GLW Corning Inc

Corning Incorporated (NYSE:GLW) today announced results for the second quarter of 2008. Second-Quarter Highlights Sales reached $1.69 billion, up 19% year over year. Earnings per share were $2.01, including a $2.429 billion net special gain primarily related to the release of U.S. deferred tax asset valuation allowances. Excluding special items, earnings per share were $0.49,* within the company�s previously announced guidance for the quarter of $0.47 to $0.50, and up 44% from last year. Display Technologies combined glass volume (including Corning�s wholly owned business and Samsung Corning Precision Glass Co., Ltd.) increased 8% sequentially and 33% year over year. Corning�s wholly owned business increased 1% sequentially and 26% year over year. Sequential growth was negatively impacted by an isolated manufacturing interruption in the second quarter. Samsung Corning Precision�s (SCP) volume increased 15% sequentially and 40% year over year. Third-Quarter Outlook Highlights Sales are expected in the range of $1.65 billion to $1.72 billion, up 6% to 11% compared to the third quarter last year. Earnings per share, excluding special items, are anticipated in the range of $0.48 to $0.51*, an increase of 26% to 34% over last year. Third-quarter guidance assumes a yen-to-U.S. dollar exchange rate of 108, compared to an exchange rate of 105 experienced in the second quarter. In comparison to the second quarter, the weaker yen is expected to reduce both third-quarter sales and net income by approximately $30 million. Combined LCD glass volume is expected to increase 4% to 9% sequentially, with the wholly owned business flat to up 5% and SCP up 8% to 13%. Year over year, the combined glass volume in the third quarter is expected to increase by more than 21%. Remarking on the second quarter, Wendell P. Weeks, chairman and chief executive officer, said, �Despite concerns of a U.S. economic slowdown, Corning performed very well in the second quarter. We saw continued strong demand for our LCD glass substrates throughout the quarter. The U.S. retail data reported by the NPD Group�s retail tracking service for the month of June showed retail sales of LCD TV units up 35% year over year. This is consistent with what we�ve seen in the first half of the year where LCD TV units sold increased 37% over a year ago.� The NPD Group is an independent consumer market research firm. *These are non-GAAP financial measures. The reconciliation between GAAP and non-GAAP measures is provided in the tables following this news release, as well as on the company�s investor relations website. �Additionally, we were very pleased with our Telecommunications segment performance, where sequential sales growth was 13%,� Weeks said. Quarter Two Financial Comparisons � � Q2 2008 � Q1 2008 � % Change � Q2 2007 � % Change Net Sales in millions � $1,692 � $1,617 � 5% � $1,418 � 19% Net Income in millions � $3,211 � $1,029 � 212% � $489 � 557% Non-GAAP Net Income in millions* � $782 � $702 � 11% � $546 � 43% GAAP EPS � $2.01 � $0.64 � 214% � $0.30 � 570% Non-GAAP EPS* � $0.49 � $0.44 � 11% � $0.34 � 44% Overview of Business Segment Results Second-quarter sales for Corning�s Display Technologies segment were $809 million, a 2% sequential decline, but a 33% increase over the second quarter 2007. Year-over-year glass volume increased by 26%. The display segment results were negatively impacted by an isolated manufacturing interruption which impacted shipments to one customer during the quarter. Excluding the impact of the interruption, sequential volume for the wholly owned business would have been within the original guidance of 2% to 5% growth. The manufacturing interruption reduced Corning�s second-quarter sales by $24 million and net income by $16 million. Also, second-quarter sales and net income were negatively impacted by the weaker-than-expected yen-to-U.S. dollar exchange rate in the quarter versus guidance. Normal price declines were within the anticipated range for the quarter. Telecommunications segment sales in the second quarter were $477 million, a 13% sequential increase and a 9% increase over a year ago. The increase was driven by strong fiber-to-the-premises demand as well as overall strength in optical fiber sales. Environmental Technologies segment sales were $209 million in the second quarter, a 6% sequential improvement and a 9% increase over a year ago. Diesel product sales were strong in the second quarter, offset somewhat by a decline in automotive product demand. Specialty Materials segment sales were $104 million, a 25% sequential increase and a 9% increase over second quarter 2007. The Life Sciences segment had sales of $87 million, a 7% sequential increase and a 12% increase over the second quarter last year. The positive year-over-year sales comparisons in the Telecommunications, Environmental Technologies, and Life Sciences segments reflected stronger euro-to-U.S. dollar exchange rates. Corning�s second-quarter equity earnings were $360 million, an 18% sequential increase and a more than 50% increase over the second quarter 2007. The company�s equity earnings from Dow Corning were $94 million, compared to $80 million in the previous quarter and $88 million a year ago. Special Items The company�s second-quarter results included net special gains of $2.429 billion or $1.52 per share. This amount includes a charge of $12 million pretax and after-tax to settle litigation in the company�s Display Technologies segment and a non-cash charge of $9 million pretax and after-tax related to the pending Pittsburgh Corning Corporation bankruptcy proceeding. In the quarter, the company also released U.S. deferred tax asset valuation allowances totaling $2.45 billion, a non-cash item. As a result of the valuation allowance release, Corning expects that its ongoing effective tax rate will increase by about 10 percentage points in 2009. This will not affect the company�s 2008 ongoing tax rate. James B. Flaws, vice chairman and chief financial officer, said, �The most important factor behind the timing of the release of the U.S. valuation allowance is our increased confidence in sustained profitability in the U.S. The potential increase in next year�s tax rate has been previously disclosed and is in most analysts� 2009 estimates.� Flaws added, �Corning continues to have a large U.S. net operating loss carry-forward and does not expect to pay cash taxes in the U.S. for at least four to five years.� Third-Quarter Outlook �We have recently seen some panel makers, primarily in Taiwan, reduce their utilization rates due to what we believe is an inventory build at the set assembly level of the supply chain. Despite this normal supply chain correction, we continue to believe that the LCD glass market will grow at the upper end of our original guidance range of 25% to 30% this year because retail demand for LCD products has remained strong,� Flaws said. Business Segment Highlights Combined glass volume in the Display Technologies segment is expected to increase 4% to 9% sequentially, with the wholly owned business flat to up 5% and Samsung Corning Precision up 8% to 13%. Normal price declines in the quarter are expected to be around 2%. Corning�s Telecommunications segment sales are expected to be flat to up 5%, primarily due to improved private networks sales. Environmental Technologies segment sales are expected to be flat for the quarter. Specialty Materials segment sales are expected to be flat and sales in the Life Sciences segment are expected to be consistent with the previous quarter due to normal seasonality patterns. Dow Corning Corporation earnings are expected to increase between 20% and 30% for the quarter. Samsung Corning Precision earnings are expected to be flat to up slightly sequentially, as volume gains are expected to be offset by the assumed unfavorable exchange rates and price declines. �Overall, we believe Corning is more resistant to materials and energy inflation than it has been in the past due to cost reduction and changes in business mix. However, our Life Sciences segment and Corning Cable Systems business have seen significant material cost increases and will be implementing prices increases to offset these costs. Dow Corning is also experiencing significant inflation in certain raw materials costs and has implemented price increases as a result,� Flaws added. �While there are economic and supply-chain risks facing us in the second half of the year, we remain optimistic about our key areas of opportunity,� Flaws said. �LCD TV sales have been globally strong this year and this trend continued through June in the U.S. and other regions. Despite fears of a continued impact of the earthquake in China, preliminary June retail data shows LCD TV sales up over 60% over the prior year,� he remarked. The preliminary retail data was supplied by a private Chinese-based market research company. �The continued retail strength is very encouraging as we enter the second half of the year, which is typically the more robust retail season for electronic goods,� Flaws said. Separately, Corning announced earlier today that its board of directors and executive committee approved a new stock repurchase plan of up to $1 billion that will run through 2009. This is in addition to last year�s $500 million repurchase authorization of which $125 million remains. Second-Quarter Conference Call Information The company will host a second-quarter conference call on Wednesday, July 30 at 8:30 a.m. EDT. To access the call, dial (800) 700-8174 or international access call (651) 291-0900 approximately 10-15 minutes prior to the start of the call. The password is QUARTER TWO. The leader is SOFIO. To listen to a live audio webcast of the call, go to Corning's Web site at www.corning.com/investor_relations and follow the instructions. A replay of the call will begin at approximately 10:30 a.m. EDT, and will run through 5 p.m. EDT, Wednesday, August 13. To listen, dial (800) 475-6701 or international access call (320) 365-3844. The access code is 935096. The webcast will be archived for one year following the call. Presentation of Information in this News Release Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning�s non-GAAP net income and EPS measures exclude restructuring, impairment and other charges and adjustments to prior estimates for such charges. Additionally, the company�s non-GAAP measures exclude adjustments to asbestos settlement reserves required by movements in Corning�s common stock price, gains and losses arising from debt retirements, charges or credits arising from adjustments to the valuation allowance against deferred tax assets, equity method charges resulting from impairments of equity method investments or restructuring, impairment or other charges taken by equity method companies, and gains from discontinued operations. The company believes presenting non-GAAP net income and EPS measures is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. These non-GAAP measures are reconciled on the company�s Web site at www.corning.com/investor_relations and accompanies this news release. About Corning Incorporated Corning Incorporated (www.corning.com) is the world leader in specialty glass and ceramics. Drawing on more than 150 years of materials science and process engineering knowledge, Corning creates and makes keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications and life sciences. Our products include glass substrates for LCD televisions, computer monitors and laptops; ceramic substrates and filters for mobile emission control systems; optical fiber, cable, hardware & equipment for telecommunications networks; optical biosensors for drug discovery; and other advanced optics and specialty glass solutions for a number of industries including semiconductor, aerospace, defense, astronomy and metrology. Forward-Looking and Cautionary Statements This press release contains forward-looking statements that involve a variety of business risks and other uncertainties that could cause actual results to differ materially. These risks and uncertainties include the possibility of changes in global economic and political conditions; currency fluctuations; product demand and industry capacity; competition; manufacturing efficiencies; cost reductions; availability of critical components and materials; new product commercialization; changes in the mix of sales between premium and non-premium products; new plant start-up costs; possible disruption in commercial activities due to terrorist activity, armed conflict, political instability or major health concerns; adequacy of insurance; equity company activities; acquisition and divestiture activities; the level of excess or obsolete inventory; the rate of technology change; the ability to enforce patents; product and components performance issues; stock price fluctuations; and adverse litigation or regulatory developments. Additional risk factors are identified in Corning�s filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the day that they are made, and Corning undertakes no obligation to update them in light of new information or future events. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited; in millions, except per share amounts) � � � � � � Three months Six months ended June 30, ended June 30, 2008 2007 2008 2007 � Net sales $ 1,692 $ 1,418 $ 3,309 $ 2,725 Cost of sales � 840 � � 759 � � 1,613 � � 1,475 � � Gross margin 852 659 1,696 1,250 � Operating expenses: Selling, general and administrative expenses 260 229 502 443 Research, development and engineering expenses 163 137 314 267 Amortization of purchased intangibles 3 2 5 5 Restructuring, impairment and other credits (2 ) (1 ) (2 ) Asbestos settlement charge (credit) (Note 1) � 9 � � 76 � � (318 ) � 186 � � Operating income 417 217 1,194 351 � Interest income 22 35 52 72 Interest expense (15 ) (20 ) (33 ) (41 ) Loss on repurchase of debt, net (15 ) Other income, net (Note 2) � 39 � � 57 � � 40 � � 89 � � Income before income taxes 463 289 1,253 456 Benefit (provision) for income taxes (Note 3) � 2,388 � � (19 ) � 2,322 � � (75 ) � Income before minority interests and equity earnings 2,851 270 3,575 381 Minority interests (1 ) 1 (1 ) Equity in earnings of affiliated companies, net of impairments � 360 � � 220 � � 664 � � 436 � � Net income $ 3,211 � $ 489 � $ 4,240 � $ 816 � � Basic earnings per common share (Note 4) $ 2.05 � $ 0.31 � $ 2.71 � $ 0.52 � Diluted earnings per common share (Note 4) $ 2.01 � $ 0.30 � $ 2.65 � $ 0.51 � Dividends declared per common share $ 0.05 � $ 0.10 � � See accompanying notes to these financial statements. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (Unaudited; in millions, except per share amounts) � � June 30, December 31, 2008 2007 Assets � Current assets: Cash and cash equivalents $ 2,175 $ 2,216 Short-term investments, at fair value � 1,332 � 1,300 Total cash, cash equivalents and short-term investments 3,507 3,516 Trade accounts receivable, net of doubtful accounts and allowances 958 856 Inventories 726 631 Deferred income taxes 168 54 Other current assets � 289 � 237 Total current assets 5,648 5,294 � Investments 3,264 3,036 Property, net of accumulated depreciation 6,944 5,986 Goodwill and other intangible assets, net 303 308 Deferred income taxes 2,579 202 Other assets � 442 � 389 � Total Assets $ 19,180 $ 15,215 � Liabilities and Shareholders� Equity � Current liabilities: Current portion of long-term debt $ 76 $ 23 Accounts payable 831 609 Other accrued liabilities � 1,051 � 1,880 Total current liabilities 1,958 2,512 � Long-term debt 1,474 1,514 Postretirement benefits other than pensions 739 744 Other liabilities � 1,280 � 903 Total liabilities � 5,451 � 5,673 � Commitments and contingencies Minority interests 48 46 Shareholders� equity: Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion; Shares issued: 1,608 million and 1,598 million 804 799 Additional paid-in capital 12,447 12,281 Retained earnings (accumulated deficit) 1,080 (3,002) Treasury stock, at cost; Shares held: 37 million and 30 million (659) (492) Accumulated other comprehensive income (loss) � 9 � (90) Total shareholders� equity � 13,681 � 9,496 � Total Liabilities and Shareholders� Equity $ 19,180 $ 15,215 � See accompanying notes to these financial statements. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in millions) � � � Three months ended Six months endedJune 30, June 30, 2008 June 30, 2007 2008 2007 Cash Flows from Operating Activities: Net income $ 3,211 $ 489 $ 4,240 $ 816 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 162 149 319 299 Amortization of purchased intangibles 3 2 5 5 Asbestos settlement 9 76 (318 ) 186 Restructuring, impairment and other credits (2 ) (1 ) (2 ) Loss on repurchases of debt 15 Stock compensation charges 37 35 78 71 Gain on sale of business (19 ) (19 ) Undistributed earnings of affiliated companies (232 ) (101 ) (385 ) (168 ) Deferred tax benefit (2,471 ) (2,473 ) Restructuring payments (3 ) (9 ) (10 ) (20 ) Customer deposits, net of (credits) issued (71 ) (33 ) (137 ) (66 ) Employee benefit payments (in excess of) less than expense 11 (37 ) (92 ) Changes in certain working capital items: Trade accounts receivable 4 (79 ) (46 ) (107 ) Inventories (41 ) (26 ) (73 ) (68 ) Other current assets (31 ) (27 ) (52 ) (84 ) Accounts payable and other current liabilities, net of restructuring payments 128 3 (104 ) (127 ) Other, net � (26 ) � 17 � � (21 ) � 29 � Net cash provided by operating activities � 690 � � 475 � � 985 � � 668 � � Cash Flows from Investing Activities: Capital expenditures (397 ) (204 ) (864 ) (466 ) Acquisitions of businesses, net of cash received (4 ) (4 ) Net proceeds (payments) from sale or disposal of assets 2 (10 ) 2 (10 ) Short-term investments - acquisitions (470 ) (396 ) (1,194 ) (949 ) Short-term investments - liquidations � 324 � � 832 � � 1,140 � � 1,630 � Net cash (used in) provided by investing activities � (541 ) � 218 � � (916 ) � 201 � � Cash Flows from Financing Activities: Net repayments of short-term borrowings and current portion of long-term debt (3 ) (2 ) (12 ) (10 ) Retirements of long-term debt (238 ) Proceeds from issuance of common stock, net 11 9 15 13 Proceeds from the exercise of stock options 56 47 74 69 Repurchase of common stock (63 ) (125 ) Dividends paid (80 ) (158 ) Other, net � 2 � � � � � � � Net cash used in financing activities � (77 ) � 54 � � (206 ) � (166 ) Effect of exchange rates on cash � (21 ) � 4 � � 96 � � 14 � Net increase (decrease) in cash and cash equivalents 51 751 (41 ) 717 Cash and cash equivalents at beginning of period � 2,124 � � 1,123 � � 2,216 � � 1,157 � � Cash and cash equivalents at end of period $ 2,175 � $ 1,874 � $ 2,175 � $ 1,874 � � Certain amounts for 2007 were reclassified to conform to 2008 classifications. CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS (Unaudited; in millions) � Our reportable operating segments include Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences. � � � � � � � � Environ- Display Tele- mental Life Tech- commun- Techn- Specialty Sci- All � nologies ications ologies Materials ences Other � Total � Three months ended June 30, 2008 � Net sales $ 809 $ 477 $ 209 $ 104 $ 87 $ 6 $ 1,692 Depreciation (1) $ 92 $ 31 $ 24 $ 7 $ 4 $ 3 $ 161 Amortization of purchased intangibles $ 3 $ 3 Research, development and engineering expenses (2) � $ 29 $ 25 $ 32 $ 11 $ 2 $ 42 $ 141 Income tax (provision) benefit $ (61 ) $ (2 ) $ (2 ) $ (1 ) $ 3 $ (63 ) Earnings (loss) before equity earnings (3) � $ 441 $ 23 $ 27 $ 4 $ 16 $ (52 ) $ 459 Equity in earnings of affiliated companies $ 244 � � � $ 1 � � � � � $ 15 � $ 260 � Net income (loss) $ 685 � $ 23 � $ 28 � $ 4 � $ 16 � $ (37 ) $ 719 � � Three months ended June 30, 2007 � Net sales $ 610 $ 438 $ 191 $ 95 $ 78 $ 6 $ 1,418 Depreciation (1) $ 79 $ 32 $ 22 $ 8 $ 4 $ 2 $ 147 Amortization of purchased intangibles $ 2 $ 2 Research, development and engineering expenses (2) � $ 22 $ 21 $ 31 $ 13 $ 2 $ 28 $ 117 Re-structuring, impairment and other credits (before-tax and minority interest) � � $ (2 ) $ (2 ) Income tax (provision) benefit $ (11 ) $ (6 ) $ (4 ) $ (3 ) $ 2 $ (22 ) Earnings (loss) before minority interest and equity earnings (loss) (3) � � $ 362 $ 41 $ 13 $ (2 ) $ 11 $ (36 ) $ 389 Minority interests $ (1 ) $ (1 ) Equity in earnings (loss) of affiliated companies (4) � $ 132 � $ 1 � $ 1 � � � � � $ (6 ) $ 128 � Net income (loss) $ 494 � $ 42 � $ 14 � $ (2 ) $ 11 � $ (43 ) $ 516 � � Six months ended June 30, 2008 � Net sales $ 1,638 $ 898 $ 406 $ 187 $ 168 $ 12 $ 3,309 Depreciation (1) $ 182 $ 58 $ 48 $ 15 $ 8 $ 6 $ 317 Amortization of purchased intangibles $ 5 $ 5 Research, development and engineering expenses (2) � $ 53 $ 49 $ 65 $ 20 $ 4 $ 78 $ 269 Re-structuring, impairment and other credits (before related tax benefits and minority interest) � � $ (1 ) $ (1 ) Income tax (provision) benefit $ (118 ) $ (7 ) $ (7 ) $ (6 ) $ 5 $ (133 ) Earnings (loss) before minority interest and equity earnings (3) � � $ 917 $ 33 $ 39 $ 26 $ (97 ) $ 918 Minority interest $ 1 $ 1 Equity in earnings of affiliated companies $ 447 � � � $ 2 � � � � � $ 33 � $ 482 � Net income (loss) $ 1,364 � $ 34 � $ 41 � $ 0 � $ 26 � $ (64 ) $ 1,401 � � Six months ended June 30, 2007 � Net sales $ 1,134 $ 877 $ 370 $ 179 $ 154 $ 11 $ 2,725 Depreciation (1) $ 160 $ 65 $ 43 $ 16 $ 8 $ 3 $ 295 Amortization of purchased intangibles $ 5 $ 5 Research, development and engineering expenses (2) � $ 44 $ 40 $ 61 $ 22 $ 4 $ 54 $ 225 Re-structuring, impairment and other credits (before-tax and minority interest) � � $ (2 ) $ (2 ) Income tax (provision) benefit $ (53 ) $ (17 ) $ (7 ) $ (7 ) $ 4 $ (80 ) Earnings (loss) before minority interest and equity earnings (3) � � $ 635 $ 72 $ 23 $ (2 ) $ 21 $ (68 ) $ 681 Minority interest $ (1 ) $ (1 ) Equity in earnings of affiliated companies (4) $ 245 � $ 2 � $ 1 � � � � � $ 3 � $ 251 � Net income (loss) $ 880 � $ 74 � $ 24 � $ (2 ) $ 21 � $ (66 ) $ 931 � (1) � Depreciation expense for Corning�s reportable segments includes an allocation of depreciation of corporate property not specifically identifiable to a segment. � (2) Research, development, and engineering expenses includes direct project spending which is identifiable to a segment. � (3) Many of Corning�s administrative and staff functions are performed on a centralized basis. Where practicable, Corning charges these expenses to segments based upon the extent to which each business uses a centralized function. Other staff functions, such as corporate finance, human resources and legal are allocated to segments, primarily as a percentage of sales. In the three and six months ended June 30, 2008, earnings (loss) before minority interest and equity earnings (loss) of the Display Technologies segment included a $12 million litigation settlement charge. In the three and six months ended June 30, 2007, earnings (loss) before minority interest and equity earnings (loss) of the Telecommunications segment included a $19 million gain on the sale of the European submarine cabling business. � (4) In the three and six months ended June 30, 2007, equity earnings (loss) of affiliated companies includes a charge of $15 million in All Other related to impairments for Samsung Corning Precision�s non-LCD businesses. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES SEGMENT RESULTS (Unaudited; in millions) � � � � A reconciliation of reportable segment net income to consolidated net income follows (in millions): � Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 Net income of reportable segments $ 756 $ 559 $ 1,465 $ 997 Non-reportable segments (37 ) (43 ) (64 ) (66 ) Unallocated amounts: Net financing costs (1) 4 10 13 18 Stock-based compensation expense (37 ) (35 ) (78 ) (71 ) Exploratory research (17 ) (16 ) (35 ) (33 ) Corporate contributions (7 ) (6 ) (18 ) (20 ) Equity in earnings of affiliated companies, net of impairments (2) 100 92 182 185 Asbestos settlement (3) (9 ) (76 ) 318 (186 ) Other corporate items (4) � 2,458 � � 4 � � 2,457 � � (8 ) Net income $ 3,211 � $ 489 � $ 4,240 � $ 816 � � (1 ) Net financing costs include interest income, interest expense, and interest costs and investment gains associated with benefit plans. � (2 ) Includes the equity earnings of Dow Corning Corporation. � (3 ) In the three months ended June 30, 2008, Corning recorded a charge of $9 million to adjust the asbestos liability for the change in value of certain components of the Amended PCC Plan and the estimated liability for non-PCC asbestos claims. In the six months ended June 30, 2008, Corning reduced its liability for asbestos litigation as a result of the increase in the likelihood of a settlement under recently proposed terms and a corresponding decrease in the likelihood of a settlement under terms established in 2003. In the three and six months ended June 30, 2007, Corning recorded asbestos settlement expense under the terms of the 2003 Plan of $76 million and $186 million, respectively, to adjust the estimated fair value of the components of the proposed asbestos settlement at that time. � (4 ) Other corporate items include the tax impact of the unallocated amounts. In the three months ended June 30, 2008, Corning recorded a $2.45 billion tax benefit from the release of a valuation allowance on U.S. tax benefits due to sustained profitability and positive future earnings projections for the U.S. entities. In addition, the six months ended June 30, 2007 included a loss of $15 million from the repurchase of $223 million principal amount of our 6.25% Euro notes due 2010. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) � � � � � 1. Asbestos Settlement � On March 28, 2003, Corning announced that it had reached agreement with the representatives of asbestos claimants for the settlement of all current and future asbestos claims against Corning and Pittsburgh Corning Corporation (PCC) which might arise from PCC products or operations (the 2003 Plan). On December 21, 2006, the Bankruptcy Court issued an order denying confirmation of the 2003 Plan. On January 10, 2008, some of the parties in the proceeding advised the Bankruptcy Court that they had made substantial progress on an amended plan of reorganization (the Amended PCC Plan) that resolved issues raised by the Court in denying the confirmation of the 2003 Plan. � As a result of progress in the parties� continuing negotiations, Corning believes the Amended PCC Plan now represents the most probable outcome of this matter and the probability that the 2003 plan will become effective has diminished. The proposed settlement under the Amended PCC Plan requires Corning to contribute its equity interest in PCC and Pittsburgh Corning Europe, N.V. (PCE) and to contribute a fixed series of cash payments, recorded at present value on June 30, 2008. Corning will have the option to contribute shares rather than cash, but the liability is fixed by dollar value and not number of shares. As a result, the estimated asbestos settlement liability is no longer impacted by movements in the value of Corning common stock. The Amended PCC Plan does not include non-PCC asbestos claims that may be or have been raised against Corning. Corning has recorded an additional amount for such claims in its estimated asbestos settlement liability. � In the first quarter of 2008, we recorded a $327 million reduction to our estimated liability for asbestos litigation as a result of the increase in the likelihood of a settlement under the Amended PCC Plan and a corresponding decrease in the likelihood of a settlement under terms of the 2003 Plan. In the second quarter of 2008, we recorded an asbestos settlement charge of $9 million to adjust the asbestos settlement liability for the change in value of the components of the Amended PCC Plan and the estimated liability for non-PCC asbestos claims. � 2. Litigation Settlement � In the second quarter of 2008, Corning recorded a charge of $12 million to settle litigation associated with our Display Technologies segment. � 3. Provision for Income Taxes � In the second quarter of 2008, Corning concluded that it is more likely than not that the Company will realize substantially all of its U.S. deferred tax assets because the Company expects to generate sufficient levels of income in the U.S. As a result, Corning released $2.45 billion of valuation allowances on its U.S. deferred tax assets. � 4. Weighted Average Shares Outstanding � Weighted average shares outstanding are as follows (in millions): � � Three months endedJune 30, Three months endedMarch 31,2008 2008 2007 � Basic 1,569 1,567 1,566 Diluted 1,600 1,605 1,598 Diluted used for non-GAAP measures 1,600 1,605 1,598 � CORNING INCORPORATED AND SUBSIDIARY COMPANIES QUARTERLY SALES INFORMATION (Unaudited; in millions) � � � � � � 2008 Three Months Ended Six MonthsEnded � March 31 June 30 June 30 � Display Technologies $ 829 $ 809 $ 1,638 � Telecommunications Fiber and cable 214 248 462 Hardware and equipment � 207 � 229 � 436 421 477 898 � Environmental Technologies Automotive 137 132 269 Diesel � 60 � 77 � 137 197 209 406 � Specialty Materials 83 104 187 � Life Sciences 81 87 168 � Other � 6 � 6 � 12 � Total $ 1,617 $ 1,692 $ 3,309 � 2007 Q1 Q2 Q3 Q4 Total � Display Technologies $ 524 $ 610 $ 705 $ 774 $ 2,613 � Telecommunications Fiber and cable 211 219 237 213 880 Hardware and equipment � 228 � 219 � 235 � 217 � 899 439 438 472 430 1,779 � Environmental Technologies Automotive 123 128 126 131 508 Diesel � 56 � 63 � 72 � 58 � 249 179 191 198 189 757 � Specialty Materials 84 95 95 105 379 � Life Sciences 76 78 78 73 305 � Other � 5 � 6 � 5 � 11 � 27 � Total $ 1,307 $ 1,418 $ 1,553 $ 1,582 $ 5,860 � The above supplemental information is intended to facilitate analysis of Corning�s businesses. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2008 (Unaudited; amounts in millions, except per share amounts) � � � � � � � � � � � � � � � � � Corning�s net income and earnings per share (EPS) excluding special items for the second quarter of 2008 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures. � � Income BeforeIncome Taxes � Per Share Net Income � Earnings per share (EPS) and net income, excluding special items $ 0.49 $ 484 $ 782 � Special items: Asbestos settlement (a) - (9 ) (9 ) � Litigation settlement (b) (0.01 ) (12 ) (12 ) � Valuation allowance release (c) � 1.53 � � - � � 2,450 � � Total EPS and net income $ 2.01 � $ 463 � $ 3,211 � � � (a) In the second quarter of 2008, Corning recorded a charge of $9 million to adjust the asbestos liability for the change in value of certain components of the Amended PCC Plan and the estimated liability for non-PCC asbestos claims. � (b) In the second quarter of 2008, Corning recorded a charge of $12 million to settle litigation associated with our Display Technologies segment. � (c) In the second quarter of 2008, Corning recorded a valuation allowance release of $2.45 billion to reflect the expected realizability of U.S. deferred tax assets in future years. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended March 31, 2008 (Unaudited; amounts in millions, except per share amounts) � � � � � � � � � � � � � � � � � � � Corning�s net income and earnings per share (EPS) excluding special items for the first quarter of 2008 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures. � � Per Income Before Net Share Income Taxes Income � Earnings per share (EPS) and net income, excluding special items $ 0.44 $ 463 $ 702 � Special items: Asbestos settlement (a) � 0.20 � � 327 � � 327 � Total EPS and net income $ 0.64 � $ 790 � $ 1,029 � � (a) In the first quarter of 2008, Corning recorded an asbestos settlement credit of $327 million to adjust the asbestos liability from $1 billion to $675 million, including the components of the Amended PCC Plan and the estimated liability for non-PCC asbestos claims. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2007 (Unaudited; amounts in millions, except per share amounts) � � � � � � � � � � � � � � � � � � � Corning�s net income and earnings per share (EPS) excluding special items for the second quarter of 2007 are non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP net income and EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. A detailed reconciliation is provided below outlining the differences between these non-GAAP measures and the directly related GAAP measures. � � Per Income Before Net Share Income Taxes Income � Earnings per share (EPS) and net income, excluding special items $ 0.34 $ 346 $ 546 � Special items: Asbestos settlement (a) (0.05 ) (76 ) (76 ) � Gain on sale of business, net (b) � 0.01 � � � 19 � � � � 19 � � Total EPS and net income $ 0.30 � � $ 289 � � � $ 489 � � � (a) In the second quarter of 2007, Corning recorded a charge of $76 million (before- and after-tax) for the change in the estimated fair value of the components of the proposed asbestos settlement liability under the terms of the 2003 Plan. � (b) Amount reflects a $19 million gain on the sale of the European submarine cabling business. � CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended June 30, 2008 (Unaudited; amounts in millions) � � � � � � � � � � � � � � � � � � Corning�s free cash flow financial measure for the three and six months ended June 30, 2008 is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP financial measures are helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measures. � � Sixmonths endedJune 30, 2008 � Threemonths ended June 30, 2008 � Cash flows from operating activities $ 690 $ 985 � Less: Cash flows from investing activities (541) (916) � Plus: Short-term investments - acquisitions 470 1,194 � Less: Short-term investments - liquidations � � (324) � � � � (1,140) � Free cash flow � $ 295 � � � $ 123 � CORNING INCORPORATED AND SUBSIDIARY COMPANIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE Three Months Ended September 30, 2008 (Unaudited; amounts in millions, except per share amounts) � � � � � � � � � � � Corning�s earnings per share (EPS) excluding special items for the third quarter of 2008 is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, generally accepted accounting principles (GAAP). The company believes presenting non-GAAP EPS is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company�s underlying performance. A detailed reconciliation is provided below outlining the differences between this non-GAAP measure and the directly related GAAP measure. � � � Range Guidance: EPS excluding special items $ 0.48 $ 0.51 � Special items (a) � � � � � Earnings per share � � � � � � � � � This schedule will be updated as additional announcements occur. � (a) From time to time, Corning may record special items which could result in a gain or loss during the quarter. � � Please note that the company may pursue other financing, restructuring and divestiture activities at any time in the future, and that the potential impact of these events is not included within Corning's third quarter 2008 guidance. � This schedule contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on current expectations and involve certain risks and uncertainties. Actual results may differ from those projected in the forward looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the Securities and Exchange Commission filings of this Company.