SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: (Date of earliest event reported) October 30, 2002
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
New York 1-3247 16-0393470
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Riverfront Plaza, Corning, New York 14831
(Address of principal executive offices) (Zip Code)
(607) 974-9000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events and Regulation FD Disclosure.
Item 7. Financial Statements and Exhibits.
Exhibits:
The Registrant's press release of October 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNING INCORPORATED
Registrant
Date: October 30, 2002 By /s/ KATHERINE A. ASBECK
------------------------------------
Katherine A. Asbeck
Senior Vice President and Controller
FOR RELEASE -- OCTOBER 30, 2002
Corning Contacts:
Media Relations Investor Relations
Daniel F. Collins Kenneth C. Sofio
(607) 974-4197 (607) 974-7705
collinsdf@corning.com sofiokc@corning.com
Corning Announces Third-Quarter Results and Fourth-Quarter Restructuring
Financial performance within guidance range
Fourth-quarter restructuring expected to be $550 to $650 million
Corning proposes three optical fiber facility closures
CORNING, N.Y. -- Corning Incorporated (NYSE:GLW) today announced that its
third-quarter sales were $837 million and that it recorded a net loss to common
shareholders of $260 million, or $0.25 per share. The company's third-quarter
loss includes a previously announced restructuring and impairment pretax charge
of $125 million ($85 million after-tax and minority interest), or $0.08 per
share, and a $0.12 reduction in earnings per share as a result of the
declaration of dividends on Corning's 7.00% Series C mandatory convertible
preferred stock offering completed in the quarter. Third-quarter results also
include a gain from debt repurchases of $22 million ($13 million after-tax), or
$0.01 per share.
"Overall, we are pleased that our third-quarter financial performance is in line
with the guidance we provided last July," James R. Houghton, chairman and chief
executive officer, said. "We continue to reduce quarterly costs and we have done
a good job of managing cash flow. However, we are not satisfied with quarterly
losses; therefore we will take additional restructuring actions in the fourth
quarter. These are designed to protect Corning's long-term financial health and
move us toward our goal of returning to profitability in 2003."
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Corning Announces Third-Quarter Results and Fourth-Quarter Restructuring
Page Two
The company said that it anticipates taking restructuring and asset impairment
charges in the range of $550 to $650 million pretax in its fourth quarter. The
charges would include the impact of the permanent closing of Corning's optical
fiber factory in Australia and the proposed closing of its German optical fiber
facility, as well as the mothballing of its optical fiber factory in Concord,
N.C. The charges would also include the impact of proposed reductions in
capacity and employment levels in the company's cable, hardware and equipment
and photonic technologies businesses.
Third-Quarter Operating Results
Sales for the quarter of $837 million represent a sequential decline of 7% from
second-quarter sales of $896 million. This sequential sales decline was
primarily driven by continued lower demand across all the telecommunications
businesses. Volume in the optical fiber and cable business declined by 10% and
optical fiber prices declined 10% to 15%.
The information display segment, which was fueled by the continued popularity of
flat screen monitors and increasing demand for projection televisions,
experienced a 7% sequential increase in sales, which was more than offset by the
decline in the telecommunications segment. The company said its liquid crystal
display glass shipments have increased quarter-to-quarter throughout the year
and the company experienced record production in the third quarter. Corning said
it continues to bring on additional manufacturing capacity to meet the
increasing demand expected to continue in the fourth quarter. Flat panel glass
pricing remained stable in the third quarter.
On a sequential basis, Corning's net loss before special items was slightly
lower than the second quarter as lower sales and margins were offset by
significant reductions in operating expenses. Approximately $20 million of the
operating expense reductions in the quarter are not expected to recur in the
fourth quarter. In addition, Corning's results benefited by approximately $10
million from an increase in the tax benefit rate in the quarter.
Liquidity Update
Corning said that it had more than $1.6 billion in cash and short-term
investments at the end of the third quarter, up from $1.3 billion at the end of
the second quarter. This increase includes approximately $441 million raised in
a preferred stock offering during the quarter. In addition, Corning continues to
have access to its unused $2 billion revolving line of credit. The company's
debt to capital ratio was 44% at the end of the third quarter.
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Corning Announces Third-Quarter Results and Fourth-Quarter Restructuring
Page Three
The company used $35 million in cash during the quarter to repurchase $58
million of debt. Additionally, Corning has repurchased debentures with an
accreted value of $204 million for $118 million in cash in the fourth quarter
through October 29, 2002. These additional repurchases will result in Corning
recording a pretax gain of $83 million in the fourth quarter. Corning said it
may from time to time continue repurchases of its debt securities in open market
or privately negotiated transactions.
Excluding financing activities and related investments, Corning used $110
million in cash and short-term investments during the quarter. This included $77
million in restructuring payments and a net $24 million related to the purchase
of Lucent's optical fiber and cable assets in China.
Fourth-Quarter Restructuring Charges
Corning said it will take fourth-quarter pretax restructuring charges in the
range of $550 to $650 million for the following actions:
. The permanent closing of its optical fiber manufacturing facility in
Noble Park, Victoria, Australia, and the proposed closing of its
Neustadt bei Coburg, Germany optical fiber plant. These closures are
proposed to be completed by early 2003. Corning will also mothball its
optical fiber manufacturing facility in Concord, N.C., and transfer
certain capabilities to its Wilmington, N.C., facility. Corning
believes that the Concord facility can be returned to productive
capacity within six to nine months of a decision to reopen.
. Proposed reductions in capacity and employment in Corning's cabling
and hardware and equipment locations worldwide to reduce costs.
. Permanent closure of its photonic technologies thin film manufacturing
facility in Marlborough, Mass., by the end of 2002.
Corning said these restructuring actions will result in a reduction of
approximately 2,200 employees. Of the total restructuring charge of $550 to $650
million, approximately 25% is expected to be paid in cash.
The company expects to realize annualized savings of at least $165 million from
this latest round of restructuring and cost reduction programs. These cost
savings are in addition to the $265 million in annual cost savings to be
realized from the previously announced restructuring actions taken in the second
and third quarter.
"The challenge confronting the telecommunications industry is the most serious
we have faced," said James B. Flaws, vice chairman and chief financial officer.
"Telecom carriers continue to indicate that they will further reduce investments
in 2003. As a result, we are taking decisive action to re-size our businesses to
reflect today's economic realities. These actions will contribute to our plan to
achieve profitability in 2003. We are also evaluating other restructuring
actions and we may announce further charges later in the current quarter."
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Corning Announces Third-Quarter Results and Fourth-Quarter Restructuring
Page Four
Also, as part of its plan to restore profitability, the company announced that
it would continue its merit freeze for salaried employees into 2003 and also
make certain benefit reductions including changes to its investment plan and
retiree medical plan.
Overview of 2002 Charges
In July, Corning announced it would record a $600 million pretax restructuring
and impairment charge spread over the second and third quarters, including a
workforce reduction of 4,600. Today's announcement will bring the company's 2002
restructuring and impairment charges to approximately $1.3 billion pretax and
headcount reductions totaling about 6,800 for the year. Last year, Corning
announced the elimination of 12,000 positions. Corning's total headcount will
approximate 23,500 upon completion of this latest round of restructuring.
"These reductions are extremely painful. We are losing talented people who have
made valuable contributions to Corning and we are acutely aware of the impact
these actions have on the communities in which we operate," Flaws said.
Fourth-Quarter Outlook
Corning said it expects fourth-quarter sales will be in the range of $775 to
$825 million and its net loss will be in the range of $0.08 to $0.12 per share,
excluding restructuring and impairment charges announced today. The expected
decline in fourth quarter sales compared to third quarter sales is primarily due
to continued volume and price declines in the optical fiber and cable business,
with some impact due to seasonality. Volume is expected to decline by 10% to 15%
and the rate of decline in price is expected to be slightly less than the third
quarter.
Corning is expecting continued strong performance for its flat panel glass
business in the fourth quarter. Sales are also expected to increase in the
semiconductor business. These gains will be largely offset by seasonal declines
in other businesses in the advanced materials and information display segments.
"While we will significantly reduce our optical fiber and cable manufacturing
capacity with the actions announced today, we will be in a position to quickly
restart our Concord factory when market conditions improve," Houghton said. "We
believe in the future of optical communications. In the meantime, our diverse
product portfolio, based on our commitment to technology and innovation,
continues to serve us well. We are taking decisive actions to address the
near-term challenges and we are protecting our market leading positions to
assure future growth and profitability. We are committed to success," Houghton
said.
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Corning Announces Third-Quarter Results and Fourth-Quarter Restructuring
Page Five
About Corning Incorporated
Established in 1851, Corning Incorporated (www.corning.com) creates leading-edge
technologies that offer growth opportunities in markets that fuel the world's
economy. Corning manufactures optical fiber, cable and photonic products for the
telecommunications industry; and high-performance displays and components for
television, information technology and other communications-related industries.
The company also uses advanced materials to manufacture products for scientific,
semiconductor and environmental markets.
Conference Call Information
The company will host a conference call at 8:30 a.m. EST on Wednesday, October
30, 2002. To access the call, dial (212) 547-0138. The password is Corning. The
leader is Sofio. A replay of the call will begin at approximately 10:30 a.m. EST
and will run through 5 p.m. EST on Wednesday, November 13, 2002. To access the
replay, dial (402) 220-9812; a password is not required. A live audio webcast
will be available at www.corning.com/investor_relations/ and will remain there
for 14 days following the call.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic conditions; currency exchange rates; product
demand and industry capacity; competitive products and pricing; availability and
costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the telecommunications industry and other
business segments; the mix of sales between premium and non-premium products;
possible disruption in commercial activities due to terrorist activity and armed
conflict; ability to obtain financing and capital on commercially reasonable
terms; acquisition and divestiture activities; the level of excess or obsolete
inventory; the ability to enforce patents; product and components performance
issues; and litigation. These and other risk factors are identified in Corning's
filings with the Securities and Exchange Commission. Forward-looking statements
speak only as of the day that they are made, and Corning undertakes no
obligation to update them in light of new information or future events.
###
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share amounts)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 837 $ 1,509 $ 2,631 $ 5,298
Cost of sales 674 994 2,050 3,438
--------- --------- --------- ---------
Gross margin 163 515 581 1,860
Operating expenses
Selling, general and administrative expenses 158 267 538 799
Research, development and engineering expenses 115 153 375 484
Amortization of purchased intangibles 11 13 33 36
Amortization of goodwill 35 328
Restructuring, impairment and other charges 125 339 619 5,111
--------- --------- --------- ---------
Operating loss (246) (292) (984) (4,898)
Interest income 10 15 34 50
Interest expense (44) (37) (136) (105)
Gain on repurchases of debt 22 90
Other expense, net (1) (6) (10) (27)
--------- --------- --------- ---------
Loss before income taxes (259) (320) (1,006) (4,980)
Benefit for income taxes (79) (60) (299) (29)
--------- --------- --------- ---------
Loss before minority interest and equity earnings (180) (260) (707) (4,951)
Minority interest in losses (earnings) of subsidiaries 5 1 17 (11)
Equity in earnings of associated companies 42 39 97 119
--------- --------- --------- ---------
Net loss (133) (220) (593) (4,843)
Dividends and beneficial conversion on
Series C preferred stock (127) (127)
--------- --------- --------- ---------
Loss attributable to common shareholders $ (260) $ (220) $ (720) $ (4,843)
========= ========= ========= =========
Basic and diluted loss per common share $ (0.25) $ (0.24) $ (0.74) $ (5.21)
========= ========= ========= =========
Net loss adjusted for the impact of
SFAS No. 142 in 2001 $ (133) $ (145) $ (593) $ (4,529)
========= ========= ========= =========
Basic and diluted loss per common share
adjusted for the impact of SFAS No. 142 in 2001 $ (0.25) $ (0.15) $ (0.74) $ (4.88)
========= ========= ========= =========
Dividends declared per common share $ $ $ $ 0.12
========= ========= ========= =========
Shares used in computing per share amounts for
basic and diluted loss per common share 1,036 936 977 929
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In millions)
Unaudited December 31, Unaudited
Sept. 30, 2002 2001 Sept. 30, 2001
-------------- ------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 983 $ 1,037 $ 568
Short-term investments, at fair value 618 1,182 1,027
--------- --------- ---------
Total cash and short-term investments 1,601 2,219 1,595
Trade accounts receivable, net of doubtful accounts
and allowances - $48, $60 and $63 541 593 904
Inventories 619 725 958
Deferred income taxes 380 347 263
Other current assets 374 223 228
--------- --------- ---------
Total current assets 3,515 4,107 3,948
Restricted cash and investments 70
Investments:
Associated companies, at equity 696 636 581
Others, at cost or fair value 74 142 143
--------- --------- ---------
Total investments 770 778 724
Property, plant and equipment, at cost, net of accumulated
depreciation - $3,405, $3,101 and $3,072 4,592 5,097 5,300
Goodwill, net of accumulated amortization - $661, $661 and $632 2,113 1,937 2,008
Other intangible assets, net of accumulated amortization
- $120, $90 and $80 378 352 338
Other assets 744 522 366
--------- --------- ---------
Total Assets $ 12,182 $ 12,793 $ 12,684
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 213 $ 477 $ 347
Accounts payable 286 441 430
Other accrued liabilities 976 1,076 1,029
--------- --------- ---------
Total current liabilities 1,475 1,994 1,806
Long-term debt 4,171 4,461 3,901
Postretirement benefits other than pensions 618 608 593
Other liabilities 383 190 204
Commitments and contingencies
Minority interest in subsidiary companies 138 119 141
Series B convertible preferred stock 7 8
Shareholders' equity:
Series C mandatory convertible preferred stock 245
Common stock - Par value $0.50 per share;
Shares authorized: 3.8 billion;
Shares issued: 1,222 million,
1,023 million and 1,023 million 611 512 512
Additional paid in capital 9,738 9,532 9,448
Accumulated deficit (4,330) (3,610) (2,954)
Cost of 74 million, 79 million and 78 million
shares of common stock in treasury (736) (827) (811)
Accumulated other comprehensive loss (131) (193) (164)
--------- --------- ---------
Total shareholders' equity 5,397 5,414 6,031
--------- --------- ---------
Total Liabilities and Shareholders' Equity $ 12,182 $ 12,793 $ 12,684
========= ========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
For the nine months ended
September 30,
2002 2001
-------- ---------
Cash flows from operating activities:
Net loss $ (593) $ (4,843)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization of purchased intangibles 33 36
Amortization of goodwill 328
Depreciation 489 476
Restructuring, impairment and other charges 619 5,111
Inventory write-down 273
Gain on repurchases of debt (90)
Stock compensation charges 2 36
Equity in earnings of associated companies
in excess of dividends received (4) (58)
Minority interest, net of dividends paid (17) 2
Deferred tax benefit (127) (182)
Tax (expense) benefit on stock options (1) 27
Interest expense on convertible debentures 30 30
Restructuring payments (193) (22)
Increases in restricted cash (20)
Changes in certain working capital items (204) 2
Other, net (73) 8
-------- ---------
Net cash (used in) provided by operating activities (149) 1,224
-------- ---------
Cash flows from investing activities:
Capital expenditures (283) (1,532)
Acquisitions of businesses, net of cash acquired (56) (66)
Net proceeds from sale or disposal of assets 62 49
Net increase in long-term investments and other
long-term assets (18) (93)
Short-term investments - acquisitions (1,557) (829)
Short-term investments - liquidations 2,123 517
Restricted investments - acquisitions (117)
Restricted investments - liquidations 67
Other, net (2)
-------- ---------
Net cash provided by (used in) investing activities 219 (1,954)
-------- ---------
Cash flows from financing activities:
Net (repayments) borrowings of short-term debt (475) 136
Proceeds from issuance of long-term debt 11 70
Repayments of long-term debt (190) (93)
Redemption of Series B preferred stock (7)
Proceeds from issuance of Series C preferred stock, net 558
Proceeds from issuance of common stock, net 47 246
Redemption of common stock for income tax withholding (1) (25)
Repurchases of common stock for treasury (23)
Cash dividends paid to preferred/common shareholders (67) (112)
-------- ---------
Net cash (used in) provided by financing activities (147) 222
-------- ---------
Effect of exchange rate changes on cash and cash equivalents 23 6
-------- ---------
Cash used in continuing operations (54) (502)
-------- ---------
Cash used in discontinued operations (9)
-------- ---------
Net decrease in cash and cash equivalents (54) (511)
Cash and cash equivalents at beginning of year 1,037 1,079
-------- ---------
Cash and cash equivalents at end of period $ 983 $ 568
======== =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter 3, 2002
1. Operating Segments
Corning's reportable operating segments consist of Telecommunications, Advanced
Materials and Information Display. Corning includes the earnings of equity
affiliates that are closely associated with Corning's operating segments in
segment net income. In the second quarter of 2002, Corning revised its
definition of segment net income. Prior to the second quarter, Corning disclosed
restructuring and impairment charges by segment but excluded this from
quantitative segment results. These charges have now been included in segment
net income and historical periods have been conformed to this presentation.
Information about the performance of Corning's three operating segments for the
third quarter and nine months of 2002 and 2001 is presented below. These amounts
exclude revenues, expenses and equity earnings not specifically identifiable to
segments.
Corning prepared the financial results for its three operating segments on a
basis that is consistent with the manner in which Corning management internally
disaggregates financial information to assist in making internal operating
decisions. Corning has allocated some common expenses differently than it would
for stand-alone financial information prepared in accordance with generally
accepted accounting principles. These expenses include interest, taxes and
corporate functions. Segment net income may not be consistent with measures used
by other companies.
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Telecommunications
Net sales $ 366 $ 1,089 $ 1,268 $ 3,915
Research, development and engineering expenses $ 71 $ 110 $ 243 $ 366
Interest expense $ 27 $ 24 $ 84 $ 72
Segment (loss) earnings before
equity (losses) earnings and restructuring, impairment
and other charges $ (132) $ 14 $ (409) $ 184
Equity in (losses) earnings of associated companies (5) 4 (12) 15
--------- -------- --------- ---------
Segment (loss) earnings before restructuring, impairment
and other charges (137) 18 (421) 199
Restructuring, impairment and other charges, net of tax (61) (222) (320) (4,948)
--------- -------- --------- ---------
Segment net loss $ (198) $ (204) $ (741) $ (4,749)
========= ======== ========= =========
Advanced Materials
Net sales $ 239 $ 234 $ 714 $ 767
Research, development and engineering expenses $ 31 $ 31 $ 94 $ 87
Interest expense $ 9 $ 7 $ 25 $ 17
Segment earnings before equity earnings and
restructuring charges $ 2 $ 2 $ 12 $ 39
Equity in earnings of associated companies 11 6 31 19
--------- -------- --------- ---------
Segment earnings before restructuring charges 13 8 43 58
Restructuring charges, net of tax (3) (4)
--------- -------- --------- ---------
Segment net income $ 10 $ 8 $ 39 $ 58
========= ======== ========= =========
Information Display
Net sales $ 228 $ 183 $ 635 $ 602
Research, development and engineering expenses $ 13 $ 12 $ 38 $ 31
Interest expense $ 10 $ 6 $ 27 $ 16
Segment earnings before minority interest, equity
earnings and restructuring charges $ 17 $ 11 $ 28 $ 57
Minority interest in losses (earnings) of subsidiaries 5 1 16 (11)
Equity in earnings of associated companies 32 27 86 81
--------- -------- --------- ---------
Segment earnings before restructuring charges 54 39 130 127
Restructuring charges, net of tax (1) (1)
--------- -------- --------- ---------
Segment net income $ 53 $ 39 $ 129 $ 127
========= ======== ========= =========
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Total Segments
Net sales $ 833 $ 1,506 $ 2,617 $ 5,284
Research, development and engineering expenses $ 115 $ 153 $ 375 $ 484
Interest expense $ 46 $ 37 $ 136 $ 105
Segment (loss) earnings before minority interest,
equity earnings and restructuring, impairment and
other charges $ (113) $ 27 $ (369) $ 280
Minority interest in losses (earnings) of subsidiaries 5 1 16 (11)
Equity in earnings of associated companies 38 37 105 115
--------- -------- --------- ---------
Segment (loss) earnings before restructuring, impairment
and other charges (70) 65 (248) 384
Restructuring, impairment and other charges, net of tax (65) (222) (325) (4,948)
--------- -------- --------- ---------
Segment net loss $ (135) $ (157) $ (573) $ (4,564)
========= ======== ========= =========
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows (in
millions):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Net sales
Total segment net sales $ 833 $ 1,506 $ 2,617 $ 5,284
Non-segment net sales (a) 4 3 14 14
--------- -------- --------- ---------
Total net sales $ 837 $ 1,509 $ 2,631 $ 5,298
========= ======== ========= =========
Net loss
Total segment net loss (b) $ (135) $ (157) $ (573) $ (4,564)
Unallocated items:
Non-segment loss and other (a) (2) (1) (4) (4)
Amortization of goodwill (c) (35) (328)
Non-segment restructuring, impairment and
other charges (d) (28) (155)
Interest income (e) 10 15 34 50
Gain on repurchases of debt (e) 22 90
Income tax (f) (3) (44) 8 (1)
Minority interest 1
Equity in earnings of associated companies (a) 3 2 6 4
--------- -------- --------- ---------
Net loss $ (133) $ (220) $ (593) $ (4,843)
========= ======== ========= =========
(a) Includes amounts derived from corporate investments and activities.
(b) Includes royalty, interest and dividend income.
(c) Amortization of goodwill relates primarily to the Telecommunications
Segment.
(d) Amount includes special termination benefits of $5 million and pension and
postretirement benefit curtailment charges of $35 million recorded in the
third quarter and nine months of 2002, respectively. The balance of the
charge relates to restructuring and impairment charges in the corporate
research and administrative staff organizations.
(e) Corporate interest income and gain on repurchases of debt is not allocated
to reportable segments.
(f) Includes tax associated with unallocated items.
2. Restructuring, Impairment and Other Charges
2002 Restructuring Actions
During the second quarter, Corning undertook actions to reduce its costs. The
intent to do so was announced in April 2002. At that time, it was estimated that
restructuring, fixed asset impairments, and impairments of investments could
total approximately $600 million and would be recorded over the second and third
quarters.
Actions approved and initiated in the second quarter include the following:
.. permanent abandonment of certain construction projects that had been
stopped in 2001 in the fiber and cable business within the
Telecommunications Segment,
.. closure of minor manufacturing facilities, primarily in the
Telecommunications Segment,
.. closure and consolidation of research facilities,
.. elimination of positions worldwide through voluntary and involuntary
programs, and
.. divestiture of a portion of the controls and connectors business in the
Telecommunications Segment.
In addition, Corning impaired cost based investments in a number of private
telecommunications companies.
These second quarter actions resulted in a net pre-tax charge totaling $494
million ($328 million after-tax) for the quarter ended June 30, 2002. The charge
includes restructuring costs of $204 million offset by a $5 million reversal of
the 2001 restructuring charge, $224 million for the impairment of plant and
equipment offset by a $5 million reversal of the 2001 impairment charge, $60
million for the impairment of cost investments and a $16 million loss on
divestiture. Approximately $174 million of the charge recorded in the second
quarter is expected to be paid in cash.
The third quarter charges resulted in a pre-tax charge totaling $125 million
($85 million after-tax and minority interest) for the quarter ended September
30, 2002. The charge includes restructuring costs of $58 million and $67 million
for the impairment of plant and equipment. Approximately $53 million of the
charge recorded in the third quarter is expected to be paid in cash. As of
September 30, 2002, approximately 3,000 of the 4,600 employees had been
separated under the 2002 plans. Corning expects the remaining employees to be
separated by September 30, 2003. Certain obligations of the plans will be paid
in 2003 and beyond.
Fourth Quarter
On October 30, 2002, Corning announced its intent to take additional measures to
attain profitability in 2003. The continued decline in demand in the
Telecommunications Segment requires further restructuring to bring capacity in
line with current revenues. The fourth quarter pre-tax charge is expected to
approximate $550 million to $650 million and impact approximately 2,200
employees. Approximately one quarter of this charge is expected to be paid in
cash. The fourth quarter actions will include:
.. the permanent closing of its optical fiber manufacturing facility in Noble
Park, Victoria, Australia, and the proposed closing of its Neustadt Bei
Coburg, Germany plant. These closures are proposed to be completed by early
2003. Corning will also mothball its optical fiber manufacturing facility
in Concord, N.C., and transfer certain capabilities to its Wilmington,
N.C., facility. Corning believes that the Concord facility can be returned
to productive capacity within six to nine months of a decision to reopen,
.. proposed reductions in capacity and employment in Corning's cabling and
hardware and equipment locations worldwide to reduce costs, and
.. permanent closure of its photonic technologies thin film filter
manufacturing facility in Marlborough, Mass., by the end of 2002.
3. Gain on Repurchases of Debt
During the third quarter of 2002, Corning repurchased and retired a portion of
its zero coupon convertible debentures with an accreted value of $58 million in
exchange for cash of $35 million in a series of open market repurchases. Corning
recorded a gain of $22 million ($13 million after-tax) on these transactions,
net of the write-off of the unamortized issuance costs.
Corning repurchased and retired zero-coupon convertible debentures with an
accreted value of $278 million in exchange for cash of $183 million for the nine
months ended September 30, 2002. Corning has recorded gains of $90 million ($55
million after-tax) on these transactions for the nine months ended September 30,
2002.
4. Income Taxes
Corning's effective income tax benefit rate for the three and nine month periods
ended September 30, 2002, was 30.3% and 29.7%, respectively. The income tax
benefit rate in the third quarter and nine months of 2002 was impacted by
specific tax benefit calculations for restructuring, impairment and other
charges and the gain on repurchases of debt. The effective benefit rate without
consideration of these items was 31.1% and 27%, respectively, for the quarter
and nine months of 2002. The effective income tax benefit rate in the quarter
and year to date is lower than the U.S. statutory income tax rate of 35% due to
the impact of unusable tax credits and nondeductible expenses and losses.
In 2002, the U.S. enacted tax legislation that extended the net operating loss
carryback period from two to five years. Due to this legislation change, Corning
will be able to carryback the anticipated 2002 U.S. federal net operating loss
and claim a refund which would not have otherwise been available. Current assets
at September 30, 2002, include a receivable of $185 million as a result of
Corning availing itself of this opportunity.
The effective income tax benefit rate for the three and nine months ended
September 30, 2001, was 18.8% and 0.6%. These tax rates are much lower than the
U.S. statutory income tax rate primarily due to non-tax deductible impairment
and amortization of acquired intangibles and goodwill.
5. Supplementary Statement of Cash Flows Data
Supplemental disclosure of cash flow information is as follows (in millions):
For the nine months ended
September 30,
-------------------------
2002 2001
--------- ---------
Changes in certain working capital items:
Trade accounts receivable $ 81 $ 384
Inventories 87 (198)
Other current assets (118) 127
Accounts payable and other current liabilities,
net of restructuring payments (254) (311)
--------- ---------
Total $ (204) $ 2
========= =========
6. 7% Series C Mandatory Convertible Preferred Stock and Series B Convertible
Preferred Stock
In August 2002, Corning issued 5.75 million shares of 7% Series C mandatory
convertible preferred stock resulting in proceeds of $558 million. Upon
issuance, a one-time dividend of $117 million was declared for all dividends
that will be payable from issuance through the mandatory conversion date of
August 16, 2005. Corning purchased $117 million of U.S. treasury securities to
secure the payment of dividends resulting in net proceeds to the company of $441
million. In addition, Corning redeemed the remaining 69 thousand shares of
Series B preferred stock for $7 million in August. At September 30, 2002,
approximately 3.3 million shares of the Series C preferred stock had been
converted into 167.9 million common shares.
7. Business Combination
In September 2002, Corning completed the acquisition of Lucent Technologies
Shanghai Fiber Optic Co., Ltd. and Lucent Technologies Beijing Fiber Optic Cable
Co., Ltd. In connection with an amendment dated September 30, 2002, the
consideration paid to Lucent by Corning was changed from cash to a combination
of cash and stock. Corning paid approximately $123 million in cash, $27 million
in a note payable in the fourth quarter and issued $48 million in Corning common
stock in consideration. In addition, the transaction requires a contingent
performance payment of $25 million if certain milestones are achieved. Corning
acquired $100 million in cash and owes a dividend of $15 million payable to
minority shareholders in the fourth quarter.
8. Accounting Change
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." Among other provisions,
goodwill will no longer be amortized but will be subject to impairment tests at
least annually. SFAS No. 142 was effective for Corning on January 1, 2002.
Corning completed its initial impairment review during the first quarter and
concluded a transitional impairment charge from the adoption of the standard was
not required.
Corning has selected the fourth quarter to conduct annual impairment tests. The
outcome of the impairment test is primarily dependent upon the fair value of the
reporting units. Business conditions in the telecommunications industry have
deteriorated during the year and are depressed such that it appears the fair
value of Corning's telecommunications reporting unit is currently lower than at
the benchmark assessment date of January 2002. As part of the annual impairment
test, management is currently studying short and long-term market indicators and
alternative growth patterns. Based on the work performed to date, it appears
reasonably possible that a portion, but not all of the company's goodwill is
impaired, however, the amount of impairment, if any, is not reasonably estimable
at this time. Management will complete the impairment test in the fourth quarter
and record any required goodwill impairment charge. The goodwill related to the
Telecommunications Segment is $1.9 billion at September 30, 2002. Management
believes there are a range of possible outcomes and no assurance can be given
that an impairment charge will not be required.
The following table presents a reconciliation of reported net loss and loss per
share to adjusted net loss and loss per share, as if SFAS No. 142 had been in
effect as follows:
For the three For the nine
months ended months ended
(In millions, except per share amounts) September 30, 2001 September 30, 2001
-----------------------------------------------------------------------------------------------------------------------
Reported net loss $ (220) $ (4,843)
Addback: Amortization of goodwill, net of income taxes 75 314
--------- ----------
Adjusted net loss $ (145) $ (4,529)
========= ==========
Reported loss per share - basic $ (0.24) $ (5.21)
Addback: Amortization of goodwill, net of income taxes 0.09 0.33
--------- ----------
Adjusted loss per share - basic $ (0.15) $ (4.88)
========= ==========
Reported loss per share - diluted $ (0.24) $ (5.21)
Addback: Amortization of goodwill, net of income taxes 0.09 0.33
--------- ----------
Adjusted loss per share - diluted $ (0.15) $ (4.88)
========= ==========
9. Reclassifications
Certain amounts in 2001 have been reclassified to conform with 2002
classifications.
CORNING INCORPORATED
QUARTERLY SALES INFORMATION
(In millions)
2002
--------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
--------- --------- -------- -------- ---------
Telecommunications
Fiber and cable $ 255 $ 212 $ 195 $ $ 662
Hardware and equipment 135 153 136 424
Photonic technologies (a) 36 39 17 92
Controls and connectors 39 33 18 90
-------- -------- ------- ------- --------
Segment net sales $ 465 $ 437 $ 366 $ $ 1,268
======== ======== ======= ======= ========
Advanced Materials
Environmental $ 94 $ 102 $ 102 $ $ 298
Life sciences 70 74 71 215
Other advanced materials 69 66 66 201
-------- -------- ------- ------- --------
Segment net sales $ 233 $ 242 $ 239 $ $ 714
======== ======== ======= ======= ========
Information Display
Display technologies $ 93 $ 102 $ 106 $ $ 301
Conventional video components 43 41 47 131
Precision lens 59 69 75 203
-------- -------- ------- ------- --------
Segment net sales $ 195 $ 212 $ 228 $ $ 635
======== ======== ======= ======= ========
2001
--------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
--------- --------- -------- -------- ---------
Telecommunications
Fiber and cable $ 875 $ 939 $ 779 $ 296 $ 2,889
Hardware and equipment 248 231 187 151 817
Photonic technologies 250 168 76 53 547
Controls and connectors 60 55 47 43 205
-------- -------- ------- ------- --------
Segment net sales $ 1,433 $ 1,393 $ 1,089 $ 543 $ 4,458
======== ======== ======= ======= ========
Advanced Materials
Environmental $ 108 $ 96 $ 90 $ 85 $ 379
Life sciences 70 69 65 63 267
Other advanced materials 104 86 79 78 347
-------- -------- ------- ------- --------
Segment net sales $ 282 $ 251 $ 234 $ 226 $ 993
======== ======== ======= ======= ========
Information Display
Display technologies $ 62 $ 87 $ 79 $ 95 $ 323
Conventional video components 86 73 47 46 252
Precision lens 53 58 57 57 225
-------- -------- ------- ------- --------
Segment net sales $ 201 $ 218 $ 183 $ 198 $ 800
======== ======== ======= ======= ========
(a) Optical network devices business has been combined with photonics
technologies for all periods presented.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in millions, except per share amounts)
Q3 '02 vs. Q2 `02
For the three months ended
September 30, June 30,
2002 2002
--------- ---------
Net sales $ 837 $ 896
Cost of sales 674 682
--------- ---------
Gross margin 163 214
Operating expenses:
Selling, general and administrative expenses 158 190
Research, development and engineering expenses 115 132
Amortization of purchased intangibles 11 11
Restructuring, impairment and other charges 125 494
--------- ---------
Operating loss (246) (613)
Interest income 10 10
Interest expense (44) (44)
Gain on repurchases of debt 22 68
Other expense, net (1)
--------- ---------
Loss before income taxes (259) (579)
Benefit for income taxes (79) (178)
--------- ---------
Loss before minority interest and equity earnings (180) (401)
Minority interest in losses of subsidiaries 5 6
Equity in earnings of associated companies 42 25
--------- ---------
Net loss (133) (370)
Dividends and beneficial conversion on
Series C preferred stock (127)
--------- ---------
Net loss attributable to common shareholders $ (260) $ (370)
========= =========
Basic and diluted loss per common share $ (0.25) $ (0.39)
========= =========
Shares used in computing per share amounts for
basic and diluted loss per common share 1,036 948
========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions)
Q3 '02 vs. Q2 `02
Sept. 30, June 30,
2002 2002
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 983 $ 940
Short-term investments, at fair value 618 383
--------- ---------
Total cash and short-term investments 1,601 1,323
Trade accounts receivable, net of doubtful accounts
and allowances - $48 and $63 541 605
Inventories 619 671
Deferred income taxes 380 400
Other current assets 374 333
--------- ---------
Total current assets 3,515 3,332
Restricted cash and investments 70
Investments:
Associated companies, at equity 696 666
Others, at cost or fair value 74 74
--------- ---------
Total investments 770 740
Property, plant and equipment, at cost, net of accumulated
depreciation - $3,405 and $3,302 4,592 4,757
Goodwill, net of accumulated amortization - $661 and $661 2,113 2,000
Other intangible assets, net of accumulated amortization
- $120 and $109 378 390
Other assets 744 667
--------- ---------
Total Assets $ 12,182 $ 11,886
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 213 $ 57
Accounts payable 286 310
Other accrued liabilities 976 1,052
--------- ---------
Total current liabilities 1,475 1,419
Long-term debt 4,171 4,285
Postretirement benefits other than pensions 618 614
Other liabilities 383 379
Commitments and contingencies
Minority interest in subsidiary companies 138 107
Series B convertible preferred stock 7
Shareholders' equity:
Series C mandatory convertible preferred stock 245
Common stock - Par value $0.50 per share;
Shares authorized: 3.8 billion; Shares issued:
1,222 million and 1,024 million 611 512
Additional paid in capital 9,738 9,516
Accumulated deficit (4,330) (4,070)
Cost of 74 million and 74 million
shares of common stock in treasury (736) (775)
Accumulated other comprehensive loss (131) (108)
--------- ---------
Total shareholders' equity 5,397 5,075
--------- ---------
Total Liabilities and Shareholders' Equity $ 12,182 $ 11,886
========= =========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
Q3 '02 vs. Q2 `02
For the three months ended
September 30, June 30,
2002 2002
-------- ---------
Cash flows from operating activities:
Net loss $ (133) $ (370)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization of purchased intangibles 11 11
Depreciation 160 166
Restructuring, impairment and other charges 125 494
Gain on repurchases of debt (22) (68)
Stock compensation charges 1
Equity in earnings of associated companies
(in excess of) less than dividends received (32) 5
Minority interest, net of dividends paid (5) (6)
Deferred tax benefit (20) (37)
Tax expense on stock options (1)
Interest expense on convertible debentures 9 11
Restructuring payments (77) (58)
Increases in restricted cash (20)
Changes in certain working capital items (3) (56)
Other, net 7 (70)
------- --------
Net cash (used in) provided by operating activities (1) 23
------- --------
Cash flows from investing activities:
Capital expenditures (70) (111)
Acquisitions of businesses, net of cash acquired (56)
Net proceeds from sale or disposal of assets 26 31
Net increase in long-term investments and other
long-term assets (9) (10)
Short-term investments - acquisitions (710) (244)
Short-term investments - liquidations 475 729
Restricted investments - acquisitions (117)
Restricted investments - liquidations 67
Other, net (1)
------- --------
Net cash (used in) provided by investing activities (394) 394
------- --------
Cash flows from financing activities:
Net repayments of short-term debt (1) (331)
Repayments of long-term debt (35) (151)
Redemption of Series B preferred stock (7)
Proceeds from issuance Series C preferred stock, net 558
Proceeds from issuance of common stock, net 14 18
Redemption of common stock for income tax withholding (1)
Repurchases of common stock for treasury (23)
Cash dividends paid to preferred shareholders (67)
------- --------
Net cash provided by (used in) financing activities 438 (464)
------- --------
Effect of exchange rate changes on cash and cash equivalents 29
------- --------
Net increase (decrease) in cash and cash equivalents 43 (18)
Cash and cash equivalents at beginning of period 940 958
------- --------
Cash and cash equivalents at end of period $ 983 $ 940
======= ========
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
OPERATING SEGMENTS
(Unaudited; in millions)
Q3 '02 vs. Q2 `02
Three months ended Three months ended
September 30, 2002 June 30, 2002
---------------------- ----------------------
Telecommunications
Net sales $ 366 $ 437
Research, development and engineering expenses $ 71 $ 86
Interest expense $ 27 $ 25
Segment loss before equity losses and restructuring,
impairment and other charges $ (132) $ (139)
Equity in losses of associated companies (5) (3)
--------- --------
Segment loss before restructuring, impairment
and other charges (137) (142)
Restructuring, impairment and other charges, net of tax (61) (259)
--------- --------
Segment net loss $ (198) $ (401)
========= ========
Advanced Materials
Net sales $ 239 $ 242
Research, development and engineering expenses $ 31 $ 32
Interest expense $ 9 $ 8
Segment earnings before equity earnings and
restructuring charges $ 2 $ 9
Equity in earnings of associated companies 11 12
--------- --------
Segment earnings before restructuring charges 13 21
Restructuring charges, net of tax (3) (1)
--------- --------
Segment net income $ 10 $ 20
========= ========
Information Display
Net sales $ 228 $ 212
Research, development and engineering expenses $ 13 $ 14
Interest expense $ 10 $ 9
Segment earnings before minority interest, equity
earnings and restructuring charges $ 17 $ 8
Minority interest in losses of subsidiaries 5 5
Equity in earnings of associated companies 32 29
--------- --------
Segment earnings before restructuring charges 54 42
Restructuring charges, net of tax (1)
--------- --------
Segment net income $ 53 $ 42
========= ========
Total Segments
Net sales $ 833 $ 891
Research, development and engineering expenses $ 115 $ 132
Interest expense $ 46 $ 42
Segment loss before minority interest, equity earnings
and restructuring, impairment and other charges $ (113) $ (122)
Minority interest in losses of subsidiaries 5 5
Equity in earnings of associated companies 38 38
--------- --------
Segment loss before restructuring, impairment
and other charges (70) (79)
Restructuring, impairment and other charges, net of tax (65) (260)
--------- --------
Segment net loss $ (135) $ (339)
========= ========
CORNING INCORPORATED
Schedule conforming historical segment
results to current presentation
For the quarters of 2001
For the quarter ended, Total
----------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 2001
-------- ------- -------- ------- ----------
Telecommunications Segment
Segment earnings (loss) before
restructuring and impairment $ 180 $ 1 $ 18 $ (280) $ (81)
Restructuring and impairment, net of tax (4,726) (222) (174) (5,122)
------- --------- ------ ------ ---------
Segment net income (loss) $ 180 $ (4,725) $ (204) $ (454) $ (5,203)
------- --------- ------ ------ ---------
Advanced Materials Segment
Segment earnings (loss) before
restructuring and impairment $ 32 $ 18 $ 8 $ (12) $ 46
Restructuring and impairment, net of tax (59) (59)
------- --------- ------ ------ ---------
Segment net income (loss) $ 32 $ 18 $ 8 $ (71) $ (13)
------- --------- ------ ------ ---------
Information Display Segment
Segment earnings before
restructuring and impairment $ 41 $ 47 $ 39 $ 22 $ 149
Restructuring and impairment, net of tax (10) (10)
------- --------- ------ ------ ---------
Segment net income $ 41 $ 47 $ 39 $ 12 $ 139
------- --------- ------ ------ ---------
Total Segments
Segment earnings (loss) before
restructuring and impairment $ 253 $ 66 $ 65 $ (270) $ 114
Restructuring and impairment, net of tax (4,726) (222) (243) (5,191)
------- --------- ------ ------ ---------
Segment net income (loss) $ 253 $ (4,660) $ (157) $ (513) $ (5,077)
------- --------- ------ ------ ---------
Reconciliation:
Total segment net income (loss) $ 253 $ (4,660) $ (157) $ (513) $ (5,077)
Non-segment loss (1) (2) (1) (1) (5)
Amortization of goodwill (143) (150) (35) (35) (363)
Non-segment restructuring and impairment (191) (191)
Interest income 24 11 15 18 68
Income tax (1) 44 (44) 67 66
Equity in earnings of associated companies 2 2 4
------- --------- ------ ------ ---------
Net income (loss) $ 132 $ (4,755) $ (220) $ (655) $ (5,498)
======= ========= ====== ====== =========