Corning announces results from “extremely gratifying” 2005

Flat panel substrate leader Corning Inc. reported sales of USD 4.58 billion for 2005 up 19% year-on-year and net income of USD 585 against a net loss of USD 2.17 billion in the previous year. Commenti…

Flat panel substrate leader Corning Inc. reported sales of USD 4.58 billion for 2005 up 19% year-on-year and net income of USD 585 against a net loss of USD 2.17 billion in the previous year. Commenting on the results, announced 24 January 2006, Corning president and CEO Wendell P. Weeks described 2005 as extremely gratifying for the firm“s shareholders, employees and management team. For the 4Q 2005, the company announced sales of USD 1.2 billion and a net loss of USD 32 million, or USD 0.02 per share. The net loss includes net special charges of USD 371 million, or USD 0.24 per share. Excluding the special charges, Corning“s 4Q 2005 net income would have been USD 339 million, or USD 0.22 per share (non-GAAP financial measures). Mr. Weeks said, “Our solid 4Q performance ended 2005 on a very positive note for Corning. We again met our quarterly sales and EPS guidance before special items, our gross margin remained strong and equity earnings contributed significantly to our positive results”. Corning“s 4Q results were hit by net after-tax special charges of USD 371 million including a USD 443 million tax-expense charge primarily to increase the valuation allowance against Corning“s US deferred tax assets and a pretax and after-tax gain of USD 84 million related to the release of translation capital in the final liquidation of a wholly owned foreign subsidiary. FULL-YEAR OPERATING RESULTS For the full year, Corning recorded sales of USD 4.58 billion, up 19% over 2004 sales of USD 3.85 billion. The increase was the result of strong growth in Display Technologies and more modest gains in the Telecommunications and Environmental Technologies segments. The company had net income of USD 585 million or USD 0.38 per share versus a net loss of USD 2.17 billion or USD 1.56 per share in 2004. Corning“s 2005 and 2004 net income included significant net special charges. Excluding these charges, earnings for 2005 rose to USD 1.3 billion or USD 0.85 per share compared to USD 674 million or USD 0.45 per share in 2004 (non-GAAP financial measures). “This past year was extremely gratifying for our shareholders, our employees and our management team,” Mr. Weeks said. “This was the third consecutive year in which we improved our profitability before special items by half a billion dollars. This increase in profitability – combined with the improvement in our free cash flow, the strength of our balance sheet and our ability to improve our market-leading positions in liquid crystal display glass, diesel emissions products and fiber-to-the-premises products – resulted in a 67% year-over-year increase in the valuation of Corning common stock,” he said. Profitability before special items and free cash flow are non-GAAP financial measures. 4Q OPERATING RESULTS Corning“s 4Q 2005 sales increased 16% to USD 1.2 billion from USD 1.03 billion in 2004, and increased slightly over 2005 3Q sales of USD 1.19 billion. Fourth quarter gross margins for the company continued to be strong at 44%. Equity earnings for the 4Q were USD 186 million, reflecting growth at Samsung Corning Precision Glass Co., Ltd. (SCP), and lower results at Dow Corning Corporation due to expansion spending, unfavorable foreign exchange rates and seasonality. Third quarter equity earnings included an impairment charge of USD 106 million at Samsung Corning Co., Ltd. a Korean manufacturer of glass panels and funnels for CRT television and computer monitors. Fourth quarter sales for Corning“s Display Technologies segment were USD 518 million, up 67% over 2004 4Q sales of USD 311 million. Fourth quarter year-over-year LCD glass volume increases of about 90% were partially offset by unfavorable exchange rates and price declines of 5%. Sequentially, 4Q sales increased 6% over 3Q sales of USD 489 million and LCD glass volume increased 14%. Pricing was off slightly from the 3Q while exchange rates in the 4Q had a 6% negative impact on sales. Samsung Corning Precision, a 50% owned equity venture in Korea which makes LCD glass substrates, increased its volume by 9% sequentially. Equity earnings from SCP increased to USD 129 million versus USD 114 million in the 3Q. About half of the increase was related to a dividend tax adjustment in the 4Q. Net income for the Display Technologies segment, which includes results of Corning“s wholly owned business and equity earnings from SCP, fell about 10% to USD 328 million in the 4Q, compared to USD 363 million in the 3Q. This was primarily due to a slightly lower gross margin percentage, higher effective tax rates and higher operating expenses offset by higher earnings from SCP. Mr. Weeks said, “Sales of flat panel desktop monitors and notebook computers have driven the industry growth for several years. But the biggest dynamic to emerge this past year has been LCD televisions, which appear to have captured more than 10% of the total TV market in 2005. Going forward, LCD TV will increasingly impact the growth rate of the LCD industry.” Fourth quarter Telecommunications segment sales declined by 4% to USD 383 million from USD 398 million in the 3Q. The decline was due in part to normal seasonality, somewhat offset by an increase in fiber-to-the-premises (FTTP) sales. In the 4Q, Environmental Technologies segment sales of USD 142 million were about even with 3Q sales of USD 144 million. Life Sciences segment 4Q sales were USD 63 million, a decline of 10% compared to the 3Q. The decline was due to normal seasonality and a distributor inventory reduction during the quarter. CASH FLOW/LIQUIDITY UPDATE James B. Flaws, vice chairman and chief financial officer, said, “We ended the year with USD 2.4 billion in cash and USD 1.8 billion in debt. Despite spending USD 1.55 billion in capital primarily to support LCD expansions, we had free cash flow for the full year of USD 443 million, driven by strong operating performance and customer deposits. Our debt-to-capital ratio was 24% at the end of the year, driven primarily by a reduction of USD 885 million in our outstanding debt balance. This was a significant improvement compared to last year“s ratio of 41%. “The overall operating performance of our businesses was solid and we completed our balance sheet improvement program,” he said. “This was the first time in more than 25 years that Corning was able to end the year with more cash on hand than debt on our books”. Free cash flow is a non-GAAP financial measure. OUTLOOK FOR 1Q 2006 Corning said that it expects 1Q 2006 sales to be in the range of USD 1.2 billion to USD 1.25 billion and EPS in the range of USD 0.21 to USD 0.23 before special items. The EPS estimate is a non-GAAP financial measure and it excludes any possible special items. Corning said that it will begin expensing employee stock options in 2006 and that the EPS range of USD 0.21 to USD 0.23 includes about USD 0.01 related to this new expense in the 1Q. The gross margin percentage for the 1Q is expected to be comparable to the 4Q of 2005. The company also expects that its effective tax rate for the 1Q will be in the range of 20% to 25%. In the Display Technologies segment, the company is anticipating that its 1Q sequential volume growth will be in the range of 3% to 8%. The company expects its wholly owned business will see quarterly volume growth in the range of 5% to 10% and Samsung Corning Precision“s volume growth will be in the range of flat to 5%. Corning said that price reductions in the 1Q will be more significant than the company has experienced in recent quarters. The company expects sequential quarterly price declines to be more in line with historical levels for the remainder of the year. “We believe that increased volume and manufacturing cost efficiencies could allow us to offset the impact of price declines and lead to a 1Q gross margin percentage comparable to the 4Q of last year,” Mr. Flaws said. Corning noted, as it has in the past, that industry supply chain fluctuations could influence the company“s results in any given quarter. “We expect to be able to build off last year“s very successful LCD glass performance and we anticipate continued volume growth. Our new Taichung, Taiwan LCD facility is now operating and we will continue to meet the rising volume demand for larger-generation substrates. There are growing indications in the marketplace that LCD TV retail prices will fall over time, spurring increased demand for our larger-generation size substrates,” Mr. Flaws said. Corning“s Telecommunications segment 1Q 2006 sales are expected to be comparable to 2005 4Q sales. The company“s Environmental Technologies segment sales are expected to be up slightly on a sequential basis and sales in the Life Sciences segment are expected to increase in the 1Q. The company expects equity earnings from Dow Corning to be up 20% to 30% compared to the seasonally low 4Q 2005 results. Weeks said, “Our 1Q performance should be in line with last quarter“s results, even as we factor in the impact of stock option expensing this quarter. We expect 2006 to be another strong year for Corning”.