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Corning, Inc. (GLW)

Q4 2006 Earnings Call

January 24, 2007 8:30 am ET

Executives

Ken Sofio - Director of IR

Wendell Weeks - President and CEO

Jim Flaws - Vice Chairman and CFO

Analysts

Jeff Evanson - Sanford Bernstein

Michael Walker - Credit Suisse

John Harmon - Needham & Company

Ajit Pai - Thomas Wiesel Partners

Curt Woodworth - J.P. Morgan

John Roberts - Buckingham

Steve Fox - Merrill Lynch

Nikos Theodosopoulos - UBS

Jeff Osborne - CIBC

Brant Thompson - Goldman Sachs

Daryl Armstrong - Citigroup

C.J. Muse - Lehman Brothers

Presentation

Operator

Good morning and welcome to the Fourth Quarter Results Conference Call. All parties will be on a listen-only mode until the question-and-answer portion of the conference. This conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to Mr. Ken Sofio, Division Vice President, Investor Relations. Sir, you may begin.

Ken Sofio

Thank you, Lisa, good morning everyone. Welcome to Corning's fourth quarter conference call. This call also has been audio-cast on our website. Jim Flaws, our Vice Chairman and Chief Financial Officer will lead the discussion and Wendell Weeks, our President and Chief Executive Officer will join for the Q&A.

Before I turn the call over to Jim, you should all note that today's remarks do contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do 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.

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Jim Flaws

Thanks Ken, good morning every one. This morning we released our results for the fourth quarter which can be found on our Investor Relations website. In addition for those of you with web access, we have posted several slides that will summarize the important data from this morning’s prepared remarks. These slides will be available on our website after our call as well.

Overall our fourth quarter results were excellent lead by strong volume and operating performance in our Display business as well as higher equity earnings. Our fourth quarter sales were $1.37 billion an increase of 7% over the third quarter and a 14% increase over fourth quarter sales a year ago. Our EPS before special items was $0.31 exceeding the top end of our guidance range by $0.02 and pre expectations by $0.03.

Our higher than expected EPS was driven by strong operating performance in Display, higher equity earnings from both SCP and Dow Corning. Net profit after-tax excluding special items in the fourth quarter was $488 million, an increase of 8% over the third quarter. In comparison to the fourth quarter of 2005 net profit after-tax excluding special items was up $144 million or 42%. You should note that EPS and net profit after-tax excluding special items are non-GAAP measures. A reconciliation to GAAP can be found on our website.

We had a few special items in the fourth quarter. We recorded a pre-tax and after-tax gain of $139 million primarily reflecting the decrease in market value of Corning common stock we contributed to settle the asbestos litigation related to Pittsburgh Corning. Corning share price decreased during the fourth quarter from $24.41 to $18.71. While on the topic of Pittsburgh Corning, let me provide you an update.

On December 21, the judge handling the case denied the plan of reorganization of both sides we have been working towards last few years. We and others currently have motions for reconsideration will be argued in the court on February 13. Clearly our objective is to go forward with the current plan of reorganization. We will update you on this further news and I will discuss this at our Annual Investor Conference on February 9.

In the fourth quarter, we also incurred a pre-tax and after-tax charge of $44 million related to restructuring impairment, an European cabling entity in our telecom segment. In addition, we also recorded an after-tax gain of $35 million to reflect the release of valuation allowance on certain deferred tax assets in German, as one of our entities there now has demonstrated it’s been profitability.

Lastly, we reported a net non-recurring after-tax gain of $28 million driven apart by the sale of land at our Samsung Corning CLT equity venture. Including these special items our fourth quarter EPS was $0.41 per share.

Now continuing down the income statement, gross margin of fourth quarter was 44%, which was consistent with the third quarter in-line with our expectations, this also consistent with the fourth quarter of last year. SG&A was $222 million in the fourth quarter about 16% of sales. RD&E was $138 million, about 10% of sales. Interest income was $36 million in the fourth quarter, up $4 million sequentially. The increase is primarily reflection of a higher cash balance we had during the quarter.

Equity earnings were $272 million in the fourth quarter compared to 232 in the third quarter. Fourth quarter equity earnings included the $28 million non-recurring gain at Samsung Corning CLT that I mentioned a moment ago. The remaining increase was due to the strong performance at SCP that helped Corning.

Our tax rate in the fourth quarter excluding special items was 13% and in line with our guidance. Share count for the fourth quarter was 1.596 billion shares and consistent with the third quarter.

Now, before I move into the segment results for the quarter, I would like to recap our financial results for the full year of 2006. 2006 represented our fourth consecutive year of significant rebound from the telecom depression. What makes this past year such a stand out was that it broke many of our previous financial records including those at the peak of the telecom boom in 2000.

Let me start with sales. 2006, our sales reached $5.17 billion, an increase over 13% over 2005. This represents the fourth highest annual sales in our history. Gross margin for the year was 44.1% the highest percentage in our history, even compared to the late 1990's when our results were dominated by the fiber business.

SG&A for the year was 16.5% of sales, the same as in 2005 despite the addition of stock option expensing. Without that expense SG&A would have been 15% of sales. RD&E was 10% of sales for the year consistent with last year. Net profit after tax excluding special items was $1.78 billion, an increase of 35% over last year and again a company record.

Earnings per share excluding special items were $1.12 in 2006, a 26% increase over last year or about a 30% increase. And for re-modeling purposes our full year results included about 81 million stock compensation expense or about $0.05 per share due to the new accounting rules.

As investors, I hope you are as pleased with our financial results for the full year of 2006, as we were.

Now let me turn to the segment results. Starting with Display, sales were $619 million in the fourth quarter, a 22% increase over the third quarter sales of $506 million. Sequential volume gains were 28% and at the upper end of our guidance. Price declines were about 5% as expected. The impact of the Yen to the US dollar exchange rate was only slightly negative in the quarter. In comparison to the fourth quarter of last year sales in our Display segment grew 19% as volume gains of 48% were largely offset by price declines of 21% and a slight unfavorable change in the foreign exchange rates.

Equity earnings from SCP were $147 million in the fourth quarter and higher than the third quarter equity earnings of $135 million. SCP's sequential volume growth in the fourth quarter was 14%, price was down 4%. Re-modeling purposes SCP fourth quarter sales were $571 million compared to $536 million in the third quarter. Sequentially, total glass, LCD glass volume including our wholly-owned business plus Samsung Corning Precision was up 21% in the fourth quarter.

Net income in the Display segment which includes equity earnings was $461 million in the fourth quarter, up 17% compared to $395 million in the third quarter. This increase in the net income was primarily a result of higher volumes, strong manufacturing performance in our wholly-owned business.

Our gross margin percent in the fourth quarter increased slightly in comparison to the third quarter with the strong volume and our cost reduction programs help mitigate the impact of price. Gross margin was also equal to the fourth quarter of 2005 despite the significant price declines year-over-year. For the full year Display revenues were $2.1 billion, an increase of 22% over last year's sales of $1.7 million. Volume in our base business grew 52% and was partially offset by price declines of 16% and an unfavorable exchange rate.

Despite the significant price declines in the past, most significant price declines in the past decade of our Display Glass business, we were able to maintain our gross margins for the full year. This is a testament to our on going cost reduction programs. We will provide more details about these programs at our annual investor meeting on February 9th.

Equity earnings at SCP were $555 million for 2006, a 36% increase over 2005 equity earnings of $408 million. SCP sales were $2.1 billion, up 27% versus the prior year. Volume growth of 52% was primarily offset by price declines of 9% and an unfavorable exchange rate. Net income for our total Display business was $1.6 billion, a 30% increase over last year's net income of $1.2 billion.

Now I would like to spend a few minutes updating you on end market trends for the fourth quarter. As always I have to stress that we don’t have perfect information. We use a variety of sources ranging from services that are available to you, such as display research, along with retail tracking vendors, our own discussions with customers as well as our own models.

With that in mind, you should note that the following data has been derived from an aggregate of industry sources that are considered at this time to be preliminary estimates. Final data for the fourth quarter will not be available for another month. Be clear the data we reference here relates to shipments from PC manufacturers and TV set makers to retailers.

In summary, the preliminary data indicates that the end market shipments were slightly higher than our expectations in the fourth quarter for all three primary applications; notebooks, monitors and televisions.

Starting with notebooks, about 22 million were shipped in the fourth quarter, slightly higher than our expectations. This was a 7% increase over notebook shipments in the third quarter, which were 20.5 million. For the full year, we estimate 78 million notebooks were shipped, a 30% increase over 2005.

For LCD monitors, about 36 million were shipped in the fourth quarter, again slightly higher than our expectations. This was a slight increase over the third quarter. We believe the penetration of LCD monitors was consistent with the third quarter around 82%. For the full year, we estimate 130 million monitors were shipped, 33% increase over 2005.

For LCD televisions, about 16 million were shipped in the fourth quarter, higher than our expectations. This represented a 50% increase over the third quarter shipments of 10.5 million. More importantly, however, is that the penetration of LCD television in the worldwide color television market was estimated to be 26% in the fourth quarter. For the year, we estimate 43 million LCD televisions were sold compared to 21 million last year. Penetrations for the year should come in around 22%, double last year’s penetration of 11%. In the United States alone approximately one out of every three televisions sold in 2006 was an LCD. The average size in LCD television increased from 24.7 inches in 2005 to 28.3 inches in 2006. In the fourth quarter, we estimate the average size was around 29 inches.

Now regarding inventory and the supply chain, we don’t have complete information at this time. I can offer some information and we may have more by February 9. At the panel makers, our data suggest panel inventory remains within what we deem acceptable levels heading into the first quarter. We have some retail data for the United States that suggests that inventories are better than last year exceeding the holiday season. We do not yet have worldwide retail data. We have little information at the set maker level. We are not hearing big issues, but we clearly would like to see more data.

I would like to spend a moment discussing the utilization rate changes at panel makers. I believe investors may have placed too much emphasis last month on slight utilization rate adjustments that happened at few panel makers. I know that this is an area we frequently tell investors they should watch. But let me be clear on what we mean. Drastic utilization rate declines at multiple panel makers are something you should watch for. That could be an indication of broader panel inventories builds and supply chain.

We consider smaller utilization rate changes by a few panel makers in the given month of quarter to be fairly normal. December was a good example of this. Utilization rate of two panel makers went from around 90% to 85%. We don’t consider this to be a material event.

Looking forward to the first quarter, a few panel makers have announced they will be moving the utilization rates slightly higher in January, slightly lower in February due to Chinese New Year. We would view these adjustments as positive and believe it is an indication that panel makers are operating to avoid a repeat of last year's panel inventory build up.

Now for your modeling purposes, I would like to provide an update on our glass mix. Our glass mix of GEN 5 and higher in the fourth quarter was 87% and slightly higher than the third quarter. The mix of GEN 5.5, 6, 7, and 8 glass was 52% in the fourth quarter, and slightly higher than the third quarter.

Our GEN 8 glass capabilities continue to ramp. In the fourth quarter, we shipped several million square feet to Sharp's GEN 8 fab to meet their demand. It's clear based on the fourth quarter shipments and their expectations for us going forward that if we are the majority supplier of GEN 8 glasses. EAGLE XG our new extra green glass continues to progress well. Current requests from customers to convert the new glass well outweigh our ability to supply at this time. While this is a good problem to have, we are working diligently to convert more of our own capability over to produce EAGLE XG. Our goal is to have all of our glass capability converted over to EAGLE XG by the end of the year.

Moving to the environmental segment, sales in the fourth quarter were $155 million, slightly higher than the third quarter. The increase was due to higher diesel product sales, which offset lower auto products sales as expected. The segment incurred a net loss of $8 million during the fourth quarter compared to a profit of $7 million in the third quarter. The shift from the profit to a loss in the fourth quarter was primarily due to lower auto demand, which was expected given the industry shutdowns at year-end as well as our own inventory reduction.

In addition while we like the strong diesel demand these products currently have a lower gross margin than oil. For the year environmental segment posted sales of $615 million increase of 6% over the last year sales of $580 million. The increase was primarily due to higher diesel product sales, which grew from $98 million in 2005 to $164 million in 2006.

In Life Sciences segment sales in the fourth quarter were $72 million compared to third quarter sales of $68 million. Segment incurred a loss of $2 million in the fourth quarter compared to a loss of $8 million in the third quarter.

Moving to the Telecommunication segment, sales in the fourth quarter were $404 million, an 11% decrease in the third quarter but much better than we had expected. We were pleased to receive additional orders in Europe late in the quarter. Sales of our hardware and equipment products were $207 million in the fourth quarter compared to $215 million in the third quarter. Decline was less than expected due to an increase in demand from European and North American customers.

Sales in fiber and cable products in the fourth quarter were $197 million and declined as expected in comparison to the third quarter sales of $241 million. Decline was primarily result of seasonality and lower private network related demand. Fiber-to-the-premise sales were $51 million in the fourth quarter compared to $64 million in the third quarter.

Telecommunication segment incurred a net loss of $54 million in the fourth quarter compared to net income of $20 million in the third quarter. A net loss in the fourth quarter included $44 million in restructuring and impairment charges that mentioned a moment ago.

For the year Telecommunication segment sales were $1.73 billion an increase of 10% over last year's sales after adjusting for the Japan sales that we moved into an equity venture earlier this past year. More importantly the segment posted earnings of $51 million this year excluding restructuring and impairment charges in the fourth quarter. It’s just a significant increase over last year's net income of $18 million. These numbers are non-GAAP measures.

Our other segment sales increased 20% from $99 million in the third quarter to $119 million in the fourth quarter. The increase was primarily due to strong demand for semiconductor materials. Sales for the year increased substantially from $352 million in 2005, $410 million in 2006. Sales increase for the year was driven by demand for our [GLV] product as well as semiconductor materials. We are delighted with the performance of our specialty material product-line, we feel strongly that future is bright in this area as some of our technology efforts pay off.

Moving to Dow Corning the equity venture has another quarter of strong performance, equity earnings were $83 million compared to $78 million in the third quarter, the increase was primarily due to a lower effective tax rate during the quarter. For the year Dow Corning posted sales were $4.4 billion, an increase of 13% over the prior year. Equity earnings increased over 20%, plan of providing more transparency in the Dow Corning at our coming investor meeting in two weeks.

Now moving to the balance sheet, we ended the year with about $3.2 billion in cash and short-term investments up from $2.8 billion in the third quarter. Pre-cash flow was $339 million in the fourth quarter and $540 million to-date. Obviously we are very pleased with this significant amount of cash, we were able to generate in 2006. This represented our third year in a row of positive free cash flow. As a reminder free cash flow is a non-GAAP measure.

We have received some questions from investors about our future plans for this cash. I can tell you that our Board of Directors has established a goal, maintain a cash balance in excess of debt as protection against volatility in our markets. The Board has also approved acquiring use of cash beyond that level. First we will repay debt maturities in the upcoming three years, second will year-mark funds needed for potential major new developments coming out of our laboratories. After these priorities are achieved the Board will consider share repurchases and the re-instatement of dividend payments.

Now I would like to wrap-up by providing new guidance for our first quarter and some thoughts about the upcoming year. We typically provide comments about the upcoming year at our Annual Investor Meeting. But given the significance of display glass on our results and the influence that seasonality may play in that market this year. We felt that it was in our investor’s best interest that we increased the amount of information on the call today.

With that I would like to start with comments about the Display market. Clearly due to the continued significant growth of LCD television penetration and screen size, we are expecting another year of substantial glass volume growth. That we believe the amount of the LCD glass volume added by the market as a whole in 2007 will be equal to or greater than 2006. In 2006 the display market grew from about 400 million square feet about 400 million square feet from 800 million square feet in 2005 to 1.2 billion square feet. We believe the display market can grow at least 400 million square feet again this year.

This would equate to a growth rate in the mid 30% range. We anticipate our glass volume to grow at the upper end of this range while SCPs maybe slightly lower than the range. As a reminder, growth rates vary by geographic region and as a result, the growth rates for our wholly-owned business and SCP maybe different. However, we are better predicting the total market than we are individual geographies.

LCD television demand will be the main driver for this growth. We expect television penetration to reach 33% of all color televisions sold in 2007, a significant increase from the 22% penetration in 2006. This would equate to approximately 68 million televisions sold in 2007, compared to 43 million in 2006. And almost as important the average size of each LCD television sold is expected to increase substantially from 28.3 inches in 2006 to over 30.5 inches in 2007. This increase in screen size alone equates to about 10% more glass needed to produce LCD television this year.

As a result of the significant television growth compared to more moderate growth rates for monitors and notebooks, we expect for the first time more glass maybe used to make LCD televisions than the total IT related products. And since television demand, especially LCD television has been historically stronger in the second half than the first half. We expect our demand to be more concentrated in the second half as well. In fact, we believe almost 60% of our glass this year will be shipped in the third and fourth quarters. This will most likely influence glass pricing as well as we believe the supply of glass will become much tighter in the second half resulting in a more favorable glass pricing environment.

With that insight to the year let me talk about the first quarter for Display. We anticipate sequential volume for our wholly-owned business and SCP to be 10% to 15% lower in the first quarter. The sequential decline in demand is in contrast to the first quarter of last year. If you recall sequential volume growth in the first quarter last year was much higher than expected about 15%. Looking back, we believe a large portion of that growth ended up in an unhealthy build of supply chain inventories which eventually led the drastic utilization of cut-backs in May through July. In addition, the amount of glass used in LCD televisions was significantly higher in the fourth quarter of 2006 compared to a year ago and is now a much more significant portion of total glass demand.

Lastly in the first quarter of 2006 the impact of increased penetration helped offset the seasonal decline in demand. This year although television penetration should increase from 26% to 28%, it's not enough to offset the larger impact of TV seasonality. We believe these are reasons for the overall market decline in glass volume for this quarter. For comparison purposes, first quarter volume will still be about 10% higher than last year despite the declines versus the fourth quarter.

As far as LCD television demand for the first quarter, we believe events, such as Super Bowl and Chinese New Year will drive consumer demand. Display penetration increased from 26% in the fourth quarter to 28% in the first quarter. However, keep in mind that the number of televisions sold in the first quarter retail will be lower than the fourth quarter.

Now regarding LCD pricing, we expect the average price at our wholly-owned business to be down only 1% to 2% lower sequentially in the first quarter. This is a much lower price decline than we have seen the last several quarters. This is a combination -- due to the combination of tighter glass supply and our new pricing strategy.

As we have told investors previously, we made the decision to change our pricing strategy in 2007. We are in a technology business to participate in consumer electronics industry. We do expect our prices decline every year, as our costs also decline, however we are trying to achieve lower price declines in 2007 than we experienced in 2006. We think our new strategy will help achieve this goal.

We believe the industry glass capacity growth will generally be in line with the market for the year and that glass will be tight in the back half of the year. We think the amount of excess glass capacity in the earlier part of the year will be slight despite the seasonal slowdown.

We are reducing prices in quarter one, by a much reduced rate than last year in line with our strategy. As a result any market seasonal declines may fall more heavily on us in the first quarter. However, we believe market demand for glass will strengthen significantly the penetration seasonality as the year progresses and the glass' supply will be tight. As a result our pricing strategy should allow higher prices in the second half on very strong volume.

Regarding price declines at SCP, we expect them to be much higher than the wholly-owned business in the first quarter. As you know that SCP’s glass price declines were not as significant last year as the wholly-owned business. This catch up will happen in the first quarter, but we then expect price declines to be far more measured for the remainder of the year at SCP.

Many investors have asked about our competitor's tank issues and whether we expect that capacity to comeback online in the first quarter and that this will lead to an oversupply of glass.

First, we have no new information of the timing of the repair. We take them as they were, the tank will be ready this quarter. Second, since the tanking question represented only 3% of the world's glass capacity, it's not enough to materially influence supply and demand. Peter Volanakis will be presenting a lot more information about the supply market, including seasonality, our cost reduction trends, and our longer term growth outlook at our annual investor meeting.

Moving on to the Telecommunications segment, we are anticipating another year of growth, especially at the bottom line. I will save the details until our annual meeting, when Larry Aiello, CEO of Corning Cable Systems will present. In short, we are anticipating another year of sales growth, but more importantly, we expect to see earnings improvement again this year.

In the first quarter, we anticipate sales in our Telecommunications segment to be up slightly in comparison to the fourth quarter and profitability should also improve due to the mix of products sold. For our diesel products, we are anticipating a significant year of growth in 2007, driven primarily by demand in the United States from heavy-duty engine makers.

As many of you know, Class 8 fleet truck manufacturers purchased engines last year ahead of the emission regulations that took effect on January 1st of this year. This commonly referred to as the pre-buy. We believe that the pre-buy will impact up to 40% of demand in 2007. That being said, since every engine manufacturer in U.S. this year must be compliant under the new regulations, we are anticipating sales growth of at least 60% this year, with most of that growth occurring in the second half of the year.

For the first quarter, we anticipate our environmental segment to grow about 5% led by normal seasonal growth in auto. Tom Hinman, Senior Vice President Diesel Technologies will be providing a more in depth look at our diesel opportunity in two weeks.

In our Life Sciences segment, we are expecting a year of modest growth, for both the year and the first quarter on a sequential basis. Other segments sales will be about 15% to 20% lower in the first quarter due to the lower demand for semiconductor and other material products.

Turning to Dow Corning, we anticipate another year of solid growth. We expect sales to grow between 6% and 8% for the year and for net income to grow at the upper end of this range in 2007. Dow Corning does not have as much additional capacity coming on line with [analog] semiconductor in 2007 as they did in 2006 or they will in 2008. Also, Dow Corning will begin to experience higher project expenses for capacity additions to China.

In the first quarter, we expect equity earnings from Dow Corning to be down slightly. So, based on this guidance, we are anticipating first quarter sales to be between $1.26 billion and $1.31 billion and EPS, excluding special items to be between $0.24 and $0.27. The majority of sequential decline in sales and EPS is the result of 10% to 15% lower volume in our wholly-owned display business and SCP. As I explained a moment ago, this is primarily due to seasonality. Obviously based on our guidance, we expect glass volumes to increase substantially this year.

The other contributor to lower EPS guidance for quarter one is the substantial price decline at SCP in the first quarter. Again, we expect the sequential price decline to be much more moderate in remaining quarters this year. While our first quarter guidance -- EPS guidance is lower than our fourth quarter results we hope we have been transparent enough on the call this morning about our thoughts for the upcoming year to give you some indication about the amount of growth we are expecting in 2007.

Now, moving down the income statement for your modeling purposes, gross margins for the company should be between 43% and 45%, SG&A between 70% and 80% of sales in the first quarter, R&D expected to be around 10% to 11% of sales in the first quarter. We anticipate equity earnings in the first quarter to be down 25% to 30% compared to the fourth quarter. Decline is primarily due to lower earnings in SCP and the absence of the nonrecurring net gain of Samsung Corning CRT.

Regarding our tax rate for your remodeling purposes, you should use a range of 15% to 18% for the first quarter. Lastly, you should use 1.59 billion shares for the first quarter when calculating EPS for special items. One other comment on shares, as I mentioned in the previous calls, you should expect some executive selling over the next few weeks. As always for executives, who decide to sell stock, we encourage the use of period after our quarterly earnings announcements. In the first quarter the window will open after our annual investor meeting on February 9th.

I would like to comment on executive selling in general. For our senior executives, they can have 75% or greater of their compensation of Corning stock. We expect them to monetize some of these earnings and in fact encourage them to sell small amounts of their holdings every quarter regardless of price.

Now, one note on the impact of foreign exchange on our guidance. We ordinarily do not forecast any change in foreign exchange guidance for translation purposes within our guidance. The guidance for the first quarter has assumed the yen to dollar exchange rate of 119 for translation purposes. If the yen to dollar rate would have reached 124 in the first quarter, we estimate overall sales to be impacted by approximately 20 million and our MPAT by approximately 15 million. This includes many projected benefit from our currency hedging program. Ken?

Ken Sofio

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Jeff Evanson with Sanford Bernstein.

Jeff Evanson - Sanford Bernstein

First in your release this morning, you talked about potential growth opportunities in green lasers and micro rectors. Could you go over the criteria you used to approve capital expenditures and other investments in those growth opportunities?

Wendell Weeks

Well, I mean as these move from development to where we are going to have revenue, we obviously have that capacity. We try to structure that capital to be careful when we first go in buy and large as you know from our investments in business is fast as we -- the first product we make and we don’t make any money on. So, you don’t have a rate of return on the first piece of capital going in, but we usually go into business as expected and over a longer period of time. We have a return on investment well above our cost of capital. So, we generally make the longer-term decisions about whether these are good businesses as they develop over a period of years. To know the gestation period for many of our new businesses quite a while, but now we get to the point where we back at our cost targets, our return on capital -- internal rate our return on invested capital is well above our cost of capital the metric we use.

Jeff Evanson - Sanford Bernstein

Couple of financial questions on the Display segment, it looks like your tax rate in the Display Technologies business was up relative to the middle of the year, but pretty consistent with late 2005. How should we think about that going forward and also in the Display Technology business any unusual increases in SG&A relative to Q3 like added headcount or pay other bonuses?

Wendell Weeks

Now for the corporation, we did accrue a little bit more accrued bonuses in the fourth quarter than we had in the third quarter result, as result of our record performance, I don’t think it would have been fairly meaningful within the Display business by itself. Relative to the tax rate, I know it’s difficult to predict exactly the tax rate for the display business but I think you should expect to see it is up few percent for the full year of 2007 versus 2006.

Jeff Evanson - Sanford Bernstein

Thanks.

Operator

Thank you our next question comes from Michael Walker with Credit Suisse.

Michael Walker - Credit Suisse

Thanks. My question is on the Display business relative to margins, I know you are going to some more details probably at your Analyst Day, but you have given us some pretty positive indications on pricing here and pretty good numbers on volumes. Well, I am wondering, if that translates into relatively stable margin for the Glass business, is there any possibility that margins could actually go up just given that you had price declines while worse in ’06, and even ’07, is there reasonably that cost down in the Glass business will be anything different than what they were in ’06, and if that’s the case is there a possibility that margins could be stable even higher in the Glass business in ’07?

Wendell Weeks

Well, we will touch on this more significantly on February 9, but it's -- little bit of a preview would be that we anticipate that we should be able to continue our strong cost performance and that if our pricing strategy works we would expect price declines to be less severe this year then they were last. Now that being said, understand that our gross margins in this business are already very-very high and with gross margins at this level it would be very good to maintain them and that would necessarily model our gross margin expansion even though certainly the math may work that way.

Michael Walker - Credit Suisse

And just on a similar note that you had our competitor that was pretty aggressive in GEN 5 and GEN 6 in '06, you talked about the glass supply environment being not as bad a lot I guess for the second half of '07. Are you assuming that, that competitor is aggressive again in pricing this year or do you have reason to believe that you won't see the same level of pricing irrationally you did last year.

Wendell Weeks

Well as Jim explained in the first part of the conference call, what our strategy is to lay forth the prices that he covered and then what we expect as a results of our large market share together with our pricing strategy that the bulk of the seasonality impact will fall on us in the first half. And that our competitors will run relatively close to fall. And that we would expect it by the end of the year as demand in the seasonal terms goes off significantly that we would pick up more volume as the year went on and then overall we would end the year growing with the market.

Michael Walker - Credit Suisse

Okay and just one last question on the fiber business. Little surprise to see it looks like the FTTP business was cut in half in the fourth quarter and I knew you did guide to that and that was down roughly inline with your guidance, but even if you add back the $44 million one time hit to the earnings number, you still would had a loss for the fiber business. I am wondering, in '07 would we look for FTTP to kind of resume its historical growth rate? Do you see that bouncing right back and do you see the profitability of that business recovering and to a level above or with the full year '06?

Wendell Weeks

Well FTTP has its own seasonality pattern driven by the way in which some of our key customers run their projects. So yes indeed fiber-to-the-premise was down some in quarter four not as significantly as you just laid out probably more in the tens and million range rather than more significant than that. A positive up tick in quarter four really didn’t come out of the fiber-to-the-premise area, but rather in a broader recovery in our base and in Europe than we originally had thought. So as we look to this year what we expect is Verizon to continue with their fiber-to-the-premise effort. We see strong interest now at a number of other major customers that’s beginning to get started on fiber-to-the-premise. But also I think it’s important for folks to remember that fiber-to-the-premise although a significant play for us is only a part of a broader telecommunications business and we are feeling better about the broader recovery and we are seeing that in our base numbers, we are seeing that in private networks as well.

Michael Walker - Credit Suisse

Great, thanks a lot.

Operator

Thank you our next question comes from John Harmon with Needham & Company.

John Harmon - Needham & Company

Hi good morning?

Wendell Weeks

Good morning John.

John Harmon - Needham & Company

So based on the last question though, what was the fiber-to-the-premise sales for you for the whole year?

Wendell Weeks

Went out of the top of my head will get it, do you have any other questions?

John Harmon - Needham & Company

Sure, one other one. In your press release, you hinted of a possibility of a dividend and I think it was at last year’s analyst meeting that you said, basically it wasn’t going to happen during your term as CFO. Have you changed [anything about that?]

Jim Flaws

Well here goes, how responsible I am (inaudible) because over the course of this past year, we've had more investors talk to us about considering dividends as well as stock buybacks. So, this shows that I am willing to change, but the Board of Directors will consider both, I think, as the year unfolds.

John Harmon - Needham & Company

And back to the fiber-to-the-premise, when and what month of the quarter do you get an indication about what Verizon's intentions are for the year, and when do they come back seasonally in their purchases?

Wendell Weeks

Well, firstly actually your first question, which is fiber-to-the-premise sales for last year, we are over a quarter of a billion dollars. As far as the guidance for the year, for what Verizon is going to do, they have been very public to the entire market about what their plans are to do simply another 3 million homes past in the coming year. And a hunk of the variability now, we will come from as they connect those homes. As you may recall, what we’ve said is our revenue opportunity for home connected is in the range of a couple of $100 per home connected, half of that happens when they pass the home and half when they connect. So part of it, of our demand will depend on how successful they are at selling the service. They seem to be feeling pretty good about where they are in the markets that they are for video as well right now. We will get -- we will have our models updated on that cyclicality of the demand of their projects in the relatively near future and we hope that to Larry Aiello will share some of that with you on February 9.

John Harmon - Needham & Company

Thank you.

Operator

Thank you, our next question comes from Ajit Pai with Thomas Wiesel Partners.

Ajit Pai - Thomas Wiesel Partners

Yes, good morning and congratulations on a very, very solid 2006.

Wendell Weeks

Thank you very much.

Ajit Pai - Thomas Wiesel Partners

Some questions on your cash flow and liquidity, just back to the sort of commentary you provided slightly earlier. You talked about the earlier priorities which is retiring some of your debt and then sort of having some cash year marked for investing in opportunities. Could you give us some idea sort of quantify how much that is and what kind of timeline that you think you would -- your free cash flow would be able to sort of cover that and you could sort of consider either buy backs or dividends?

Jim Flaws

Well, the Board has not yet finalized the amount if they are going to having such excessive debt, now when they do I think we will disclose that to investors. The amount of debt that I think we were likely to buyback this year is probably in the 300 million kind of zone. So, we really don’t have too much in the next years and that’s what they have to concentrate on. So, my guess is that the Board will turn to this issue in the middle of the year after they feel comfortable the years unfolding as we expected and start to have the debate on, what we should do with the cash, lets be clear we're not going to file without unless we feel we have a major new product that’s going to break early and needs a lot of capital spending on that we intend to do the right thing.

Ajit Pai - Thomas Wiesel Partners

And the free cash flows that you had of $540 million in 2006, do you expect that to increase in 2007?

Jim Flaws

I will be giving you an update on that on February 9th, we have save a few things for that day.

Ajit Pai - Thomas Wiesel Partners

Okay, and then in terms of the deposit that you have, that you had received from some of your customers for glass supply. How depleted are those deposits, what's the net position on that? And then also, the sort of reserve you have taken against some of your deferred tax assets. Now that you have been profitable for such a long period, what is sort of GAAP provides for in terms of reversing some of those, and could you quantify those as well?

Jim Flaws

Yes, I think, I don’t have the number right here, but it is -- you can get it off of our financial statements on the net amount of what -- it was a slight decline in the year 2006 that reduced down, but we were still getting some money in. But it will be a negative for the cash flow in the sense in 2007 that will be a little money coming in to mostly affect the credits being -- if customers using part of their money to pay the receivables that we issued to them. On the deferred tax, there is nothing new on. We will comment a little bit more that on February 9th in terms of when we think that in the United States we might have to return to accruing taxes, most likely, but more about our cash tax provision. But it's definitely not 2007.

Ajit Pai - Thomas Wiesel Partners

Okay. Thank you so much and congratulations again on a really, really incredible year.

Jim Flaws

Thank you very much.

Operator

Thank you. Our next question comes from Curt Woodworth with J.P. Morgan.

Curt Woodworth - J.P. Morgan

Yes. Hi, good morning.

Jim Flaws

Good morning.

Curt Woodworth - J.P. Morgan

Jim, can you help me understand a bit more of the gross margin dynamics looking at the first quarter, just in the context if the display business is going to be down 10% to 15% in volume and a couple of points on price, how is that you could potentially achieve a 45% gross margin or be up sequentially on gross margin? Is it simply cost down or is it an incremental benefit to telecom that -- could be that powerful?

Jim Flaws

Well, telecom is powerful and we also intend to improve our environmental business. One of the things that you will be seeing in the environmental business goes along over the course of the year with the growth in diesel, then you will be seeing an improvement there. And remember in the fourth quarter, we had a very low level of gross margins, as we had lower auto. We also took shutdowns to reduce our own inventory. So, I think the combination of the inventory as the environmental telecom being up as well as our own continued efforts to try and reduce cost in Display, despite the volume down will allow us to do well in gross margin.

Curt Woodworth - J.P. Morgan

Okay, great. And then, just on the pricing in the wholly-owned business going from down 5 this quarter to down 1 to 2, and pretty big step function change. Is it simply a matter of the new price strategy you are implementing or are there other dynamics involved either may be incremental mix benefits with Gen 8, just a little bit more clarity around that change?

Jim Flaws

No, it's strictly result of our pricing strategy.

Curt Woodworth - J.P. Morgan

Okay. And then, last question on the tax rate for 2007. Do you think the 15 to 18 guidance you gave for the first quarter would be appropriate for the remainder of the year?

Jim Flaws

At this stage, that would be [something], so I could give you. We will try to give you a more of an update on February 9th about the dynamics in different countries. The thing it’s a little difficult for us to sometimes predict this. You are basically seeing the tax rate of our foreign entities right now is that we have different rates in Japan versus Taiwan, as an example. So, if we end up making a little more in one country, the other have influences. But the best number I could give you right now is 15 to 18.

Curt Woodworth - J.P. Morgan

Great, thank you.

Operator

Thank you. Our next question comes from John Roberts with Buckingham.

John Roberts - Buckingham

Good morning guys.

Jim Flaws

Good morning, John.

John Roberts - Buckingham

The pricing at SCP, it sounds like its may be lagging the trends in the wholly owned by about a quarter and structurally it won't get to the same pattern as the wholly owned in the mix difference is there enough that won't get down to 1% to 2%, will it?

Jim Flaws

So, what I think -- I wouldn't characterize it as just lagging the trend. I mean we clearly were lower there in our catching up, but we intend to deploy the same pricing strategy past this catch up there is what we are doing here. So on a sequential basis, we hope they will be achieving the same thing at SCP that we are achieving in wholly owned business.

John Roberts - Buckingham

Okay. Thank you.

Operator

Thank you. Our next question comes from Steve Fox with Merrill Lynch.

Steve Fox - Merrill Lynch

Hi, good morning. Could you talk a little bit about the risks within your pricing strategy, especially on the market share side? What's the chances that you lose more market share than you are anticipating?

Wendell Weeks

Hi, Steve, it's Wendell.

Steve Fox - Merrill Lynch

Hi.

Wendell Weeks

So, I think it's all of the obvious ones you have come up with, which is that what our strategy is to not chase the seasonality in the market with price and that instead to evaluate the market on really an annual basis on where we think supply and demand of glass will play, while at the same time still being responsive to our customers' needs for price declines to some extent. And so, the obvious ones are, do we have the market right and do we have where the glass supply in terms of overall capacity for the industry right? If we do, then the move for more seasonality in the first half ought to be offset by moves upward. In the back half, at the end it all work out, but you have both of those sets of uncertainty. You have both the market and what we think the overall industry supply has. But we wouldn’t be implementing the pricing strategy if we didn’t feel pretty good about those numbers.

Steve Fox - Merrill Lynch

Thanks. And then Jim, on the gross margins for the year, you were very successful holding gross margins in Display this year despite pricing pressures, you are adjusting your pricing strategy now. So I would think that you can hold Display gross margins, if that was the case, that helps your mix and you are seeing better improvement in environmental, is it safe to assume that you have gross margin upside as the year goes on, or there are certain headwinds we should consider?

Jim Flaws

If your assumptions were correct, that will be true.

Steve Fox - Merrill Lynch

Okay, thanks.

Operator

Thank you, our next question comes from Nikos Theodosopoulos with UBS.

Nikos Theodosopoulos - UBS

Yes, thank you. I have a couple of questions. First, on the full year, LCD volume forecast that you gave for the industry of mid 30%, that number seems low relative to at least what we were looking at and if you listen to some of the earnings calls from some of the panel makers, like Samsung, and LPL, it seems like their expectations are more like in the 40% to 50% range. So I am trying to understand why do you think the market is going to decelerate so much, or is this just early year initial forecast and its -- you are trying to be conservative or is this really the forecast, you think the market is going grow and that's how you are going to base your capacity additions for the year?

Wendell Weeks

Well, so first of all, I think you covered a bunch of different areas of possible explanation there. Let me emphasize the ones that I think on point, but first start with what Jim said, which is we expect actually terms as square feet, more growth in 2007 than we had in 2006 which is on a larger base that’s going to take you to a lower percentage. We showed it to you on the web on that slide 13, which said, 2006 square footage growth was about $400 million. In 2007, we are expecting on to be greater than or equal to amount, but that same amount is going to yield about mid 30's in terms of growth rather 50% last year. So, now let's deal with the $400 million. Yes, there is potential for upside barrier for that number. However, we do think, it's in the mid 30's at this time. We will be able to have all the data it takes to fully analyze what happened in quarter four until the end of February. You might remember that last year after we fully analyze that data, we did indeed upgrade our forecast because there was more strength than what the preliminary data had indicated to us that could happen again. But it's not a deliberate attempt on our part to be conservative. It's dealing with the data that’s in front of us and we should have more by the end of February.

Nikos Theodosopoulos - UBS

Okay. And just a follow-up, let's just assume that the market grows what you are thinking more and more and you go with this pricing strategy. Did you suggest, I am just trying to make sure I understand this that in the second half of this year that pricing could actually start going up sequentially, as the market get's tighter, because if your pricing is going to decline 1% to 2% in the first quarter and you think the second half is tighter than the first half, does that imply that pricing actually can be flatter go up is that kind of like what you said or am I misleading that?

Jim Flaws

So, what I said specifically was what we are attempting to do by have the lower end declines at the beginning of the year than what we did, for example last year, that in the back half of the year on that, we are trying what we expect to see we will be able to have a much higher price than what we would have if we let prices go down, where we have been kind of trap for the last few quarters being down 4% to 5% each quarter. I would be surprise if pricing went up, but obviously it would be our goal to have -- we love to have pricing to be flat in the back half of the year compared to the first part of the year, we will make some money.

Nikos Theodosopoulos - UBS

Okay, thank you.

Operator

Thank you. Our next question comes from Jeff Osborne with CIBC.

Jeff Osborne - CIBC

Okay, thanks a lot. I just wanted to drill down on XG opportunity, I was just wondering, if you can share with us what percentage of your output is capable of XG now and then just go through their process and operational challenges, or the methodology of shifting the entire production output to XG in 2007 like you indicated?

Jim Flaws

Well, at this time, we are under -- half of our volume is EAGLE XG. However, we anticipate to take it over to be 100% by the end of the year. And that’s our plan. And of course the complications to being able to get there, but we have great confidence in operations and technical folks in Display and we think they are up to it.

Jeff Osborne - CIBC

Okay. And then just last quick one, Just can you update us Wendell on the submarine telecom market, are you seeing any rebound in that market?

Wendell Weeks

Thanks for the question, submarine it's been a lot of years since I have talked about the submarine optical cable market, brings back old memories. So yes we are seeing a rebound but it's on a very small number. I think the most exciting thing is that we are finally getting to use some of the very, very advanced technologies that we developed a number of years ago to make submarine cable transmission a much lower cost and much more effective, but regretfully it's on a small number.

Jeff Osborne - CIBC

Okay thanks a lot.

Operator

Thank you. Our next question comes from Brant Thompson with Goldman Sachs.

Brant Thompson - Goldman Sachs

Hi, just wanted to clarify a few things around some of your assumptions related to your pricing strategy. First in the second half of the year you had -- you responded to one of the prior questions that you should see some -- could see some more stable pricing as capacity would be typed in. If that’s the case, I mean in years have we ended up in some tight supply situations in the past. Would that be typical of the type of that we are able to see at that point is the first question. And the second question gets back to kind of any loss of market share. Are you assuming that your competitors who have so far acted pretty aggressively with price over the last say 18 months are going to not increase capacity and try to really gun for share on the back of the strategy or the kind of what are your assumptions about their behavior? Thanks.

Jim Flaws

No, we don’t believe that into the glass industry is not putting in place enough capacity such that some one could have enough to actually try to steal a huge amount. You look at all the announcements that have been made in the industry and that’s it. That’s the core of our pricing strategy as we are going past the glass supply demand will be tight in the back half of the year therefore it’s relatively hard for someone to come in with a very aggressive price and say we are going take away a large portion of Corning, so that is at the core of our pricing strategy therefore its utilized in all year long. Offset to the leverage if our prices are not declining in the back half of the year and we continue to do well in cost reductions and do work is probably the most important thing for our cost structure which is to run relatively full, we expect to see quite a bit of leverage from that.

Wendell Weeks

Let me just build some on Jim’s comments. Because we are not counting one behavior or another from our competitors it comes back to I answer that Steve Fox's question, which is where the potential for variability here and the effectiveness some of our pricing strategy will depend on also to how right we are on the market and how right we are on how much capacity is out there. To the extent the glass is tight than our actions will stand on there own and what we are not trying to do is chase a sort of point or two with market share with price. What we believe is we have an understanding of where the market will be and the performance versus glass supply. There is variability potential there and the future is the hardest thing to predict, but that’s what we are basing our strategy on.

Operator

Thank you our next question comes from Daryl Armstrong with Citigroup.

Daryl Armstrong - Citigroup

Hey how is it going guys. [Ted] on to the back of the previous question in terms of market share variation, given the fact that you do expect that conditions will be tight in the second half of the year. Then whether we are correct to assume that you're tolerant of more than a point or two of market share variability in the first half figuring that you just recoup it at the back end?

Jim Flaws

So, I think our statements sort of stand on their own. What we expect is as the market leader and with our pricing strategy the bulk of the seasonality in this market will fall on our shoulders. I think it’s important to remember you can’t measure market share quarter-to-quarter. You can remember last year, we had the market really shoot up in quarter one, and what we told every one was, gosh, don’t feel too good about that because we think a lot of that sitting in panel inventory and then it adjusted in quarter two, and you know all up and down, all year long well basically we grew at/or slightly above the market. So, I think you can bring over precision to analysis on a quarter-to-quarter basis. This is in business, so we think that’s very long way and a long life time, we've got to set strategies in place, it don’t just account for sort of quarter-to-quarter variation, but rather put us on a long term trajectory that has strong profitability while at the same time being responsive to our customers. We don’t expect this to be a market, where prices are going to go up, we expect prices to go down while you are dealing with the rate of down relative to our cost performance.

Daryl Armstrong - Citigroup

Makes sense, and then in terms of the growth assumption that you have for the overall market in the 30's range, what’s the implied assumption that you have for some of the [ITU] related end market like firms and the PC growth?

Wendell Weeks

We are talking about I think 10% on notebooks and 6% on monitors.

Daryl Armstrong - Citigroup

Okay. All right. And then, one last thing, in terms of the better than anticipated cost reduction in the fourth quarter on the LCD side, did you guys start a new initiative, any additional color that you can give us before the analyst day meeting in terms of what you guys were able to do over the course of the last three month?

Jim Flaws

There is nothing dramatic within the three months, but Pete Volanakis is going to talk to talk to you about very extensive plan we have on driving down cost over a five-year period of time of which 2006 was just one example.

Daryl Armstrong - Citigroup

Excellent. Thank you again.

Ken Sofio

Lisa, we are running kind of long. We have time for one more call.

Operator

Thank you. Our final question comes from C.J. Muse with Lehman Brothers.

C.J. Muse - Lehman Brothers

Yes. Good morning. I guess a couple of questions here. First up, on your pricing strategy, is the goal to get down 1% to 2% on a blended basis or is that across all generation?

Jim Flaws

That's a blended basis, but I will point out to you C.J. that, with the business now so big, mix really isn't that much of an impact. It really did. There had no impacts on this past year. So, you are really not seeing very much from mix anymore, even if one big new fab coming, it just can't move it that much. So, it's really the blended overall.

C.J. Muse - Lehman Brothers

Got you, alright. And then, in terms of the volume guidance for SCP for 1Q, given what we've heard from Samsung and CTL that seems very conservative. Would you characterize that as being conservative on your part or are you anticipating share loss, can you help me understand that?

Wendell Weeks

Sure. As Jim as said and I have, that it's important to remember is what our view is of seasonality and where the impact is, right. So, we do view this market as going to be much more stronger seasonal. You may remember that last year what we said, as the whole industry was dealing with the switchover to TV being the really big driver that the whole industry would have to figure out how to operate in a market that's going to be so seasonal. We've now led forth how we are going to operate. So, that’s why that together -- our market share together with our pricing strategy will mean that the seasonality has the potential to hit us a little more strongly than other players in the market. And that’s what we are planning on.

Jim Flaws

Just one other comments C.J. on that I just point out once again that annual shipments in glass don’t perfectly correlate in average in a given quarter, as you could [saw] our glass shipments in quarter four were greater -- much greater than panel shipments. So, you've got to at it over a longer period of time.

C.J. Muse - Lehman Brothers

Okay. So, you would characterize it as a timing differential from the [future] not share loss at either Samsung or LPL?

Jim Flaws

I think our comments stand on their own.

C.J. Muse - Lehman Brothers

Okay. And in terms of your gross margin, given LCD approaching 50% of the mix in the second half of the year, are you comfortable that they were going to hit roughly 47% to 49% gross margin in the second half?

Jim Flaws

I am not giving gross margin guidance for the full year. I indicated before to a caller, who said that for pricing strategy, work volume is good, display is improved -- diesel is improving. We have room for improve. We are not going to give guidance right now further back.

C.J. Muse - Lehman Brothers

And you don't afford to try.

Jim Flaws

We will give you an (inaudible).

C.J. Muse - Lehman Brothers

And then, in the other business, other technologies, how much of the revenues there are leveraged to semi-cycle?

Jim Flaws

I think semi is about half of those -- of the other segments.

Wendell Weeks

You got it. Then there is a couple of drivers one is semi with a very strong performance now out of our people doing the semi optics. And the other of course has been a strong success story for them, which is the DLP play where we make the packaging for the TI's DLP solution, which has been a great success story of innovation for those guys.

C.J. Muse - Lehman Brothers

Okay. And last question from me. For Dow Corning, I am not sure if I missed it, but Jim, did you give guidance for the full year for the equity contribution?

Jim Flaws

I basically said that the revenue would grow at 6% to 8% for the year and that the MPAT would be at the upper end of that for the full year. Held down a little because we don’t have as much (inaudible) more capacity coming on and also they will have some projects spending in China.

C.J. Muse - Lehman Brothers

Okay. Thank you.

Ken Sofio

Jim, you have some closing comments?

Jim Flaws

Yes, I do. I would like to make just a couple of comments. First of all, from the investor relations announcement point of view, as we have noted, we will have our annual investor meeting on Friday, February 9th at the Mandarin Oriental hotel in New York City. We plan on providing a lot more transparency into our company, our strategy, and our views of long-term trends. We are going to have a number of our key business leaders on hand to speak to investors and showcase products and answer your questions. You will see a piece of GEN 8 glass on a new diesel filter, our new epic well plates and a complete fiber-to-the-home set up showcasing our innovative product offerings.

In addition, several members of our R&D group will be there showcasing a few of the exciting projects that they are currently working in labs and these will include the green laser, micro reactors, soldering glass, and mercury. You are going to hear formal presentations from senior executives and obviously have the opportunity to ask questions, presentations made by Wendell; Pete Volanakis; John Miller, our Chief Technology Officer, and myself, in addition Tom Hinman from Diesel and Mary Elliott from Corning Cable Systems will be present. We believe it will be very informative event. We hope you will be able to join us, if you are interested please register on our website.

Now regarding 2006 we could not have been more pleased with our financial performance. I know many investors were disappointed with the stock movements towards the end of the year, but I hope you will agree that the actual results for the year of the company were terrific. Our sales were up 13% for the year our NPAT without special items was up 35% without the impact of stock option and expensing that NPAT was actually up 42%. We faced the most turbulent year in Display, which lead to our highest price declines in history and we were still able to hold our gross margin percent.

So obviously we would like to see a higher stock price, but our main responsibility is to continue to grow the company and meet our financial goals, we accomplished both of these objectives of 2006. Back we think we did it exceedingly well we hope investors will agree. Looking forward we believe we have another number of opportunities to provide further growth in 2007 and we look forward to seeing you in two weeks.

Ken Sofio

Thank you, Jim. Thank you, Wendell and thank you all for joining us this morning. A playback of the call will be available beginning at 10:30 am Eastern Time today, until 5:00 pm Eastern Time February 7. To listen, dial 210-369-3852. No password is required. The audio-cast will also be available on our website during that time. Lisa that concludes our call this morning, please disconnect all lines

Operator

Thank you. This concludes today's teleconference. Thank you for your participation, you may disconnect at this time thank you.

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