10-QPeriod: Q3 FY2008

CORNING INC /NY Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 30, 2008For Securities:GLW

Summary

Corning Inc. reported a strong third quarter of 2008, with net income of $768 million, a significant increase from $617 million in the prior year's quarter. This growth was driven by higher net income in the Display Technologies segment, bolstered by improved equity earnings from Samsung Corning Precision and favorable foreign exchange rates. The company also benefited from a substantial release of valuation allowances on deferred tax assets ($70 million in Q3, $2.4 billion year-to-date) and a favorable tax settlement in Canada. Despite a slight decrease in net sales year-over-year, largely due to volume declines offset by foreign exchange gains, Corning maintained a strong financial position with $3.2 billion in cash and short-term investments and a reduced debt-to-capital ratio of 10%. Management expressed caution regarding worsening economic conditions and initiated cost-saving measures, including manufacturing slowdowns and reduced overhead, while continuing strategic investments in R&D and capital expenditures, particularly in Display Technologies.

Financial Highlights

26 data points
Beta

Revenue

$1.55B

47.3% Gross Margin

Net Income

$768.00M

49.4% Net Margin

EPS (Diluted)

$0.49

Cash & Equivalents

$2.60B

Free Cash Flow

$763.00M

Financial Statements
Beta
Revenue$1.55B
Cost of Revenue$820.00M
Gross Profit$735.00M
SG&A Expenses$220.00M
Operating Income$349.00M
Net Income$768.00M
EPS (Basic)$0.49
EPS (Diluted)$0.49

Key Highlights

  • 1Net income increased by 24% year-over-year to $768 million in Q3 2008, with diluted EPS of $0.49.
  • 2Strong performance in the Display Technologies segment, with equity earnings from Samsung Corning Precision up 62% year-over-year.
  • 3Significant tax benefit realized from the release of valuation allowances on U.S. deferred tax assets ($70 million in Q3, $2.4 billion YTD) and a favorable Canadian tax settlement.
  • 4Total cash and short-term investments stood at $3.2 billion, and the debt-to-capital ratio improved to 10%.
  • 5Net sales remained flat year-over-year at $1,555 million, impacted by volume declines offset by foreign exchange gains.
  • 6The company is cautiously managing expectations due to worsening economic conditions and is implementing cost-reduction initiatives.
  • 7Capital expenditures for the nine months totaled $1.2 billion, with significant investment in Display Technologies capacity.

Frequently Asked Questions

The primary driver of the significant increase in net income to $768 million was a combination of factors, including higher net income in the Display Technologies segment due to improved equity earnings from Samsung Corning Precision and favorable foreign exchange rates, coupled with a substantial release of valuation allowances on deferred tax assets and a favorable tax settlement with the Canadian Revenue Agency.

Corning noted that worsening economic conditions were starting to affect retail demand across several businesses and anticipated an acceleration of the economic decline in Q4 2008. In response, the company initiated cost-saving actions, including scaling back manufacturing, reducing R&D and overhead growth, freezing hiring, and challenging discretionary spending. These factors are expected to impact future results.

Corning maintained a strong financial position, ending the quarter with $3.2 billion in cash and short-term investments. The debt-to-capital ratio improved to 10%, and the company generated $1.7 billion in operating cash flow for the nine-month period. Management expressed confidence in their ability to meet financial obligations and fund operations, investments, and repurchase programs.

Corning is actively managing its estimated liability for asbestos litigation, which was updated due to progress on an Amended Plan of Reorganization for Pittsburgh Corning Corporation (PCC), reducing the estimated liability to $690 million as of September 30, 2008. The company also continues to be involved in litigation related to Dow Corning and environmental matters, though management believes the likelihood of a material adverse impact from these is remote.