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Rating Action:

Moody's upgrades Corning to A3; outlook stable

12 Sep 2011

Approximately $2.2 billion of long-term debt

New York, September 12, 2011 -- Moody's Investors Service upgraded Corning Incorporated's ("Corning") senior unsecured rating to A3 from Baa1 and raised ratings on the company's related shelf filings. The ratings outlook is stable.

The higher rating balances Corning's exposure to cyclical and technology sensitive industries with financial policies and balance sheet strength that provide significant flexibility to mitigate inherent volatility in the company's operations. While the company may experience slower growth in its large display segment, this should lower capital expenditure needs over time and lead to stronger free cash flow generation. In addition, growth in its other business segments should contribute to an improving balance in its business mix over that period.

Ratings upgraded:

Corning Incorporated

Senior Unsecured (domestic currency) ratings to A3 from Baa1

Senior Unsecured MTN (domestic currency) ratings to (P)A3 from (P)Baa1

Senior Unsecured Shelf (domestic currency) to (P)A3 from (P)Baa1

BACKED LT IRB/PC (domestic currency) ratings to A3 from Baa1

RATINGS RATIONALE

Corning's A3 rating favorably reflects its considerable balance sheet strength, substantial liquidity, and leading global market shares across multiple segments. The company possesses a strong technology profile and participates in sectors with good long-term growth prospects. Its business stature is supplemented by sizable investments in two profitable joint ventures that remit significant cash dividends, and which, in combination with large cash holdings, provide multiples times' asset coverage of funded debt. Requisite technology, capital and R&D intensity and established customer relationships that have entered into long-term purchase contracts in the display segment collectively establish material barriers to entry which should sustain Corning as a leader across many of its segments. Yet, many end-markets remain cyclical, have certain product-life cycle horizons requiring ongoing investment in research and development and are accessed through a limited number of manufacturers. The latter causes a degree of customer concentration and dynamics in product pricing. The resultant operating leverage embedded in the business model, capital intensity, and price-decline curves in the glass substrate segment can result in volatility in Corning's profitability and cash flows. Demand for glass panels used in LCD TV sets, computer monitors and a growing number of hand-held devices have delivered record operating results with further expansion in this segment, albeit at slower growth rates, anticipated.

Now that LCD technology more-or-less accounts for 100% of new TV set production, demand for Corning's glass substrate should track overall global requirements for panels in this end-market where growth may be less robust than earlier expectations. Similarly, volumes attributable to PC and notebooks are being affected by shifts in demand towards tablets, which involve smaller areas of glass. While glass needs for handheld devices should continue to increase, they are unlikely to completely make-up for the slower pace in the other end-markets. Combined with ongoing pressure for lower pricing, revenues in Corning's largest segment, Display Technologies, should flatten. But, as a consequence, capex required in this unit is anticipated to moderate in 2012 and afterward. This should ultimately permit levels of free cash flow generation from its wholly-owned operations to improve. Still, this maturation could lead to accelerated price declines. Offsetting this to some degree will be improving prospects in its other operating segments which should lead to greater balance in its business mix over time.

Free cash flow generation exceeded $2.8 billion in 2010 but in part was driven by several non-recurring transactions and capital expenditures which were significantly below those of both the prior and current years. Reinvestment requirements to foster organic growth and improve productivity to offset price declines can be substantial and cause significant swings in annual free cash flow. Capital expenditures over the next 12-18 months remain well above depreciation and will appreciably reduce near-term free cash flow despite ongoing receipt of dividends from its two large joint ventures. Certain residual legacy liabilities influence the rating and similarly require the company to retain liquidity and capital against those contingencies. The A3 rating recognizes, and is a premised upon, maintenance of conservative financial policies.

The outlook is stable and reflects sustained operating profitability and a strong liquidity profile.

A further rating upgrade or positive outlook is considered unlikely in the near term and considering the volatility inherent in Corning's industry and business profile. Qualitative factors which could have a positive impact include further diversification in earnings and customers and lower reliance on the display business and equity earnings. From a metrics standpoint, sustainable free cash flow-to-debt at or above 30% and operating margins in excess of 20% would be seen as evidence of a stronger financial profile. A rating downgrade could develop if erosion in the company's net cash or liquidity profiles occurs or a change in Corning's financial policies develops. Examples of the later would include the completion of material debt-financed acquisitions or share repurchases while earnings and cash flows were under pressure. Quantitatively, EBITA/interest sustained below 7 times and debt/EBITDA approaching 2 times could lead to negative rating actions.

The last rating action on Corning was on February 19, 2010 at which time the ratings were affirmed and the outlook was revised to stable from negative.

The principal methodology used in rating Corning was the Global Manufacturing Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Corning Incorporated, headquartered in Corning, NY, is a global, technology based corporation that operates in five business segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. Corning generated $7.2 billion of revenues for the LTM period ending in June 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

New York
Edwin Wiest
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Corning to A3; outlook stable
No Related Data.
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