Fitch Ratings Affirms Corning Inc. at 'BBB+'; Outlook Stable

2008-05-30 23:05:20 -

- Fitch Ratings has affirmed the following Corning Incorporated (Corning) ratings:

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured debt rating at 'BBB+';

--Senior unsecured credit facility at 'BBB+'.

Approximately $2.7 billion of total debt is affected by Fitch's action, including the company's undrawn $1.125 billion revolving credit facility. The Rating Outlook is Stable.

Fitch believes Corning's credit protection measures and financial profile remains strong for the rating and should strengthen further if profitability targets are met. In addition, Corning had approximately $3.3 billion of cash and cash equivalents (a substantial amount of which is located overseas) at March 31, 2008 and continues to manage its investments for consistently positive free cash flow, which should increase over time as capital spending is anticipated to remain flat on a nominal basis. Nonetheless, Fitch will monitor Corning on a quarterly basis, particular how the company's business model performs relative to Fitch's expectations in a more challenging economic environment. As well, the current rating and stable outlook continue to incorporate flexibility for Corning to make acquisitions and/or intensify shareholder friendly actions, even if a portion were debt-financed.

The ratings and outlook consider Corning's; i) solid liquidity position; ii) relatively conservative financial policies; iii) significant leadership positions within the active matrix liquid crystal display (LCD) glass and telecommunications markets; and iv) strong manufacturing footprint and intellectual property portfolio which increase barriers to entry for Corning's various markets. While recognizing a weakened operating environment within the United States and Western Europe, Fitch believes Corning's operating performance will remain relatively stable, driven primarily by expectations for LCD glass unit growth of more than 25% in 2008 and the company's meaningful net sales in Asia-Pacific. In addition, the company continues its cost reduction program and receives consistent annual equity earnings (mostly from Samsung Corning Precision Glass Co., Ltd. and Dow Corning Corporation) approximating $1 billion.

Ratings concerns center on: i) the significant ongoing capital expenditures required to maintain its competitive position within the LCD glass business, particularly to support demand for ever-larger glass panels; ii) need to achieve constant annual manufacturing cost reductions to offset ongoing LCD average selling price (ASP) declines; iii) substantial research and development (R&D) spending required for Corning to generate next-generation product technologies for future revenue streams; and iv) ongoing industry excess capacity and uneven demand patterns associated with the telecommunications market.

Corning's credit protection measures are expected to remain strong and, while further meaningful debt reduction is unlikely over the next three years, Fitch believes there is a higher probability of profitability expansion than contraction over the intermediate-term. For the latest 12 months (LTM) ending March 31, 2008, leverage (total debt/operating EBITDA) and interest coverage (operating EBITDA/gross interest expense) were approximately 0.7 times (x) and in excess of 20x, respectively, versus 0.9x and almost 15x, respectively, for the comparable prior year period. When including the cash dividends portion of Corning's significant and growing equity earnings, Fitch estimates leverage and interest coverage for the same period, were approximately 0.6x and 26x, respectively.

Fitch believes Corning's liquidity was solid as of March 31, 2008 and consisted of approximately $3.3 billion of available cash and an undrawn $1.125 billion senior unsecured revolving credit facility expiring March 2011. Fitch's expectations for approximately $500 million of annual free cash flow also will support liquidity. Total debt as of March 31, 2008 was approximately $1.6 billion, primarily consisting of various tranches of senior unsecured notes and debentures with staggered maturities.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Jason Pompeii, +1-312-368-3210 (Chicago)
Nick P. Nilarp, CFA, +1-212-908-0649 (New York)
Media Relations:
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