GLW Corning Inc

Corning Incorporated (NYSE: GLW) today announced second-quarter sales of $1.26 billion and net income of $514 million, or $0.32 per share. These results include net special gains of $93 million, or $0.06 per share. Excluding these net special gains, Corning's second-quarter net income would have been $421 million, or $0.26 per share. These are non-GAAP financial measures. These and all non-GAAP financial measures are reconciled on the company's investor relations Web site and in attachments to this news release. Wendell P. Weeks, president and chief executive officer, said, "We were pleased to meet our earnings-per-share (EPS) guidance as we overcame the impact of the second-quarter panel inventory correction on our Display Technologies segment. The decline in Display Technologies' quarterly performance was offset by strength in our Telecommunications segment and lower operating expenses." Corning's second-quarter results included the following special gains and charges: -- A $61 million gain primarily 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 $10 million reduction in income tax expense related to the release of the valuation allowance on certain deferred tax assets in Australia. -- A gain of $33 million in equity earnings related to Dow Corning Corporation's settlement with the U.S. Internal Revenue Service regarding liabilities for tax years 1992 to 2003. The settlement resolves all federal tax issues related to Dow Corning's implant settlement. -- An $11 million charge related to Corning's ongoing debt-reduction program. Second-Quarter Operating Results Corning's second-quarter sales of $1.26 billion were even with first-quarter sales and increased 11 percent over last year's second-quarter sales of $1.14 billion. As expected, gross margin for the second quarter was 43 percent, a slight decline from the previous quarter's gross margin of 45 percent. Equity earnings for the second quarter were $256 million, including the $33 million tax gain from Dow Corning. First-quarter equity earnings of $200 million included a $21 million impairment charge for Samsung Corning Company, Ltd. (Samsung Corning), a producer of glass panels and funnels for cathode ray tubes. Excluding the special items in both quarters, Corning's second-quarter equity earnings were even with the first quarter. Including the $33 million tax gain, our second-quarter equity earnings in Dow Corning were $104 million. Second-quarter sales for Corning's Display Technologies segment were $461 million, an 11-percent increase over 2005 second-quarter sales of $415 million. Year-over-year liquid crystal display (LCD) glass volume increased by 38 percent in the second quarter, but this was largely offset by the change in foreign exchange rates and price declines. Sequentially, second-quarter sales declined 16 percent from first-quarter sales of $547 million, primarily due to volume declines of 14 percent and lower prices. As expected, price declines were less than those in the first quarter. Samsung Corning Precision Glass Co., Ltd.'s (SCP) second-quarter volume increased 52 percent year-over-year and 3 percent sequentially. Equity earnings from SCP were $133 million in the second quarter, compared to $140 million in the previous quarter, which included about $7 million in nonrecurring gains. Total LCD glass volume, including both Corning's wholly owned business and SCP, declined 6 percent sequentially in the second quarter. Net income for the Display Technologies segment was $344 million, down 18 percent from $417 million last quarter, but up 20 percent versus the second quarter of 2005. "The quarterly sales decline in Display Technologies was disappointing, but as we have warned in the past, supply-chain issues can occur in any given quarter. Our LCD volume decline of 6 percent was consistent with our May 22 guidance change," Weeks said. Second-quarter Telecommunications segment sales increased 19 percent to $472 million versus $397 million in the first quarter. The increase was driven by strong demand from U.S. and European carriers for the company's fiber and cable and hardware and equipment products. Fiber-to-the-premises (FTTP) sales in the second quarter increased significantly over the previous quarter's performance. In the company's Environmental Technologies segment, sales of $152 million were slightly lower than sales of $155 million in the first quarter. An increase in diesel retrofit sales was offset by lower automotive sales, especially in North America. Corning's Life Sciences segment sales increased $3 million to $75 million in the second quarter. Cash Flow/Liquidity Update Corning ended the second quarter with $2.48 billion in cash and short-term investments, consistent with the previous quarter. The company's debt level declined to $1.5 billion compared to $1.8 billion at the end of the first quarter. James B. Flaws, vice chairman and chief financial officer, said, "As we continue to focus on improving the company's overall financial health, you can expect us to opportunistically issue or refinance certain debt over the remainder of the year." In the second quarter Corning had positive free cash flow of $299 million and remains on track to be free cash flow positive for the year. Free cash flow is a non-GAAP financial measure. Flaws also noted that Moody's Investor Service recently raised Corning's overall debt rating to Baa2 with a stable outlook. Third-Quarter Outlook Corning expects third-quarter sales to be in the range of $1.26 billion to $1.33 billion, and EPS in the range of $0.22 to $0.26 before special items. This EPS estimate is a non-GAAP financial measure and excludes any special items. Gross margin for the third quarter is expected to be in the range of 41 percent to 43 percent. The third-quarter tax rate is expected to be between 15 percent and 20 percent. For its Display Technologies segment, Corning anticipates that third-quarter sequential volume growth for its wholly owned business will be in the range of 5 percent to 15 percent as the supply-chain correction begins to ease and the LCD industry gears up for the holiday buying season. Samsung Corning Precision should also see sequential volume increases in the range of 5 percent to 15 percent. Corning expects third-quarter price declines in its wholly owned business to be in line with the previous quarter. "As we start the third quarter, we believe there will be inventory adjustments by some panel manufacturers, while others are beginning to increase production levels," Flaws said. "However, the long-term LCD market dynamics remain positive. We have not changed our expectation that the overall glass market volume growth will be between 40 percent and 50 percent in 2006. We believe that LCD TV penetration will reach about 20 percent of the global television market this year, nearly doubling that of 2005." Corning's Telecommunications segment third-quarter sales are expected to be flat to down slightly. Third-quarter sales in the company's Environmental Technologies segment are also expected to be flat. Excluding the impact of the $33 million second-quarter tax gain at Dow Corning, third-quarter equity earnings are expected to be down 5 to 10 percent, as stronger earnings at Dow Corning may be offset by lower earnings at SCP and nonrecurring charges at Samsung Corning. Weeks said, "While our first-half 2006 performance met our expectations, we need to be cautious about the potential negative impact that economic conditions and political tensions could have on consumer sentiment. The LCD TV market is strongly weighted towards the fourth quarter and we need a robust retail holiday season to achieve our goals. The good news is that retail prices for LCD TVs have declined substantially and that should accelerate consumer demand." Separately, the company also announced that it will be meeting with Boston-area investors on Tuesday, August 1 and will host a luncheon at 12:30 p.m. Investors interested in attending the luncheon should contact Corning's investor relations department at (607) 974-8764. Second-Quarter Conference Call Information The company will host a second-quarter conference call at 8:30 a.m. EDT on Wednesday, July 26. To access the call, dial (210) 234-0003. The password is QUARTER TWO. 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, Wednesday, August 9. To listen, dial (402) 220-9709. No pass code is required. To listen to a live audio webcast of the call, go to Corning's Web site: http://www.corning.com/investor_relations, and follow the instructions. The audio webcast will be archived for one year following the call. Presentation of Information in this News Release Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning's non-GAAP net income and EPS 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. 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 in global economic and political conditions; tariffs, import duties and currency fluctuations; product demand and industry capacity; competition; manufacturing efficiencies; cost reductions; availability and costs of critical components and materials; new product development and commercialization; order activity and demand from major customers; 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; adequacy and availability of insurance; capital spending; equity company activities; acquisition and divestiture activities; the level of excess or obsolete inventory; the rate of technology change; the ability to enforce patents; product and components performance issues; stock price fluctuations; and adverse litigation or regulatory developments. Additional risk factors are identified in Corning's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the day that they are made, and Corning undertakes no obligation to update them in light of new information or future events. -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in millions, except per share amounts) Three months Six months ended June 30, ended June 30, -------------------- -------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Net sales $ 1,261 $ 1,141 $ 2,523 $ 2,191 Cost of sales 720 658 1,409 1,279 --------- --------- --------- --------- Gross margin 541 483 1,114 912 Operating expenses: Selling, general and administrative expenses 194 191 417 375 Research, development and engineering expenses 128 104 252 202 Amortization of purchased intangibles 3 3 6 8 Restructuring, impairment and other charges and (credits) 5 (1) 11 18 Asbestos settlement (Note 1) (61) 143 124 131 --------- --------- --------- --------- Operating income 272 43 304 178 Interest income 26 13 50 23 Interest expense (18) (26) (38) (61) Loss on repurchases and retirement of debt, net (Note 2) (11) (12) (11) (12) Other income, net 14 20 34 11 --------- --------- --------- --------- Income before income taxes 283 38 339 139 Provision for income taxes (Note 3) (24) (44) (22) (63) --------- --------- --------- --------- Income (loss) before minority interests and equity earnings 259 (6) 317 76 Minority interests (1) (5) (2) (6) Equity in earnings of associated companies, net of impairments (Note 4) 256 176 456 345 --------- --------- --------- --------- Net income $ 514 $ 165 $ 771 $ 415 ========= ========= ========= ========= Basic earnings per common share (Note 5) $ 0.33 $ 0.11 $ 0.50 $ 0.29 ========= ========= ========= ========= Diluted earnings per common share (Note 5) $ 0.32 $ 0.11 $ 0.48 $ 0.28 ========= ========= ========= ========= See accompanying notes to these financial statements. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (Unaudited; in millions, except per share amounts) June 30, December 31, 2006 2005 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,098 $ 1,342 Short-term investments, at fair value 1,377 1,092 ------------ ------------ Total cash, cash equivalents and short-term investments 2,475 2,434 Trade accounts receivable, net 633 629 Inventories 664 570 Deferred income taxes 65 44 Other current assets 198 183 ------------ ------------ Total current assets 4,035 3,860 Investments 2,150 1,729 Property, net 5,032 4,675 Goodwill and other intangible assets, net 333 338 Deferred income taxes 51 10 Other assets 598 595 ------------ ------------ Total Assets $ 12,199 $ 11,207 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 22 $ 18 Accounts payable 705 690 Other accrued liabilities 1,645 1,662 ------------ ------------ Total current liabilities 2,372 2,370 Long-term debt 1,475 1,789 Postretirement benefits other than pensions 596 593 Other liabilities 1,032 925 ------------ ------------ Total liabilities 5,475 5,677 ------------ ------------ Commitments and contingencies Minority interests 40 43 Shareholders' equity: Preferred stock - Par value $100.00 per share; Shares authorized: 10 million Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion; Shares issued: 1,569 million and 1,552 million 787 776 Additional paid-in capital 11,872 11,548 Accumulated deficit (6,076) (6,847) Treasury stock, at cost; Shares held: 17 million (191) (168) Accumulated other comprehensive income 292 178 ------------ ------------ Total shareholders' equity 6,684 5,487 ------------ ------------ Total Liabilities and Shareholders' Equity $ 12,199 $ 11,207 ============ ============ See accompanying notes to these financial statements. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in millions) Three months ended Six months ended ------------------- June 30, June 30, March 31, ------------------- 2006 2006 2006 2005 --------- --------- --------- --------- Cash Flows from Operating Activities: Net income $ 514 $ 257 $ 771 $ 415 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 149 141 290 246 Amortization of purchased intangibles 3 3 6 8 Restructuring, impairment and other charges and (credits) 5 6 11 18 Asbestos settlement (61) 185 124 131 Stock compensation charges 30 32 62 13 Loss on repurchases and retirement of debt, net 11 11 12 Undistributed earnings of affiliated companies (169) (70) (239) (133) Deferred taxes (5) (62) (67) 7 Restructuring payments (2) (4) (6) (16) Customer deposits, net 82 (8) 74 232 Employee benefit payments less than expense 8 15 23 29 Changes in certain working capital items: Trade accounts receivable 68 (65) 3 (89) Inventories (47) (46) (93) (39) Other current assets 3 (8) (5) (40) Accounts payable and other current liabilities, net of restructuring payments 1 (196) (195) (129) Other, net (9) 1 (8) 20 --------- --------- --------- --------- Net cash provided by operating activities 581 181 762 685 --------- --------- --------- --------- Cash Flows from Investing Activities: Capital expenditures (274) (280) (554) (698) Acquisitions of businesses, net of cash acquired (16) (16) Net proceeds from sale or disposal of assets 8 8 17 Net increase in long-term investments and other long-term assets (77) (77) Short-term investments - acquisitions (647) (858) (1,505) (703) Short-term investments - liquidations 485 735 1,220 762 Other, net 10 --------- --------- --------- --------- Net cash used in investing activities (444) (480) (924) (612) --------- --------- --------- --------- Cash Flows from Financing Activities: Repayments of short-term borrowings and current portion of long-term debt (3) (4) (7) (195) Proceeds from issuance of long-term debt, net 147 Retirements of long-term debt (334) (334) (102) Proceeds from issuance of common stock, net 9 6 15 344 Proceeds from the exercise of stock options 32 219 251 59 Other, net (6) (2) (8) (6) --------- --------- --------- --------- Net cash provided by (used in) financing activities (302) 219 (83) 247 --------- --------- --------- --------- Effect of exchange rates on cash 1 1 (28) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (164) (80) (244) 292 Cash and cash equivalents at beginning of period 1,262 1,342 1,342 1,009 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 1,098 $ 1,262 $ 1,098 $ 1,301 ========= ========= ========= ========= Certain amounts for 2005 were reclassified to conform to 2006 classifications. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS (Unaudited; in millions) Our reportable operating segments include Display Technologies, Telecommunications, Environmental Technologies and Life Sciences. Environ- Display mental Tech- Telecom- Tech- Life All nologies munications nologies Sciences Other Total --------- ----------- --------- -------- ------- ------- Three months ended June 30, 2006 Net sales $ 461 $ 472 $ 152 $ 75 $ 101 $1,261 Depreciation (1) $ 68 $ 43 $ 20 $ 5 $ 10 $ 146 Amortization of purchased intangibles $ 3 $ 3 Research, development and engineering expenses (2) $ 36 $ 18 $ 31 $ 12 $ 8 $ 105 Restructuring, impairment and other charges and (credits) (before-tax and minority interest) $ (1) $ 2 $ 4 $ 5 Income tax provision $ (21) $ (13) $ (3) $ (1) $ (38) Earnings (loss) before minority interests and equity earnings (loss) (3) $ 209 $ 40 $ 9 $ (2) $ 1 $ 257 Minority interests (1) (1) Equity in earnings (loss) of affiliated companies (4) 135 1 12 148 --------- ----------- --------- -------- ------- ------- Net income (loss) $ 344 $ 40 $ 9 $ (2) $ 13 $ 404 ========= =========== ========= ======== ======= ======= Three months ended June 30, 2005 Net sales $ 415 $ 415 $ 146 $ 75 $ 90 $1,141 Depreciation (1) $ 44 $ 46 $ 18 $ 5 $ 9 $ 122 Amortization of purchased intangibles $ 2 $ 2 Research, development and engineering expenses (2) $ 24 $ 19 $ 26 $ 9 $ 6 $ 84 Restructuring, impairment and other charges and (credits) (before-tax and minority interest) $ 8 $ (15) $ (7) Income tax provision $ (33) $ (7) $ (3) $ (1) $ (2) $ (46) Earnings (loss) before minority interest and equity earnings (loss) (3) $ 199 $ (10) $ 4 $ 1 $ 17 $ 211 Minority interests (5) (5) Equity in earnings (loss) of affiliated companies 87 1 8 96 --------- ----------- --------- -------- ------- ------- Net income (loss) $ 286 $ (8) $ 4 $ 1 $ 20 $ 303 ========= =========== ========= ======== ======= ======= Six months ended June 30, 2006 Net sales $1,008 $ 869 $ 307 $ 147 $ 192 $2,523 Depreciation (1) $ 130 $ 85 $ 40 $ 10 $ 20 $ 285 Amortization of purchased intangibles $ 6 $ 6 Research, development and engineering expenses (2) $ 66 $ 38 $ 61 $ 25 $ 16 $ 206 Restructuring, impairment and other charges and (credits) (before-tax and minority interest) $ 6 $ 2 $ 3 $ 11 Income tax provision $ (50) $ (19) $ (3) $ (4) $ (76) Earnings (loss) before minority interest and equity earnings (loss) (3) $ 484 $ 38 $ 9 $ (7) $ 3 $ 527 Minority interests (2) (2) Equity in earnings (loss) of affiliated companies (4) 277 3 (1) (1) 278 --------- ----------- --------- -------- ------- ------- Net income (loss) $ 761 $ 41 $ 8 $ (7) $ $ 803 ========= =========== ========= ======== ======= ======= Six months ended June 30, 2005 Net sales $ 735 $ 842 $ 294 $ 149 $ 171 $2,191 Depreciation (1) $ 85 $ 92 $ 35 $ 10 $ 18 $ 240 Amortization of purchased intangibles $ 7 $ 7 Research, development and engineering expenses (2) $ 45 $ 36 $ 49 $ 17 $ 13 $ 160 Restructuring, impairment and other charges and (credits) (before-tax and minority interest) $ 8 $ (15) $ (7) Income tax provision $ (41) $ (15) $ (6) $ (2) $ (4) $ (68) Earnings (loss) before minority interest and equity earnings (loss) (3) $ 318 $ 8 $ 13 $ 5 $ 20 $ 364 Minority interests (7) (7) Equity in earnings (loss) of affiliated companies 168 1 25 194 --------- ----------- --------- -------- ------- ------- Net income (loss) $ 486 $ 9 $ 13 $ 5 $ 38 $ 551 ========= =========== ========= ======== ======= ======= (1) Depreciation expense for Corning's reportable segments is recorded based on the assets of each segment and also includes an allocation of depreciation of corporate property not specifically identifiable to a segment. (2) Research, development, and engineering expenses includes direct project spending which is identifiable to a segment. (3) Many of Corning's administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal are allocated to segments, primarily as a percentage of sales. (4) In the three and six months ended June 30, 2006, equity in earnings (loss) of affiliated companies includes charges of $3 million and $24 million, respectively, in All Other related to impairments for Samsung Corning. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS (Unaudited; in millions) A reconciliation of reportable segment net income (loss) to consolidated net income (loss) follows (in millions): Three months Six months ended June 30, ended June 30, ----------------- ----------------- 2006 2005 2006 2005 -------- -------- -------- -------- Net income of reportable segments $ 404 $ 303 $ 803 $ 551 Unallocated amounts: Net financing costs (1) (2) (24) (10) (61) Stock-based compensation expense (30) (9) (62) (15) Exploratory research (19) (17) (40) (36) Corporate contributions (9) (7) (17) (12) Equity in earnings of associated companies, net of impairments (2) 70 81 140 152 Asbestos settlement (3) 61 (143) (124) (131) Other corporate items (4) 39 (19) 81 (33) -------- -------- -------- -------- Net income $ 514 $ 165 $ 771 $ 415 ======== ======== ======== ======== (1) Net financing costs include interest expense, interest income, and interest costs and investment gains associated with benefit plans. (2) Equity in earnings of affiliated companies, net of impairments, includes the following items: -- In the three and six months ended June 30, 2006, a $33 million gain representing our share of a tax settlement relating to an IRS examination at Dow Corning. -- In the three and six months ended June 30, 2005, a gain of $11 million for our share of a gain on the issuance of subsidiary stock at Dow Corning. (3) The asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation (PCC) reorganization plan, when the reorganization plan becomes effective, will require Corning to relinquish its equity interest in PCC, contribute its equity interest in Pittsburgh Corning Europe (PCE), and 25 million shares of Corning common stock to a trust. Corning also agreed to make cash payments over the six years from the effective date of the settlement and to assign certain insurance policy proceeds from its primary insurance and a portion of its excess insurance at the time of the settlement. The asbestos liability requires adjustment to fair value based upon movements in Corning's common stock price prior to contribution of the shares to the trust as well as changes in the estimated fair value of the other components of the settlement offer. In the second quarter of 2006 and 2005, Corning recorded a credit of $68 million and a charge of $137 million, respectively, to reflect the movement in Corning's common stock price in each year and charges of $7 million and $6 million, respectively, to reflect changes in the estimated fair value of other components of the settlement offer. In the six months ended June 30, 2006 and 2005, Corning recorded charges of $114 million and $121 million, respectively, to reflect the movement in Corning's common stock price in each year and charges of $10 million in each year to reflect changes in the estimated fair value of other components of the settlement offer. (4) Other corporate items include the tax impact of the unallocated amounts plus the following items: -- In the three and six months ended June 30, 2006, tax benefits of $10 million and $48 million, respectively, from the release of valuation allowances for certain foreign locations. -- In the three and six months ended June 30, 2005, impairment charges of $6 million and $25 million, respectively, for an other-than-temporary decline in our investment in Avanex below its cost basis. -- In the three and six months ended June 30, 2005, restructuring credits of $7 million for adjustments to prior years' reserves. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Asbestos Settlement On March 28, 2003, Corning announced that it had reached agreement with the representatives of asbestos claimants for the settlement of all current and future asbestos claims against Corning and Pittsburgh Corning Corporation (PCC), which might arise from PCC products or operations. The proposed settlement, 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. As a result of the proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Corning's quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2006, Corning recorded a credit of $61 million (pretax and after-tax) including a mark-to-market credit of $68 million reflecting the decrease in Corning's common stock from March 31, 2006 to June 30, 2006 and a $7 million charge to adjust the estimated fair value of certain other components of the proposed asbestos settlement. Beginning with the first quarter of 2003, we have recorded total net charges of $942 million to reflect the estimated fair value of our asbestos liability. 2. Debt In the second quarter of 2006, we redeemed $315 million principal amount of our outstanding notes in three separate transactions resulting in losses of $11 million. 3. Provision for Income Taxes In the second quarter of 2006, Corning recorded a $10 million tax benefit from the release of a valuation allowance on Australian tax benefits due to sustained profitability of Corning's Australian entities and positive future earnings projections for the Australian consolidated group. 4. Equity in Earnings of Associated Companies In the second quarter of 2006, equity in earnings of associated companies includes a gain of $33 million related to Dow Corning's settlement with the IRS regarding liabilities for tax years 1992 to 2003. This settlement resolves all Federal tax issues related to Dow Corning's implant settlement. 5. Weighted Average Shares Outstanding Our weighted average shares outstanding are as follows (in millions): Three months Three months ended ended June 30, March 31, ---------------------- ------------ 2006 2005 2006 ---------- ---------- ------------ Basic 1,549 1,438 1,541 Diluted 1,597 1,517 1,592 Diluted used for non-GAAP measures 1,597 1,523 1,592 *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES QUARTERLY SALES INFORMATION (Unaudited; in millions) 2006 -------------------------- Three Six Months Ended Months ----------------- Ended March 31 June 30 June 30 -------- -------- -------- Display Technologies $ 547 $ 461 $ 1,008 Telecommunications Fiber and cable 205 234 439 Hardware and equipment 192 238 430 -------- -------- -------- 397 472 869 Environmental Technologies Automotive 121 113 234 Diesel 34 39 73 -------- -------- -------- 155 152 307 Life Sciences 72 75 147 Other 91 101 192 -------- -------- -------- Total $ 1,262 $ 1,261 $ 2,523 ======== ======== ======== 2005 -------------------------------------------- Q1 Q2 Q3 Q4 Total -------- -------- -------- -------- -------- Display Technologies $ 320 $ 415 $ 489 $ 518 $ 1,742 Telecommunications Fiber and cable 212 213 216 193 834 Hardware and equipment 215 202 182 190 789 -------- -------- -------- -------- -------- 427 415 398 383 1,623 Environmental Technologies Automotive 127 125 121 109 482 Diesel 21 21 23 33 98 -------- -------- -------- -------- -------- 148 146 144 142 580 Life Sciences 74 75 70 63 282 Other 81 90 87 94 352 -------- -------- -------- -------- -------- Total $ 1,050 $ 1,141 $ 1,188 $ 1,200 $ 4,579 ======== ======== ======== ======== ======== The above supplemental information is intended to facilitate analysis of Corning's businesses. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2006 (Unaudited; amounts in millions, except per share amounts) ---------------------------------------------------------------------- Corning's net income and earnings per share (EPS) excluding special items for the second quarter of 2006 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures. ---------------------------------------------------------------------- Income Before Per Income Net Share Taxes Income --------- --------- --------- Earnings per share (EPS) and net income, excluding special items $ 0.26 $ 233 $ 421 Special items: Asbestos settlement (a) 0.04 61 61 Loss on repurchases of debt, net (0.01) (11) (11) Provision for income taxes (b) 0.01 10 Equity in earnings of associated companies (c) 0.02 33 --------- --------- --------- Total EPS and net income $ 0.32 $ 283 $ 514 ========= ========= ========= (a) As a result of Corning's proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Corning's quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2006, Corning recorded a gain of $61 million (before- and after-tax) including $68 million for the change in Corning's common stock price of $24.19 at June 30, 2006, compared to $26.92 at March 31, 2006 and a $7 million charge for the change in estimated fair value of certain other components of the proposed asbestos settlement liability. (b) Amount reflects a $10 million tax benefit from the release of Corning's valuation allowance on Australian tax benefits. (c) Amount reflects a $33 million increase in equity earnings representing Corning's share of a favorable tax settlement from the completion of an IRS examination at Dow Corning. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended March 31, 2006 (Unaudited; amounts in millions, except per share amounts) ---------------------------------------------------------------------- Corning's net income and earnings per share (EPS) excluding special items for the first quarter of 2006 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures. ---------------------------------------------------------------------- Income Before Per Income Net Share Taxes Income --------- --------- --------- Earnings per share (EPS) and net income, excluding special items $ 0.27 $ 241 $ 425 Special items: Asbestos settlement (a) (0.12) (185) (185) Provision for income taxes (b) 0.02 38 Equity in earnings of associated companies (c) (0.01) (21) --------- --------- --------- Total EPS and net income $ 0.16 $ 56 $ 257 ========= ========= ========= (a) As a result of Corning's proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in our quarterly results until the date of the contribution to the settlement trust. In the first quarter of 2006, Corning recorded a charge of $185 million (before- and after-tax) including $182 million for the change in its common stock price of $26.92 at March 31, 2006, compared to $19.66 at December 31, 2005 and $3 million for the change in estimated fair value of certain other components of the proposed asbestos settlement liability. (b) Amount reflects a $38 million tax benefit from the release of our valuation allowance on certain deferred tax assets in Germany. (c) Amount reflects a charge of $21 million to reflect Corning's share of an impairment charge at Samsung Corning Co., Ltd., a South Korea-based manufacturer of glass panels and funnels for cathode ray tube television and display monitors. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2005 (Unaudited; amounts in millions, except per share amounts) ---------------------------------------------------------------------- Corning's net income and earnings per share (EPS) excluding special items for the second quarter of 2005 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measure. ---------------------------------------------------------------------- Income Before Per Income Net Share Taxes Income --------- --------- --------- EPS and net income, excluding special items $ 0.20 $ 192 $ 312 Special items: Restructuring, impairment and other (charges) and credits (a) 1 (3) Asbestos settlement (b) (0.09) (143) (143) Loss on repurchases and retirement of debt, net (c) (0.01) (12) (12) Equity in earnings of associated companies (d) 0.01 11 --------- --------- --------- Total EPS and net income $ 0.11 $ 38 $ 165 ========= ========= ========= (a) In the second quarter of 2005, Corning recorded net credits of $1 million (net charge of $3 million after-tax and minority interest) included in restructuring, impairment and other charges and (credits). A summary of these credits and charges follows: -- We recorded net credits of $7 million ($3 million after-tax and minority interest), primarily for adjustments to prior years' restructuring and impairment reserves. -- We recorded an additional impairment charge of $6 million (pretax and after-tax) for an other than temporary decline in the fair value of our investment in Avanex Corporation (Avanex) below its adjusted cost basis. Our investment in Avanex is accounted for as an available-for-sale security under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At June 30, 2005, shares of Avanex stock were trading at $0.90 per share compared to our adjusted cost basis of $1.30 per share (after adjusting for the first quarter of 2005 impairment charge). We intend to sell our shares of Avanex and, subject to restrictions and the trading volume in Avanex stock, we expect to complete this activity in early 2006. As we do not expect the market value of the Avanex shares to recover in this timeframe, the additional impairment in the second quarter was required. (b) As a result of Corning's proposed asbestos settlement, any changes in the estimated fair value of the components of the proposed settlement agreement will be recognized in Corning's quarterly results until the date of the contribution to the settlement trust. In the second quarter of 2005, Corning recorded a charge of $143 million (before- and after-tax) including $137 million for the change in Corning's common stock price of $16.62 at June 30, 2005, compared to $11.13 at March 31, 2005 and a $6 million charge for the change in estimated fair value of certain other components of the proposed asbestos settlement liability. (c) In the second quarter of 2005, we redeemed for cash the $100 million principal amount of our 7% debentures due March 15, 2007. We recognized a $12 million loss upon the early redemption of these debentures. (d) In the second quarter of 2005, Dow Corning Corporation recorded a gain on the issuance of subsidiary stock. Our equity earnings included $11 million related to this gain. *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2006 (Unaudited; amounts in millions) ---------------------------------------------------------------------- Corning's free cash flow financial measure for the three months ended June 30, 2006 is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP financial measures are helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measure. ---------------------------------------------------------------------- Three months ended June 30, 2006 --------------- Cash flows from operating activities $ 581 Less: Cash flows from investing activities (444) Plus: Short-term investments - acquisitions 647 Less: Short-term investments - liquidations (485) --------------- Free cash flow $ 299 =============== *T -0- *T CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended September 30, 2006 (Unaudited; amounts in millions, except per share amounts) ---------------------------------------------------------------------- Corning's earnings per share (EPS) excluding special items for the third quarter of 2006 is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measure. ---------------------------------------------------------------------- Range --------------------------- Guidance: EPS excluding special items $ 0.22 $ 0.26 Special items: Restructuring, impairment and other (charges) and credits (a) Asbestos settlement (b) ------------- ------------- Earnings per share ---------------------------------------------------------------------- This schedule will be updated as additional announcements occur. ---------------------------------------------------------------------- (a) From time to time, Corning may need to make adjustments to estimates used in the determination of prior year restructuring and impairment charges, which could result in a gain or loss during the quarter. (b) As part of Corning's asbestos settlement arrangement to be incorporated into the Pittsburgh Corning Corporation reorganization plan, Corning will contribute, 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 third quarter of 2006, Corning will record a charge or credit for the change in its common stock price as of September 30, 2006 compared to $24.19, the common stock price at June 30, 2006. In addition, Corning will record an adjustment to the asbestos liability to reflect the change in fair value of any of the other components of the proposed asbestos settlement. Please note that the company may pursue other financing, restructuring and divestiture activities at any time in the future, and that the potential impact of these events is not included within Corning's third quarter 2006 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. *T