GLW Corning Inc

Corning Incorporated (NYSE:GLW) Chief Executive Officer Wendell P. Weeks today told shareholders that the company is continuing to make progress on its financial goals and on growing its position in key markets, including liquid crystal display (LCD) glass substrates. At the same time, he said, Corning is working to become a more balanced company. Reflecting on the company's accomplishments over the past year, Weeks said, "We have focused on consistent operating priorities: protecting our financial health, improving our profitability, investing in our future, and always living our values. These priorities have been the foundation of our success over the past three years, and I think it's fair to say the results have been remarkable." Weeks made his comments to more than 500 shareholders assembled for the company's annual meeting in Corning, N.Y. and hundreds more listening through a live Web cast. He told them that the penetration of LCD technology into the global TV market has more than doubled in 2005, from 5 percent to 11 percent, and that the company expects it to increase to between 18 percent and 19 percent during 2006. "We are the world's leading supplier of LCD glass, and growing consumer demand for LCD TV fuels a continued industry migration to larger sizes, which plays to our strengths," he said. Financial Health and Profitability Weeks pointed out that, over the past year, Corning has strengthened both its balance sheet and its cash flow. The company ended 2005 with $600 million more cash than debt, the first time it has more cash than debt in 25 years. Improved operating cash flow has funded aggressive expansion of the display and diesel businesses. The overall financial improvements resulted in an important milestone last year, he said, when the company regained investment-grade credit ratings. Regarding profitability, Weeks pointed to the fact that in 2005 the company improved net profit before special charges by more than $500 million for the third straight year. This improvement in net profit before special charges is a non-GAAP financial measure. This and all non-GAAP financial measures are reconciled on the company's investor relations Web site and in attachments to this news release. Investing in the Future Weeks told shareholders that Corning's focus on three major growth opportunities -- LCD glass, fiber-to-the-premises and diesel products -- continues to strengthen the company's position in those markets. While LCD is driving current revenue growth, he added that fiber-to-the-premises (FTTP) is also promising. "We are maintaining our position as a leading supplier of optical fiber cable, and optical hardware and equipment to Verizon," he said, "and we are also working with other customers on their access network architectures and deployment plans." Regarding the diesel substrates and filters that help engine manufacturers reduce emissions, he said, "We've won a leading share of the heavy-duty market and we successfully entered the light-duty diesel market." The company's diesel plant in Erwin, N.Y. is responsible for providing these products for trucks, buses and other heavy-duty vehicles as well as for passenger cars. Weeks added that 2006 "will be an important year of execution -- on many fronts. In this year we must deliver -- in Display, Diesel and FTTP. We also expect to improve performance in all our businesses through continued cost reduction and sustained manufacturing improvement." Uncertainty and volatility are "facts of life" In reviewing the company's business strategy with shareholders, Weeks emphasized that "we place big bets on long, difficult technology developments for new systems. Sometimes these bets pay off -- and sometimes they don't. ...So our growth rate can be...hard to predict. The implication is that uncertainty and volatility are facts of life for all of us." Corning is working to mitigate the effects of this volatility by improving both its financial strength and the diversity of its cash-generating businesses, he said. "This is our goal, but it will take time." "Over the long sweep of time, we will become more balanced by both growing new businesses through innovation and improving the performance of our established businesses," he said. "We know that our journey will not be a smooth ride ...but we won't lose faith in our future when we encounter the inevitable bumps in the road," he said. In closing, Weeks pledged to shareholders to keep the momentum going. "You can count on us to stay focused on our mission. This Management Committee is not after peak performance during our brief time at the helm of this great company. What we are after is sustainable performance. Our goal is to ensure that we set up the next generation of Corning leaders for success." Other Business In other business during the Annual Meeting, shareholders elected the following directors to three-year terms: James B. Flaws, 57, vice chairman and chief financial officer, Corning Incorporated; James R. Houghton, 70, chairman, Corning Incorporated; James J. O'Connor, 68, retired chairman and CEO, Unicom Corporation; Deborah D. Rieman, 56, retired president and CEO, Check Point Software Technologies, Incorporated; Peter F. Volanakis, 50, chief operating officer, Corning Incorporated. Shareholders also elected to a two-year term Padmasree Warrior, 44, executive vice president and chief technology officer, Motorola, Inc. Shareholders also approved the following measures: an amendment to the 2002 Worldwide Employee Share Purchase Plan; the 2006 Variable Compensation Plan; and an amendment of the 2003 Equity Plan for Non-employee Directors. Shareholders also ratified the appointment of PricewaterhouseCoopers LLP as Corning's independent auditors for 2006. A shareholder proposal seeking annual election of all directors passed. The non-binding proposal requests the Board of Directors to take necessary steps, in the most expeditious manner possible, to adopt annual election of each director. The Board agreed to review this matter following the vote. Since 1985, Corning's certificate of incorporation and by-laws have specified classified Board elections, putting about a third of the Board up for election each year. Webcast Information The company hosted a live audio webcast of the 2006 annual meeting of shareholders in Corning, N.Y., from 11 a.m. to 12:15 p.m. EDT, April 27, 2006. To access the webcast archive, go to http://www.corning.com/investor_relations and click on the webcast link. No password or registration is required. The webcast will be archived on the Web site for one year following the broadcast. Presentation of Information in this News Release Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning's non-GAAP net income and EPS measure excludes restructuring, impairment and other charges and adjustments to prior estimates for such charges. Additionally, the company's non-GAAP measure excludes adjustments to asbestos settlement reserves required by movements in Corning's common stock price, gains and losses arising from debt retirements, charges resulting from the impairment of equity or cost method investments, or adjustments to deferred tax assets, and gains or losses recognized in equity earnings from restructuring, impairment or other charges or credits taken by equity method companies. Corning's free cash flow financial measures are also non-GAAP measures. The company believes presenting non-GAAP free cash flow, net income and EPS measures are helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. These non-GAAP measures are reconciled on the company's Web site at www.corning.com/investor_relations and accompany this news release. As a result of a planned restatement, the company's previously issued consolidated financial statements, including those contained in its 2005 Form 10-K and its first, second and third quarter 2005 Form 10-Qs, can no longer be relied upon. Corning intends to file an amended 2005 Form 10-K and its first quarter 2006 Form 10-Q by May 10, 2006. About Corning Incorporated Corning Incorporated (www.corning.com) is a diversified technology company that concentrates its efforts on high-impact growth opportunities. Corning combines its expertise in specialty glass, ceramic materials, polymers and the manipulation of the properties of light, with strong process and manufacturing capabilities to develop, engineer and commercialize significant innovative products for the telecommunications, flat panel display, environmental, semiconductor, and life sciences industries. 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. -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Year Ended December 31, 2005 As Restated (Unaudited; amounts in millions) Corning's comment, "and the company improved net profit before special charges by more than $500 million for the third straight year" 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 a non-GAAP improvement in net income 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. Net Income For the years ended December 31, Improvement --------------------------------- ------------------ 2005 2004 2003 2005 2004 2003 As As As vs. vs. vs. Restated Restated Restated 2002 2004 2003 2002 -------- -------- -------- ------ ---- ---- ---- Net income, excluding special items $ 1,323 $ 693 $ 140 $ (392) $ 630 $ 553 $ 532 ===== ===== ===== Special items: Restructuring, impairment and other (charges) and credits (a) 34 (1,802) (26) (1,462) Asbestos settlement (b) (218) (62) (332) (Loss) gain on repurchases and retirement of debt, net (c) (16) (34) 12 108 (Provision) benefit for income taxes (d) (443) (990) Equity in earnings of associated companies, net of impairments (e) (95) (56) (74) (34) Income from discontinued operations (f) 20 478 -------- -------- -------- ------ Net income (loss) $ 585 $(2,231) $(280) $(1,302) ======== ======== ======== ====== 2005 Special Items: (a) Amount reflects the following items: a gain of $84 million (before- and after-tax) for the reversal of the cumulative translation account of a wholly-owned foreign subsidiary that was substantially liquidated; an impairment charge of $25 million (before- and after-tax) for the other-than-temporary decline in our investment in Avanex below its cost basis; and net charges of $38 million ($34 million after-tax and minority interest) for restructuring costs primarily associated with the Telecommunications segment. (b) As part of Corning's asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation reorganization plan, any changes in the fair value of the components of the proposed settlement agreement will be recognized in our results until the date of the contribution to the settlement trust. In 2005, Corning recorded a charge of $218 million (before- and after-tax) including $197 million for the change in its common stock price of $19.66 at December 31, 2005, compared to $11.77, the common stock price at December 31, 2004, and $21 million for the change in estimated fair value of certain other components of the proposed asbestos settlement. (c) Corning recorded a loss of $16 million (before- and after-tax) associated with the cash redemption of $377 million principal amount of debentures. (d) Amount reflects a net $443 million charge to tax expense in 2005 which was primarily to increase the valuation allowance against deferred tax assets resulting from our conclusion that the sale of an appreciated asset no longer met the criteria for a viable tax planning strategy. (e) Amount is primarily the result of Corning's $106 million share of an impairment charge taken by Samsung Corning Co., Ltd., a South Korea-based manufacturer of glass panels and funnels for cathode ray tube television and display monitors, for certain of its manufacturing assets and severance and exit costs. 2004 Special Items: (a) Corning recorded charges of $1.789 billion ($1.802 billion after-tax and minority interest) primarily related to the impairment of goodwill and fixed assets in the Telecommunications segment. (b) As part of Corning's asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation reorganization plan, any changes in the fair value of the components of the proposed settlement agreement will be recognized in our results until the date of the contribution to the settlement trust. In 2004, Corning recorded a charge of $65 million ($62 million after-tax) including $33 million ($30 million after-tax) for the change in its common stock price of $11.77 at December 31, 2004, compared to $10.43, the common stock price at December 31, 2003, and $32 million (net of tax) for the change in estimated fair value of certain other components of the proposed asbestos settlement. (c) During 2004, Corning retired a significant portion of long-term debt, resulting in a loss of $36 million ($34 million after-tax). (d) In the third quarter of 2004, Corning increased income tax expense by $990 million as a result of the company's decision to provide a valuation allowance against a significant portion of its deferred tax assets. (e) This amount reflects charges of $35 million for impairments of certain non-strategic equity method investments in Corning's Telecommunications segment and $21 million related to restructuring actions and bankruptcy related charges recorded by Dow Corning Corporation. (f) This gain relates to the final settlement of escrowed proceeds from the 2002 sale of Corning's precision lens business to 3M Company. 2003 Special Items: (a) Corning recorded net charges of $11 million ($26 million after-tax) for our decision to shutdown Corning Asahi Video Products Company, exit the photonics technologies business within our Telecommunications segment, and shutdown two of our Specialty Materials manufacturing facilities. The charges for these actions were partially offset by credits to prior periods' restructuring plans, most notably for our decision not to exit two cabling sites previously marked for shutdown in 2002. (b) 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. The proposed settlement, when the plan becomes effective, will require Corning to relinquish its equity interest in PCC, contribute its equity interest in Pittsburgh Corning Europe N.V. (PCE), a Belgian corporation, and contribute 25 million shares of Corning common stock. Corning also agreed to make cash payments with a value of $131 million, in March 2003, over six years from the effective date of the settlement and to assign insurance policy proceeds from its primary insurance and a portion of its excess insurance at the time of the settlement. This charge represents recording the initial liability of $392 million ($240 million after-tax) based on the terms of the settlement agreement plus $115 million ($73 million after-tax) for the change in its common stock price from the settlement arrangement date to December 31, 2003, and $28 million ($17 million after-tax) for the change in estimated fair value of certain other components of the proposed asbestos settlement. (c) During 2003, Corning retired a significant portion of long-term debt, resulting in a gain of $19 million ($12 million after-tax). (e) This amount primarily reflects our portion of asset impairment charges recorded by our equity method investment, Samsung Corning Co., Ltd. 2002 Special Items: (a) Corning recorded total net charges of $2.08 billion ($1.462 billion after-tax and minority interest) related to the following significant actions: restructuring charges of $1.271 billion ($929 million after-tax and minority interest) for the closure of facilities, workforce reductions and abandonment of certain construction projects, mostly in our Telecommunications segment; $400 million ($294 million after-tax) for the impairment of goodwill in our Telecommunications segment; and $409 million ($239 million after-tax) for the impairment of assets of our photonic technologies and conventional video components businesses. (c) During 2002, Corning retired a significant portion of long-term debt resulting in a gain of $176 million ($108 million after-tax). (e) This amount reflects charges for impairments of certain equity method investments in Corning's Telecommunications segment. (f) On December 13, 2002, Corning completed the sale of our precision lens business to 3M Company for approximately $800 million in cash and recorded a gain on the sale of $652 million ($415 million after-tax) included in income from discontinued operations. The remaining $63 million, net of tax, of income from discontinued operations represents the 2002 operating results of the precision lens business prior to the sale to 3M Company. *T