UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) April 21, 2006
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
New York 1-3247 16-0393470
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Riverfront Plaza, Corning, New York 14831
(Address of principal executive offices) (Zip Code)
(607) 974-9000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On April 25, 2006, Corning Incorporated ("Corning") issued a press release
regarding its financial results for the first quarter ended March 31, 2006 and
its second quarter earnings guidance, as well as matters discussed under Item
4.02 below. The press release is attached hereto as Exhibit 99.
The information in the attached press release about second quarter earnings
guidance and outlook is furnished pursuant to Item 2.02 and shall not be deemed
to be "filed" for purposes of Section 18 of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities
of that Section, and is not incorporated by reference in any filing under the
Securities Exchange Act of 1933, as amended, or the Exchange Act, except as
expressly set forth by specific reference in such filing. Such furnished
language consists of the six paragraphs under the heading "Second-Quarter
Outlook" in the press release.
Item 4.02(a). Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review
Corning management and its audit committee concluded on April 21, 2006 that
Corning will restate previously issued financial statements as of December 31,
2005 and 2004 and for each of the three years in the period ended December 31,
2005, included in the Company's 2005 annual report on Form 10-K and previously
issued interim financial statements included in the Company's 2005 Forms 10-Q to
properly account for the 2003 Pittsburgh Corning Asbestos Litigation Bankruptcy
Settlement. Accordingly, our previously issued financial statements for the
periods noted above should no longer be relied upon. Corning plans to file an
amended Annual Report on Form 10-K for the year ended December 31, 2005, and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 by May 10,
2006.
This restatement will impact Corning's asbestos settlement charges and liability
and its investment in and equity earnings of Pittsburgh Corning Europe (PCE).
The restatement adjustments will have no impact on previously reported revenue,
cash balances, or compliance with any debt covenants.
Corning has determined that its accounting related to the 2003 Pittsburgh
Corning Corporation Asbestos Litigation Bankruptcy Settlement was not in
compliance with generally accepted accounting principles (GAAP). Specifically,
between March 31, 2003, and December 31, 2005, the following errors occurred:
.. Corning's asbestos settlement charges and the related liability for the
asbestos settlement did not reflect the estimated fair value at initial
recognition or subsequent changes in fair value, of certain components of
the proposed settlement offer. As a result, asbestos settlement charges for
the years 2005, 2004, and 2003 were understated by $13 million, $24
million, and $117 million, respectively.
.. Corning incorrectly suspended recording equity earnings of PCE between
March 31, 2003, and December 31, 2005. As a result, equity in earnings of
associated companies for the years 2005, 2004, and 2003 was understated by
$13 million, $11 million, and $7 million, respectively.
.. Accretion on the cash portion of the asbestos settlement offer was
incorrectly recorded as interest expense resulting in both an overstatement
of interest expense and an understatement of asbestos settlement expense
for the years 2005, 2004, and 2003, by $8 million, $8 million, and $5
million, respectively.
In the restated financial statements, the higher asbestos settlement charges
will be tax-effected in 2003 and the first half of 2004. As Corning provided a
valuation allowance on most of its deferred tax assets in the third quarter of
2004, that quarter will reflect an increase in the valuation allowance of $55
million for the deferred tax assets related to the higher asbestos settlement
charges.
The restatement adjustments are expected to impact Corning's reported net income
and diluted earnings per share as follows (in millions, except per share
amounts):
Year ended December 31,
--------------------------------------
2005 2004 2003
---- ---- ----
As reported:
Net income (loss) $ 585 $ (2,165) $ (223)
Basic earnings (loss) per share $ 0.40 $ (1.56) $ (0.18)
Diluted earnings (loss) per share $ 0.38 $ (1.56) $ (0.18)
As restated:
Net income (loss) $ 585 $ (2,231) $ (280)
Basic earnings (loss) per share $ 0.40 $ (1.61) $ (0.22)
Diluted earnings (loss) per share $ 0.38 $ (1.61) $ (0.22)
These adjustments are not expected to change previously reported earnings per
share amounts for the quarters ended September 30, 2005, June 30, 2005 and March
31, 2005.
The cumulative effect of these adjustments to Corning's balance sheet as of
December 31, 2005, is expected to result in an increase in investments in
affiliated companies of $32 million, an increase to other long-term liabilities
of $154 million, an increase to accumulated deficit of $123 million, and an
increase to accumulated other comprehensive income of $1 million.
Corning's management and audit committee have discussed the matters disclosed in
this Form 8-K with the Company's independent registered public accounting firm,
PricewaterhouseCoopers LLP. The discussion of Corning's revised financial
results contained in this Current Report on Form 8-K has been prepared by
management and represents management's preliminary assessment of the revised
results.
Corning has not yet completed its evaluation of internal controls relating to
this restatement.
Item 7.01. Regulation FD Disclosure
The Corning Incorporated press release dated April 25, 2006, regarding its
financial results for the quarter ended March 31, 2006, and its second quarter
2006 earnings guidance, is attached hereto as Exhibit 99.
The information in the attached press release about second quarter earnings
guidance and outlook is furnished pursuant to Item 7.01 and shall not be deemed
to be "filed" for purposes of Section 18 of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities
of that Section, and is not incorporated by reference in any filing under the
Securities Exchange Act of 1933, as amended, or the Exchange Act, except as
expressly set forth by specific reference in such filing. Such furnished
language consists of the six paragraphs under the heading "Second-Quarter
Outlook" in the press release.
Item 9.01. Financial Statements and Exhibits
(d) Exhibit
99 Press Release dated April 25, 2006, issued by Corning Incorporated.
The information in the attached press release is deemed "filed," except that the
six paragraphs under the heading "Second-Quarter Outlook" in the release are
"furnished."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNING INCORPORATED
Registrant
Date: April 25, 2006 By /s/ KATHERINE A. ASBECK
-------------------------------
Katherine A. Asbeck
Senior Vice President - Finance
Exhibit 99
----------
FOR RELEASE -- APRIL 25, 2006
Media Relations Contact: Investor Relations Contact:
Daniel F. Collins Kenneth C. Sofio
(607) 974-4197 (607) 974-7705
collinsdf@corning.com sofiokc@corning.com
Corning Announces First-Quarter Results
Results exceed guidance
Corning to restate 2003 Pittsburgh Corning Corporation litigation settlement
CORNING N.Y. -- Corning Incorporated (NYSE:GLW) today announced first-quarter
sales of $1.26 billion, with net income of $257 million, or $0.16 per share.
Corning's first-quarter results included special charges totaling $168 million,
or $0.11 per share. Excluding these charges, Corning's first-quarter net income
would have been $425 million, or $0.27 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.
The company's first-quarter results exceeded its sales guidance range of $1.2
billion to $1.25 billion and significantly exceeded its guidance for earnings.
Corning began expensing stock options in the first quarter of 2006.
First-quarter results included $0.01 per share of expense related to stock
options.
"Our first-quarter results were very satisfying," Wendell P. Weeks, president
and chief executive officer, said. "We continue to be pleased with the growth we
experienced in our Display Technologies segment. We also saw improved
performance in our Telecommunications, Life Sciences and Environmental
Technologies segments versus the fourth quarter."
Corning's first-quarter results were impacted by the following non-cash items:
.. A $185 million pretax and after-tax net charge primarily reflecting the
increase in market value of Corning common stock to be contributed to
settle the asbestos litigation related to the Pittsburgh Corning
Corporation.
.. A $38 million reduction in income tax expense related to the release of the
valuation allowance on certain deferred tax assets in Germany.
.. A $21 million reduction in equity earnings related to the impairment of
long-lived assets at Samsung Corning Company, Ltd., Corning's 50-percent
owned equity venture in Korea, which manufactures glass panels and funnels
for cathode ray tubes for televisions and computer monitors.
(more)
Corning Announces First-Quarter Results
Page Two
First-Quarter Operating Results
Corning's first-quarter sales of $1.26 billion increased 5 percent over
fourth-quarter sales of $1.2 billion, and increased 20 percent over last year's
first-quarter sales of $1.05 billion. Gross margin of 45 percent for the first
quarter was consistent with the fourth quarter.
Equity earnings for the first quarter were $200 million, including the $21
million impairment charge at Samsung Corning. Absent this charge, equity
earnings reflect strong operating results at Dow Corning Corporation and Samsung
Corning Precision Glass Co., Ltd., (SCP), Corning's 50-percent owned equity
venture in Korea, which manufactures liquid crystal display (LCD) glass
substrates. Corning's equity earnings from Dow Corning were $69 million in the
first quarter, a 38-percent increase over fourth-quarter results. First-quarter
equity earnings include about $15 million of non-recurring gains.
First-quarter sales for Corning's Display Technologies segment were $547
million, a 71-percent increase over 2005 first-quarter sales of $320 million.
First-quarter year-over-year LCD glass volume more than doubled. Sequentially,
first-quarter sales increased 6 percent over fourth-quarter sales of $518
million. Stronger-than-expected volume growth of 15 percent was partially offset
by the anticipated upper single-digit price declines.
Samsung Corning Precision's first-quarter volume increased 10 percent
sequentially and 87 percent year-over-year. Equity earnings from SCP were $140
million in the first quarter, compared to $129 million in the previous quarter.
Total volume in the Display Technologies segment, including both Corning's
wholly owned business and SCP, increased 13 percent sequentially in the first
quarter. Net income for the Display Technologies segment was $417 million, up 13
percent compared to $368 million in the fourth quarter.
First-quarter Telecommunications segment sales increased 4 percent to $397
million versus $383 million last quarter, primarily due to higher fiber and
cable sales in North America. Fiber-to-the-premises (FTTP) sales in the first
quarter increased slightly over fourth-quarter results.
The Environmental Technologies segment had sales of $155 million in the first
quarter, compared to $142 million in the fourth quarter of last year, a
9-percent increase. The increase was driven by an improvement in global
automotive sales. The company also saw a 14-percent sequential sales increase in
its Life Sciences segment of $72 million versus $63 million in the previous
quarter.
(more)
Corning Announces First-Quarter Results
Page Three
Cash Flow/Liquidity Update
Corning ended the first quarter with $2.48 billion in cash and short-term
investments, an increase from $2.4 billion in the previous quarter. The
company's debt level remained at $1.8 billion. James B. Flaws, vice chairman and
chief financial officer, said, "We were delighted that Standard & Poor's Rating
Services raised its credit rating on Corning to BBB from the previous grade of
BBB minus in early April. While we ended the quarter with a negative $176
million of free cash flow, it was the result of seasonally higher first-quarter
working capital expenditures, our continued capital spending in Display
Technologies, and our equity investment in SCP early in the first quarter. We
remain on track to be free cash flow positive for the full year." Free cash flow
is a non-GAAP financial measure.
Restatement of 2003 Pittsburgh Corning Settlement
Corning has determined that its accounting for the 2003 Pittsburgh Corning
Corporation (PCC) asbestos litigation settlement was not in compliance with
generally accepted accounting principles (GAAP). Specifically, two components of
the settlement liability - Corning's investment in Pittsburgh Corning Europe
(PCE) and the proceeds of certain insurance policies to be assigned - were
accounted for at book value rather than at estimated fair value, as required by
GAAP. The company also incorrectly suspended recognition of equity earnings from
Pittsburgh Corning Europe at that time.
Corning management and its audit committee have concluded that the company will
restate its historical financial statements to reflect the appropriate
accounting. The primary impact of this restatement will be to increase the
asbestos settlement liability by $94 million pretax, ($50 million after-tax) in
the first quarter of 2003, and to increase the deferred tax valuation allowance
recorded in the third quarter of 2004 by about $50 million. The restatement will
have no impact on 2005 reported earnings per share. Corning will continue to
recognize changes in the fair value of all components of the liability until a
settlement occurs. Details of the restatement will be included in a Form 8-K to
be filed today.
Flaws said, "We would like to emphasize to investors that this restatement is
non-cash and solely relates to our accounting for the asbestos settlement
liability and our investment in Pittsburgh Corning Europe. Additionally, there
has been no change to the accounting for our contribution of Corning common
stock as part of the proposed settlement. We are awaiting the bankruptcy court's
ruling on the proposed settlement." The company said that it will continue to
have full access to its $975 million revolving credit agreement.
As a result of the 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.
(more)
Corning Announces First-Quarter Results
Page Four
Second-Quarter Outlook
Flaws said that the company expects second-quarter sales to be in the range of
$1.29 billion to $1.33 billion, and EPS in the range of $0.24 to $0.26 before
special items. This EPS estimate is a non-GAAP financial measure and excludes
special items. The gross margin percentage for the second quarter is expected to
be in the range of 42 percent to 44 percent. Corning expects that the
second-quarter corporate tax rate will be between 15 percent and 20 percent.
In the Display Technologies segment, Corning anticipates that its second-quarter
sequential volume growth for its wholly owned business will be in the range of
flat to a 5 percent increase following very strong first-quarter volume growth.
Year-over-year volume growth for the second quarter is expected to be greater
than 60 percent. Samsung Corning Precision expects sequential volume growth in a
range from flat to up 5 percent and year-over-year volume growth greater than 50
percent. Corning said that it expects pricing declines in the second quarter to
be lower than first-quarter price declines. Corning expects its Display segment
sales to be consistent with the first quarter.
Flaws said, "Some of the strong LCD demand that we experienced last quarter may
have contributed to an inventory buildup in the supply channel late in the
quarter. This is contributing to Corning's slightly lower sequential growth
rate. In early April, a lightning strike to a utility line caused a temporary
power outage at our Shizuoka, Japan LCD plant. This will result in slightly
lower second-quarter manufacturing volumes and unusually high equipment repair
expenses. These two items will result in lower Display segment earnings in the
second quarter." Corning anticipates that no material customer supply
disruptions will result from the equipment repair.
Corning's Telecommunications segment second-quarter sales growth is expected to
be in the range of 10 percent to 15 percent, driven primarily by hardware and
equipment sales. Second-quarter sales in the company's Environmental
Technologies segment are expected to be down slightly from the first quarter.
Any weakness in the second quarter would be driven primarily by the U.S. auto
market.
The company anticipates second-quarter equity earnings to be lower than the
first quarter, due primarily to the non recurring gains in the first quarter.
Equity earnings from Dow Corning are expected to be consistent with the first
quarter.
Weeks said, "We believe the LCD market will continue to be strong over the
course of the year, driven primarily by the growing acceptance of LCD technology
in the television market. As we have told investors a number of times, supply
chain issues could impact our results in any given quarter. However, we have not
changed our view that the LCD industry will grow between 40 percent and 50
percent this year and that Corning's Display segment will grow at a rate faster
than the industry."
(more)
Corning Announces First-Quarter Results
Page Five
Meeting Investors
The company also announced that it will be meeting investors on Tuesday, May 2
at the Merrill Lynch Technology conference in New York.
Annual Shareholders Meeting
Corning will hold its annual meeting of shareholders on Thursday, April 27, 2006
beginning at 11 a.m. EDT at the Corning Museum of Glass auditorium in Corning,
N.Y.
First-Quarter Conference Call Information
The company will host a first-quarter conference call at 8:30 a.m. EDT on
Wednesday, April 26. To access the call, dial (210) 234-0007. The password is
RESULTS. 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, May 10. To listen,
dial (203) 369-1253, no pass code is required. To listen to a live audio webcast
of the call, please 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.
(more)
Corning Announces First-Quarter Results
Page Six
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic and political conditions; tariffs, import duties
and currency fluctuations; product demand and industry capacity; competitive
products and pricing; manufacturing efficiencies; cost reductions; availability
and costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the liquid crystal display industry and other
businesses; changes in the mix of sales between premium and non-premium
products; facility expansions and new plant start-up costs; possible disruption
in commercial activities due to terrorist activity, armed conflict, political
instability or major health concerns; ability to obtain financing and capital on
commercially reasonable terms; adequacy and availability of insurance; capital
resource and cash flow activities; capital spending; equity company activities;
interest costs; acquisition and divestiture activities; the level of excess or
obsolete inventory; the rate of technology change; the ability to enforce
patents; product and components performance issues; changes in key personnel;
stock price fluctuations; and adverse litigation or regulatory developments.
These and other risk factors are identified in Corning's filings with the
Securities and Exchange Commission. Forward-looking statements speak only as of
the day that they are made, and Corning undertakes no obligation to update them
in light of new information or future events.
###
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
Three months ended March 31,
----------------------------------
2006 2005 As Restated
--------- ----------------
Net sales $ 1,262 $ 1,050
Cost of sales 689 621
--------- ---------
Gross margin 573 429
Operating expenses:
Selling, general and administrative expenses 223 184
Research, development and engineering expenses 124 98
Amortization of purchased intangibles 3 5
Restructuring, impairment and other charges 6 19
Asbestos settlement (Note 2) 185 (12)
--------- ---------
Operating income 32 135
Interest income 24 10
Interest expense (20) (35)
Loss on repurchases and retirement of debt, net (9)
Other income (expense), net 20
--------- ---------
Income before income taxes 56 101
Benefit (provision) for income taxes (Note 3) 2 (19)
--------- ---------
Income before minority interests and equity earnings 58 82
Minority interests (1) (1)
Equity in earnings of associated companies, net of impairments (Note 4) 200 169
--------- ---------
Net income $ 257 $ 250
========= =========
Basic earnings per common share (Note 5) $ 0.17 $ 0.18
========= =========
Diluted earnings per common share (Note 5) $ 0.16 $ 0.17
========= =========
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
March 31, December 31,
2006 2005 As Restated
---------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 1,262 $ 1,342
Short-term investments, at fair value 1,216 1,092
--------- ---------
Total cash, cash equivalents and short-term investments 2,478 2,434
Trade accounts receivable, net 696 629
Inventories 616 570
Deferred income taxes 65 44
Other current assets 189 183
--------- ---------
Total current assets 4,044 3,860
Investments 1,929 1,729
Property, net 4,816 4,675
Goodwill and other intangible assets, net 336 338
Deferred income taxes 50 10
Other assets 582 595
--------- ---------
Total Assets $ 11,757 $ 11,207
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings, including current portion of long-term debt $ 23 $ 18
Accounts payable 661 690
Other accrued liabilities 1,699 1,662
--------- ---------
Total current liabilities 2,383 2,370
Long-term debt 1,788 1,789
Postretirement benefits other than pensions 593 593
Other liabilities 907 925
--------- ---------
Total liabilities 5,671 5,677
--------- ---------
Commitments and contingencies
Minority interests 46 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: 1,564 million and 1,552 million 786 776
Additional paid-in capital 11,808 11,548
Accumulated deficit (6,591) (6,847)
Treasury stock, at cost; Shares held: 17 million (181) (168)
Accumulated other comprehensive income 218 178
--------- ---------
Total shareholders' equity 6,040 5,487
--------- ---------
Total Liabilities and Shareholders' Equity $ 11,757 $ 11,207
========= =========
See accompanying notes to these financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Three months ended March 31,
------------------------------
2006 2005 As Restated
-------- ----------------
Cash Flows from Operating Activities:
Net income $ 257 $ 250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 141 120
Amortization of purchased intangibles 3 5
Asbestos settlement 185 (12)
Restructuring, impairment and other charges 6 19
Stock compensation charges 32 6
Undistributed earnings of associated companies (77) (26)
Deferred taxes (62) 3
Restructuring payments (4) (9)
Customer deposits (8) 20
Employee benefit payments less than expense 15 16
Changes in certain working capital items:
Trade accounts receivable (65) (54)
Inventories (46) (39)
Other current assets (8) (16)
Accounts payable and other current liabilities, net of restructuring payments (195) (151)
Other, net 7 10
-------- ---------
Net cash provided by operating activities 181 142
-------- ---------
Cash Flows from Investing Activities:
Capital expenditures (280) (323)
Investment in affiliate companies (77)
Short-term investments - acquisitions (858) (314)
Short-term investments - liquidations 735 486
Other, net 2
-------- ---------
Net cash used in investing activities (480) (149)
-------- ---------
Cash Flows from Financing Activities:
Repayments of short-term borrowings and current portion of long-term debt (4) (192)
Proceeds from issuance of long-term debt, net 48
Retirements of long-term debt (2)
Proceeds from issuance of common stock, net 6 12
Proceeds from the exercise of stock options 219 9
Other, net (2) (5)
-------- ---------
Net cash provided by (used in) financing activities 219 (130)
-------- ---------
Effect of exchange rates on cash (25)
-------- ---------
Net decrease in cash and cash equivalents (80) (162)
Cash and cash equivalents at beginning of period 1,342 1,009
-------- ---------
Cash and cash equivalents at end of period $ 1,262 $ 847
======== =========
Certain amounts for 2005 were reclassified to conform to 2006 classifications.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Our reportable operating segments include Display Technologies,
Telecommunications, Environmental Technologies and Life Sciences.
Display Telecom- Environmental Life All
Technologies munications Technologies Sciences Other Total
------------ ----------- ------------- -------- -------- --------
Three months ended March 31, 2006
Net sales $ 547 $ 397 $ 155 $ 72 $ 91 $ 1,262
Depreciation (1) $ 62 $ 42 $ 20 $ 5 $ 10 $ 139
Amortization of purchased intangibles $ 3 $ 3
Research, development and engineering
expenses (2) $ 30 $ 20 $ 30 $ 13 $ 8 $ 101
Restructuring, impairment and other charges
(before-tax and minority interest) $ 6 $ 6
Income tax provision $ (29) $ (6) $ (3) $ (38)
Income (loss) before minority interests and
equity earnings (loss) (3) $ 275 $ (2) $ (5) $ 2 $ 270
Minority interests $ 1 $ (2) $ (1)
Equity in earnings (loss) of associated
companies (4) 142 2 (1) (13) 130
------- ------- -------- -------- -------- --------
Net income (loss) $ 417 $ 1 $ (1) $ (5) $ (13) $ 399
======= ======= ======== ======== ======== ========
Three months ended March 31, 2005 - Restated
Net sales $ 320 $ 427 $ 148 $ 74 $ 81 $ 1,050
Depreciation (1) $ 41 $ 46 $ 17 $ 5 $ 9 $ 118
Amortization of purchased intangibles $ 5 $ 5
Research, development and engineering
expenses (2) $ 21 $ 17 $ 23 $ 8 $ 7 $ 76
Income tax provision $ (8) $ (8) $ (3) $ (1) $ (2) $ (22)
Earnings before minority interest and
equity earnings (3) $ 119 $ 18 $ 9 $ 4 $ 3 $ 153
Minority interests $ (2) $ (2)
Equity in earnings of associated companies 81 17 98
------- ------- -------- -------- -------- --------
Net income $ 200 $ 18 $ 9 $ 4 $ 18 $ 249
======= ======= ======== ======== ======== ========
(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.
(4) Includes a $21 million charge (net of tax) for Corning's share of an
impairment charge for Samsung Corning Co., Ltd.
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 ended March 31,
-------------------------------
2006 2005 As Restated
--------- ----------------
Net income of reportable segments $ 399 $ 249
Unallocated amounts:
Net financing costs (1) (8) (37)
Stock-based compensation expense (32) (6)
Exploratory research (21) (19)
Corporate contributions (8) (5)
Equity in earnings of associated companies,
net of impairments 70 71
Asbestos settlement (2) (185) 12
Other corporate items (3) 42 (15)
--------- --------
Net income $ 257 $ 250
========= ========
(1) Net financing costs include interest expense, interest income, and interest
costs and investment gains associated with benefit plans.
(2) 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 change in the estimated fair value of the
other components of the settlement offer. In the first quarter of 2006 and
2005, Corning recorded a charge of $182 million and a credit of $16
million, respectively, to reflect the movement in Corning's common stock
price in each year and charges of $3 million and $4 million, respectively,
to reflect changes in the estimated fair value of other components of the
settlement offer.
(3) Other corporate items include the tax impact of the unallocated amounts
and, in the first quarter of 2005, an impairment charge of $19 million for
the other-than-temporary decline in our investment in Avanex below its cost
basis.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Restatement
The Company and its audit committee concluded, on April 21, 2006, that the
Company will restate previously issued historical financial statements to
properly account for the asbestos settlement charges and liability and for its
investment in and equity earnings of Pittsburgh Corning Europe (PCE) from March
31, 2003, through December 31, 2005. The Company will also change the
classification of accretion on a portion of the liability to be paid in cash
from interest expense to asbestos settlement charge for the same time period.
The restatement adjustments will have no impact on previously reported revenue,
cash balances, or compliance with any debt covenants.
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 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.
Between March 31, 2003, and December 31, 2005, the following errors occurred:
.. Corning's asbestos settlement charges and the related liability for the
asbestos settlement did not reflect the estimated fair value at initial
recognition or subsequent changes in fair value, of certain components of
the proposed settlement offer. As a result, asbestos settlement charges for
the years 2005, 2004, and 2003 were understated by $13 million, $24
million, and $117 million, respectively, and for the quarter ended March
31, 2005 were understated $6 million.
.. Corning incorrectly suspended recording equity earnings of PCE between
March 31, 2003, and December 31, 2005. As a result, equity in earnings of
associated companies for the years 2005, 2004, and 2003 was understated by
$13 million, $11 million, and $7 million, respectively, and for the quarter
ended March 31, 2005 was understated $2 million.
.. Accretion on the cash portion of the asbestos settlement offer was
incorrectly recorded as interest expense resulting in both an overstatement
of interest expense and an understatement of asbestos settlement expense
for the years 2005, 2004, and 2003, by $8 million, $8 million, and $5
million, respectively, and for the quarter ended March 31, 2005 was
understated $2 million.
In the restated financial statements, the higher asbestos settlement charges
will be tax-effected in 2003 and the first half of 2004. As Corning provided a
valuation allowance on most of its deferred tax assets in the third quarter of
2004, that quarter will reflect an increase in the valuation allowance of $55
million for the deferred tax assets related to the higher asbestos settlement
charges.
The restatement adjustments are expected to impact Corning's reported net income
and diluted earnings per share as follows (in millions, except per share
amounts):
Year ended December 31, Three months ended
----------------------------------- ------------------
2005 2004 2003 March 31, 2005
---- ---- ---- --------------
As reported:
Net income (loss) $ 585 $ (2,165) $ (223) $ 249
Basic earnings (loss) per share $ 0.40 $ (1.56) $ (0.18) $ 0.18
Diluted earnings (loss) per share $ 0.38 $ (1.56) $ (0.18) $ 0.17
As restated:
Net income (loss) $ 585 $ (2,231) $ (280) $ 250
Basic earnings (loss) per share $ 0.40 $ (1.61) $ (0.22) $ 0.18
Diluted earnings (loss) per share $ 0.38 $ (1.61) $ (0.22) $ 0.17
These adjustments are not expected to change previously reported basic and
diluted earnings per share for the quarters ended September 30, 2005, June 30,
2005 and March 31, 2005.
The cumulative effect of these adjustments to Corning's balance sheet as of
December 31, 2005, is expected to result in an increase in investments in
affiliated companies of $32 million, an increase to other long-term liabilities
of $154 million, an increase to accumulated deficit of $123 million, and an
increase to accumulated other comprehensive income of $1 million.
As a result of the restatement adjustments, the Company's previously issued
consolidated financial statements, including those contained in the following
filings, should no longer be relied upon: Annual Report on Form 10-K for the
fiscal year ended December 31, 2005; Quarterly Reports on Form 10-Q for the
quarters ended September 30, 2005, June 30, 2005 and March 31, 2005.
The Company plans to file an amended Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006, by May 10, 2006.
The financial information included in this earnings release has been restated to
reflect the impact of the items described above.
Corning has not yet completed its evaluation of internal controls relating to
this restatement.
2. Asbestos 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 our quarterly results until the date of the contribution to the
settlement trust. In the first quarter of 2006, we recorded a charge of $185
million (pretax and after-tax) including a mark-to-market charge of $182 million
reflecting the increase in Corning's common stock from December 31, 2005 to
March 31, 2006 and a $3 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
$1,003 million to reflect the estimated fair value of our asbestos liability.
3. Provision for Income Taxes
In the first quarter of 2006, we recorded a $38 million tax benefit from the
release of our valuation allowance on Germany trade taxes due to sustained
profitability of certain of our German entities.
4. Equity in Earnings of Associated Companies
In the first quarter of 2006, equity in earnings of associated companies
includes a $21 million charge (net of tax) for the impairment of certain
long-lived assets of Samsung Corning Co., Ltd., a South Korea-based manufacturer
of glass panels and funnels for cathode ray tube television and display
monitors.
5. Weighted Average Shares Outstanding
Our weighted average shares outstanding are as follows (in millions):
Three months ended Three months ended
March 31, December 31, 2005
---------------------------- ------------------
2006 2005 As Restated As Restated
----- ---------------- ------------------
Basic 1,541 1,411 1,524
Diluted 1,592 1,503 1,524
Diluted used for non-GAAP measures 1,592 1,510 1,571
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
QUARTERLY SALES INFORMATION
(Unaudited; in millions)
2006 2005
-------- --------------------------------------------------------------
Q1 Q1 Q2 Q3 Q4 Total
-------- -------- --------- ------- ------- --------
Display Technologies $ 547 $ 320 $ 415 $ 489 $ 518 $ 1,742
Telecommunications
Fiber and cable 205 212 213 216 193 834
Hardware and equipment 192 215 202 182 190 789
------- -------- -------- ------- ------- --------
397 427 415 398 383 1,623
Environmental Technologies
Automotive 121 127 125 121 109 482
Diesel 34 21 21 23 33 98
------- -------- -------- ------- ------- --------
155 148 146 144 142 580
Life Sciences 72 74 75 70 63 282
Other 91 81 90 87 94 352
------- -------- -------- ------- ------- --------
Total $ 1,262 $ 1,050 $ 1,141 $ 1,188 $ 1,200 $ 4,579
======= ======== ======== ======= ======= ========
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 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.
--------------------------------------------------------------------------------
Per Income Before Net
Share Income 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.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended December 31, 2005, As Restated
(Unaudited; amounts in millions, except per share amounts)
--------------------------------------------------------------------------------
Corning's net income and earnings per share (EPS) excluding special items for
the fourth 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.
--------------------------------------------------------------------------------
Per Income Before Net
Share Income Taxes Income (Loss)
------- ------------- -------------
Earnings per share (EPS) and
net income, excluding
special items $ 0.22 $ 198 $ 344
Special items:
Restructuring, impairment
and other (charges)
and credits (a) 0.05 84 84
Asbestos settlement (b) (0.01) (14) (14)
Loss on repurchases and
retirements of debt, net (c) (4) (4)
Provision for taxes (d) (0.28) (443)
------- ------- -------
Total EPS and net income (loss) $ (0.02) $ 264 $ (33)
======= ======= =======
(a) Corning recorded 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.
(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 our quarterly results until the date of the
contribution to the settlement trust. In the fourth quarter of 2005,
Corning recorded a charge of $14 million (before- and after-tax), including
$8 million for the change in its common stock price of $19.66 at December
31, 2005 compared to $19.33 the common stock price at September 30, 2005
and $6 million for the change in estimated fair value of certain other
components of the proposed asbestos settlement liability.
(c) Corning recorded a loss of $4 million (before- and after-tax) for the cash
redemption of $277 million principal amount of zero-coupon convertible
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.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months and Year Ended March 31, 2006
(Unaudited; amounts in millions)
--------------------------------------------------------------------------------
Corning's free cash flow financial measures for the three months ended March 31,
2006 and December 31, 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 financial
measures 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.
--------------------------------------------------------------------------------
Three months Three months
ended ended
March 31, 2006 December 31, 2005
-------------- -----------------
Operating cash flow $ 181 $ 659
Less: Investing cash flow (480) (516)
Plus: Short-term
investments - acquisitions 858 355
Less: Short-term
investments - liquidations (735) (289)
--------- ---------
Free cash flow $ (176) $ 209
========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE TO GAAP FINANCIAL MEASURE
Three Months Ended March 31, 2005, As Restated
(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 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.
--------------------------------------------------------------------------------
Per Income Before Net
Share Income Taxes Income
------- ------------- --------
Earnings per share (EPS) and
net income, excluding
special items $ 0.17 $ 108 $ 257
Special items:
Restructuring, impairment
and other (charges)
and credits (a) (0.01) (19) (19)
Asbestos settlement (b) 0.01 12 12
------- ------- -------
Total EPS and net income $ 0.17 $ 101 $ 250
======= ======= =======
(a) In the first quarter of 2005, Corning recorded an impairment charge of $19
million for an other than temporary decline in the fair value of its
investment in Avanex Corporation (Avanex). At March 31, 2005, shares of
Avanex were trading at $1.30 per share compared to Corning's average cost
basis of $2.40 per share. Corning believes it will not recover its cost
basis in Avanex shares given the significant decline in its stock price.
(b) As part of Corning's asbestos settlement arrangement to be incorporated
into the Pittsburgh Corning Corporation reorganization plan, Corning will
contribute, if the reorganization plan becomes effective, 25 million shares
of Corning common stock to a trust. This portion of the asbestos liability
requires quarterly adjustment based upon movements in Corning's common
stock price prior to contribution of the shares to the trust. In the first
quarter of 2005, Corning recorded a credit of $16 million for the change in
its common stock price of $11.13 at March 31, 2005 offset by $4 million for
the change in estimated fair value of certain other components of the
proposed asbestos settlement liability.
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 earnings per share (EPS) excluding special items for the second
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 $0.24 $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 second quarter of 2006, Corning will record a
charge or credit for the change in its common stock price as of June 30,
2006 compared to $26.92, the common stock price at March 31, 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 first 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.