarter of 2003, we reversed $20 ($18 after-tax) of restructuring
reserves related to prior years restructuring charges, primarily in the
Telecommunications segment. The reversals included $10 related to employee
separation costs which were less than estimated, $6 related to exit costs which
were less than estimated and $4 related to proceeds in excess of assumed salvage
values for assets that were previously impaired and certain assets management
decided to retain as abandoned factories were being dismantled. Approximately $5
of the exit cost reversals listed above related directly to the Avanex
transaction.
In addition to the above mentioned credits, we also recorded credits for the
following in the third quarter:
- a $5 credit ($2 after-tax and minority interest) related to assets from
Corning Asahi Video that were previously impaired but later sold to a third
party based in China, and
- a $1 gain on the sale of previously-impaired cost investments in the
Telecommunications segment that were sold.
The current restructuring reserve continues to be evaluated as plans are being
executed. In addition, since the restructuring program is an aggregation of many
individual plans currently being executed, actual costs have differed from
estimated amounts. As a result, there may be additional charges or reversals.
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 ($192 after-tax) in the first quarter. The charge included the
value of 25 shares of Corning common stock which 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 charge of $51 ($31 after-tax) in the third quarter
reflecting the increased fair value of the shares to its common stock
contribution. We have recorded total charges of $388 ($247 after-tax) to reflect
the settlement and to mark-to-market the value of our common stock for the nine
months ended September 30, 2003.
3. Income Tax
In the third quarter of 2003, the effective tax benefit rate excluding certain
items such as restructuring, impairment, asbestos settlement and debt
transactions was 33 percent for the quarter and nine months ended September 30,
2003.
CORNING INCORPORATED
QUARTERLY SEGMENT SALES INFORMATION
(In millions)
2003
------------------------------------------------
Q1 Q2 Q3 9 Months
--------- --------- -------- --------
Telecommunications
Fiber and cable $ 193 $ 178 $ 209 $ 580
Hardware and equipment 122 136 134 392
Photonic technologies 18 15 10 43
Controls and connectors 19 18 17 54
-------- -------- ------- -------
Segment net sales $ 352 $ 347 $ 370 $ 1,069
======== ======== ======= =======
Technologies
Display technologies $ 117 $ 135 $ 144 $ 396
Environmental 115 117 121 353
Life sciences 73 72 70 215
Conventional video components 25 24 14 63
Other technologies businesses 58 52 47 157
-------- -------- ------- -------
Segment net sales $ 388 $ 400 $ 396 $ 1,184
======== ======== ======= =======
2002
-------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
-------- -------- ------- ------- --------
Telecommunications
Fiber and cable $ 255 $ 212 $ 195 $ 197 $ 859
Hardware and equipment 135 153 136 128 552
Photonic technologies 36 39 17 19 111
Controls and connectors 39 33 18 19 109
-------- -------- ------- ------- --------
Segment net sales $ 465 $ 437 $ 366 $ 363 $ 1,631
======== ======== ======= ======= ========
Technologies
Display technologies $ 93 $ 102 $ 106 $ 104 $ 405
Environmental 94 102 102 96 394
Life sciences 70 74 71 65 280
Conventional video components 43 41 47 35 166
Other technologies businesses 69 66 66 67 268
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Segment net sales $ 369 $ 385 $ 392 $ 367 $ 1,513
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The above supplemental information is intended to facilitate analysis of
Corning's businesses.
Exhibit 99.2
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Reconciliation of Non-GAAP Financial Measures
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GAAP Reconciliation
Q4 2003
Corning's earnings estimate for the fourth quarter is a non-GAAP financial
measure as it excludes certain items listed below. The company believes
presenting earnings estimates that exclude these items is helpful in
understanding Corning's operating results.
Range
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Guidance: EPS excluding certain items $0.03 $0.04
Announcements not included within guidance:
Gain on sale of CAV equipment(1)
Mark to market for asbestos litigation (2)
(1) Corning expects to record a gain from the sale of CAV equipment to the Henan
Anyang CPT Glass Bulb Group, Xinyi Electronic Glass, Co., LTD. The sale is
expected to be completed over the remainder of 2003 and 2004, as certain
government approvals and other customary asset purchase conditions are met. As
these conditions are met and the purchase price is received, Corning will record
the gain. The total pre-tax gain is estimated to be $40 million, $13 million
after-tax and minority interest. Corning recorded $5 million of the expected
gain in the third quarter of 2003. Corning expects to record a similar gain in
the fourth quarter and the remainder in 2004.
(2) As part of Corning's asbestos settlement for Pittsburgh Corning, the company
will be contributing 25 million shares of Corning common stock to the trust,
along with some cash. The common stock is expected to be contributed to the
trust in mid-2004, after the claimants have approved the plan and all appeals
have been resolved. Until the common stock is attributed to the trust, the
change in Corning's stock price from the closing price of $9.42 on 9/3/03 to the
closing price on 12/31/03 will be recognized in our fourth quarter results.
Please note that the company may pursue other financing, restructuring and
divestiture activities at any time in the future, and that the potential impact
of these events is not included within Corning's fourth quarter 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.