康寧 (GLW) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Corning Incorporated fourth quarter 2014 earnings results conference call.

At this time, all participants are in a listen-only mode.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn conference over to your host, Division Vice President of Investor Relations, Ms. Ann Nicholson.

Please go ahead.

Thank you, Greg.

Good morning, everyone.

Welcome to Corning's fourth quarter conference call.

With me today is Jim Flaws, Vice Chairman and Chief Financial Officer.

Before we begin our formal comments, I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995.

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

These factors are detailed in the Company's financial reports.

You should also note that this presentation contains a number of non-GAAP measures.

Reconciliations can be found on our website.

Now, I'll turn the call over to Jim.

Thanks, Ann.

Good morning, everyone.

I'm delighted to share our fourth quarter and full-year results with you this morning.

Corning had an outstanding quarter that wrapped up 2 consecutive calendar years of quarterly earnings growth.

We entered 2014 with the goal to grow sales and earnings significantly.

We delivered on this call with year-over-year earnings growth in every quarter.

For the full year, sales grew 29%, and earnings per share grew 24%.

Integration of CPM in Korea was a significant driver of the earnings increase, and additionally in our four other non-display segments we achieved excellent growth which of course has been a long-standing goal.

In aggregate, they grew sales and net income of approximately 10%.

We also delivered on our commitment to return cash to shareholders with our recent December announcement of a 20% increase in the dividend and a new share repurchase program of $1.5 billion.

We feel great about our momentum entering 2015 and expect to deliver continued sales and earnings growth in the new year.

Now I'd like to turn to our quarter four results beginning with some highlights.

We had a fantastic quarter that was better than we originally expected.

Earnings per share were up 55% versus last year lead by the consolidation of CPM with Optical Communications, Environmental, and Dow Corning's equity earnings, and slightly lower tax rate also contribute to growth.

LCD glass volume was better than expected driven by strong demand for larger LCD televisions, the volume up in the mid-teens year-over-year, and mid-single digits sequentially.

Display set a quarterly record for sales volume.

LCD glass price declines were moderate again as expected and declined less than Q3.

LCD glass demand continues to be good entering Q1, and we believe this is due to stronger retail demand in Q4 for larger televisions, replenishing supply for Q1 which is also a typically good quarter for retail television sales.

We launched our next generation of Gorilla Glass during the quarter end, and it's receiving very favorable reviews by customers and at the recent Consumer Electronics Show.

Specialty material sales in the quarter exceeded our expectations driven by demand for Gorilla Glass for new product launches.

CPM integration activities have gone very well, and we have exceeded our synergy goal for the year.

Equity earnings from Dow Corning were also ahead of expectations in Q4, driven mainly by higher sales of polysilicon.

Now let's delve into the fourth quarter details.

Fourth quarter sales were $2.6 billion, up 30% versus last year.

Gross margin was 45%.

We improved year-over-year gross margin every quarter this year.

Gross equity earnings of $116 million were more than expected by Dow Corning, and I'll cover that in more detail in a few moments.

Other income includes a payment for the settlement of dispute over the use of fusion technology in China.

This was the final payment to Corning.

Please recall we had a similar payment in 2013 in the same quarter, so it had no impact on our year-over-year gains in the quarter.

EPS was $0.45 up $0.16 versus a year ago and completes two calendar years of quarterly year-over-year earnings growth.

During the quarter we spent approximately $183 million to repurchase shares.

We completed the October 2013 repurchase program in quarter 4 and have now begun repurchasing shares under our new program in January.

For the year, sales were $10.2 billion, up 29% over 2013.

Corporate gross margin was up 2.4 points.

The integration of CPM and Display cost reduction drove a large portion of year-over-year improvement.

Optical Communications, Environmental also improve their profitability this year.

S&A and R&D were up year-over-year in dollars due to the consolidation of CPM.

As a percentage of sales, we lowered S&A and [RD&E].

Year-over-year decline in gross equity earnings reflects the elimination of SCP equity earnings following is the acquisition and its consolidation.

Effective tax rate for the year was 16.8%, slightly lower than our original expectations.

It was helped by regional mix and the extenders bill which passed in December.

Earnings per share for the year were $1.53, up 24%.

This year-over-year improvement is the result of additional earnings from Corning Precision Materials, earnings growth in Environmental and Optical Communications, earnings growth in Dow Corning, as well as the impact of share repurchases.

Now I'll turn to our detail segments, and I'd like to start with Display.

Display sales were $1.1 billion in Q4, 69% increase versus last year.

Overall our market share remains stable, and LCD glass price declines were again moderate.

Sequentially our LCD glass volume was up in the mid-single digits.

Let me provide you more detail about LCD glass demand and retail.

In Q4, we believe television retail sell-through units where up high-single digits year to date.

TV area growth measured in square feet of glass sold was up approximately mid-teens, representing a strong holiday season at retail.

Panel makers ran at high utilizations to meet the strong demand for large televisions over the holiday and to restock supply chain for Q1.

Supply chain inventory remained healthy exiting the quarter with forward-looking weeks of inventory at approximately 17.5 weeks.

Gross equity earnings from equity venture in Korea, SCG, were immaterial.

Net income was up 26% over the year reflecting the impact of additional sales earnings and synergies from CPM.

I can't emphasize enough the outstanding job the Display organization has done with cost reduction and successfully integrating CPM.

Now for the full year, Display segment sales were $4.4 billion, up 63% driven by the addition of CPM sales.

Full-year net income was up 11%.

In looking at sales and net income growth rates, remember we consolidated 100% of CPM sales in our reporting for 2014, but only the other half of the net income.

Our full-year volume was up slightly more than 10%, in line with the glass industry.

Our volume growth was offset by price declines which were larger the first half of the year.

We did achieve more moderate price declines in a second half, and this is continuing into Q1.

As we track the heartbeat of pricing without the impact of thick to thin and customer mix, we feel very good about the level of declines we've experienced for the last three quarters.

Volume in synergies and cost reductions helped the business improve gross margin percent for the full-year.

Actual synergies for the year where greater than our expectation of $100 million.

We estimate the glass market at retail for 2014 was approximately 4.4 billion square feet, up approximately 10%.

Our preliminary estimates of TV unit sell-through indicate year-over-year unit sales where up in the mid-single digits.

All regions except Japan grew unit sales year-over-year.

Average television size increased again in 2014 and drove glass market growth.

We estimate TV area growth was up in the mid-teens.

Fifty-inch plus televisions grew greater than 50% in 2014, and the average screen size increased more than an inch.

Our Optical Communications Q4 sales were $676 million, up 12% versus last year and better than expected.

[Area] sales in North America drove most of the increase versus expectations but enterprise exceeded as well.

Net income was up 64% over last year's fourth quarter.

The higher volume and improved cost structure led to another strong quarter for Optical Communications.

For the full-year sales were nearly $2.7 billion, up 14%.

Sales in all businesses were up year-over-year, and all regions except China contributed growth.

Optical Communications annual net income of 2014 was up 18%.

We are very pleased with the results and have great momentum in Optical entering 2015.

Now Environmental sales grew 5% year-over-year driven by heavy duty diesel sales in the United States, just slightly less than forecast due to some changes in customer end-of-year inventory management plans.

Environmental's net income in quarter 4 was $40 million, also up 5% year-over-year.

For the year, Environmental sales where up 19% driven primarily by a healthier US class A truck market and higher sales of heavy duty diesel products for new regulations in Europe and in China.

Environmental expanded gross margins and grew net income 44% for the year, due to additional volume significant manufacturing efficiency improvements.

We were also delighted by the performance and Environmental Technologies in 2014.

Specialty material sales in the fourth quarter up 12% versus Q4 2013, and better than expected due to strong Gorilla Glass volume from device manufacturer and new product launches.

Now net income in quarter four was down year-over-year by 13%.

However, these results included an accounts receivable write-off.

Without that write-off, net income would have been up 8%.

For the full year, Specialty sales were up 3%.

Net income was down 17%.

Without the Q4 accounts receivable write-off, that income for the year would have been down 13%.

Our advance optic sales and earnings which is embedded in Specialty grew, while the 20% of growth of Gorilla Glass volume was largely offset by the price declines that occurred mostly in Q1.

The cover glass market did not grow as much is we originally expected in 2014.

The most significant disappointment to us was branded tablets not growing at all versus 2013.

However, we did have some accomplishments that are setting us up for a more successful 2015 in Specialty.

First, we maintained our share against aluminosilicate glass competitors on devices.

Second, this year we made progress on increasing our share in smartphones in China, and of course we launched Gorilla Glass 4. Drop performance of Gorilla Glass 4 is beneficial to device manufacturers, and we expect to be able to price for that added value.

In Life Sciences Q4 sales where up 2% year-over-year.

Net income was consistent with last year, and for the year Life Sciences sales were $862 million, slightly, and as a mentioned throughout 2014 the market do not grow as much, with one reason being a low level of NIH spending.

Net income for the year was down 5%.

Moving to Dow Corning, gross equity earnings from both silicones and polysilicon segments where up versus Q4 2013.

Volume for was up for polysilicon as solar customers bought to fulfill their annual contract commitments.

Additionally, manufacturing efficiency improved over last year.

The silicones business sales where consistent with Q4 of last year, but a lower tax rate and lower operating expense help profitability.

Dow Corning exceeded our expectation for the quarter by $30 million with higher sales with polysilicon improved operational expenses.

Now for the year Dow Corning's equity earnings were up $142 million.

Both silicone and polysilicon sales where up.

Silicone sales where up in the low-single digits as expected.

Raw material pricing negatively impacted profitability slightly, but this was offset by a lower tax rate.

Hemlock sales where up 32%, driven by a higher polysilicon sales to solar customers, and cost controls helped Hemlock improved profitability over 2013.

Hemlock sales and profitability overall were more stable in 2014.

I'd like to take a minute to discuss Hemlock's impact on our results.

Investors will recall we had excluded Hemlock in our 2013 from our core operating results as we had expected extreme volatility due to the trade issues.

That volatility did not incur.

In 2014, we included Hemlock in core.

In retrospect, my decision to exclude core in 2013 was one of my less brilliant ideas as CFO.

I wanted to make sure you understood how much Hemlock contributed to our core earnings if we had been reporting it consistently.

As you can see, even if we had included Hemlock in 2013, our 2014 results for Dow Corning would have shown significant improvement.

Moving on to the balance sheet, we ended the fourth quarter with $6.1 billion in cash and short-term investments, strong free cash flow for the year at nearly $4 billion, including the dividends from CPM as we did that transaction.

As a reminder, free cash flow is a non-GAAP measure.

Reconciliation to GAAP can be found on our website.

Capital spending for the year was $1.1 billion.

Now before I move on to our outlook, I'd like to update you on our core performance reporting.

I'll begin with a brief retrospective on core performance measures as we may have some new investors on the call.

As a reminder, our Display sales are priced in yen.

We report in US dollars, so the earnings from Display sales translate into our GAAP income statement in dollars at the actual exchange rate during the quarter.

Following the election of the new Japanese prime minister in December of 2012, the yen began to weaken against the US dollar.

We saw the yen weakened from JPY82 to the dollar November of 2012, to the low JPY90 level in early 2013.

You may recall we took immediate action early 2013 to limit the adverse economic impact on Corning by entering into hedges.

Our hedging contracts for 2013 and 2014 had an average exchange rate of JPY93 to the dollar.

We also gave some thought as to how the potential reporting of those hedges would inform our investors.

GAAP is our official reporting for the Company.

In GAAP reporting, we record the quarterly settlement of our yen contracts in the other income, other expense on our GAAP statements.

You would see the weakening of the yen in sales and gross margin, but the gain on their hedges in other income, other expense.

However, GAAP also requires us to record the fair value of all of our contracts including those outstanding beyond the current quarter in our results.

This mark-to-market of our entire hedge portfolio would also show up in other income, other expense.

The result is investors would be unable to discern how much that line item was attributable to hedges for the current period versus hedges for the future periods.

With the recent volatility of the yen, our GAAP results might be confusing to investors, so we felt this accounting while definitely appropriate would not help investors see the operational impact of volume in prices easily.

Our recent quarterly results show how confusing this has become.

Our quarter four GAAP results include marking-to-market our cumulative hedges for 2015 to 2017.

When the rate moved from JPY110 at the end of the quarter three to JPY120 at the end of Q4, we had a mark-to-market gain of $398 million.

We also had a realized gain of $112 million for the hedge contracts settled in Q4.

It's this latter gain that is important, and is the one that makes us feel comfortable using constant yen reporting at JPY93.

I know this example is long, but I hope it helps you see our hedges are protecting the economics for the Company.

They're complicated as you look at the operational performance in the quarter.

In February of 2013, we announced that in addition to our GAAP results, we would also provide our results using core performance measures, allowing investors a more clear view of the Company's core operating results.

Our core performance results are stated at constant yen to US dollar exchange rate of JPY93.

The primary purpose of the core performance measures are to allow investors to see operating results without the volatility of the yen and hedges [asking] operational performance.

To summarize beginning in 2013, we became economically protected if the yen weaker than JPY93 with hedges, and we moved to core reporting to provide investors additional transparency on our operating results at constant exchange rate of JPY93.

Now let me fast forward to January 2015.

As you know the yen has continued to weakened from its early 2013 level of the low JPY90s to the upper JPY90s at the beginning of 2014.

We made the decision to extend our economic hedge protection beyond 2014.

We entered into hedges for 2015 to 2017 at an average rate of JPY99 to $1.

Earnings are now economically 100% hedged against the yen in 2015, approximate 80% hedged in 2016, and 70% hedged in 2017.

These new hedges show up in GAAP with the impact of mark-to-market each quarter.

Now, what about our core reporting?

With our existing hedges for 2015 to 2017 now at JPY99, we will move to a new constant yen rate of JPY99 to the dollar.

This adjustment to core maintains the alignment with the intent of the hedges that limit the economic impact to the yen weakening.

We expect to keep this core yen rate over the next three years.

About 75% of the analysts covering us have already modeled 2015 at this yen exchange rate of JPY99.

Going forward, we'll talk about our core results at the new constant yen rate of JPY99.

Now comparisons to 2014 will also be done at JPY99.

We will be providing you our 2014 results recast with the exchange rate so you can update your models and compare apples to apples.

We will be releasing this recast 2014 and also 2013 numbers later this morning in an 8-K filing.

Now I'll be repeating some of this in our outlook section, but I wanted to remind investors that we've been giving guidance on the value of JPY1 move in our NPAT for several years.

Our most recent guidance has been that at JPY1 move impacts NPAT by $25 million for the year.

This simple example is accurate and easy to use.

However, when we recast every line in our P&L, the calculations impact certain line items differently.

Clearly, our sales are affected by the end change.

However, not all our cost moves with yen exchange rates.

We have some yen based costs, but also have manufacturing costs in other currencies that do not move.

As a result, in our recast our gross margin percent is effected.

Impact on Display gross margin is 2 percentage points.

The impact on the total Company gross margin is 1%.

I want to be clear, we have always had the impact of this change on gross margin embedded in our simple metric of JPY1 move equals $25 million.

However, it's important that you make your models reflect the line item changes accurately.

Our Investor Relations group will be ready to explain the recasting from JPY93 to JPY99.

There are nuances that are important to understand.

With that, I'd like to turn to Display's outlook.

We feel very good about the glass market as we enter 2015.

Supply chain inventory levels remain healthy.

Glass supply is tight relative to demand, and we expect another year of glass volume growth at retail.

We finalized contracts with our customers for substantially all our volume in 2015, which we believe is reflection of our customers' desire to lock in glass supply due to the strong market and relatively tight supply-demand situation.

We expect our share to be stable in quarter one and throughout the year.

Now, for the end market in 2015, we believe TV retail demand is strong.

Our preliminary forecast for 2015 is for good growth of LCD glass at retail and our glass demand, driven primarily by TV unit and average screen size growth.

We believe the glass market at retail could be up in the high-single digits in 2015.

We expect ultrahigh definition sales to at least double to approximately 25 million units in 2015.

Of course, we're going to be saying a lot more about our outlook on February 6 at our Investor Relations event in New York City.

As we near the end of January, we expect our glass volume and outlook in quarter one to be flat to down slightly sequentially.

We see quarter one LCD glass market declining sequentially, reflecting normal seasonality, and of course fewer shipping days in February.

Recall Q2 is the slowest retail season, so the supply chain should do some moderation in late Q1 to manage inventory.

You should note the LCD glass market in our volumes in Q1 are up year-over-year reflecting the larger market.

Now we expect price declines in Q1 to again be moderate and similar to Q4.

We are especially delighted to not have a repeat of last year's Q1 pricing event.

We remain optimistic glass industry can continue to moderate quarterly price declines for the full year for several reasons.

First, retail demand expects to grow, helping to maintain a healthy supply chain inventory.

Second, panel makers are profitable, and they are getting the benefit of the weaker yen.

Third, glass supply's tight to demand, and fourth, the operating margins of our competitors are such they can't afford large price declines if they hope to remain profitable.

As for our glass capacity, I want to reiterate that we intend to diligently manage our capacity to supply.

Customer agreements stabilize our share of [health] manufacturing organization managed capacity to demand, and we look forward to renewed agreements maintaining that stability in 2015.

Turning to the Optical Communication segment, we expect Q1 sales to be up more than 10% versus Q1 of last year.

Enterprise and fiber home sales are up in North America, and of course adding to Optical Communications' organic growth will be sales from the recent acquisition of TR Manufacturing.

In Environmental, we expect Q1 sales to be consistent year-over-year.

Volume is up versus last year in most products, but it's offset by now the much weaker euro versus last year.

Without this FX impact, Environmental sales would have been up approximately 5%.

We expect Specialty material sales to be up approximately 10% year-over-year in Q1.

The retail market for touch devices is strong in Q4, and our Gorilla Glass shipments in quarter one are up, driven by this retail demand.

Specialty sales are down sequentially, due to normal seasonality of Gorilla Glass.

For the full year, we expect our volume growth of Gorilla Glass to be in line with the IT handheld market, and price declines to be more moderate than in 2014 due to Gorilla Glass 4.

In Life Sciences we expect sales to be consistent with last year's first quarter.

Our Life Sciences business is now also being impacted by the weaker euro.

We expect sales would have been up low-single digits without the FX impact.

Equity earnings from Dow Corning are expected to be approximately $69 million, up 10% year-over-year driven by polysilicon sales.

Now continuing on with the rest of our quarter one forecast, we expect gross margin to be approximately 43% as compares to 43% in Q1 last year, with a yen to us dollar exchange rate at JPY99.

The move to constant yen rate of JPY99 does affect our LCD glass reporting as I outlined earlier.

As a reminder, we've given the guidance of JPY1 move changed NPAT for a long time, embedded within that metric as this nuance on gross margin.

SG&A and R&D spending will be 13% and 8% of sales, respectively, and consistent with 2014.

Other income and other expense is expected to be a net expense of $40 million in Q1.

Our effective tax rate for 2015 should be around 18%.

Projected rate is higher than 2014, driven by the regional mix of sales and assumes that no renewal of the tax extenders bill.

We expect full-year capital spending to be $1.3 billion, maybe $1.4 billion.

When you sum up our outlook for Q1, you see we expect another quarter of year-over-year earnings growth.

We will be providing the recast of Q1 2014 in a few minutes for you to do your year-over-year calculation.

For those investors who also like to do sequential comparisons, please remember to use the quarter four JPY99 recast.

When you're concentrating and sequential comparisons other than the recasting of the yen, please remember that in Q4 we receive the final payment related to the settlement technology dispute doesn't show up again in Q1.

Q4 equity earnings from Dow Corning were very large driven by the strong end of year contract fulfillment orders for polysilicon.

Expect polysilicon sales to be down seasonally in Q1, and Dow Corning's tax rate will rebound to be higher in 2015.

Corning's effective tax rate in 2015 will be 1 to 2 points higher than 2014.

Please remember the low rate in quarter four is not indicative of the full-year tax rate.

Ann and [Steven] are available to help you as you update your models.

In summary, we're coming off a great quarter and a great year, and we expect that momentum to deliver growth again this quarter.

That includes my opening remarks.

Ann?

Thank you, Jim.

Greg, we'll now open the lines for questions.

(Operator Instructions)

Mehdi Hosseini, SIG.

Good morning.

Thanks for taking my question.

Jim, you are talking about in the Display segment glass volumes are beginning to firm up.

Can you just elaborate more?

How should we think about the ASP component as volumes are getting firm, especially as your customers are beginning to worry about supply?

That's what I heard from you.

We believe our price declines will be moderate again in Q1.

We have most of that done now, and we're delighted by that.

We think all the trends in the industry are positive for ASP, and we expect moderate price declines every quarter this year.

Your comment that volumes are beginning to firm up, is that more of a quarterly firming up?

Is that for the whole year?

How should we think about the timing part of it?

I don't think I used the word firm up.

I believe volumes were very strong actually all of last year.

They were stronger than we expected in quarter four, and we think they'll be good in quarter one.

If you come to our event, we'll be giving you a lot more detail on full-year guidance for the Display market.

Got it.

Then one follow-up on the Specialty Materials, if I were to exclude the receivable write-off, how did margins trend?

How should we think about the margin trend into 2015?

Earnings would have been up in quarter four without the receivable write-off.

I think the number was 8%, and in terms of gross margins in Specialty and Gorilla, we expect them to improve this year.

Okay.

Thank you.

Ehud Gelblum, Citigroup.

Good morning.

Thank you.

A couple questions, a quick clarification, the gross margin this quarter was below guidance.

Was that due to the write-off?

No.

The gross margin, there were three minor items that made it be around at about 1% lower.

There's nothing significant there.

Okay.

You expect it to stay at the 44% level instead of going back up next quarter, so those issues continue?

(inaudible) that?

No.

As you know, our gross margins are always a mix of the various business, but we expect our gross margin to be 43% with the yen at JPY99.

I'll do some more math to get into that.

On Gorilla, can you give us an update as to what's happening with notebooks and laptops?

Are you seeing any more penetration there, or is still primarily the tablet and smartphone market?

On Gorilla Glass 4, it sounds like you're getting a premium on it versus Gorilla Glass 3. Where does the price point sit, versus where Gorilla Glass was prior to the large cut at the beginning of 2014?

Is it around the same level, or is it still below?

I don't actually have that comparison in my head where was before the cut.

We'll think about how much we're going to disclose on that.

In terms of the touch on notebook market, actually there was some progress this past year versus 2013.

We expect some continued progress as the share of it grows as part of the notebook market, and we actually have improved our own share of that in 2014.

We expect to improve it again in 2015.

It is just not a fast-growing change.

Okay.

On the hedges, in a prior conference call, I believe you may have said that you did have some hedges at JPY93 that extended into 2015.

A, is that correct, and B, if that's the case, I think you said at on point that around two-thirds of our 2015 may have been hedged at JPY93.

How do you handle the JPY93 hedges when you're showing core earnings at JPY99?

Do you show part of the gain reflected into core revenue, and the rest still sits in other income?

(inaudible) correct.

We never said we had two-thirds of 2015 at JPY93.

We had a small proportion of 2015 at JPY93, and what we'd done is chosen from an accounting point of view is to select a blended rate of JPY99 that carries over the three years.

In any given quarter, the rate may be slightly different, but we are allowed to choose a blended rate, and we've done that for the three years, but we never had that higher proportion of 2015 hedged at JPY93.

I'll have to find that reference again.

Again, in any given quarter, you'll take the JPY99 up to the current spot.

You'll reflect that revenue, but any gains that would have come from a different actual number, let's say you're hedged at JPY97 for a given quarter, the difference between JPY97 and JPY99 still shows up in other income?

Is that the right way to look at it?

The movement in our hedge rate around this blended rate is very, very tiny.

In our core reporting numbers, you see it's all done at the constant JPY99.

In our GAAP, you will see the settlement of the hedges in the current quarter, and then the mark-to-market for the entire portfolio hedges.

Helpful.

Finally, can you give an update on what [DAS] is doing in the optical department?

I didn't see any optical side.

I didn't hear that was necessarily a driver but it had been in the past.

Is it still as strong as it had been?

It's never been a big driver.

It's a growing business, and you're going to more about it at our IR day in a week.

Okay.

Thanks, Jim.

Wamsi Mohan, Bank of America Merrill Lynch.

Yes, thank you.

Good morning, Jim.

We've not seen your 8-K yet, but directionally can you help us think about where the 2014 Q1 gross margin was on a JPY99 basis so we know operationally if the gross margin is flat up or down year-on-year?

I have a follow-up.

Directionally, it's 43%.

It's flat year-on-year.

Okay, thanks.

Then in equity earnings were there any take-or-pay enforcement that helped in the quarter?

How should we think about equity earnings in 2015, again if you think it should be flat up or down in 2015?

Thanks.

The take-or-pay contracts are, there was no enforcement action in quarter four meaning that no one stopped taking and didn't fulfill their contract, and therefore we booked the overall revenue that was outstanding on the contract.

What you saw was primarily the impact of people, in order to keep the contracts current, they have to buy a certain amount within a calendar year.

What we're seeing is many people delay that until the fourth quarter.

You may recall actually in the fourth quarter of 2013, we had this sudden rush.

We actually couldn't fulfill it all, and some spilled into quarter one of 2014.

We prepared for that this year, but people are living up to their contracts, so there's no enforcement of a take-or-pay where we recognized the revenue in quarter four.

Do you expect overall equity earnings to be flat up or down in 2015?

I'll give some more comment on equity earnings when we get to the IR day.

Okay, thanks, Jim.

Last question for me is on from a gross margin perspective you should be seeing the benefit of CPM and the increased synergies flow-through on a constant JPY99 basis, so as we look through the trend in 2014, shouldn't we expect the 2015 trend in gross margins to continue to trend up through the course of year?

Assuming that we get moderate price declines every quarter which is what our expectation is, we expect excellent cost reduction in that will contribute to improved gross margins.

Thanks, Jim.

Mark Sue, RBC Capital Markets.

Thank you.

Jim, you seem to be recognizing the benefit of the price strategy change made a few years ago with stable share and moderate price declines.

Structurally, the thought before was that your primary competitors were focused less on margins than Corning is.

That seems to all have changed.

Are we at a point where we can predict industry profit growth considering all of the players are focused on market share at this point?

I can't comment specifically on what our competition is going to do.

I can tell you that what we certainly hope that the industry has moderate price declines, but I cannot predict what they are going to do.

Would you get the sense that everyone has seen the predictability and the benefit of stable declines so that the rationality is likely to prevail, at least on Corning's point of view?

Again, Mark, I can't comment on what our competitors are seeing and doing and what their outlook is.

You can read their public statements.

I can only comment that for quarter three of last year and quarter four of last year and quarter one of this year, we have seen a moderating price decline.

We expect that to continue.

That's helpful, Jim.

Then on oil prices, I know it might be a stretch, but just wondering if you have some data which correlates lower gas prices and higher TV demand, and does actually lower oil prices help with input costs as well for Corning?

Just how we should think about the moving dynamics of this large variable for Corning.

I have no correlation between energy prices and retail in sale of televisions.

We clearly believe that consumers are getting in their pocket quite a bit of benefit from the lower gas prices and oil prices, if you use oil.

We think that could potentially show up for us in terms of strength in consumer electronics and strength in the car business.

Relative to our own cost structure, energy is a very small component of our building materials.

Actually, as I think you know, in Display our largest component by far is depreciation.

Generally, [we'd be] a natural gas user, not an oil user.

The days we've fired our tanks with oil are long gone, but it will be a slight benefit.

We do have some hedges, so we don't get the immediate benefit of that.

That's helpful.

Thank you, Jim.

Amitabh Passi, UBS.

Hi, thank you.

Jim, I apologize if you touched on this.

You're starting the year at 43% gross margin.

I'm just curious from here on out, should we expect gross margin to ebb and flow as volumes in Display and your other segments trend?

Are the other underlying structural enhancement that could meaningfully drive gross margin higher?

I think that, as always, our gross margin is the add-up of all our various segments.

If we get moderate price declines on Display all year long other than Q2 which is generally the lower volume quarter, I think we have the ability to slightly improve Displays' gross margins with a combination of cost reduction and moderate price declines.

As I think you know, Gorilla is actually our highest gross margin product.

If there is a strong market growth of phones and tablets and it flows to us, that will help us from a mix point of view.

In telecom, the things that are selling well have slightly higher gross margin compared to the average segments, so that could help.

Finally in Environmental, we've made dramatic improvements in manufacturing, so our gross margins are improving there.

I think you could see a slight increase in gross margins as we go through the year.

Okay.

That's very helpful.

I wanted to clarify on the telecom segment.

You talked about the benefit of TR Manufacturing, but I presume in 1Q you'll also include the Samsung fiber optics business that you acquired in December?

The Samsung deal has not closed.

That probably won't close until near the end of February or the end of March, so you probably won't see much impact of that until Q2.

Got it.

One final question, what are your expectations for the adoption of Iris which you unveiled that CES?

Theoretically, that gives you a third sheet of glass in TVs, but I'm just how curious how you're thinking about adoption rates?

I'm going to have to ask you to hold that question until our Investor Day on February 6 because Iris will be talked about by both Wendell Weeks and Jim Clappin.

Okay, thank you.

Patrick Newton, Stifel.

Good morning, Jim.

Thank you for taking my question.

I guess number one is pertaining to Gorilla Glass.

I think you stated that volume growth should be in line with IT handheld and that price declines would be more moderate than 2014 due to Gorilla Glass 4. I would love your view on what Corning's outlook is for IT handheld in 2015.

Then the price in decline commentary, 2014 was relatively aggressive.

Can help us narrow the range a little bit?

I'm not going to give specific numbers on price, but the reduction for the full-year 2015 should be quite a bit lower than what it was in 2014.

In terms of market growth, I think we have handheld square feet growing 15%.

We're thinking media tablets could grow in the upper-single digits.

Then of course we will have some growth from touch on notebook, and just a reminder, we hope that all flows to us, but we have to always manage the supply-chain and see how much inventory there is.

We do think that those are the kind of growth rates we'll see at retail.

One more from me is you seem pretty confident on Display demand for the industry in 2015, so I want to focus on industry capacity.

I know you're not going to talk about competitor plans, but there have been some public announcements about new plan that will be operational exiting 2015.

As we look at the industry, do you believe that new capacity additions in areas like China are going to be matched by reductions in other geographies which is similar to what we saw the industry do in 2014, or do you think that the situation with tighter capacity, healthy panel prices, growth in large TVs could result in industry actually adding in net capacity in 2015?

The glass industry is adding capacity because of the continued drive to more thin.

As I think you know that for us in Korea, we were quite a bit lower on the amount of [thin], so the glass industry overall it is benefiting from the move to thin.

Corning's benefiting from it quite a bit in Korea right now.

In terms of new glass [tank] construction, there has been an announcement by one of our competitors.

I don't think that has much impact on 2015, and they did say they would do the same thing as they did in the past and shut down capacity in Japan.

I just have to rely on their public statement, as you do.

I don't think you're seeing any surge of glass capacity coming on.

I would say the industry continues to manage their [tanks] in an appropriate manner.

As an example, we have tanks that remain cold that we're not lighting up.

Great.

Thank you.

Rod Hall, JPMorgan.

Yes, thanks for taking my question, guys.

I guess I've got a couple.

One, Jim, I wonder if you can comment a little bit on UHD 4K price elasticity.

I know your comments in Q3 were that you'd seen a little bit more elasticity at that point anyway than you thought.

I think you've made positive comments on through the quarter, but I just wanted to know what you think is happening with price elasticity there, and whether this 1.5 times price ratio between UHD and HD still holds?

Or do you think it's a higher ratio than that where we see demand acceleration?

Rod, it's probably a little premature because I don't have final numbers for December, but directionally I continue to support what you said.

I think that we felt, first of all, prices came down more than we originally expected, particularly in large size.

Consumers are choosing 4K overwhelmingly, but I just don't have final numbers.

In 10 days, I'd ask you to direct that question at our Display market team which will be in New York.

We may have better data there.

Just speaking personally, put the CFO spin on it, I think 4K will do better than our official numbers.

Okay, thanks.

I also wanted to clarify you, I think you guys are saying that pricing for TV glass moderates in Q1 further.

On our calculations, that puts it as moving toward a 2% quarterly decline rate.

Do think that's the bottom for the decline rate?

Or do you believe that we bottom out on a decline rate somewhere in the middle of 2015?

I'm just try to get some idea on what the 2015 decline rate might look like in terms of trajectory.

We haven't given a specific number for Q1.

It's again very moderate and continuing the trend we've had.

I don't think there has to be a bottom on this.

We'd love to continue to have price declines edge slightly lower every quarter.

Let's see if we can make that happen, but clearly we have high hopes of a low number.

Okay.

Then I've just one final question.

It's on your comments on optical.

You talked about North American fiber to the home, [FTTX], deployments.

Title 2 regulation seems like it might affect that.

I just wonder for you can give us any thoughts you've got in terms of what the FCC regulatory changes might mean for the trajectory of those revenues in 2015, if they mean anything at all?

I think it would be all speculation on my part because I don't know exactly what the regulations would be and how they would enforce them.

I think our policy statement is pretty firm.

We think that the regulation exist today has been very beneficial for the industry, and we think people ought to be very careful about that.

As to exactly what it looks like and what our customers are going to do, it would just be pure speculation on my part.

I do think all of this comes against the obvious trend of bandwidth demand continues to grow very rapidly, driven by video in particular I think everybody has to keep thinking about what consumers want.

But when you come to New York for our IR day, I urge you to talk to Clark Kinlin and a few of our telecom guys.

They might even have a stronger point of view about it.

Okay.

Great.

Thanks a lot, Jim.

Steven Fox, Cross Research.

Thanks.

Good morning.

Circling back on the CPM improvements, you mentioned that again it was greater than you anticipated, $100 million, Jim.

Can you talk about what drove that in the quarter and for the year?

How much of it was just circumstances around the volume growth?

Then what can we expect for this year and what kind of projects at CPM are driving the incremental savings that you can get in 2015?

Thanks.

Overall for CPM, we had the reduction in cost from reducing the number of people.

We had increasing utilization.

We had some standardization between what we call our wholly-owned business and CPM in terms of best practices, and then of course as you mentioned, actually volume did help us.

I'd have to say it's more of the same for 2015.

I can tell you that Jim Clappin will be giving a presentation.

We'll actually unveil a new number for 2015 there.

I will give you a tease, and then it'll be better.

Great.

That's very helpful.

Then just a quick follow-up on the optical, how much when you look at 2015 or just in Q1 rather, how much is enterprise of versus carrier growth?

Where do you see the better opportunity for the quarter and then for the year?

Thanks so much.

I just don't have those details with me, Steve, so I'd ask you to ask Clark Kinlin or Ann about it.

I just don't have them with.

Okay, fair enough.

Thanks.

Joseph Wolf, Barclays.

Thank you.

Just a couple questions, on the news side, we've seen Japan, some of the large TV assembly guys cutting their capacity significantly.

Our take has been that that's helpful for, I guess, the other regions in the world.

I'm wondering if you can give us some perspective there, and also if there's any chance that means anything with regard to yen pricing in the panel business going forward?

We obviously have seen the reports of cutbacks in Japan.

I don't have any information as to whether it has anything to do with the yen, or it may be very customer specific to that panel maker.

I really don't have much detail on it.

Obviously, for us we continue to think worldwide demand is strong regionally.

China has been very good for us, so I think some of those statements attributed that cutback to less demand for China, but overall our Chinese demand has been very strong.

Okay.

Then just in terms of the cash position, can you just review for us how much of that cash is outside of the United States, and in what currency that's denominated in?

You're thinking about repatriation versus potential losses on holding things in euro right now?

We will be giving our US cash position in our 10-K which will be filed the second week of February.

It has been improving.

We don't hold euros, so we're not losing.

Our Treasurer is quite proud of himself this morning for having not been holding euros.

We don't have that situation.

We do have repatriation plans and strategies we've talked about before.

When you see our 10-K, I think you'll be delighted.

Excellent.

Thank you very much.

Simona Jankowski, Goldman Sachs.

Hi.

Thanks very much.

Recognizing that you're going to hold off on most Iris comments until the Analyst Day, I just wanted to clarify if any potential ramp into the back half of year is included or not in the outlook you gave for high single-digit growth for the glass market this year?

It was not included.

Okay.

Then, Jim, could you expand a little bit on the three items you referenced that drove the 1 point delta in gross margins versus expectations?

They really were pretty minor things.

I think we made an adjustment to one contract, a sales contract that would have been amortized over three years, and we took it all in one quarter because of the change in terms.

It was a little bit of a customer mix in one of our businesses for lower gross margin customers.

As I said, it was nothing that had any significance.

It was not an alarming trend or anything to us.

Got you.

The first one you referenced, was that in the Display segment in terms of the contractual [pricing] adjustment?

Yes.

Okay.

Got you.

Then last question on Specialty materials where you talked about your expectation of more moderate pricing this year versus last year, is that entirely due to the mix shift of Gorilla Glass 4?

Or is that also the case, on a like-for-like basis?

Then I just wanted to confirm that you have had your price negotiations for this year, or is that still ahead?

The majority of the impact is due to the mix shift with Gorilla 4 and the higher price in Gorilla 4. We do hope to have smaller price declines on Gorilla Glass 3. There are still big customers who are buying that.

I think we have completed a lot of our Gorilla price negotiations.

I don't think we've done them all at this stage.

Terrific.

Thank you very much.

Operator, we've got time for one more quick question.

Okay.

James Faucette, Morgan Stanley.

Thank you very much.

I just had one quick follow-up question and a little bit higher level question.

As you look at the growth in capacity coming from China, particularly new Chinese entrants into the glass market, and [put] that together with the increase in the demand out of the Chinese OEMs, et cetera, where are you seeing those new glass entrants come into the market?

Are they coming in at the low end and not really having much of an impact?

Are you starting to run into them on a day-to-day basis?

I'm just wondering how you're thinking about from a long term.

I'm sure they have ambitions to move up, like where you think you need to meet them, and compete with them directly going forward?

Thank you.

Sure.

Short-term new entrants have not had much impact on the market place.

We've seen them in smaller generations in China and somewhat in Taiwan, but they really have not had much of an impact on the market at all.

They clearly have higher aspirations as do everybody who's in business, and so we recognize over a longer term and I emphasize longer term we know we have to compete with them.

Many of these are state-owned enterprises, but in the short to medium horizon, I don't think this is an issue for our Display business and our results.

Great.

Jim, do you have some closing comments?

Sure.

Thanks, Ann.

Just a couple of Investor Relations comments, as I've been mentioning throughout my comments, and hoping you will attend, we have our annual Investor Day in New York City on February 6. It's at a new location.

It's again at a Cipriani, but at Cipriani Wall Street, so Downtown.

We're going to have numerous hands-on demonstrations at our business exhibits, and we'll be giving you growth expectations for 2015 and talking about a lot of the new products.

In addition to our CEO, Wendell Weeks, myself, our three business group leaders will be speaking to you about their plans to continue their sales and earnings growth.

It'll be a very informative hands-on event, and I really hope you'll consider attending in person.

Just to summarize on the call, we finished 2014 with an outstanding quarter and achieve our goal of year-over-year earnings growth in every quarter this past year.

We did an outstanding job with the CPM acquisition that's brought the Company and our shareholders numerous benefits, including immediate accretion and excellent free cash flow.

We're making great progress on improving manufacturing efficiencies and controlling our costs in our businesses.

Ultimately, this all resulted in 24% earnings per share growth last year.

I think very important for investors, we returned significant cash to shareholders when we completed our $2 billion share buyback program last year, and also announcing a $1.5 billion share buyback program for the beginning of this year, and finally, increasing our dividend with a 20% increase that's effective in the first quarter.

We're coming into 2015 with expectations for growth in sales and even more in earnings.

We intend to maintain stable Display earnings with moderate price declines.

We're going to diligently manage our glass capacity and continue to reduce costs.

We have prospects we believe for growth in Optical Communications especially Materials, Environmental, and Life Sciences.

Stay tuned for more details at our annual Investor meeting.

Thank you again for listening.

Ann?

Thanks, Jim, and thank you all for joining us today.

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