10-QPeriod: Q2 FY2014

CORNING INC /NY Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 31, 2014For Securities:GLW

Summary

Corning Incorporated (GLW) reported its second-quarter and first-half 2014 financial results, marked by significant top-line growth driven by the consolidation of Samsung Corning Precision Materials (now Corning Precision Materials). Net sales increased by 25% and 26% for the respective periods, largely due to this strategic acquisition. Despite strong sales growth, net income saw a considerable decline compared to the prior year. This was primarily attributed to unfavorable foreign currency exchange rate movements, particularly the Japanese yen, and the impact of mark-to-market adjustments on hedging programs. Additionally, various tax-related items and the absence of favorable one-time events from 2013 also contributed to the decrease in profitability. The company maintained a strong balance sheet with a substantial cash position and continued its investment in future growth through research and development, albeit at a slightly reduced percentage of sales.

Financial Highlights

50 data points
Beta

Revenue

$2.48B

41.6% Gross Margin

Net Income

$169.00M

6.8% Net Margin

EPS (Diluted)

$0.11

Total Assets

$29.83B

Cash & Equivalents

$5.12B

Free Cash Flow

$743.00M

Financial Statements
Beta
Revenue$2.48B
Cost of Revenue$1.45B
Gross Profit$1.03B
SG&A Expenses$322.00M
Operating Income$460.00M
Net Income$169.00M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.31B

Key Highlights

  • 1Net sales increased significantly, up 25% for the quarter and 26% year-to-date, primarily driven by the consolidation of Corning Precision Materials.
  • 2Net income decreased substantially compared to the prior year, with $169 million in Q2 2014 vs. $638 million in Q2 2013, and $470 million year-to-date vs. $1,132 million year-to-date.
  • 3The decrease in net income was largely due to a negative impact of $248 million (quarter) and $267 million (year-to-date) from yen-denominated hedge programs and foreign currency fluctuations.
  • 4Corning repurchased a significant amount of its stock under its share repurchase programs, totaling $484 million in Q1 2014 and $567 million in Q2 2014.
  • 5The company maintained a strong cash position, ending the period with $5.9 billion in cash, cash equivalents, and short-term investments.
  • 6Capital expenditures for the first six months were $478 million, with a full-year expectation of approximately $1.3 billion, primarily supporting the Display Technologies segment.
  • 7The company is facing ongoing legal proceedings related to asbestos litigation and environmental matters, with estimated liabilities accruing.

Frequently Asked Questions

The primary driver of the significant increase in net sales was the consolidation of Samsung Corning Precision Materials (now Corning Precision Materials) into Corning's financial statements, which occurred in the first quarter of 2014. This acquisition fully integrated the operations and sales of this entity.

The sharp decrease in net income was largely due to several non-operational factors. These included substantial negative impacts from the mark-to-market of foreign currency hedging programs, particularly those related to the Japanese yen, and adverse foreign currency exchange rate movements. Several discrete tax items and the absence of favorable one-time gains recognized in the prior year also contributed to the decline.

Corning utilizes a portfolio of derivative financial instruments, including purchased collars and average forward contracts, to hedge its exposure to fluctuations in the Japanese yen. While these instruments help mitigate risk, they also led to significant mark-to-market losses in the current period due to currency movements, which were partially offset by gains on the hedges themselves.

Corning completed its $2 billion share repurchase program announced in October 2013 and made effective in January 2014. During the second quarter of 2014, the company repurchased approximately 18 million shares through open market purchases and an accelerated share repurchase (ASR) agreement, continuing its efforts to return capital to shareholders.