GLW

Business Context and Reporting Period

Company: Corning Incorporated
Filing Type: Form 8-K (Current Report)
Reporting Period: First Quarter ended March 31, 2003
Date of Report: April 24, 2003

Corning reported first-quarter results that exceeded quarterly guidance, marking the first sequential sales increase in two years. The company continues to focus on returning to profitability by the third quarter of 2003, driven by cost reductions and strength in its Display Technologies and Environmental Technologies businesses.

Key Financial Metrics

Note: The Q1 2003 net loss includes $201 million ($0.17 per share) of after-tax charges primarily related to an asbestos litigation settlement and restructuring/impairment charges.

Material Changes vs. Prior Period

• Sales Trend: Sales increased sequentially from $736 million in Q4 2002 to $746 million in Q1 2003, reversing a two-year decline trend. However, sales decreased year-over-year compared to Q1 2002 ($839 million).
• Segment Performance:
  • Telecommunications: Sales of $352 million (down from $465 million in Q1 2002). Fiber volume increased 15% sequentially due to demand in Japan and China, offset by softness in North America and Europe. Sequential price declines were 10-15%.
  • Technologies: Sales of $388 million (up from $369 million in Q1 2002). Display glass sales grew due to strong demand for flat screens and notebooks. Environmental products saw worldwide volume increases.
• One-Time Charges: The quarter included a $298 million charge for an asbestos litigation settlement and $51 million in net restructuring and impairment charges (related to shutting down the Corning Asahi Video and optical switching businesses).
• Liquidity: Cash and short-term investments declined to $1.85 billion from $2.1 billion at year-end 2002, primarily due to $251 million used for debt repayments and repurchases.

Guidance, Outlook, and Risks

Second-Quarter Outlook

• Sales: Expected to range between $715 million and $745 million.
• Earnings: Anticipated loss of $0.02 per share to income of $0.01 per share (excluding restructuring charges and asbestos reserve adjustments).
• Volume Expectations: LCD glass volume expected to rise ~10% sequentially with stable pricing. Fiber volumes expected to decline ~25% sequentially due to seasonal slowdowns in Japan and North American softness.

Management Commentary

CEO James R. Houghton stated the company is succeeding in its plan to return to profitability, citing improved gross margins and lower operating costs. The company aims to return to profitability by Q3 2003, dependent on the display business performance and cost-cutting actions.

Risks and Contingencies

• Asbestos Settlement: The settlement requires contributions of equity interests and 25 million shares of Corning stock. Future quarterly results may be impacted by changes in the stock price until the contribution is made.
• Economic Conditions: Global economic slowdown, particularly in North America, and the war in Iraq could delay recovery in telecommunications and affect the automotive sector (Environmental Technologies).
• Photonic Technologies: The company is exploring options for this business and expects a decision by mid-year.

Investor Verification Checklist

• Asbestos Settlement Status: Verify the progress of the bankruptcy court approval process for the Pittsburgh Corning Corporation reorganization plan, which impacts the timing of the stock contribution.
• Telecom Recovery: Monitor the seasonal slowdown in fiber volumes for Q2 and the potential for a pickup in the second half of the year as predicted by management.
• Restructuring Execution: Track the execution of the shutdown of Corning Asahi Video and optical switching, including the expected cash spending of $40-$65 million for restructuring costs.
• Debt Reduction: Confirm continued debt retirement activities and the impact on the debt-to-capital ratio.
• Photonic Technologies Decision: Watch for the mid-year decision regarding the future of the Photonic Technologies business.