A Blueprint for Success

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With the company’s new four-year strategy and capital allocation framework in place, Chief Financial Officer Tony Tripeny summarizes the accomplishments to date

2015 was a signal year for Corning Incorporated, as we announced a new strategy and capital allocation framework that will drive the company forward and guide our value creation in 2016 and beyond.  In this update, we have summarized our accomplishments within that framework and discuss how they position us for the future.

Over the past decade, Corning  has delivered outstanding industrial performance to become a bigger and more balanced company.  We've beaten the competition on growth in each of our segments. We've innovated to achieve the lowest cost position in key businesses, and we've created new-to-the-world product categories such as Corning® Gorilla® Glass, our heavy-duty diesel substrates and filters, and our customized fiber-to-the-home solutions.

Taken as a whole, our performance has given Corning the foundation for sustained cash flow and a tremendous opportunity set.  These financial and operational strengths also provided us with the ability to articulate a strategy and capital allocation framework for the company that will guide our value creation actions.

Our performance has given Corning the foundation for sustained cash flow and a tremendous opportunity set

Overview of Strategy and Capital Allocation Framework

  • As we announced in October 2015, we intend to deploy more than $20 billion through 2019.  We will invest approximately $10 billion in opportunities to grow and sustain our leadership positions, and return more than $10 billion to shareholders through share repurchases and increased dividends.
  • We will focus 80 percent of our resources on opportunities within our cohesive portfolio of three core technologies, four manufacturing and engineering platforms, and five market-access platforms.
  • By utilizing our financial strength and focusing our portfolio, we expect to create outstanding shareholder value over the next four years. And we’ve already delivered on that framework in significant ways in just three short months.

To learn more about Corning's new four-year strategy, please click here.

To view a larger version of the focused portfolio image to the right, please click here.

Significant strides in implementing our strategy and capital allocation framework

Utilizing Financial Strength: Immediate Shareholder Returns

  • As a first step to delivering the plan, Corning's Board increased the company's share repurchase authorization by $4 billion. The company also commenced a $1.25 billion accelerated share repurchase program during the fourth quarter of 2015. Additionally, we expect to increase the dividend annually by a low-double digit percentage.

Focusing our Portfolio: Strategic realignment of interest in Dow Corning Corporation

  • We announced in December 2015 that we will exchange our 50 percent interest in Dow Corning Corporation for 100 percent of the stock of a newly formed entity that will become a wholly owned subsidiary of Corning Incorporated. The newly formed entity will hold approximately 40% ownership in Hemlock Semiconductor Group and approximately $4.8 billion in cash.
  • The exchange of the Dow Corning interest is important for multiple reasons. First, we expect the realignment will be accretive to Corning’s EPS and substantially tax-free. Second, we are confident that the ownership of Hemlock and the utilization of the $4.8 billion within the structure of the new entity will create significant value for Corning shareholders.
  • We believe that the transaction unlocks the value of Dow Corning.  $4.8 billion is 34 times the annual cash dividend from Dow Corning.  The additional cash on our balance sheet from the transaction increases Corning’s funds available for deployment to $26-30 billion through 2019.

To view a larger version of the 2016-2019 capital allocation model image above, please click here.

Leveraging competitive advantages and strengthening customer relationships: Long-term supply agreement and low-cash investment in a Gen 10.5 glass manufacturing facility adjacent to BOE Technology Group Co. Ltd. in Hefei, China.

  • As demand for large-size LCD TVs accelerates, we will apply our superior fusion technology to deliver the industry's largest glass substrates to a key customer, BOE. Glass substrate production from the new facility is expected to support BOE's plan to begin mass production of LCD panels for large-size televisions by the third quarter of 2018.
  • Corning's net outlay of $460 million is expected to be approximately $290 million in cash and $170 million of currently owned precious metals and is about one-third of the $1.3 billion total investment in the facility (remaining funds from government and commercial incentives). We were pleased to exceed our investment target ratio of 1:3 with a cash investment of only $1 for every $4.
  • Corning and BOE have entered into a long-term supply agreement that commits BOE to the purchase of Gen 10.5 glass substrates from the Corning manufacturing facility in Hefei. BOE has also extended its long-term supply agreement with Corning to purchase glass substrates for Gen 8.5 sizes and below.

Leveraging Automotive Market Access Platform to deliver new products from our existing fusion assets: Ford GT first production vehicle to use Corning® Gorilla® Glass for Automotive in a windshield.
 

  • We believe lightweight, tough, optically advantaged Gorilla Glass for Automotive is a game-changer for the industry, and we're thrilled to work with Ford to bring it to market.  This collaboration demonstrates what Corning does best ­­­-- applying expertise in glass and materials science to help industry leaders solve tough challenges, unleash new capabilities, and enhance experiences for customers.
  • In addition to the windshield application, the Ford GT supercar is using our lightweight, tough and optically advantaged glass for two other applications within the car, saving more than 12 pounds of vehicle weight.
  • The market opportunity is significant. We estimate the automotive precision glass market could be approximately twice the size of the LCD glass market, or more than 10 billion square feet of glass demand, based on a simple computation of 100 million-plus cars per year times approximately 100 square feet of glass per car (interior and glazing).
  • Beyond the automotive industry, we are leveraging our capabilities in glass, optical physics, existing fusion manufacturing assets, and market experience to extend Gorilla Glass into other applications, such as interior architecture, trains, and planes.
 
We are off to a very strong start in delivering on our new framework. We look forward to sharing our continued achievements with you in 2016.