康寧 (GLW) 2002 Q2 法說會逐字稿

And good morning, and welcome to the Corning quarter 2, 2002 earnings conference.

Following today's session, there will be a question hand answer session.

Instructions will be given at that time.

Until that time, all lines will be in a listen-only fashion.

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

I would now like to hand the conference over to Mr. Sofield.

Good morning.

Welcome to Corning's second quarter conference call.

This call is being webcast on our website.

Jim Flaws, our chief Financial Officer will begin our discussion, and Wendell Weeks will join us for Q&A.

As for published results, today's remarks constitute forward-looking statements within the meaning of the litigation reform act of 1995.

The statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially.

These risks are detailed in the company's S.E.C. reports.

Jim?

Thanks, Ken.

Good morning, everyone.

Last night, we released our results for the second quarter.

Sales were $896 million, even with the first quarter and in line with our expectations.

We had a net loss of 39 cents per share in the second quarter, which included restructuring and impairment charges of 36 cents per share and a gain resulting from debt repurchases of 4 cents per share.

I will go into more detail about these in a moment.

Excluding these items. our net loss in the second quarter was 7 cents per share, compared to a net loss of 10 cents per share in the first quarter.

We were clearly pleased with the sequential improvement in our results which were driven by gains in our advanced materials and information display segments.

As we told you when we announced the first quarter, the cost savings from our restructuring activities, which have been significant since we began our program last year, would not have an impact on the second quarter.

As we worked on putting the next round of actions in place.

One other overall point on our results, our cash and short-term investment balance declined from $1.8 billion to $1.3 billion due primarily to the repayment of debt.

We are obviously pleased with the significant improvement in operating cash flow compared to the first quarter.

Now, let me walk you through some of the details on the income statement.

Gross margins for the second quarter came in at 23.8% compared to 22.7% in the first quarter.

The increase is due to improved margin performance in both the information display and advanced materials segments offset by minor decline in telecommunications.

SG&A and R&D spending were consistent with the first quarter as we held the line while teeing up the next round of restructuring.

Our net other expense line item on the income statement decreased by $9 million.

As a result, the loss incurred on the sale of marketable securities in the first quarter related to the telecommunications segment.

Lastly, our tax benefit rate excluding the restructuring of impairment charges and the gain on the repurchased debt remained at 25%.

Now, let me take a few moments to discuss the specifics behind our recent restructuring announcements.

As you know, this latest round of restructuring is part of our overall commitment to return the company to profitability in 2003.

As part of that commitment, we took another hard look at our current cost structure during the second quarter.

In the past, we announced that our restructuring program would be in the range of 600 million pretax and spread over the second and third quarters.

The total charge incurred in the second quarter from this program was 494 million, 328 million after tax, and included the following on a pretax basis.

Approximately 190 million in employee-related costs from workforce reductions.

Approximately 220 million in charges pertaining to facility closures and fixed asset impairments.

60 million in impairment of cost investments in the telecommunications segment.

And a $16 million loss incurred on the divestiture of the appliance controls business.

In addition to these charges, you should also note the after-tax charge includes a $14 million charge from the impairment of an international cabling equity investment.

That was recorded on the equity earnings line in the income statement.

As part of the workforce reductions, we have eliminated approximately 3,600 positions to date.

Approximately 2,200, or 60% of these positions, were salaried, and almost all were spread across our telecommunications segment, corporate research, and administrative functions.

As of June 30th, approximately 1,600 of the 3,600 employees had actually left the company.

We expect the remainder to be out of our cost structure by the end of the year.

As of today, we expect to eliminate an additional 800 employees, approximately 500 of those will be salaried, bringing the total plan reductions to 4,400.

We also expect to write off additional assets.

The third quarter charge associated with these reductions will be in the range of 125 to 150 million pretax.

Approximately one-third of the combined second and third quarter charges will be in cash.

As a result of the actions taken in the second and third quarters, we expect to realize annual fixed cost savings of approximately 265 million.

You should begin to see the full benefit from these actions in the first quarter 2003.

Now, let me take a moment to break out the cost savings on a line-by-line basis.

In the third quarter, you'll begin to see cost reductions totalling 25 million, approximately 16 million of this amount will benefit SG&A, 7 million R&D and the remainder will benefit gross margin.

Starting in the fourth quarter, these reductions will rise to 30 million per quarter.

16 in SG&A, 14 in R&D and in manufacturing, second-half cost savings of approximately 55 million.

More importantly, we expect to see the full benefit of the cost savings by the first quarter of next year.

On an annualized cost basis, you'll see the benefit of these actions as follows -- 105 million on the gross margin line.

80 million in SG&A, and 80 million in RD&E.

When thinking about the relative size of the cost savings in comparison to the total charge, keep in mind the total charge includes writeoffs of construction and progress and cost investment impairments, which there are no related depreciation of cash savings.

The writeoff construction progress was approximately 117 million, and largely related to the phase three expansion at our Concorde, North Carolina, fiber manufacturing facility, and the very early stage construction of our Oklahoma City fiber factory.

In addition to the restructuring impairment charges in the second quarter, we also recognized a 4 cent per share gain on the repurchase of debt.

In the second quarter, we purchased approximately 220 million in accreted value of our adventures for 148 million in cash in a series of open-market transactions.

Now, let me move on to discuss the telecommunications business for the quarter.

Starting with telecommunications, revenues in the segment were 437 million in the second quarter, a decline of 6% from the first quarter.

The segment posted a net loss of 142 million, consistent with the first quarter.

Revenues in the fiber and cable business in the second quarter were 212 million, a decline of 17% from the first quarter.

Fiber volume this quarter was flat sequentially, versus our expectations of a 10% to 15% increase.

The shortfall was primarily due to lower than expected demand from incumbent carriers and cable TV operators in North America.

That, coupled with fiber price declines of 10% to 15%, led to the fall-off in fiber and cable revenues sequentially.

In addition, the mix of premium fiber in the second quarter was slightly less than the 10% we saw in the first quarter.

In photonic technologies, which now includes the optical networking devices business, revenues in the second quarter were 39 million and included 14 million from a settlement of all open issues with a major customer dating back to the second quarter of last year.

The revenues recognized upon shipping of these products, some of which had been previously reserved for.

Excluding that item, revenues in the business fell 30% sequentially, compared to the 36 million in the first quarter.

In addition, the business settled an open matter with a significant vendor resulting in the reversal of a vendor reserve.

These two items resulted in a positive impact to margins of 23 million.

However, that was largely offset by approximately 20 million of new inventory writeoffs in photonics during the quarter.

Revs in the hardware and equipment business in the second quarter were 153 million, up 13% from the first quarter due to increased demand for cable TV connectors and slight gains in the premises market.

There is no question the market turmoil caused by several customer bankruptcies and ongoing accounting controversies negatively impacted capital expenditures among our telecommunication customers in North America.

This, in turn, impacted the results for telecommunications businesses, all of which incurred a loss in the second quarter.

Now, turning to the information display segment.

Second-quarter revenues of 212 million were up 9% over the first quarter led by strong gains in our display technologies and precision lens businesses.

Net income increased 20% sequentially led by increased volume in manufacturing efficiencies at our precision lens business.

In our LCD consolidated businesses, which service Japan and Taiwan, revenues for the second quarter were 102 million, up 10% sequentially, driven mainly by a favorable movement in the end and slight volume gains.

As a reminder, we've been operating at full capacity and have no new capacity coming online in the second quarter.

So our ability to grow square footage of glass in the second quarter was limited.

[INAUDIBLE] precision, our equity venture in Korea, experienced double-digit volume growth.

In comparison to the second quarter of a year ago, revenues in the LCD business increased 17% as volume gains more than offset price declines and currency translation.

While the end has fallen in the recent months, the average for the second quarter was still higher in comparison to the second quarter last year.

For our consolidated businesses, volume grew 29% in comparison to last year, driven almost exclusive by growth in Taiwan.

In Samsung pointing precision experienced volume gains of almost 50% year to year.

The demand for LCD glass continues to be fueled by the growing desktop monitor market.

To put that market into perspective, there were more than twice as many desk top monitors sold in the second quarter of this year compared to last.

Sequentially, the desk top monitor market remains strong. despite a slight increase in price for the monitors themselves.

With LCD monitors still capturing approximately 25% of the desk top market, we continue to remain bullish on the long-term growth of this business.

Revenues in the projection lens business in the second quarter were 69 million, up 17% sequentially, while net income more than doubled.

Results from this business were driven by the continued market acceptance of digital projection televisions, particularly in Asia.

In the conventional television glass business, revenues were down 5% sequentially and the business reported a loss.

Results for this business were impacted by the loss of a customer who made a decision to exit the market.

In addition, revenues may be impacted going forward as demand from another key customer is also uncertain.

Equity earnings at Samsung Corning increased slightly in the second quarter over the first quarter.

Moving to advanced materials.

Second quarter revenues of 242 million were up 4% sequentially on strong demand in our environmental life sciences businesses.

Offset somewhat by the impact of our decision to exit the lighting business.

In environmental technologies, revenues for the second quarter were 102 million, up 9% over the first quarter and net income increased 70%.

The sales growth is given by continued financing incentives given by auto manufacturers which helped sustain demand in North America along with new product sales worldwide.

However, we're unsure whether the auto market will be able to maintain this pace for the third quarter due to normal automotive plant shutdowns that occur in the summer months.

Results in the life science business in the second quarter were 74 million, up 6% sequentially.

The increase was due primarily to gains in both our microplate product line and based-glass business, which were fueled by R&D investment in the pharmaceutical and biotech industries.

Net income in the second quarter increased 44% over the first quarter, reflecting improved manufacturing efficiencies.

In other advanced materials businesses in the segment, revenues in the second quarter were 66 million, down 4% for the first quarter.

This decline was mainly due to our exit from the lighting business.

Net income improved substantially, primarily volume gains, improved manufacturing performance at [INAUDIBLE], our equity venture that produces glass for Cook tops.

Now let me turn to the balance sheet and cash flow.

On the balance sheet, DSOs for the second quarter were 61 days and fairly consistent with last quarter.

News recently has been dominated by stories of bankruptcies and the predicted demise of several well-known carriers.

We are happy to report that our receivable exposure to these carriers is immaterial.

We continue to believe that our receivable base is strong and that we have adequate reserves in place.

We entered the second quarter with 671 million in inventories, down from 717 at the end of the first quarter.

As I mentioned earlier, we wrote off approximately 20 million of photonics inventory.

In addition, another 15 million inventory was sold along with airplanes controls business.

Inventory turns were consistent on a sequential basis.

We ended the second quarter with over 1.3 billion in cash and short-term investments, versus 1.8 billion at the end of the first quarter.

During the second quarter, we repaid all of our commercial paper which totalled 329 million.

We also used 148 million in cash to repurchase approximately 220 million in zero couponed ventures as I mentioned earlier.

And we paid approximately 60 million in severance payments, the majority of which related to last year's layoffs and early retirements.

The total of these outflows was approximately 535 million.

We are very pleased that our efforts to reduce the operating cash [INAUDIBLE] rate are paying off.

As a reminder, in addition to our cash and short-term investments we also have access to a 2 billion credit facility.

This credit line does not expire until August of 2005 and has only one covenant -- Debt to capital ratio that cannot exceed 60%.

The end of the second quarter, our total debt to capital ratio was 45.6%, down from 46.9% in the first quarter.

One more comment on the zero coupon bonds.

[INAUDIBLE] We were taking in November 2005 put very seriously and, as you have seen, we have taken some actions in the second quarter to reduce potential future impact to us.

Although the put is over three years away, we continue to evaluate our options leading up until that date, which may include additional debt repurchases from time to time.

However, I will not speculate on the call today about the potential size or timing or nature in the future repurchases.

Finally, I need to remind everybody that if investors elect to put the bonds back to Corning in November 2005, the company can elect to settle that put in cash or stock, this feature of the zeroes is not well understood by many investors.

I'd like to wrap up by providing you with some information regarding the third quarter.

As a reminder, we will only give guidance one quarter at a time.

We are anticipating revenues to be in the range of 825 million to 875 million, and then net loss to be between 7 cents and 10 cents per share, including restructuring and impairment charges.

We have previously stated at our investor meeting in February that we believe the first quarter would be bottom for the Company.

Although we admitted we did not know how long we would be there.

Clearly, with this new revenue guidance, we now believe we could fall under that level.

One of our main assumptions in our original guidance was that there would be some level of sequential fiber growth, of that very small.

As you saw in our second quarter press release yesterday, we now believe there is a possibility of fiber volume could decline up to 15% sequentially in the third quarter.

Along with. that continued pricing pressure.

This was a significant contributing factor in determining the range of revenue guidance for the third quarter.

Now, if industry conditions in telecom remain somewhat consistent with the demand level we saw in quarter 2, we believe that the cost benefits from our current restructuring actions should be more than enough to offset continuing fiber price declines in the third quarter.

However, if fiber volume continues to weaken, the cost savings from restructuring actions in place for the third quarter will not be adequate to offset that.

That is the main reason why our loss in the third quarter could be as high as 10 cents.

Additionally, if we begin to feel that the low levels of demand will persist past the third quarter, we will have to take further restructuring to reach our goal of profitability in 2003.

Jamie and his team are unwaivering in our commitment to achieve profitability in 2003.

The restructuring actions we have taken over the last year have been painful, but a necessary step to meet that objective.

However, if demand in the telecommunications industry continues to be impacted by a lack of confidence in the market, or further reductions in carriers spending, then we will take out more costs.

We continue to contemplate a number of other restructuring actions.

These could include the potential sale or discontinuation of some noncore businesses and assets, and additional consolidation of manufacturing capacity within the telecommunications segment.

There will be no sacred cows when it comes to bringing this company back to profitability.

We are fully committed to protecting the financial health of the Company during these difficult times.

We are pleased with our cash position and access to liquidity, as well as improvements made to our operating cash flow.

Although we have a strong liquidity profile given the uncertainty in the business and economic environment, we will continue to assess alternatives for augmenting our liquidity position, including first potential sales of noncore businesses and additional capital market activities.

In closing, these continue to be challenging times for Corning, probably the most challenging in our 151-year history of the Company.

However, we have always felt that we've been fortunate to serve -- able to serve a wide variety of high-technology markets.

We have always believed that by maintaining a broad and diverse range of technologies and products, we would be able to weather any storm.

We are confident to be able to weather this one as well, thanks to our technology advantages and market leadership across all our businesses, not just in telecom.

These businesses may have changed over the years, but that strategy has always remained the same.

Ken?

Dan, We're ready to take questions now.

And at this time I'll begin the question and answer session.

If you'd like to ask a question, press star 1 on your touch-tone phone pad.

If you are using speaker equipment, you may need to lift your handset prior to pressing star 1.

To withdraw your question, plress star 2.

Once again that is star 1 to ask a question, and star 2 to withdraw your question.

Our first question comes from Sabu Supermanyan of Goldman Sachs.

Sabu are you there?

Operator, I guess we'll move to the next caller.

Actually I have his line open right now.

Mr. Supermanyan you may begin.

Can you hear me now?

Yes.

Great.

Two questions, first, could you talk about the break-even level for revenues, what we will need to have with the full benefit of current restructuring?

I understand all those cost benefits will be realized in first quarter of '03.

And then second, could you talk about the other uses of cash in terms of the payment to Lucent and in terms of the restructuring cash charges through the end of the year?

Thank you.

First of all, on the break-even, we don't disclose break-even for the Company principally because of the different mix within the nature of our businesses.

Obviously, we're below break-even right now, but you see the amount of savings we're expecting to get.

Offsetting that is the potential risk of further price reductions as we go forward.

But we are committed to take out more costs if necessary to get us not only to break-in, but to profitability.

And we'll update you each quarter on the impact of our cost reduction and our outlook for the profitability.

On the use of cash, the principal use of cash right in the second quarter was for restructuring, which was about 60 million.

We expect that to ramp up to 100 million in the third quarter and probably stay -- sustain at that level in the fourth quarter.

Relative to Lucent, a transaction did not close in the second quarter, but is very likely to close in either September or October.

We remain committed to the transaction.

We are continuing to work with our potential partners there to finalize all agreements, and expect to close.

And as we have disclosed previously, the cash for this would be approximately $200 million with Lucent.

Great.

And as a follow-up, given that I think fiber volume could be down up to 15% sequentially and given sequential pricing declines, would it be fair to say that business' ex-fiber are about flat sequentially?

You mean by businesses, in the other segments or within telecom?

Just including telecom and other segments, just excluding fiber and cable.

Yes.

Great.

Thank you very much.

And our next question comes from David Jackson of Morgan Stanley.

Hey, thanks.

Good morning.

Jim, a question for you.

Despite the worsening second-half outlook for the core fiber business compared to what you were thinking at the beginning of the year, you've been using the cash on your balance, some of it, to repurchase debt.

Could you just talk generally about your balance sheet strategy and your willingness to use cash to buy out that given the worsening outlook for the core fiber business?

I'd be happy to, David.

First of all, I'd like to re-emphasize what occurred in the second quarter.

We did use up approximately 500 million both in repayment of commercial paper, which obviously will not reoccur, because we're now completely paid off, and then chose to repurchase some of the zero coupon debt back.

If you take that out, you know, by subtraction, you can see that operating cash flow, less capital expenditures. offset by the minor cash from the divestiture of appliance controls, was essentially break-even.

That's a significant improvement versus quarter one, and that's obviously one of our goals to, continue to have that number to be as close to break-even as possible, even including the restructuring drag on payments.

I'm not sure we'll be exactly at zero for that in the third quarter and fourth quarter, but that's certainly our goal, and we have opportunities within working capital to make that happen.

As we continue to be confident about that -- in other words, that the operating cash flow less Cap-X and restructuring is bouncing around zero and our goals are eventually to get it to be positive, that obviously gives us some freedom to use some of our cash to do purchases of debt from time to time.

As I indicated before, we're not going to preannounce that to the marketplace when we choose to do it.

We'll do it opportunistically and only when we remain confident about our overall cash and liquidity position, which we feel good about.

The potential weakness in fiber is obviously disappointing, but not surprising given what's happened in the telecommunications industry.

That said, we can continue to take action to reduce costs in our fiber and cable business and to offset that.

As you see, that we have taken a lot of steps now and are continuing to evaluate it, and if necessary, we'll take an additional restructuring charge which could occur in the fourth quarter to lower costs further there.

Hey, that's great.

One quick follow-up, if I may.

Revenue in the hardware and equipment business was sequentially off.

Do you think that's sustainable going forward?

And could you talk a little bit about what throws that?

The main positive driver for us is the enterprise of premises, Mark, and for hardware and equipment, we're starting to see that market come back.

At this time, though, we're keeping our guidance to a quarter at a time.

We're pleased with the improvements and that it offset some of the falloff in public markets.

O.K., that's great.

Thanks.

And our next question comes from Tony Carbone of JP Morgan.

Hi, this is Christian Drinkel for Tony.

Real quickly, you mentioned you expect flat panels to grow again next quarter, can you elaborate a little bit more on the end markets there as many flat panel distributors for desk tops that we've talked to have publicly mentioned their expecting flat shipments until September?

Well, obviously, in the LCD market, the thing that always is the biggest risk factor for us is whether this long supply chain brim builds up inventory.

Right now, actually, our inventories are extremely low and below what we would ordinarily sustain in this business.

We have not seen any significant signs of backup at either manufacturers or at retail, and as a result, we've got more glass capacity coming along in the third quarter and expect that to move through.

I think the critical question is, what the pricing level will be on monitors going forward, and whether that will continue to pull through at this current level.

As you know, in this business, it's very easy for us to adjust our output, and if there is any inventory cycle, it usually lasts no more than a quarter, as we saw in the first quarter of 2001.

But so far, we have not seen any significant buildup at the manufacturing level.

Great.

And, also, if I may, can you comment on the competitive environment in the advanced materials segment and what you're seeing right now as some of the near-term drivers for the business?

In our advanced materials segment, the key drivers continue to be what has been core for this business for a while, automotive, our automotive ceramic substrates for car builds continues to rise off of automotive production, as well. we see strong performance in our other advanced materials businesses.

The one business that has been down for us in advanced materials, is our semiconductor materials business, as we continue to wait for the recovery of the semiconductor equipment business.

Thank you very much.

And our next question comes from Joseph Wolfe of UBS Warburg.

Hi, this is Jim Hilliard for Joseph.

Two question, one on LCDs and one on fiber.

On fiber, could you provide some granularity on your volume on a geographic basis and also, you could talk about the percentage of volumes you're seeing from the CA tubing access market?

Sure.

On fiber volumes, North America, as far as destination for the fiber, not where the cable ultimately ends up, was over half of our volume.

A hunk of that goes -- is then re-exported to Japan and India.

Europe was around 15% of our total, China around 20% of our total, and the rest of the world makes up the difference.

Our key, sort of top-ten fiber customers by end user were NTT, SBC, China Unicom, Verizon, GTE Bellsouth, Sprint North Supply, Barti in India, China Mobile, China Railcom and Charter.

We continue to see the pattern within North America of it being primarily the ILAX and cable TV players, driving demand.

North America, exchange carriers continues to be a very depressed market.

In Europe, it is the combination really of the PTTs and utilities, and then in China, it's the major carriers, some of which I just named in the top ten, continue to drive demand.

Great.

And on the LCD side, we've seen several press reports out of Asia that Corning will be opening a new LCD plant in Taiwan beginning next year for '04 production.

I guess, if you could just provide any update on that and maybe talk about the capacity utilization you might be looking for from that as part of the growth rate?

We -- as Jim mentioned before, we have the ability in this business to adjust our capacity, at much smaller pieces than in our fiber business.

We continue to grow our capacity with the increasing demand in the marketplace, and we do it by region.

One of our advantages in this business is that we are a global player, and, therefore, participate in sort of the shifting fortunes of the display makers.

So Taiwan is increasingly gaining market share, as their display manufacturers capture more of the end market share, and that's what's behind our continued expansion of our capacity in Taiwan.

Okay, thank you.

Your next question comes from Matt Schweitz of Credit Suisse First Boston.

Thanks.

I had two questions on the balance sheet.

First, in your last 10-K, I think you had about 1.3 billion in construction and progress, and I guess you wrote off about 117 of that this quarter.

Was just wondering what the remainder of that was in connection with, how much of that was related to telecom?

And second, I notice that other liabilities on your long-term liabilities ramped up about 190 million sequentially and was wondering what the composition of that increase was.

Thanks.

This is Jim.

I don't have handy the construction-in-progress.

We'll have to get back to you on it.

But. you know, the biggest construction-in-progress that we have, which relates to uncapitalized assets, even though we wrote off Oklahoma City and Concord 3, is we still have a fair amount in the second stage of the Concord expansion and construction in progress, which we don't intend to write off.

But that amount you mentioned sounds bigger than I remember, but we'll get back to you.

On the liability side, I think it's just the restructuring charges that we took, that we, you know, will be paying off, you know, we pay severance month by month.

I think that's the increase in liabilities.

Okay, thanks.

And our next question comes from John Roberts of Buckingham Research.

Pardon me, Mr. Roberts?

And our next question comes from Tim Anderson of Solomon Smith Barney.

Thank you.

One quick question, and Wendell or Jim, I'm not sure which one of you this is for.

I was wondering if you could just walk us through some of your thoughts related to major facilities closures.

And you mentioned you've made some minor telecom manufacturing closures, but how do you go about your decision making process to close down, or permanently close down major facilities?

Well, first of all, we have closed down our English facility, which was pretty significant decision.

And as we -- as we look forward on fiber capacity, what we balance out is the combination of when we anticipate market demand recoveries against what its impact will be on cash flow one direction or another.

We're in the midst of evaluating those decisions, and we're taking our time, primarily because at this point in time, the visibility in the marketplace is so poor, it's very difficult for us to reach a conclusion one way or the other on the exact timing of a recovery and its geographic location.

But we'll continue to balance our financial metrics against our customer needs, and we should be driving towards decisions as we come to the close of the year.

Could you just expand on that to give us a sense, as you decide to close down a facility, should you need to reopen that facility, what is the associated timing with going from one direction to the other?

Is it six-month process?

12-month process?

So we would break up the different decision levels as being an absolute shutdown with no intention to bring the facility back, which we did in the case of our English facility.

And what drives the decisions on that level comes down to the relative cost performance of our facilities.

We're in the enviable situation of that really all of our fiberoptic capacity represents the lowest cost factories in the world, and what we do is when we figure out which capacity to idle, which capacity to shut down, we're doing it by its impact on our relative cost performance.

Now, if we choose to idle a factory, the other extreme, or idle equipment within an active factory, that can come back very rapidly.

In between those two is moth balling a facility.

If we were to mothball a facility, it's anywhere between a six-month and 12-month recovery time, depending on how cold we take it.

Do you have any facilities that you've mothballed?

No, we do not.

We have idled equipment, and that's very -- we can recover from that very, very rapidly.

Great, thanks.

And our next question comes from Jim Yuna of CIBC World Markets.

Hi, this is Kevin Gallagher for Jim.

Just a question for Jim on the Lucent.

You had said you need around 200 million for the purchase of that?

Is that just an update from the 225 or is it, you know, still in, you know, 225 or 200?

I was just rounding for the sake of this.

Yeah.

The purchase price is 225 million, and that's our stated deal with this, and I will comment briefly that there is cash in the venture that will be dividended out upon the deal, so the net impact to us will probably be slightly less than 225, but you should stick with the 225 as the contract price.

Okay.

And once that deal closes, do you see it having a large impact on balance sheet as far as the covenant on your $2 billion credit line?

No.

It won't have any real impact on it at all.

You know, it's not that material of a deal.

The cash is already -- we have enough cash to provide for it, and the covenant is really around debt, is if we do additional borrowings, or if we are to reduce our equity through losses or writeoffs.

And so, it won't reduce --

no.

-- or increase equity at all?

No.

Okay.

Thanks.

And our next question comes from Mark Landly of Needham & Company.

Good morning.

This is John Harmon in for Mark.

Two questions.

One, I know you didn't give any specific guidance on fiber pricing.

But could you describe it qualitatively, could it be more than the 10%, 15% you have in Q1?

And the second question is about your display glass business.

On the fiber pricing, we haven't given any guidance.

We expect price pressure.

I don't anticipate that it could be more than what we've already seen.

Okay.

Thank you.

And last quarter, you experienced some price pressure on display glass.

Is that going to continue into Q2, and what drives that?

There's no material price pressure on display glass, and then we're not anticipating anything significant from quarter 2 going to quarter 3.

Okay, thank you.

And our next question comes from Sam Kingston of [INAUDIBLE].

Yes, thank you.

I was wondering if you could quickly comment just on the prospect for a tax refund that we might see in 2003.

And then, also, in the technology front, whether you could just tell us what's going on in terms of the MetroCor product positioning, and, you know, really whether a lot of the fiber you're selling now to the incumbents is the single-mode variety, or whether you're repositioning that product and what the volumes are, like, in that product segment.

This is Jim.

I'll talk about taxes and let Wendell handle MetroCor.

Actually, we're quite pleased on taxes.

We've recently finalized our position and we'll be able to take advantage of carry-back provisions of the change in the law, and anticipate that around the end of the first quarter next year that we will have some extra cash coming our way, and the number will be probably in the range of 150 to maybe a little bit higher than that when we file our return at the end of the year, and that's been in none of our cash projections.

So we're very happy about that.

Wendell?

90% of our fiber shipments are -- what we call our SMF28 product, our standard product.

With regard to a metro, new product offering, we are in the midst of a redesign of that -- of a premium product for that market aimed specifically to the incumbents' needs, and we're working with several RBOX and PTTs on that redesign.

Are you referring to zero water peak fiber design?

No, we are categorizing our zero lot P product, which we call SMF-28E, that is -- I'm lumping in with the SMF-28 business in this description.

I thought you were dealing specifically with some advanced dispersion fibers, and in the advanced dispersion level, that's the redesign that we're working on.

We have offered SMF 2080 for a while, the product continues to gain acceptance.

Okay.

And then just quickly on the tax.

Would Q1 be the only -- might there be additional refunds that could happen in the remainder of 2003?

Not that we're expecting right now, but, you know, as you know we actually have been, fortunately, a net taxpayer, even though we've been in a loss position, because of the fact that we have a lot of income overseas.

So we're very pleased by this, and obviously we'll continue to look for upsides in cash from taxes, but that's what we see right now.

Okay, thank you.

And our next question comes from Milt DeCohobor of DeHaven Capital.

Yeah, I have a couple questions.

Can you give us an idea of the control business that you sold, how much revenue is attributable annually and then how much of the third quarter revenue guidance decline is due to that business?

And then, could you give us an idea of what Forkawa [Phonetic] OSF Brightwave is doing with volumes and pricing pressure, or other types of information you can give us?

And lastly, Cymer is guiding that revenues are probably going to be up in the second half, and I'm wondering why does that contrast to what you expect to see from the semiconductor sales business?

Let me deal with the last one first, in terms of Cymer.

We clearly are -- have been receiving input from customers, the semiconductor equipment recovery for our particular equipment.

Remember, we're in a unique position in the chain, because we're providing lenses to stepper manufacturers, that people are talking to us about reserving capacity for quarter four.

So that's been kind of the good-news side and I think lines up with perhaps what you're hearing from Cymer.

Alternatively, we're all, you know, reading and watching about the semiconductor industry as a whole, and so, you know, we're cautious about that.

But right now, we clearly think we're at the bottom of the cycle in regard to customer inputs as good news.

Wendell, you want to comment on Brightwave and All Fastener and I'll come back to appliance controls?

I don't feel comfortable commenting directly on the behavior of a specific competitor.

We're pleased with where we are competitively and have been gaining market share in all of our major regions.

Do you feel like there's any dumping going on of inventory?

I think the fiber price pressure has been significant.

It happens in times like this, especially certain competitors lose share one way or the other.

Most always fiber price is set by the highest cost of the lowest-cost producers, and we're seeing that behavior continue.

Okay.

Thank you.

And on our appliance controls, I'll just comment that I think that the revenue loss in the quarter is probably around -- between 15 and 20 million, so that's clearly part of our sequential difference.

Thank you.

And our next question comes from Paul Kelley of Kelley Capital Management.

Good morning.

I assume that you still have no asbestos liability on Pittsburgh Corning.

Can you tell us, where does that stand?

Yeah, I'd be happy to.

You'll see we're actually hoping to file our 10-Q a little earlier than normal and hope to have it out no later than Thursday.

We're trying to move quicker in light of the SEC's proposal to have faster timing.

You'll see an enhanced disclosure in there.

Relative to our liability on there, we continue to believe that we have no liability relative to Pittsburgh Corning in asbestos.

As you know, we're a share holder only in that company, and believe our legal defenses are adequate in that regard.

Nevertheless, as we've disclosed in the past, we would be willing to entertain a settlement if it could be done on a reasonable basis, to simply take the uncertainty of this off the table.

So we continue to feel good about our legal defenses, have discussed potential minor settlements with the claimants, but have not reached any kind of an agreement with them.

Okay, thank you.

And our next question comes from Rick Doddle of ARX Investment Management.

Hi.

Can you hear me?

Yes.

Okay.

I just had a quick question on your decision to repurchase the zero convertibles during 2005, versus repurchasing some of the straight that was -- that's currently outstanding.

Given the fact that the zeroes are satisfiable as stock, the point of the question is really why would you reduce your liquidity, and really, one of the options to satisfy the stock, the stock, rather than repurchase straight debt that's outstanding, which is obviously interest-bearing and cash pay.

Well, we chose to do the zeroes, because we thought it was an attractive opportunity at the moment.

However, to a degree we do other debt repurchases, we would consider looking at all of our potential debt and not just the zero.

Regarding the fact that the zero is setable for equity, the reason for my mentioning it in the call earlier is that a surprising number of investors are -- don't understand that if, in fact, three and a half years from now, we got to the point where the investors were about to put that to us, and we didn't have the ability to either refinance or pay it off in some form, that we could, in fact, settle it for equity.

Obviously, that's not our intent in terms of managing our balance sheet.

It is three and a half years away, and we have a plan we're working on and how we continue, first of all, continue the operations of the company, be able to support that sustained ratings and be able to deal with that rather than having to settle an equity.

But you're absolutely right.

If, in fact, we got to November 2005 time and didn't have the cash, we would be forced to settle it in equity.

We will continue to be opportunistic, as we feel first of all, as I said, comfortable about our cash and liquidity position, and from time to time consider buying back debt, and we will not contain ourselfs to just looking at the zero coupon.

Thank you.

And our next question comes from Gabriel Lee of Credit LNA.

Thank you, been answered.

And our next question comes from Michael Caan of AR.

Mr. Caan, you may ask your question.

And our next question comes from Steven Cuffler of Wachovia.

Wendell, if I could just follow up on the fiber-type discussion.

Is Leaf a subset of SMS28?

No, leaf would be part of what is our current -- what we would call premium mix, which was a little under 10% of our total volume shift.

Within that category, we have Leaf.

We have our Metro products as well as Multimode for premises.

So. just a little further, is there any demand among ARBOX for Leaf?

It's not hard to imagine implications where they could use it.

There has been some.

The main use and the main advantage of Leaf is the ability to go long distances and avoid expensive repeaters.

And, in general, the footprints for the box to date haven't been long enough in terms of distances between C.O.s to prove it in on a wide base.

What we're in the midst of doing is working closely with them to design products that can address their economic concerns more appropriately.

Leaf was originally designed as the premiere long haul fiber, and it did that well.

Now, as we look to solving different problems in the Metro regions, probably a new product design is the right way to go.

Thanks.

That will conclude the question and answer session.

I'd now like to hand the conference back over to our host, Mr. Ken Sofield.

I'm going to pass it over to Jim.

We thank you for joining us this morning.

The quarter was very encouraging with revenues stable with quarter one.

More importantly, improving our operating results and especially operating cash flow.

However, we remain mindful of the worsening storm in the telecom industry and are prepared to take more steps to improve our outlook in that segment.

We obviously cannot control external events, but we can and will restructure our costs, capacity, and spending to be profitable, even if revenues remain as low as today.

That said, you also need to remember that over half of Corning's revenues today are outside telecom, with growth potential and strong profits already.

Thank you.

Ken?

Thank you for joining us.

A playback of the call will be available beginning at 10:30 a.m. eastern time today, and will run until 5:00 p.m. on Tuesday, August 6th.

To listen, dial, 402-220-3559.

No password is required.

The audio cast is also available on our website during that time period.

Dan, that concludes our call.

Please disconnect all lines.

And once again, thank you for attending today's conference.

You all may disconnect at this time.