SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: (Date of earliest event reported) July 21, 2003
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
New York 1-3247 16-0393470
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Riverfront Plaza, Corning, New York 14831
(Address of principal executive offices) (Zip Code)
(607) 974-9000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events
The Corning Incorporated press release dated July 21, 2003, regarding its
financial results for the periods ended June 30, 2003, including unaudited
consolidated financial statements for the periods ended June 30, 2003, is
Attachment I of this Form 8-K/A. This amendment inserts the statement from
Attachment I, inadvertently left out of Form 8-K filed earlier.
All of the statements and information in Attachment I of this Form 8-K/A
are hereby filed under this Item 5 except for the following statements and
information in such attachment being furnished pursuant to Item 9:
Attachment I (Press Release):
The following statement from the second sentence in the third paragraph on
Page 3: ", excluding any remaining gains or losses related to the exit of CAV or
its photonics business and any further adjustments to the asbestos settlement
reserve required by movement in Corning's stock price."
Item 9. Regulation FD Disclosure
The statements and information in Attachment I of this Form 8-K/A not filed
pursuant to Item 5 are hereby furnished under Item 12.
The Corning Incorporated website (www.corning.com) contains information
about Corning and investors are encouraged to visit that website as information
is updated and new information is posted.
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: July 22, 2003 By /s/ KATHERINE A. ASBECK
---------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
Attachment I
------------
FOR RELEASE -- JULY 21, 2003
Media Relations Contact: Investor Relations Contact:
Dan Collins Kenneth C. Sofio
(607) 974-4197 (607) 974-7705
collinsdf@corning.com sofiokc@corning.com
Corning Reports Second-Quarter Results
CORNING, N.Y. -- Corning Incorporated (NYSE:GLW) today announced that its
second-quarter sales were $752 million and that it incurred a net loss of $22
million or $0.02 per share. This net loss includes $47 million or $0.04 per
share of after-tax charges primarily related to the shutdown of Corning Asahi
Video Products Company (CAV); the planned exit from its photonics business; and
a mark-to-market adjustment to the portion of its asbestos liability settlement
to be paid in Corning common stock.
"We are pleased that our results exceeded our second-quarter guidance. This
performance gives us confidence that we will achieve our goals for the year. We
continue to maintain our focus on managing costs, paying down debt and investing
in future technologies," said James R. Houghton, chairman and chief executive
officer.
Second-Quarter Charges
Corning said its second-quarter results include net pretax charges of $75
million (net after-tax charges totaling $47 million or $0.04 per share). These
include:
.. Restructuring charges of $54 million related to the shutdown of CAV, $33
million related to the exit of its photonics business and $38 million
related to other cost reduction programs primarily in the
telecommunications segment, offset by a reversal of $76 million of
liabilities relating to prior years' restructuring charges. These charges
and credits total $49 million, which after tax of $18 million and minority
interest of $28 million had a $3 million impact on Corning's second-quarter
net loss.
.. Charges to increase the deferred tax asset valuation allowance of $21
million and impair equity investments of $7 million, both of which are
directly related to the decision to exit the photonics business.
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Corning Reports Second-Quarter Results
Page Two
.. A $39 million charge ($24 million after-tax) to reflect the increase in the
market value of Corning common stock to be contributed to settle the
asbestos litigation related to Pittsburgh Corning Corporation.
.. A net gain of $13 million ($8 million after-tax) related to debt repurchase
as a result of the company's recently completed tender offer.
In addition to these items, Corning recorded a $9 million inventory write-off in
gross margin related to the closure of CAV.
Second-Quarter Operating Results
Second-quarter sales of $752 million exceeded the company's guidance range of
$715 million to $745 million and increased from first-quarter sales of $746
million. Corning's technologies segment recorded sales of $400 million, an
increase over first-quarter sales of $388 million. The increase was primarily
driven by the continued strong performance of the liquid crystal display (LCD)
glass business that experienced sequential volume gains of more than 15 percent
and stable pricing. The growing popularity of notebook computers and increasing
market penetration of LCD desktop monitors fueled the quarter's growth. In the
second quarter, LCD desktop monitors outpaced cathode ray tube monitors for the
first time achieving a level of 52 percent of the U.S. market.
These gains were partially offset by lower sales in the company's semiconductor
business. Sales in Corning's environmental business were flat versus the first
quarter, as an anticipated general slowdown in the automotive industry did not
materialize.
Corning's telecommunications segment sales were $347 million, a slight decline
from $352 million in sales for the first quarter. As expected, the quarterly
sales decline was due to lower fiber and cable volumes in Asia, resulting from
seasonal slowdowns in Japan. Fiber volume declined in the second quarter by 20
percent, slightly less than the company expected. Fiber pricing in the second
quarter was down about 5 percent. The fiber and cable sales decline was
partially offset by sequential increases in the hardware and equipment business.
Corning's second-quarter results benefited from the receipt of $17 million in
royalties at CAV, foreign exchange gains and a higher effective tax benefit
rate. Corning's second-quarter results also included $25 million of equity
earnings from Dow Corning, which the company began to recognize effective
January 1, 2003.
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Corning Reports Second-Quarter Results
Page Three
Liquidity Update
Corning ended the second quarter with $1.5 billion in cash and short-term
investments, a decline from $1.85 billion at the end of the first quarter. The
decline was primarily due to financing transactions. In the quarter, Corning
raised net proceeds of $267 million from the issuance of 50 million shares of
common stock and used $623 million of cash to retire $834 million aggregate
principal amount of its outstanding zero-coupon convertible debentures. In July,
Corning repaid an additional $123 million of debt. Corning said that it might
continue from time-to-time to retire its debt securities in open market,
privately negotiated or other transactions.
Corning ended the quarter with a debt-to-capital ratio of 40 percent compared
with 45.6 percent at the end of the previous quarter. Corning's revolving credit
facility includes one financial covenant limiting the ratio of total debt to
total capital, as defined, to not greater than 60 percent. The company also said
that it is considering increasing its voluntary contributions to its pension
plans in 2003 from approximately $60 million to approximately $160 million. In
the first half of this year, Corning made $30 million in contributions to its
U.S. pension plan.
Third-Quarter Outlook
Corning said it expects third-quarter sales to be in the range of $740 million
to $765 million. The company anticipates earnings per share in the range of
$0.01 to $0.03, excluding any remaining gains or losses related to the exit of
CAV or its photonics business and any further adjustments to the asbestos
settlement reserve required by movement in Corning's stock price.
Corning anticipates sequential volume gains for its LCD glass business of about
5 percent to 10 percent in its consolidated business and 10 percent to 15
percent at Samsung Corning Precision. The company plans to ramp up Generation 5
and 6 glass production in the third quarter and move forward with its capacity
expansion plans to meet accelerating global industry demand. Corning will incur
start-up costs with these expansions.
Corning said it anticipates that sales in its environmental business will be
consistent with the second quarter. The company also expects that a shift to
more premium-priced thin-wall products will continue in the third quarter. Sales
of diesel products are projected to continue growing with increased retrofits on
emissions systems for heavy-duty equipment and off-road vehicles. The company's
new diesel product manufacturing facility in Erwin, N.Y., will phase in limited
production through the second half of this year.
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Corning Reports Second-Quarter Results
Page Four
Third-quarter fiber volumes are expected to increase sequentially in the range
of 5 percent to10 percent due to renewed demand in Japan and a slight increase
in North American orders. Pricing pressure is anticipated to remain moderate, at
a level consistent with the second quarter.
Corning expects sales in its photonics and conventional TV glass businesses to
decline modestly in the third quarter and then effectively cease in the fourth
quarter with the final exit from these businesses.
James B. Flaws, vice chairman and chief financial officer, said, "We continue to
be pleased by the strength of our LCD business. This business has certainly hit
its stride and it is providing Corning with significant opportunity for growth
and profitability." Flaws said that signs of stability across the
telecommunications sector are giving the company some cause for optimism. "The
preliminary FCC ruling on fiber deployments is also very promising for the
industry and we have been further encouraged by the announcement of three
Regional Bell Operating Companies to work together in developing standards for
future fiber to the premises investments. However, we do not expect any
significant revenue impact this year from these developments," Flaws said.
About Corning Incorporated
Established in 1851, Corning Incorporated (www.corning.com) creates leading-edge
technologies that offer growth opportunities in markets that fuel the world's
economy. Corning manufactures optical fiber, cable, hardware and equipment in
its Telecommunications segment. Corning's Technologies segment manufactures
high-performance display glass, and products for the environmental, life
sciences, and semiconductor markets.
Second-Quarter Conference Call Information
The company will host a second quarter conference call at 8:30 a.m. ET on
Tuesday, July 22. To access the call, dial (773) 756-4618. The password is
Corning. The leader is Sofio. A replay of the call will begin at approximately
10:30 a.m. ET and will run through 5 p.m. ET, Tuesday, August 5. To listen, dial
(402) 280-1652, no passcode is required. To listen to a live audio webcast of
the call at 8:30 a.m. on Tuesday, July 22, please go to our website and follow
the instructions: http://www.corning.com/investor_relations. The webcast will be
archived for 14 days following the call.
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Corning Reports Second-Quarter Results
Page Five
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic and political conditions; tariffs, import duties
and currency fluctuations; product demand and industry capacity; competitive
products and pricing; manufacturing efficiencies; cost reductions; availability
and costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the liquid crystal display industry and other
businesses; changes in the mix of sales between premium and non-premium
products; facility expansions and new plant start-up costs; possible disruption
in commercial activities due to terrorist activity,armed conflict, political
instability or major health concerns; ability to obtain financing and capital on
commercially reasonable terms; adequacy and availability of insurance; capital
resource and cash flow activities; capital spending; equity company activities;
interest costs; acquisition and divestiture activities; the level of excess or
obsolete inventory; the rate of technology change; the ability to enforce
patents; product and components performance issues; changes in key personnel;
stock price fluctuations; and adverse litigation or regulatory developments.
These and other risk factors are identified in Corning's filings with the
Securities and Exchange Commission. Forward-looking statements speak only as of
the day that they are made, and Corning undertakes no obligation to update them
in light of new information or future events.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
For the three For the six
months ended months ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Net sales $ 752 $ 827 $ 1,498 $ 1,666
Cost of sales 571 643 1,117 1,298
--------- -------- --------- ---------
Gross margin 181 184 381 368
Operating expenses:
Selling, general and administrative expenses 148 188 300 376
Research, development and engineering expenses 85 131 178 257
Amortization of purchased intangibles 9 11 18 22
Restructuring, impairment and other charges and
credits 49 494 100 494
--------- -------- --------- ---------
Operating loss (110) (640) (215) (781)
Interest income 9 10 17 24
Interest expense (42) (44) (82) (92)
Asbestos settlement (39) (337)
Gain on repurchases of debt, net of inducements 13 68 17 68
Other income (expense), net 20 6 (9)
--------- -------- --------- ---------
Loss from continuing operations before income taxes (149) (606) (594) (790)
Benefit for income taxes (34) (184) (178) (234)
--------- -------- --------- ---------
Loss from continuing operations before minority
interests and equity earnings (115) (422) (416) (556)
Minority interests 33 6 70 12
Equity in earnings of associated companies 60 25 119 55
--------- -------- --------- ---------
Loss from continuing operations (22) (391) (227) (489)
Income from discontinued operations, net of income
taxes 21 29
--------- -------- --------- ---------
Net loss $ (22) $ (370) $ (227) $ (460)
========= ======== ========= =========
Basic and diluted (loss) earnings per common share from:
Continuing operations $ (0.02) $ (0.41) $ (0.19) $ (0.52)
Discontinued operations 0.02 0.03
--------- -------- --------- ---------
Loss per common share $ (0.02) $ (0.39) $ (0.19) $ (0.49)
========= ======== ========= =========
Shares used in computing per share amounts for basic
and diluted (loss) earnings per common share 1,244 948 1,222 947
========= ======== ========= =========
See notes to consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
Unaudited
June 30, December 31,
2003 2002
----------- -------------
Assets
Current assets:
Cash and cash equivalents $ 747 $ 1,426
Short-term investments, at fair value 766 664
--------- ---------
Total cash and short-term investments 1,513 2,090
Trade accounts receivable, net 482 470
Inventories 538 559
Deferred income taxes 379 296
Other accounts receivable 155 358
Prepaid expenses and other current assets 70 52
--------- ---------
Total current assets 3,137 3,825
Restricted cash and investments 97 82
Investments 842 769
Property, net 3,542 3,705
Goodwill 1,750 1,715
Other intangible assets, net 185 213
Deferred income taxes 1,081 887
Other assets 235 210
--------- ---------
Total assets $ 10,869 $ 11,406
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 156 $ 204
Accounts payable 294 339
Other accrued liabilities 1,169 1,137
--------- ---------
Total current liabilities 1,619 1,680
Long-term debt 3,095 3,963
Postretirement benefits other than pensions 616 617
Other liabilities 668 396
Commitments and contingencies
Minority interests 40 59
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Series C mandatory convertible preferred stock - Shares issued: 5.75 million;
Shares outstanding: 1.47 million and 1.55 million 147 155
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,322 million and 1,267 million 661 634
Additional paid-in capital 9,905 9,695
Accumulated deficit (5,148) (4,921)
Treasury stock, at cost; Shares held: 59 million and 70 million (592) (702)
Accumulated other comprehensive loss (142) (170)
--------- ---------
Total shareholders' equity 4,831 4,691
--------- ---------
Total liabilities and shareholders' equity $ 10,869 $ 11,406
========= =========
Certain amounts for 2002 were reclassified to conform with 2003
classifications.
See notes to consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
For the three months ended For the six months ended
June 30, March 31, June 30,
--------- ---------- -------------------------
2003 2003 2003 2002
--------- --------- --------- ---------
Cash flows from operating activities:
Loss from continuing operations $ (22) $ (205) $ (227) $ (489)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Amortization of purchased intangibles 9 9 18 22
Depreciation 132 118 250 317
Asbestos settlement 39 298 337
Restructuring, impairment and other charges and credits 49 51 100 494
Gain on repurchases of debt, net of inducements (13) (4) (17) (68)
Undistributed earnings of associated companies (25) 1 (24) 28
Minority interests, net of dividends paid (33) (37) (70) (12)
Deferred tax benefit (56) (178) (234) (125)
Interest expense on convertible debentures 6 7 13 21
Restructuring payments (49) (94) (143) (116)
Increases in restricted cash (18) (3) (21)
Income tax refund 191 191
Changes in certain working capital items:
Trade accounts receivable 30 (13) 17 26
Inventories 27 7 34 24
Other current assets (14) 10 (4) (56)
Accounts payable and other current liabilities,
net of restructuring payments (55) (118) (173) (181)
Other, net 18 (17) 1 (77)
-------- -------- -------- -------
Net cash provided by (used in) operating activities 25 23 48 (192)
-------- -------- -------- -------
Cash flows from investing activities:
Capital expenditures (55) (55) (110) (210)
Net proceeds from sale of precision lens business 9 9
Net proceeds from sale or disposal of assets 30 13 43 36
Net increase in long-term investments and other
long-term assets (4) (4) (9)
Short-term investments - acquisitions (633) (428) (1,061) (847)
Short-term investments - liquidations 587 369 956 1,648
Restricted investments - liquidations 3 3 6
Other, net 1 1 (2)
-------- -------- -------- -------
Net cash (used in) provided by investing activities (72) (88) (160) 616
-------- -------- -------- -------
Cash flows from financing activities:
Net proceeds from (repayments of) loans payable 8 (62) (54) (474)
Proceeds from issuance of long-term debt 11
Repayments of long-term debt (634) (189) (823) (155)
Proceeds from issuance of common stock, net 278 3 281 33
Cash dividends paid to preferred shareholders (3) (3) (6)
-------- -------- -------- -------
Net cash used in financing activities (351) (251) (602) (585)
-------- -------- -------- -------
Effect of exchange rates on cash 18 17 35 23
-------- -------- -------- -------
Cash used in continuing operations (380) (299) (679) (138)
Cash provided by discontinued operations 41
-------- -------- -------- -------
Net decrease in cash and cash equivalents (380) (299) (679) (97)
Cash and cash equivalents at beginning of period 1,127 1,426 1,426 1,037
-------- -------- -------- -------
Cash and cash equivalents at end of period $ 747 $ 1,127 $ 747 $ 940
======== ======== ======== =======
Certain amounts for 2002 were reclassified to conform with 2003
classifications.
See notes to the consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
SEGMENT RESULTS
(Unaudited; in millions)
Telecom- Non-segment/ Consolidated
munications Technologies Other items Total
----------- ------------ ------------ ------------
For the three months ended June 30, 2003
Net sales $ 347 $ 400 $ 5 $ 752
Research, development and engineering expenses $ 32 $ 55 $ (2) $ 85
Restructuring, impairment and other charges and credits
(related tax benefit of $2, $12, $4 and $18) $ (19) $ 58 $ 10 $ 49
Interest expense $ 22 $ 20 $ 42
Benefit for income taxes $ (5) $ (8) $ (21) $ (34)
Loss before minority interests and equity (losses) earnings $ (53) $ (43) $ (19) $ (115)
Minority interests 33 33
Equity in (losses) earnings of associated companies (8) 43 25 60
-------- -------- ------- --------
Net (loss) income $ (61) $ 33 $ 6 $ (22)
======== ======== ======= ========
For the three months ended June 30, 2002
Net sales $ 437 $ 385 $ 5 $ 827
Research, development and engineering expenses $ 86 $ 45 $ 131
Restructuring, impairment and other charges and credits
(related tax benefit of $125, $1, $40 and $166) $ 369 $ 3 $ 122 $ 494
Interest expense $ 25 $ 17 $ 2 $ 44
(Benefit) provision for income taxes $ (191) $ 5 $ 2 $ (184)
Loss before minority interests and equity (losses) earnings $ (384) $ (4) $ (34) $ (422)
Minority interests 5 1 6
Equity in (losses) earnings of associated companies (17) 41 1 25
Income from discontinued operations 21 21
-------- -------- ------- --------
Net (loss) income $ (401) $ 42 $ (11) $ (370)
======== ======== ======= ========
For the six months ended June 30, 2003
Net sales $ 699 $ 788 $ 11 $ 1,498
Research, development and engineering expenses $ 70 $ 110 $ (2) $ 178
Restructuring, impairment and other charges and credits
(related tax (expense) benefit of $(2), $24, $4 and $26) $ (28) $ 118 $ 10 $ 100
Interest expense $ 43 $ 39 $ 82
Benefit for income taxes $ (30) $ (15) $ (133) $ (178)
Loss before minority interests and equity (losses) earnings $ (113) $ (98) $ (205) $ (416)
Minority interests 70 70
Equity in (losses) earnings of associated companies (11) 87 43 119
-------- -------- ------- --------
Net (loss) income $ (124) $ 59 $ (162) $ (227)
======== ======== ======= ========
For the six months ended June 30, 2002
Net sales $ 902 $ 754 $ 10 $ 1,666
Research, development and engineering expenses $ 172 $ 85 $ 257
Restructuring, impairment and other charges and credits
(related tax benefit of $125, $1, $40 and $166) $ 369 $ 3 $ 122 $ 494
Interest expense $ 57 $ 33 $ 2 $ 92
(Benefit) provision for income taxes $ (255) $ 4 $ 17 $ (234)
Loss before minority interests and equity
(losses) earnings $ (522) $ (8) $ (26) $ (556)
Minority interests 11 1 12
Equity in (losses) earnings of associated companies (21) 74 2 55
Income from discontinued operations 29 29
-------- -------- ------- --------
Net (loss) income $ (543) $ 77 $ 6 $ (460)
======== ======== ======= ========
See notes to the consolidated financial statements.
Non-segment/other items net income (loss) is detailed below:
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Non-segment (loss) income and other (1) $ (13) $ 12 $ (25) $ 21
Non-segment restructuring, impairment and other charges (10) (122) (10) (122)
Interest income 9 10 17 24
Asbestos settlement (39) (337)
Gain on repurchases of debt, net of inducements 13 68 17 68
Benefit (provision) for income taxes 21 (2) 133 (17)
Minority interests 1 1
Equity in earnings of associated companies (2) 25 1 43 2
Income from discontinued operations 21 29
--------- -------- --------- ---------
Net income (loss) $ 6 $ (11) $ (162) $ 6
========= ======== ========= =========
(1) Includes non-segment operations and other corporate activities.
(2) Includes amounts derived from corporate investments and activities,
primarily Dow Corning Corporation in 2003.
See notes to the consolidated financial statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Restructuring, Impairment and Other Charges and Credits
In the second quarter of 2003, Corning recorded restructuring, impairment and
other charges of $125 million ($62 million after-tax and minority interest),
offset by credits of $76 million ($59 million after-tax) resulting in a net
pre-tax charge of $49 million ($3 million after-tax and minority interest).
These charges relate to Corning's previously announced decisions to exit its
conventional video components business and its photonic technologies business.
The charges also reflect certain restructuring actions taken during the second
quarter of 2003 relating to other Corning businesses. Corning also reversed $76
million of liabilities relating to prior years' restructuring charges. A summary
of these charges and credits follow:
Conventional Video Components
Corning Asahi Video Products Company (conventional video components business, or
CAV), a 51 percent owned consolidated subsidiary, is a manufacturer of glass
panels and funnels for use in conventional tube televisions and is reported in
the Technologies segment.
On April 15, 2003, Corning announced that CAV would cease production. Corning
impaired the long-lived assets of this business to estimated salvage value and
recorded a first quarter charge of $62 million, ($19 million after-tax and
minority interest). In the second quarter of 2003, Corning recorded a
restructuring charge of $54 million ($15 million after-tax and minority
interest). The charge included $18 million for employee separation costs, $19
million for exit costs and $17 million for curtailments related to pension and
postretirement health care benefits.
In connection with the cessation of operations, Corning and Asahi Glass of
America (the 49% owner of CAV) have reached agreement on the shared funding of
CAV's obligations. Corning expects the restructuring costs to require $45
million to $60 million in cash spending. In June, CAV announced that it had
signed a definitive agreement to sell assets to Henan Anyang CPT Glass Bulb
Group, Electronic Glass Co., Ltd., located in China. The proceeds from this sale
may offset a significant portion of the cash spending.
Photonic Technologies
On May 12, 2003, Corning announced that it would exit its photonic technologies
business and had reached an agreement to sell a significant portion of the
business to Avanex Corporation ("Avanex") in exchange for common stock valued at
approximately $85 million at June 30, 2003. The agreement allows Avanex to
acquire assets related to the optical amplifier facility in Erwin, NY and the
optical component plant in Milan, Italy. Corning expects approximately 400
employees of photonic technologies to transition to Avanex by the time the
transaction closes sometime in the third quarter. Corning also expects to close
its pump laser facility in Bedford, MA by the end of the year.
In the second quarter of 2003, Corning recorded a charge of $33 million ($22
million after-tax) related to the exit of the photonics business. The charge
included $7 million for employee separation costs, $14 million for exit costs,
$7 million for curtailments related to pension and postretirement benefits and
$5 million to impair the remaining assets.
Also in the second quarter, Corning increased the deferred tax valuation
allowance by $21 million as it does not expect to realize certain deferred tax
assets in Italy related to the photonics business. This charge is reflected in
the statement of operations under "Benefit for income taxes."
Finally, Corning impaired $7 million of equity investments in this business that
will be abandoned as part of the exit from the business. This charge is
reflected in the statement of operations under the line item, "Equity in
earnings of associated companies."
Other
Corning also recorded $38 million of restructuring and impairment charges
primarily related to its telecommunications businesses and administrative
staffs. The charge included $17 million for employee separation costs, $2
million for curtailments related to pension and postretirement benefits and $19
million for asset impairments.
Credits
The current restructuring reserve continues to be evaluated as plans are being
executed. In addition, since the restructuring program is an aggregation of many
individual plans currently being executed, actual costs have differed from
estimated amounts. As a result, there may be additional charges or reversals.
In the second quarter of 2003, Corning reversed $76 million ($59 million
after-tax) of restructuring reserves related to prior years restructuring
charges, primarily in the Telecommunications segment. The reversals included $27
million related to employee separation costs which were less than estimated, $25
million related to a decision to change the restructuring plans and not exit a
certain telecommunications business and $24 million related to proceeds in
excess of assumed salvage values for assets that were previously impaired and
certain assets management decided to retain as abandoned factories were being
dismantled.
2. 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. Accordingly, Corning recorded
a charge of $298 million ($192 million after-tax) in the first quarter. The
charge included the value of 25 million shares of Corning common stock which
Corning will contribute as part of the settlement. Also at that time, Corning
indicated that any changes in the value of its common stock contribution would
be recognized in Corning's quarterly results through the date of contribution to
the settlement trust. As required, Corning recorded a mark-to-market charge of
$39 million ($24 million after-tax) in the second quarter reflecting the
increased fair value of the shares to its common stock contribution.
3. Gain on Repurchases of Debt
During the second quarter of 2003, Corning repurchased and retired 834,000 zero
coupon convertible debentures with an accreted value of $652 million in exchange
for cash of $623 million in a modified Dutch tender offer. Corning recorded a
net gain of $13 million ($8 million after-tax) associated with retirements of
its zero coupon convertible debentures in the second quarter.
4. Income Tax
In the second quarter of 2003, the effective tax benefit rate excluding certain
items such as restructuring, impairment, asbestos settlement and debt
transactions was 37 percent for the quarter and 33 percent for the six months
ended June 30, 2003.
5. Subsequent Event
On July 16, 2003, Corning repurchased and retired zero coupon convertible
debentures with a face value of $71 million in exchange for cash of $53 million.
In addition, Corning repurchased and retired 60 million of euro-denominated
notes in exchange for cash of 62 million euros, or $70 million.
CORNING INCORPORATED
QUARTERLY SALES INFORMATION
(In millions)
2003
-----------------------------------
Q1 Q2 6 Months
-------- -------- --------
Telecommunications
Fiber and cable $ 193 $ 178 $ 371
Hardware and equipment 122 136 258
Photonic technologies 18 15 33
Controls and connectors 19 18 37
-------- -------- -------
Segment net sales $ 352 $ 347 $ 699
======== ======== =======
Technologies
Display technologies $ 117 $ 135 $ 252
Environmental 115 117 232
Life sciences 73 72 145
Conventional video components 25 24 49
Other technologies businesses 58 52 110
-------- -------- -------
Segment net sales $ 388 $ 400 $ 788
======== ======== =======
2002
-------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
-------- -------- ------- ------- --------
Telecommunications
Fiber and cable $ 255 $ 212 $ 195 $ 197 $ 859
Hardware and equipment 135 153 136 128 552
Photonic technologies 36 39 17 19 111
Controls and connectors 39 33 18 19 109
-------- -------- ------- ------- --------
Segment net sales $ 465 $ 437 $ 366 $ 363 $ 1,631
======== ======== ======= ======= ========
Technologies
Display technologies $ 93 $ 102 $ 106 $ 104 $ 405
Environmental 94 102 102 96 394
Life sciences 70 74 71 65 280
Conventional video components 43 41 47 35 166
Other technologies businesses 69 66 66 67 268
-------- -------- ------- ------- --------
Segment net sales $ 369 $ 385 $ 392 $ 367 $ 1,513
======== ======== ======= ======= ========
The above supplemental information is intended to facilitate analysis of
Corning's businesses.