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Corning Incorporated (NYSE:GLW)

Q4 2008 Earnings Call Transcript

January 27, 2009 8:30 am ET

Executives

Ken Sofio – Division VP, IR

Jim Flaws – Vice Chairman & CFO

Wendell Weeks – Chairman & CEO

Analysts

C. J. Muse – Barclays Capital

Mark Sue – RBC Capital Markets

Brian White – Collins Stewart

Steven Fox – Merrill Lynch

Jim Suva – Citi

Carter Shoop – Deutsche Bank

John Harmon – Needham & Company

Vijay Rakesh – Thinkequity

Amitabh Passi – UBS

Jeff Evanson – Sanford Bernstein

Andrew Abrams – Avian Securities

Ajit Pai – Thomas Weisel

Scott Coleman – Morgan Stanley

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Corning Incorporated fourth quarter results conference call.

It’s now my pleasure to introduce to you Mr. Ken Sofio, Division Vice President of Investor Relations. Please go ahead, sir.

Ken Sofio

Thank you. Good morning, and welcome to Corning’s fourth quarter conference call. This call is also being audio cast on our Web site. Jim Flaws, Vice Chairman and Chief Financial Officer, will lead the discussion. Wendell Weeks, Chairman and Chief Executive Officer, will join for the Q&A.

Before I turn it over to Jim, you should note that today’s remarks do contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially. These risks are detailed in the company’s SEC reports.

Jim?

Jim Flaws

Thanks Ken. Good morning everyone. This morning we released our results for the fourth quarter, which can be found on our Investor Relations Web site. We’ve also posted the accompanying slides on our Web site.

Before I begin covering the details, I would like to make a few overall comments. We are disappointed in our quarter four results. I think the results are understandable in light of the difficult economic situation; however, we are disappointed. We are on our way to an outstanding year, and quarter four wiped out a lot of strong performance earlier in the year and also value.

We’ve had some investors question whether we missed any turning points due to the worsening economy. It’s been my experience that turning points are very difficult to forecast; nevertheless, we’ve stepped back and looked to see if we missed anything.

In the winter and early spring of last year, investors were worried that retail would turn down due to high energy and food prices. Our response was, maybe, but we don’t see it in our data on the retail sales of notebooks and televisions. In retrospect, we did overestimate future IT-level sales at retail. We had forecasted 15% and 14% growth in quarter three and quarter four, respectively. Ultimately, IT square foot growth was only 2% in quarter three and a negative 6% in quarter four. And, for those interested in the impact, that change was 84 million square feet of glass, about 4% of the full year glass market, which was 2 billion square feet.

Also in retrospect, I do not think that we missed any signs on television growth. TV growth at retail in square feet was up 55% in quarter two and up 41% in quarter three. We had forecasted television growth to be up in the 40% range for quarter four and it turned out to be up only 20% a square feet in quarter four, an overestimate of 96 million square feet versus our July forecast. I don’t think we could have anticipated a September financial shocks and the subsequent dramatic impacts on consumer confidence and spending. We did try to adjust our outlook down, but it clearly was dropping too fast and that led to multiple guidance revisions.

We had called out the supply chain risk in our July call. We were worried that the supply chain might need to reduce 50 million more square feet. Supply chain actually reacted faster and more severely than we anticipated in quarter four; we had thought the supply chain would reduce 75 million square feet in Q4 with the risk of the additional 50 million square feet. The reality turned out to be far bigger. The supply chain reduced 230 million square feet of glass in quarter four. When you combine the retail weakness and supply chain contraction, you will understand why our glass volumes were so much in Q4. By the way, these numbers I am discussing here were for the entire industry.

So, it was a difficult and disappointing quarter. We are trying to learn from it for future forecasting. More importantly, we are not in denial about the recession and started taking quick action in quarter four and are continuing to do so in quarter one to get our cost structure in line with the sales level.

So, let me turn to the details. Fourth quarter sales were $1.1 billion, about 30% lower than Q3 and Q4 a year ago. We suffered decline in most of our businesses, reflecting lower end demand from recession and supply chain contractions. We are moving rapidly to reduce our cost structure to align our operations to lower sales level. We’ve moved quickly to slow production, most notably in display. We are also planning significant fixed cost reductions. P&L benefit from these will show more significantly in the second quarter. We are also planning to consolidate some manufacturing. Those actions will take longer and the benefits will come later.

Q4 sales benefitted slightly from changes in exchange rates versus Q3 as the benefit from the stronger Yen was mostly offset from the impact of a weaker Euro.

Moving down the income statement, gross margin was 28% in Q4 compared to 47% in Q3 and 48% a year ago. The decline was primarily due to lower volumes in display, telecom, and environmental. As a reminder, most of our businesses, especially display and environmental, have high variable gross margins and high fixed costs. We see full gross margin potential in these businesses when they are running near capacity. Unfortunately, the opposite is true when volumes are lower. In addition, gross margin was impacted by accelerated depreciation stemming from capacity reductions taken in display. I will discuss our capacity decisions in a moment, but for your modeling purposes, there was approximately 32 million of accelerated depreciation charges to gross margin in Q4. This impacted corporate gross margin by about 3 percentage points.

SG&A was $179 million, or 17% of sales compared to $220 million, or 14% of sales in Q3. SG&A expense was lower primarily due to the reversal of variable compensation accrued earlier in the year due to a significant decline in Q4 results. Fundamentally, Q4 is bad enough to drive any total year bonuses down to a very low level. The accrual reduction represented a $37 million reduction versus Q3 expenses. This accrual adjustment obviously will not repeat in Q1.

R&D was $153 million in Q4 versus $160 million in Q3. R&D was also lower due to reversal compensation accruals for R&D personnel.

Other expense in the fourth quarter was $33 million, including $11 million special loss on short term investments I will discuss in a minute, rest of the loss was primarily due to the impact of unwinding hedges for transaction levels that were down in display and volatility on our balance sheet hedges.

Equity earnings were $282 million in the fourth quarter compared to $382 million in the third quarter, a sequential decline of 26%. The increase was primarily due to lower earnings at both SCP and Dow Corning.

Net income, excluding special items, was $208 million, a decrease of about 70% sequentially and year over year. You should note that EPS and net income excluding special items are non-GAAP measures, reconciliations to GAAP can be found on our Web site. EPS excluding special items was $0.13, down about 70% sequentially and year over year.

Our share count for the fourth quarter was 1.56 billion shares. Our fourth quarter results included net special gains of $41 million or $0.03 a share. We released an additional $45 million of US deferred tax asset valuation allowances and reduced our asbestos liability by $28 million pretax and after-tax. Asbestos liability was lower due to reduction in the valuation of Pittsburgh Corning Europe, which will be contributed to the settlement. These gains were offset by a $22 million pretax, $21 million after-tax restructuring charge, and $11 million pre and after-tax loss on cash and short term investments. Including the special items, our fourth quarter EPS was $0.16 per share.

As I mentioned earlier, we are moving rapidly to reduce our cost structure in this difficult environment. In the fourth quarter, we implemented the first round of workforce reductions, affecting 500 employees, primarily in the telecommunication segment. In total, the company is currently planning to reduce its workforce by about a net 3,500 employees, or 13%. In addition to the $22 million charge we took in Q4, we will take a first quarter charge in the range of $115 million to $165 million. We expect to complete all planned actions by the end of 2009.

Several of our equity companies are evaluating restructuring actions that may result in additional charges in the first quarter. The annualized savings from all our planned actions will be in the range of 150 million to 200 million in our consolidated businesses. We have also decided to suspend all salaried merit increases in 2009. We are in the process of communicating many of these decisions to our workforce, as a result, we will not be discussing the detail of the plans today. Peter Volanakis will discuss the actions taken to date on our Annual Investor Meeting next week.

Now let me turn to the segment results for the fourth quarter starting with display. Fourth quarter sales were $390 million, or about 44% lower than Q3. Volume at our wholly owned business was down about 50% sequentially. Display sales benefited by about 5% from the Yen moving from an average 108 in Q3 to an average of 98 in Q4. The price declines were slightly higher than previous quarters.

Equity earnings from SCP’s LCD glass business were $194 million in the fourth quarter, a decrease of 25% compared to $259 million in Q3. Volume at SCP was down 25% sequentially, monitor price declines were offset by a favorable exchange rate. For your modeling purposes, SCP fourth quarter LCD sales were $703 million compared to $896 million in the third quarter, a decrease of 22%. As a reminder, this represents SCP’s LCD sales only. Our public filings will report SCP’s total sales, which include the CRT glass sales.

Net income in the display segment, which includes equity earnings was $222 million in the fourth quarter, significantly lower than the third quarter.

For the full year, segment sales were $2.7 billion, a 4% increase over the ’07 sales of $2.6 billion. SCP sales were $3.2 billion, 32% increase over their ‘07 sales of $2.4 billion. Volume growth in total for our wholly owned business and SCP was 14%. However, volume growth was much higher at SCP for the year, 28% versus our wholly owned business, was just 1%. Price declines for the year at our wholly owned business were down 7%, SCP prices were down slightly more. And segment results benefitted from favorable exchange rates.

The glass market in total finished the year at 2 billion square feet, up 250 million square feet or 14% from the 1.75 billion square feet last year. So, our total volume growth of 14% was in line with the overall market growth but also highlights the strength of the Korean market.

As you may recall, our original estimate for 2008 market growth was at least 25%. The actual growth of 14% reflects the impact of slowing IT sales from Q2 on, a lower than expected growth in television sales in Q4, and the supply chain contraction.

I would like to spend a few minutes discussing the current supply chain and retail environment. We believe the display supply chain contracted significantly in the fourth quarter, a further contraction is likely. Let’s start with the fourth quarter. We believe inventories in the supply chain fell sharply in the fourth quarter due to panel makers continuing to run at lower utilization rates coupled with strong pull from retail for televisions in December. In Taiwan, Gen 5 and higher fabs, which is most of the panel capacity, ran at 27% utilization in November and 23% in December. For the quarter, the average utilization rate was 35%. Please note this is our calculation and may differ public statements made by panel makers. In Korea, Gen 5 and higher fabs ran at roughly 70% utilization rate in November and 45% in December. For the quarter, the average utilization rate was 68%.

On the retail side, we found that LCD televisions remained a very resilient consumer purchase even in this difficult economic environment with year over year growth continuing in the fourth quarter. US sales of LCD televisions were strong in late December as consumers may have delayed their television purchases. For the month, LCD TV sales in US were up 37% year over year, which is higher than we had forecasted. In the last week alone, LCD television sales were up 50% over the last year, and we have just received the first and second weeks of January sales in United States, which indicated year over year growth of 36% and 18%, respectively. All these data is provided by MPD [ph] reflects about 50% market coverage. Missing from MPD most notably is Wal-Mart, which also reported strong holiday sales in electronics, which included LCD television. In the US overall, LCD TV sales grew 30% year over year in 2008, despite the weak 11% and 12% growth rates in October and November, respectively.

In other regions where weekly data does not exist, December sales of LCD televisions in Japan were up 17% year over year. In China, December sales were up 30% versus last year, which was lower than our expectations. And in Europe, where we have retail data only through November, which showed sales up 27% versus last year. As a reminder, all the sales data and quoting here are in units.

As a result of the lower utilization rates and strong retail, panel inventories fell significantly in the fourth quarter. In Taiwan, the inventory was estimated to be in the three to four week range at the end of December. We view four weeks as healthy, so these levels are encouraging, as compares to up to six weeks of panel inventory in prior months. It should be noted the average weeks calculation is using current panel demand as the dominator, so the absolute decline in inventory is actually much greater than the decline in weeks would imply. In Korea, inventory levels of panel makers are much less than in Taiwan.

We have seen improving supply chain metrics resonate in recent panel price data. Panel prices have stabilized in many key sizes. For notebooks, monitors, and LCD television, panel prices remain unchanged in recent weeks. So why are we feeling better about panel inventory and consumer demands? What about the inventory at set assembly and retailers? For those, there's not that much data. So we need to rely on our models.

Let me share with you some of the data from our supply chain model. There is a chart we have posted for those with Web access. For those of you who are only listening on the phone, let me describe what it looks like. We model the equivalent amount of glass in square feet at various stages of the supply chain for each quarter, both in inventory and shipments for the panel makers, set assembly, and at retail, as well as the amount of glass shipped in the panel makers and the equivalent amount of glass shipped out of the supply chain from retail to the customers.

I would like you to focus on the first quarter of 2008 to get a sense of how the model works. Based on our estimates, in Q1, about 524 million square feet of glass were shipped to panel makers and 479 million square feet of glass in the form of finished products were shipped out to consumers. So the supply chain in total built about 46 million square feet of glass. In total, at the end of Q1, there was about 639 million square feet of glass at the panel set and retail, versus 445 a year before. Now it is true the overall display market was bigger, we acquired more products in supply chain. As noted before, supply chain was beginning to build for much stronger demand in the back half of the year. Looking at the details, you can see the biggest increase in comparison to the prior year was at the set assembly level, 250 million square feet of glass in comparison to just 83 million the year before. This is where we believe inventories started to build in the supply chain.

In the second quarter of ‘08, another 563 million square feet of glass was shipped into the supply chain, but only about 431 million were shipped out to consumers. So in Q2, there was another 132 million square feet of inventory added to the supply chain, on top of 46 million built in the previous quarter. At the end of Q2, we believe the set assemblers were sitting on the equivalent of 312 million square feet of glass, almost 2 1/2 times held a year before, in anticipation of a bigger market.

I would like to pause here to remind investors that we discussed the supply chain model in our July call. We called attention to this build in inventory at the set assembly level. At that point in the year, we were not anticipating any recession impact on retail, but we were worried the supply chain was on track to be carrying 50 million square feet too much by the end of the year.

Now let us step into the third quarter, where the trend continued and supply chain built another 93 million square feet. During this time, retail had remained relatively strong. Comparing the first three quarters of ‘08 to the first three quarters of ‘07, it was 30% more equivalent glass in the form of end product shipped to consumers. But despite this, it was now clear that supply chain still needed to contract. We believe this is why set assemblers started to reduce panel orders late in Q2, as they had built too much inventory for second half demand. So panel shipments declined and inventory built there as well. It is also likely why when panel makers began cutting prices in late June through the summer it did little to spur demand, because their customers had too much inventory.

Supply chain began contracting severely when the consumer crisis hit in October. Subsequently, orders for glass fell significantly. The amount of glass shipped into panel makers in Q4 was 30% lower than the year before. Our shipments to consumers were actually up 11% versus the year before, but clearly, that was more than previously anticipated. At the end of ‘08, there was 634 million square feet in supply chain versus 594 at the end of ‘07. As you can see, panel making inventories fell substantially, about 60% versus the third quarter. Panel making inventories ended the year at extremely low levels. Panel makers have been clearing out inventory at low prices, but not replenishing it, because price points are at or below build material cost for some items. This is likely why panel price declines are now moderate.

However, based on our modeling, there remains at least a 100 million square feet of excess inventory at the set assembly and retail level. This is why we believe the supply chain may contract further in Q1. At panel makers, we expect utilization rates to increase throughout quarter one from the December low, but the average utilization rate for Q1 compared to Q4 will still likely be lower. This is why we are anticipating a smaller glass market in Q1. I will share our thoughts with you about glass demand for Q1 and the remainder of the year on the outlook section.

Before I leave Display, I want to provide an update on glass capacity. For all the reasons I have just described, we decided to idle a significant amount of glass capacity last quarter. Today, we have idled more than half of our capacity at our wholly-owned business and SCP has idled approximately 25% of their capacity as well. We have significant flexibility to increase or decrease our capacity as needed depending on demand levels. This flexibility stems in part from modular tanks as well as our decision to rebuild those tanks as soon as they were idled.

In addition, we believe other glassmakers have also responded to market conditions by idling a significant amount of capacity in the fourth quarter. Based on their public announcements and noticeable actions to date, we believe our competitors have idled up to half of their capacity. As a result, we believe the spread between the glass capacity in operation today and glass demand is narrow. However, there is still a significant amount of glass inventory still available at all glassmakers. Before idle glass capacity is brought back online, this inventory will need to be worked down. Timing will depend on market conditions.

Now moving into the Environmental segment, sales in the fourth quarter were $128 million, a 28% decrease versus the third quarter of $177 million. Auto product sales were $77 million in Q4 compared $112 million in Q3. This business is clearly seeing the impact of the worldwide slowdown in auto sales and auto production. Diesel product sales were $51 million in the fourth quarter as to $65 million in Q3. Segment net loss was $23 million in the fourth quarter, a decline versus the third quarter net income of $15 million.

Moving to the Telecom segment, sales in the fourth quarter were $405 million, a decrease of 18% versus Q3 and in line with our original expectations. The sales decline was due to lower fiber volume and lower demands for private network and FTT products. Sales in our fiber and cable products in the fourth quarter were $200 million, a decrease of 22% sequentially. Sales of hardware equipment were $205 million in Q4, a decrease of 14% sequentially. Fiber-to-the-home sales, which are primarily hardware and equipment related, were $80 million in the fourth quarter compared to $96 million in the third quarter. Compared to the year ago, fiber-to-the-home sales increased 15%. Sales for the year were $350 million, an increase of 18% over ‘07. The segment incurred a net loss of $14 million in the fourth quarter compared to $25 million in segment income in the third quarter. However, as a reminder, fourth-quarter segment results included $19 million in after-tax restructuring charges.

Sales in our Special Materials segment were $84 million in Q4, down 17% versus Q3. Decline in sales was primarily related to the semiconductor industry downturn as well as lower clear glass sales, driven by the consumer recession. The segment posted a $6 million loss in Q4 versus a $1 million loss in Q3.

In Life Sciences, sales in the fourth quarter were $75 million, down 10% versus Q3. This decline was due to normal seasonality. Life Sciences was the only business that has not yet seen the impact of the economic downturn. Segment net income was $16 million versus $11 million in Q3.

Turning to Dow Corning, equity earnings were $86 million in Q4 compared to $109 million in Q3, which included special charges of $18 million. Dow Corning has clearly seen the worldwide economic slowdown in the silicone business. Hemlock sales have not been affected. For your modeling purposes, Dow Corning sales were $1.3 billion in Q4 compared to $1.49 billion in Q3. For the year, sales were $5.5 billion, an increase of 10% over last year. Silicone sales grew 5%, while hemlock sales grew 30%.

Now turning to the balance sheet, we ended the quarter with about $2.8 billion in cash and short-term investments, down from $3.2 billion last quarter. The most significant cash outflow was $766 million in capital expenditures. We had negative free cash flow in the fourth quarter of $384 million. For the year, free cash flow was $211 million. Free cash flow is a non-GAAP measure.

Now let me turn to our outlook. We will not be providing quarterly sales and earning guidance for Q1 at this time. The current environment continues to make it difficult to forecast in the short term. However, I have some commentary to help you think about Q1 and the remainder of the year. We expect our sales and profitability to be lower in Q1. In fact, we expect our EPS before special items to be about breakeven in the first quarter. This is the result of low sales for Display, Telecom, and Environmental, as the economy continues to impact these businesses during this seasonally low quarter. Gross margins for Q1 will trend lower again, due primarily to lower display volumes, and the higher price declines. As I mentioned earlier, we expect the supply chain will contract further in the first quarter. We believe first-quarter glass volume at our wholly-owned business and SCP could be 20% to 25% lower sequentially. We expect display price declines to be higher in Q1 than the previous quarters, as we had announced in December. We expect the sequential price declines to be in the high single digits for the quarter.

Looking ahead, we believe the supply chain contraction will end in Q1 and glass demand will climb substantially in Q2 as input to panel makers is at or above retail demand. Regarding display pricing, if we are right about the supply chain and glass demand increase, our goal will be to return to more modest price declines in Q2. As a result of the additional volume running through our factories and lower price declines coupled with the elimination of any accelerated depreciation hits, we expect to see a significant improvement in our gross margin in Q2. We would also expect to see seasonally strong demand in Telecom, which should help margins. Q2 margins should be getting the benefit from the restructuring actions that are underway.

Moving down the income statement, SG&A and R&D will be higher than a dollar in the percentage sales in Q1. The benefit we saw in Q4 from the reversal of comp accruals will not repeat. Investors should begin to see cost savings from our restructuring programs in Q2. Interest income will likely be lower in quarter one, as we have less cash to invest and rates are lower. Other expenses should be materially lower as we won't have the impact of unwinding hedging losses. Dow Corning’s equity earnings should also be lower sequentially in Q1, the result of the continued softness in demand for silicones.

And turning to the tax rate, I will be discussing this in more detail at the investor meeting. In 2009, we are likely to see significantly lower tax rate than our previous 25% guidance. Lastly, investors should use 1.56 million shares in Q1 for their models. Regarding cash flow, we are optimistic we will have a positive free cash flow for this year, but our cash flow will be significantly negative in Q1 and Q2 due to the delayed cash impact of the Gen 10 capital that I have discussed in the past. I know investors are used to receiving more quantitative guidance than we have provided at this time. Hope some of the color on the Display business and supply chain were helpful. As always, we're expecting your feedback.

The economic conditions are making it difficult for us and many other companies to forecast with any degree of certainty. We are sizing the company to run at approximately $5 billion sales level. $5 billion is above our Q4 run rate, so why are we comfortable today with this estimate? As I explained earlier, we do think the supply chain contraction will end. We are also factoring in some modest growth in notebook and televisions. However, we could be wrong.

As we enter the second quarter, we feel sales would be lower and we will look at additional cost cutting. All these actions are necessary to protect the company, it does not make them any easier to make, especially the decision to reduce our workforce. We don't take these decisions lightly, knowing how it has an impact on people's lives and the communities in which we all live and work. We will continue to treat all our employees with dignity and respect as we work through these difficult times.

That being said, we feel good about our current financial health. Although we will be free cash flow negative in the short term, our balance sheet remains strong. For the last several years, we have purposely maintained a significant amount of cash over debt to weather difficult times like the one we are experiencing now. We have also purposely maintained a clear run rate of debt maturities. No material amount of debt coming due for several years, and we have complete access to our revolver. The balance sheet is strong, which allows us to take time to take the necessary steps to realign the company, while continuing to invest in innovation. Innovation has always been the lifeblood of Corning, so having the ability to continue to invest in it is very important.

Regarding our businesses and the current state of the economy, we strongly believe the long-term growth trends of Display, Telecom, and Environmental remain intact. Why do we believe this? Because we're experiencing an economic downturn; not an industry collapse. The reasons we like these markets, LCD replacing CRTs, fiber replacing copper, tighter emission standards, are still valid and will continue. The reason we like our own businesses has not changed either. We remain the technology leader and have the financial flexibility to continue to invest and push that advantage further. We continue to have strong market share. We are the cost leader and have financial flexibility to look for ways to continue to reduce costs. So in the meantime, while the markets take time to recover, we will make ourselves leaner and more cost effective, while investing to expand our technology and leadership in our current businesses, as well as advance new opportunities. We are very much looking forward to the next decade of opportunities.

Ken?

Ken Sofio

Thank you, Jim. And John, we are ready to take some questions.

Question-and-Answer Session

Operator

(Operator instructions). And first we will go to the line of C. J. Muse with Barclays Capital. Please go ahead.

C. J. Muse – Barclays Capital

Good morning. Thank you for taking my question. I guess first question, Jim, in terms of restructuring, can you talk about the timing of when we should see the full annualized savings of the $150 million to $200 million, and then within that, can you give the mix between gross margin and OPEX?

Jim Flaws

The full savings won’t be till the end of the year, because some of the plan consolidations happen then. The majority of the savings will be showing up to you really as the second quarter unfolds. I won’t give you the savings by line item today, but I will ask Ken to remind me to do that at the Investor meeting to be able to show you how they fill up.

C. J. Muse – Barclays Capital

Okay, and then in terms of when we get back to a more normalized glass demand environment, how we should we think about gross margin for Display as volumes pick up? I mean, is there a stair step approach as you un-idle capacity; any help there would be greatly appreciated.

Jim Flaws

What we have done is regard our capacity basically shut down now. Part of our capital is actually rebuilding the tanks and getting them ready to go. We can turn them on relatively quickly. As we turn them on and big in to fill up, we have extremely high variable margins that will start showing up. So the downside that we experienced in Q4 of high variable margins hurting us will help us as that goes along. So the real questions will be the pace at which that slows down. As you know, our variable margins are extremely high, so any additional sales volume will flow to the bottom line pretty quickly. I'm not prepared to give you a cycle of quarterly volume growth at this point in time. Frankly, our ability to forecast that is not that great. But as soon as the volume picks up, it will flow very quickly to gross margin and net profits.

C. J. Muse – Barclays Capital

Okay, and then last question from me. In the other income line, typically you see nice profitability there from the royalties from SCP, this quarter in the red. Were there one-time charges in there?

Jim Flaws

Yes, we had several charges that related to a couple of things. First of all, we have some operational hedges on as we move things around between Harrisburg and Japan and also we hedge royalty income coming in. And because the quantity of both of those were lower, we had to unwind the hedges and took losses on them. Also, we don't normally see this, but we did have some balance sheet hedge losses there, because we just had very extreme volatility even within the quarter. Both of those should go away and you should see a big improvement in other income/other expense from not having those. Royalty income obviously is going to remain lower until SCP sales begin to pick up.

C. J. Muse – Barclays Capital

Great. Thank you.

Operator

Our next question is from the line of Mark Sue with RBC Capital Markets. Please go ahead.

Mark Sue – RBC Capital Markets

Thank you. Jim, recognizing the situation as still fluid, any thoughts on total glass volumes for the year compared to last year, can it be flat or can it be down minus 10% or minus 20%, and considering the dynamics of the supply chain, why will pricing not worsen; the changes in pricing to indicate it is still give and take with the panel makers.

Jim Flaws

So I will start with the overall glass market. You know, we are currently thinking that the two billion glass market that we had last year, we will probably see about the same this upcoming year, if we are right on the supply chain and right on the market. We are not planning on being down; we are not looking for much of an increase. Obviously, embedded in that assumption at the glass level are a lot of assumptions about the supply chain levels and inventory as well as what is happening at retail. Wendell, would you like to comment on pricing?

Wendell Weeks

Sure. So the corrections that we have taken in quarter one to close the gap between ourselves and our competitors we think have adjusted well to the current status in the market. What we plan to do, what we were going to try to make happen is as we look forward to quarter two and quarter three and quarter four is to return to price moves on much more like our normal level, in the very low single digit range. It remains to be seen if we can make that happen. On one side, you have the fact that there is a lot of idle capacity for the glass makers at this point of time. On the other side, what you have is that we do expect that the supply chain will stop contracting and that market shares are relatively sticky. So, we have to see how it all plays out.

Mark Sue – RBC Capital Markets

And maybe another question; do you think the company can be profitable at a $4 billion market in terms of annual revenues, why is $5 billion the right number and maybe it is just your thoughts and how quickly can you tune the cost structure aside from the ones mentioned today?

Jim Flaws

Well, the first case, the company is pretty close to a $4 billion revenue rate in Q4 just by the series of things like we were just talking about, the salary and depreciation and hedging ones, so the answer to your first question is yes it could, and clearly we are going to be taking out more costs that wasn’t existent. It was still there in Q4, so the answer is yes on that. I think more importantly is why do we think the $5 billion is correct, and it comes down to our belief about the supply chain as we try to show you in the detailed charts, and obviously, you can do your own math on what you think our share of the supply chain contraction was. But in Q4, what we were talking about is, huge amounts of volumes that didn't exist for us simply because the supply chain was reducing inventory that we had just shipped what was happening at retail and the same in Q1, we would be much closer to the $5 billion already. So that's why we think it is appropriate. Now obviously, we could be wrong. Maybe our supply chain model won't work. But that is the primary reason why we think we will get close to the $5 billion level. We don't need the giant recovery in end markets.

Mark Sue – RBC Capital Markets

Thank you and good luck gentlemen.

Operator

We go next to the line of Brian White with Collins Stewart. Please go ahead.

Brian White – Collins Stewart

Of the 3,500 in workforce reduction, what percent of that is going to be related to Display?

Jim Flaws

We are not giving out that level of detail at this stage.

Brian White – Collins Stewart

Okay. On the pricing, what is it that you said that the December quarter pricing was maybe a little worse than anticipated, we have got the high single digit decline expected in the March quarter, which is no surprise. When did pricing start to degrade a bit in the December quarter?

Jim Flaws

We only made decisions as we announced at I think the conference in the second week of December that we made started to make some price reductions then but we say it was a little worse in quarter four. I mean, we are talking about a percent difference. Really, the decision made in quarter four was for quarter one, when we talked to customers about narrowing the gap Wendell talked about. So really, it was very tiny in Q4. It was really the decisions we made at the beginning of December for Q1.

Brian White – Collins Stewart

Okay, and just on the LCD TV demand, you said in December was a little better than anticipated. What did you see in terms of LCD TV screen sizes versus expectations?

Jim Flaws

They came in pretty close to what our expectations were. We didn't revise the expectations. I mean, originally, when we go to the middle of the year, we would expect they would probably to get an inch greater than what we saw, but we didn't see this. What I think everybody feared was average sizes actually declining, that didn't take place, although the number one selling unit was the 26 inch. But we did not see a big decline in the size. We saw that hold stable as we finished out the year.

Brian White – Collins Stewart

Okay, thanks.

Operator

And next to the line of Steven Fox with Merrill Lynch. Please go ahead.

Steven Fox – Merrill Lynch

Thanks. Good morning. First question, can you just talk about the set assemblers a little bit more in detail. Obviously, that has been the toughest part of the market to call. Have you got any more refined analysis there that gives you some confidence that there is not another large amount of hidden inventories there? How do you feel about that going into the quarter specifically?

Jim Flaws

We don't get reporting of inventories there. So the way we build this model, the facts we have, as we know, glass going into panel makers. You know, panel maker inventories, you know glass coming out of panel makers. We know glass going into retail, we know retail inventories and we know glass going to consumers, although we only have half market coverage there, but we think it is a pretty good approximation. So the thing that we don’t have is absolute inventories reported by set assembly. We feel that our model is pretty good. And you know, what we have seen as we have showed you on the chart is that is where we think the biggest issue has been on inventory is why we think that panel prices started filling the second quarter of last year, and it is where we have seen the least amount of correction, if you will, on inventory relative to the panel makers. Panel makers actually surprised us how far down they dropped their inventory. We think that there is about another 100 million that should come out comfortable in the set assembly level, given what is happening at retail.

Steven Fox – Merrill Lynch

And then secondly, just looking at the pricing question a little bit more, do you guys need panel prices to rise much above cash costs in order for you to return to your previous pricing policy. What should we be looking for in panel prices in Q1 to understand how safe your own pricing is?

Wendell Weeks

Well, I think that the panel pricing, what we look for on panel pricing has more to do with the signal on when the supply chain stops contracting. And I think the situation that we see right now is, with the won where it's at, the Korean panel makers have the cost advantage, and as a result, we are seeing the Taiwanese panel makers at a spot where you have got pricing below their bill of materials on certain key product lines. When they have it in inventory to raise cash, that is an okay decision. But to make new panels, it doesn’t make a lot of sense to make and sell new panels below the builder materials cost. That of course, as you point out leads to a lot of pressure on the materials makers, but I also think more importantly gets to what their utilizations will be. So we take a look at panel prices as being a good potential indicator as to what is actually happening with that supply chain and whether or not we will able to see it stop contracting in quarter two. The tensions on price have both to do with panel makers as well as the amount of idle capacity at the glassmaker structure. As I said before, I think the biggest negative pressures are the poor profitability of our customers as well as this idle capacity and the positive pressures may allow us to be able to return to our pricing strategy as the relative stickiness of the market shares and the strong positions that we have with all of the major brand leaders. And that is how we would hope to see that play out and return back to that very low single digit price declines in quarter two, three, and four, which of course is resting upon the assumption of the glass market coming back.

Steven Fox – Merrill Lynch

Great. That is very helpful. Thank you.

Operator

Our next question is from the line of Jim Suva with Citi. Please go ahead.

Jim Suva – Citi

Great. Thanks very much. Can you help us connect the dots of – obviously it is very easy to understand why free cash flow will be negative in Q1, but with your comment of a significant increase in glass demand in Q2, which in essence says you are calling for a bottom in Q1, why wouldn’t free cash flow for the first half of the year kind of be breakeven or positive, and yet you are saying it is negative for the first half of the year?

Jim Flaws

Now the primary reason is that we would have very heavy capital spending for the first half of the year. You know, over 1.1 billion we are talking about, 800 million of it falling in the first two quarters. A big chunk of that is this carry over that we have on Gen 10. It seems funny now, but we thought we had brilliant terms by paying our Japanese contractors six months in arrear, though they like to pay the bills slowly. That is coming due now. So that is the biggest reason. The other reason on Q1 versus Q2 is the cycling of the dividends we get from our equity companies really don’t get much in Q2. And so, we expect free cash flow to be better in Q2 than in Q1, but it still will be negative.

Jim Suva – Citi

Great. That is very helpful and as a quick follow-up on housekeeping, you mentioned tax rate will be significantly lower in 2009 and I don't believe you said the level of what it would be; would it be down to like 15% of like what it was for 2008?

Jim Flaws

I didn't give a number specifically, because I am going to walk through that in great detail at the February 6 investor meeting, but it would be a very low tax rate.

Jim Suva – Citi

Can you give us any magnitude of below 10% or above 10% or any reasonable range?

Jim Flaws

No. You will just have to wait and see.

Jim Suva – Citi

Okay, we will see you there then.

Operator

And next to the line of Carter Shoop with Deutsche Bank. Please go ahead.

Carter Shoop – Deutsche Bank

Good morning. I was hoping to get a quick update on hemlock, given the fact that the market for poly-silicon has significantly deteriorated over the past three months. Are you entering or entertaining any pricing concessions for your business on their contract and the follow-up to that, what percentage of your solar and semi production is currently under longer-term contracts as of the end of the year?

Jim Flaws

So hemlock is doing very well. We are not entertaining any price concessions at all. People who are under contract are taking their contracted volume. We have had a little – some of the people who have semi-contracts have the right to take some of that as solar, which they have done. So obviously, the semi industry is a little depressed right now. But the contracts are fine, the pricing on that is fine. Remember, we set the pricing on those contracts to be well below the spot simply because we anticipated eventually there would be spot prices. We have come back to those. So, no pressure at all on the contracts. Hemlock is operating full, shipping everything that they can do. And a very high percentage of their business is under contract and that is the way it is cycled throughout the year. The last comment on hemlock I'll make is really that you saw an announcement in December that our customers have actually asked us to plan for more capacity after our third expansion is completed in 2011. And so, we are going to construct additional capacity in Michigan and Tennessee and once again, that will be done with our customers giving us customer deposits. And so, the business feels very good. Obviously, the degree we had excess capacity goes out on spot, the pricing on that is quite a bit lower than what it was last year. But the fundamentals with Hemlock are, are we going to make money at the contract prices and we will and that’s all going as per plan.

Carter Shoop – Deutsche Bank

And the second question here, what kind of a rebound in the second quarter do we need to see to make you feel comfortable that the current round of restructuring is sufficient? Do we need to approach that $5 billion annualized run rate as early in the second quarter?

Jim Flaws

No, we don’t. But if you go back to that supply chain chart that I showed you, if you look at the Q1 numbers that we’re talking about, you see that at retail level 450 million square feet of glass are going out. Admittedly, Q2 is slightly down from that normally because of seasonality. What we need to see is the glass going into the supply chain being approximately what’s going on at retail. If that’s what’s happening, then we are going to feel pretty good. We don’t need the company to be at $5 billion at that time.

Carter Shoop – Deutsche Bank

Okay. The last question; it sounds like the CapEx in the second half of the year will be approximately at $600 million annualized run rate. Is that a good figure to think about going into 2010 or is there any large capital expenditure projects be it either a follow up payment for Gen 10 or anything else that we would be expecting?

Jim Flaws

We are not planning any large capital for 2010 right now. So, you should expect to see a very low level of capital continuing into 2010 at this stage.

Carter Shoop – Deutsche Bank

Thank you.

Operator

Our next question is from the line of John Harmon with Needham & Company. Please go ahead. John Harmon, your line is open. Now, possibly take yourself off mute.

John Harmon – Needham & Company

Hi, good morning. Hello, can you hear me?

Jim Flaws

We can.

John Harmon – Needham & Company

Okay, good. Regarding the performance of your telecom division in the quarter, I was wondering if you could kind of break it out. You talked about the soft economy, but how much of it might just be due to lower capital spending, and how much of it is directly economically sensitive? I mean you did say that fiber-to-home was up in the air.

Wendell Weeks

Embedded in your question is a little bit of an answer, which is how much of it is true economically driven and how much of it is sort of capital project denominated? I think the key thing to understand about telecom is that it tends to lag going in and lag coming out. At this time, we’ve seen really very few of the major carriers are now saying that they are going to do significantly less in fiber capital. So, right now that’s holding up well, and in many countries around the world they are choosing to have fiber builds be their infrastructure. So, that’s a positive for us. And the more negative for us is that it does tend to be lagging, a lag-in and lag-out. So, if the economy is down, ultimately carriers lacking a public prompting for infrastructure will tend to slow with the economy. And the other piece is our premises business which is a very profitable business, where that’s going more with data centers and IT spending, and we are planning on seeing that come down.

John Harmon – Needham & Company

Okay, thank you. I think you said in response to a prior question that you could make money on $4 billion of revenue. So, with $5 billion as your target, are there any specific profitability targets attached to that, or how did you arrive at that. What goals you want to accomplish with that number?

Jim Flaws

We are not shedding out our net profit goal at this stage in time, John. We just clearly do intend to make money. $5 billion, obviously $5 billion is a lot less than where we were running just a few short quarters ago. But we clearly indent to make quite a bit of money at $5 billion.

John Harmon – Needham & Company

Okay, and finally what where SCP’s gross margins in the quarter? And where your – the margins for your wholly owned business is comparable?

Jim Flaws

SCP’s gross margins were lower also. We are not given out the number. You will you see it in our 10-K when it comes out shortly. But they were lower, but not as bad as what our wholly owned business was.

John Harmon – Needham & Company

Okay, thank you very much.

Operator

And next we go to the line of Vijay Rakesh with Thinkequity. Please go ahead.

Vijay Rakesh – Thinkequity

Yes, hi guys. Just looking at the gross margins, you said you see a significant improvement into the second quarter. I was wondering if you can give a little bit more color. And when do you expect margins, given fab unitization and pricing into the second half, when do you see margins get back to kind of the low 40s?

Jim Flaws

We are not giving out that level of guidance at this point in time. We believe that if we are right on quarter two that the supply chain contraction ends, there will be a lot more sales available in our display business, which we will get both in display-based business as well as SCP and that falls at a very high variable margin rate, but we are not giving gross margin guidance by quarter at this stage.

Vijay Rakesh – Thinkequity

And, actually looking at 2009, what do you think glass pricing looks like to the year? And how glass the pricing has exited 2008, where do you think it ended up?

Jim Flaws

Glass pricing for the year, last year ended at down7% in our wholly owned business, year over year, and we’ve talked about in quarter one of being down sequential in the upper single digits. And we hope to return to a moderate price declines for the reminder of the quarters. I am not prepared to give an absolute number, clearly we hope that they return closer to the kind of declines that we had been seeing before.

Vijay Rakesh – Thinkequity

Okay. Great, thanks.

Operator

And we’ll go to the line of Amitabh Passi with UBS. Please go ahead.

Amitabh Passi – UBS

Hi, thanks. I had a couple of questions. Regarding your first quarter 2009 LCD volume guidance; can you give us any sense of how you expect volumes to trend between your wholly owned business and SCP.

Jim Flaws

We expect them to be very similar in terms of sequential declines.

Amitabh Passi – UBS

Okay, thanks. And then, Jim, I think you said you expect a significant rebound in LCD glass volumes in the second quarter. Assuming, I am doing my math right here, however it seems like to get to your flat LCD volume growth for the full year, you would have to see something like 30% , 35% sequential growth 2Q through 4Q. I mean is that the kind of sequential growth you sort of implied in your full year guidance or sort of flattish LCD volumes.

Jim Flaws

I am not going to comment on the specific numbers for the remainder of the quarters. We think that if you look at the overall glass for the market, it’s about 2 billion; and then we’ve got to plan for what’s happening in retail and we do think there will be some inventory rebuilt in the supply chain in the back half of the year. That’s how we get to it. But I am not going to give you the very specifics quarter by quarter at this stage.

Amitabh Passi – UBS

Okay. And then just my final question, perhaps to Wendell. Any incremental color on your telecom business in terms of how the private networks side of the business faired versus public networks.

Wendell Weeks

So, private networks have had more of a slowdown for us than public. If we were to take a look at sort of the segments of it, we would say that in terms of year over year for ‘08, the sales were down primarily due to drop in private networks with private networks down around 19%. While fiber-to-the-home sales were up about 15%. So, it’s natural that we’d see the private networks business adjusts to corporate IT spending and that type of movement. As we look ahead we would, once again, see that continue, the private networks would be a little weaker for us than our public networks business. I think one of the wildcards here for our public networks business, especially for fiber-to-the-home, is to what extend does this become a strong stimulus package component around the world.

Amitabh Passi – UBS

Got you. And then just one final related to that. In the fiber-to-the-prem revenues you disclosed for 4Q, did you start recognizing the revenue from the second European customer you recently announced?

Wendell Weeks

We did start recognizing revenue from a relatively new European customer, I have a hard time keeping count on which number it is – but yes we did bring out a new customer, and with very robust demand.

Amitabh Passi – UBS

Okay. Thank you.

Operator

And next from the line of Jeff Evanson with Sanford Bernstein. Please go ahead.

Jeff Evanson – Sanford Bernstein

Beyond the macroeconomic conditions, I am wondering how you are incorporating that ruling yesterday that Sharp maybe disallowed from selling LCD TVs in the US, and also discontinuity from customers substituting netbooks with much more screens for traditional laptops?

Jim Flaws

So, you caught us by surprise. We obviously didn’t see that ruling. So, I can’t comment on that. Sharp in the US is relatively smaller market share. Their strength is primarily in Japan at the end market. But we haven’t seen them ruling, so I can’t really comment on that.

Jeff Evanson – Sanford Bernstein

Two other quick questions. Sorry, netbooks first.

Wendell Weeks

Netbooks in our conservations with the PC and notebook makers, it’s interesting on how much of it is cannibalization and how much of it is to category expansion. Without doubt their mix is shifting more towards netbook as a hot item. I’ve yet to get a good clear answer from these guys as to that delta of cannibalization versus category expansion, and this of course this is obvious to you Jeff. The extent of its cannibalization, it’s more of the screen sizes to the extent that it is category expansion, it’s net more demand for that glass. One other thing I will say about notebooks and the existing opportunity I think for us is now we are starting to see the first uses of Gorilla glass being applied to the notebook area. And that’s really exciting for us because now it’s taking glass out of just the liquid crystal itself and using it on the outer surfaces of the notebooks. This is potentially very existing market for us and offers a much higher revenue for notebook than we get in pure LCD. So, that’s one good news for us in notebook.

Jeff Evanson – Sanford Bernstein

On other potential good news, what is your current market share of multimode fiber and also what’s the timing of the availability of your new ClearCurve multimode?

Wendell Weeks

I don’t think we talk specifically about our market shares in multimode. It’s very high, because we are the leader in all things fiber. We just announced as you point out the new ClearCurve multimode. We will start to have that available to certain customers in quarter two, and we would expect to have a full rollout in the back half. And so far response has been a combination of relative shock from some people and the real excitement from our customer base. It’s all aimed at about a $600 million market at the very high-performance end for our datacom business. And now we have to see how much of that can be brought into our shop because of market share gain or potentially even market expansion. So we are excited by this, and it's a heck of a technical accomplishment. Now we've got to go to work on the market.

Jeff Evanson – Sanford Bernstein

Thank you.

Operator

Our next question is from Andrew Abrams with Avian Securities. Please go ahead.

Andrew Abrams – Avian Securities

Just a couple of questions on the capacity issue. How much of your shuttered capacity has been refitted? And what’s the final intent there? Is this all going to be refitted or is there a portion of that that you are not looking to rebuild at some point? And can you give us a little more color on what you know about Asahi and NEG in terms their capacity changes and how closely aligned that is to the numbers that you have.

Jim Flaws

So we have begun reconstruction of tanks, but we haven't given out the absolute number of how much we got completed. We will be continuing to repair some of the tanks as we move through quarter one and quarter two. There are several of our tanks that we are considering whether we will ever rebuild some of the old or smaller ones. We just haven’t made that decision at this point in time. Relative to our competitors’ capacity, I can only say what I said earlier in the script that we believe in total that they have about 50% of their capacity offline at this stage. And I’d have no more specifics than that.

Andrew Abrams – Avian Securities

Also just one other question on pricing. If your scenario holds true for second quarter the price declines that you’ve had, I guess, in the last year, year-and-a-half, maybe 2%, 2.5%, would that become normal again or are we looking at slightly higher like 3%, 3.5% more normalized price declines for 2009?

Wendell Weeks

I think it’s too early to get that specific. What we’d like to do is return to that low single digit more normal price decline rate. And that’s where we are going to place our efforts, as opposed to the high single-digit move that we are seeing in quarter one. I think once if we can get that accomplished, then we feel a little bit better about proving a little bit more specific as to whether – more fine-tuning in that zone of a point one way or the other.

Andrew Abrams – Avian Securities

Thank you.

Operator

And next from the line of Ajit Pai with Thomas Weisel.

Ajit Pai – Thomas Weisel

Yes, good morning.

Jim Flaws

Good morning.

Ajit Pai – Thomas Weisel

Just looking at the CapEx in the quarter, the $766 million, I think it’s probably the highest CapEx you have had so far, at least in recent year perhaps even close to a record. Could you give us some color as to how much of that is linked to commitments that you had made earlier. I think you mentioned something about the even additional CapEx that you have got in '08 that is going to paid next year, the $525 million of the $1.1 billion. So how much of the $766 million was construction completed earlier that were just the terms of payment, and what was it spent on?

Jim Flaws

Majority of the capital was obviously commitments that we had done earlier. It was capital for Taichung, the expansions that we have been doing in spring and summer into the early fall. It was precious metals that we had contracted to buy for Gen 10. Precious metals don’t have any delayed terms on it. It's some diesel construction that we've done for 2010 capacity when new regulations come in because we'd want substantial business for that. So, it is a series of things. I'll try to remember, February 06, maybe to give you more specific color by category.

Ajit Pai – Thomas Weisel

Got it. And the $525 million that you mentioned out of next year's budget that was construction completed in '08 – is all of that – vast majority of that just the Gen 10 or where there other components to that as well?

Jim Flaws

Vast majority is Gen 10.

Ajit Pai – Thomas Weisel

Got it. Thank you so much.

Operator

Our final question comes from the line of Scott Coleman with Morgan Stanley. Please go ahead.

Scott Coleman – Morgan Stanley

Hi guys, and good morning. Forgive me if you have answered this already. I am just curious if you can tell us the amount of capacity in terms of volume that you have taken out of display in Q4 and what the expectations are for Q1? And again, my apologies if you’ve covered this earlier in the call.

Jim Flaws

On our base business we’ve got about 50% of our capacity out in Q4, and that will be similar in Q1. In SCP, we are exiting the year with about a quarter of the capacity down.

Scott Coleman – Morgan Stanley

Okay. And, Jim, just so I understand it, should I think of idle capacity, which is what I think you are referring to as being different than actually taking a tank entirely offline.

Jim Flaws

No, you should think of it as being taken offline. One point we use to leave the tanks hot, and maybe just drop sheet for a brief period of time, and therefore there was a high degree of cost left in them. But now basically we don’t need it. We are shutting it down cold.

Scott Coleman – Morgan Stanley

Okay. And, so the 50% number suggests that there is nothing incremental coming out in Q1, is that right? Is that 50% in Q4 and 50% in Q1?

Jim Flaws

Directionally, yes.

Scott Coleman – Morgan Stanley

Okay. And, so then from a gross margin perspective, is there – shouldn’t be any additional accelerated depreciation, at least the material amount in Q1 related to display, is that correct?

Jim Flaws

That’s correct, in our wholly owned business.

Scott Coleman – Morgan Stanley

In the wholly owned business. Okay. Thank you very much guys.

Wendell Weeks

Can I just come back and touch on one other item on the question that we heard earlier from Jeff on Sharp? What we have tracked down is that this has to do with the patent dispute between Sharp and Samsung, it’s a preliminary ruling at the administrative level, the Administrative Law Judge at the US ITC, and Sharp plans to appeal. So, given that sort of context we haven’t had a chance to talk to Sharp or Samsung yet. But I would imagine this would continue the sort of typical wrestling that you see around IP disputes. Jim?

Jim Flaws

Just a quick couple of IR comments. We will be holding our annual investor meeting in New York City on February 06. It is at a new location, the Times Center. At the meeting we'll be showing our latest products as well as demonstrating some innovations that we have and some that are in development. And you will see formal presentations by a lot of Corning senior management. If you are interested in attending, you can register on our Web site or contact Ken. Second, we will also be attending the Thomas Weisel Telecom and Technology Conference on February 10 in San Francisco. You can attend either. Of course, our presentations will be on webcast and slides will be on the Web site. And one last IR related announcement. Ken has finally decided to get some assistance. We are delighted to say Ann Nicholson [ph] has formally joined the IR department last quarter. Some of you have met her. We are very pleased to have her on Board and expect you all have a chance to meet or speak with her over the phone at some point in future. Ken?

Ken Sofio

Thank you Jim. Thank you Wendell, thank you all for joining us today. A play back of the call will be available beginning at 10:30 am Easter Time today and will run till 5:00 pm Eastern Time on Tuesday, February 10. To listen dial 800-475-6701. No password is required. I will also be posting all the slides that Jim went through today on our Web site immediately after the call. And operator, John, that concludes our call. Please disconnect all lines.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference, you may now disconnect.

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