October 16, 2003 GLW ($11.00)
1. Bonds have recovered since our last writing on February 10,2003.
a. 2008’s were at 88.75, now priced at 116
b. 2009’s were at 95.25, now priced at 103
c. 2015’s were at 65.31, now priced at 79
d. 2029’s were at 68.19, now priced at 96
2. We have seen analyst discussion where Fiber-To-The-Premise (FTTP) will begin to produce incremental sales and eps for Corning in 2004. We have seen models projecting FTTP to be 500,000 homes in 2004 and an additional 1,000,000 in 2005. Yet , with over 1 billion shares o/s, this could mean $.01 – $.02 per share in eps. On the same token, we have seen projections of 3,000,000 by year end 2008. This was claimed to be a “conservative” scenario, whereas the “aggressive” scenario for 2008 could be 6000 homes.
3. LCD is expected to grow by 40% in 2003 and 33% in 2004. Assumptions of no price pressure. Analysts expect that Generation 6 glass will have little impact until 2005/2006.
4. Research and Development projected at 9% of revenues by one sell side firm.
February 10, 2003
We have considered GLW ($4.57) as a speculative buy . Counting on a telecom turnaround and perhaps a corning turnaround. Need to watch the bonds and the bond ratings. According to Corning alleged statement at analyst conference on February 7, 2003, credit agencies will be reviewing Corning at end of Q1. Corning noted that they believe that rating agencies have been pleased with recovery. Cash at end of 2002 was $2.1 billion and access to a $ 2 billion credit line. Credit line carries a debt/ capital covenant of 60 %. Apparantly the ratio is currently 46.7 %. Merrill in a note dated February 10, 2003 expects that Corning will not access credit line and that the line is there in case of “ unforseen circumstances”. On February 10, 2003 the 2015 zero coupon bonds are priced at 65 and yielding 3.396 to maturity. These are callable bonds. The 3.50 % 2008’s are yielding 5.62 % and priced at 89.25.
|Ba2 / BB+||150||20||Corning In||3.500||11-01-2008C||5.843||5.843||88.750|
|Ba2 / BB+||100||Corning In||6.300||03-01-2009||7.284||7.284||95.250|
|Ba2 / BB+||100||Corning In||6.750||09-15-2013||8.568||8.568||87.500|
|Ba2 / BB+||100||20||Corning In||0.000||11-08-2015C||3.374||3.374||65.313|
|Ba2 / BB+||200||Corning In||0.000||11-08-2015C||3.497||3.497||64.313|
|Ba2 / BB+||25||20||Corning In||6.850||03-01-2029||10.416||10.416||68.188|
There are some aircraft leases off the books which are SPE’s. Off balance sheet risk is apparantly 50 million.
Corning apparantly has repurchased bonds prior to year end for about $ 158 million.
Pension plan underfunded by 180 million. Contribution is voluntary under ERISA. Management still expects contributions of $ 60 million over next 3 to 4 years.
Capital Expenditures 350 mil to 400 mil in 2003 expected.
Dow Corning will start contributing to equity earnings as they emerge from bankruptcy