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Corning Announces Third-Quarter Results.

Article Excerpt
CORNING, N.Y. -- Corning Incorporated (NYSE: GLW) today announced third-quarter sales of $1.188 billion and net income of $203 million, or $0.13 per share. Net income includes special charges of $202 million, or $0.13 per share.

Excluding these special charges, Corning's earnings per share (EPS) would have been $0.26, exceeding the company's previously announced EPS guidance range of $0.20 to $0.22 per share for the third quarter. This EPS is a non-GAAP financial measure. This and all non-GAAP financial measures are reconciled on the company's investor relations Web site and in attachments to this news release.

Wendell P. Weeks, president and chief executive officer, said, "We are very pleased with Corning's overall performance in the third quarter. We experienced excellent sales growth, improved gross margins and strong equity earnings."

Corning's third-quarter net income was reduced by $202 million, or $0.13 per share, as a result of the following charges:

--Net restructuring charges of $28 million (pretax and after-tax) related to previously announced cost-reduction plans in the Telecommunications segment.

--A $68 million pretax and after-tax charge to reflect the increase in market value of Corning common stock to be contributed to settle the asbestos litigation related to Pittsburgh Corning Corporation.

--A previously announced reduction in equity earnings of $106 million reflecting Corning's share of impairment and other charges taken by Samsung Corning Co., Ltd., a Korean manufacturer of glass panels and funnels for cathode ray tube (CRT) television and computer monitors.

Third-Quarter Operating Results

Corning's third-quarter sales of $1.188 billion increased 18 percent over last year's third-quarter sales of $1.006 billion and 4 percent over the previous quarter's sales of $1.141 billion. Third-quarter gross margins for the company improved to 46 percent versus 42 percent for the previous quarter.

Equity earnings for the third quarter were $74 million and include the $106 million charge at Samsung Corning. Without this charge, Corning's third-quarter equity earnings improved sequentially, reflecting strong performance by Samsung Corning Precision Glass Co., Ltd. (SCP), offset by slightly lower results at Dow Corning Corporation.

Corning's third-quarter net income benefited from a $14 million tax adjustment resulting from the conclusion of the IRS audit of the company's 2001 and 2002 tax returns and from an overall lower effective tax rate. James B. Flaws, vice chairman and chief financial officer, said, "Lower taxes added $0.02 to our EPS in the quarter. However, even without this benefit, our results exceeded the top of our guidance range by $0.02 per share."

Third-quarter sales for Corning's Display Technologies segment were $489 million, an 18-percent increase over the previous quarter's sales of $415 million and a 66-percent increase from sales of $295 million in the third quarter of 2004. Liquid crystal display (LCD) glass volume increased 22 percent over second-quarter 2005 volume and 73 percent over third-quarter 2004 volume. Pricing for the quarter was flat sequentially, while exchange rates in the quarter had a 4-percent negative impact on sales versus the second quarter.

Samsung Corning Precision, a 50-percent owned equity venture in Korea which manufactures LCD glass substrates, increased its volume by 22 percent sequentially. Equity earnings from SCP were up about 35 percent in the third quarter to $114 million versus $85 million in the second quarter. Second-quarter equity earnings at SCP had been negatively impacted by a number of nonrecurring items.

Net income for the Display Technologies segment, which includes results of Corning's wholly owned business and equity earnings from SCP, grew 49 percent from $243 million in the second quarter to $363 million in the third quarter. These results reflect strong operating performance and the lower tax rate in the quarter.

"We are delighted with the third-quarter results of our Display Technologies segment and with the continued adoption of LCD technology in both the desktop monitor and television markets. Our quarterly glass volume for the combined wholly owned business and SCP is up 78 percent over last year," Weeks said. "We are also experiencing a rapid increase in market demand for large-size glass substrates. Generation 5 and larger substrates accounted for more than 75 percent of our total sales volume in the third quarter. We believe that the continued drop in retail pricing is enabling LCD televisions to gain market acceptance. Our preliminary data indicates that LCD televisions reached 10-percent penetration in the overall television market in the third quarter, which is double last year's level," Weeks said.

Telecommunications segment sales declined 4 percent sequentially to $398 million versus $415 in the second quarter of this year. The sales decline was due primarily to lower fiber-to-the-premises (FTTP) hardware and equipment sales. The segment experienced higher-than-anticipated optical fiber volume for the quarter, but this was more than offset by lower hardware and equipment sales. The Telecommunications segment recorded a net loss of $30 million compared to a net loss of $13 million in the second quarter. The increased loss in the third quarter was primarily the result of the $28 million restructuring charge.

In the third quarter, Environmental Technologies segment sales were $144 million compared to $146 million in the second quarter. The Life Sciences segment had third-quarter sales of $70 million compared to second-quarter sales of $75 million.

Cash Flow/Liquidity Update

Corning finished the quarter with $2.4 billion in cash and short-term investments, a $300 million improvement over the second-quarter balance of $2.1 billion. The increase was the result of strong operating cash flow which included the receipt of $144 million in net customer deposits in the Display Technologies segment.

Flaws said, "We reached a new...

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